Plans change while ex-employee on COBRA coverage

[Belgarath]

So, employer has group health plan. Employee terminates in 2017, elects COBRA coverage. So far, so good.

Suppose the employer modifies the health coverage effective 1/1/2018, increasing deductibles, out of pocket expenses, etc., for everyone. To somewhat mitigate these effects, the employer institutes an HRA.

Is the employer required to offer COBRA coverage on the HRA to this participant for the remainder of the COBRA period established as of the original date of termination of employment?

I don't work with COBRA, but I wasn't able to find a definitive answer in a reasonable amount of time, and wondered if others had dealt with this issue. Thanks!

P.S. - FWIW, as I looked at some of the regulations, it seemed to me that under a "common sense" approach and looking at 54.4980B-3, it seems like since the "similarly situated" employees receive the HRA coverage, the COBRA participants with the same health coverage should also be able to be covered under the HRA...

P.P.S. - while looking at it a bit more, perhaps a more appropriate reference might be 54.4980B-5, Q-4(c).  Anyway, it does seem to point in the direction of, in this type of circumstance, requiring a COBRA election for the HRA to made available to the former employee - in this circumstance, all employees were allowed to choose among several health plan options, and the HRA was offered in conjunction with these health plan changes.

[My 2 cents]

I don't work on health insurance, but surely the benefit structure in effect when the employee terminated must be preserved for COBRA purposes.  That means no increases in the deductible effective after termination of employment would be acceptable (except as a lower-cost alternative to the straight COBRA coverage).  The cost of the COBRA coverage will be set by the insurance company, based on what is required to be included, right?  So if the insurance company chooses to push premiums up 20% in the absence of a higher deductible, the employee opting for COBRA coverage is pretty much stuck, right?

Is it permissible for HRAs to be offered to former employees?  Certainly, the COBRA rules would not appear to mandate continuation of such a program after termination of employment even if it had been in place (which isn't even the case here).

[jsb]

See IRS Notice 2002-45.

An HRA is an employee benefit plan subject to COBRA. Since COBRA premiums are paid with after tax dollars, there is no financial advantage to electing COBRA coverage except perhaps to chase an unused balance an existing HRA account. Because 2018 will be the first year of the HRA, there is no existing balance, but I suppose you must give the employee the option to fund the HRA as a COBRA benefit.

[My 2 cents]

It would be my opinion (noted above - not a health care practitioner) that if the termination occurs in 2017, there is absolutely no access to an HRA with respect to 2018 (except through the health program of another employee hiring the terminated employee).  And that if the reason the HRA is being established is that the health insurance itself is less generous starting in 2018, the COBRA coverage cannot reflect higher deductibles/copays etc. that will be there for continuing  employees in 2018.  The COBRA coverage elected by the former employee must surely be no less favorable than what had been there as of the date of separation from service in 2017.

[hr for me]

2 hours ago, My 2 cents said:

...the COBRA coverage cannot reflect higher deductibles/copays etc. that will be there for continuing  employees in 2018.  The COBRA coverage elected by the former employee must surely be no less favorable than what had been there as of the date of separation from service in 2017.

This is incorrect. There are no laws that require the employer to keep prior coverage/plans and levels for COBRA participants, just that they are also offered the same plans as favorable to  the current employees.  Can you imagine the HR nightmare of having a person COBRA for 18+months which could possibly be 1-2 plans ago?  That's just not how COBRA works. If they don't like the changes/increases, then they have a choice to drop COBRA and find something else out on the market.

This also means that if the employer were for some reason to totally cancel coverage for all employees that COBRA would disappear for all employees (both current and those on COBRA).

[My 2 cents]

As noted above, I don't work on health coverages.  So I will back off here.  I do see that changes in the active employee health plan would also apply to COBRA coverage.

I did not find anything terribly clear about HRA with respect to former employees electing COBRA coverage.  Perhaps former employees can elect it, but it is not so clear to me.  I always thought that health care reimbursement accounts can only be available to the extent that there are salary reduction amounts.  How would they be handled if the person had terminated so that there would be no salary to reduce?

[Belgarath]

HRA's are employer funded, not a salary reduction. You might be thinking of an FSA.

[leevena]

HR for Me is correct, the current COBRA participants will receive the new benefit plan.  COBRA is an employer requirement to extend their group plan coverage to qualified ex-employees.  Do not get caught-up in plan design issues, they are irrelevant.