Cobra reimbursement under an FSA

[Guest LFB]

Are Cobra premium payments made by a current employee considered valid expenses under an FSA?

[Joe Priselac]

It depends. They are not eligible for reimbursement under a health FSA which is strictly for out of pocket medical, dental and vision expenses. If your plan document is written so that it creates a separate premium reimbursement account, then you could run COBRA premiums through this account for reimbursement. For example, if an employee left an employer with a dental plan and went to work for a new company that did not have a dental plan, that employee could COBRA the dental coverage and be reimbursed from the new employer's flex plan for the premiums. I hope I am not too confusing; it's Friday.

[Guest kclark]

This may be what Joe has already replied, but here it goes:

COBRA payments are not reimburseable under an FSA, however, according to the new "final" Status Change Regulations:

"If a qualifying event occurs, an employee or ex-employee may change an existing flex plan election affecting the group health plan to pay an increased amount for COBRA coverage."

This would mean that an employee could pay for COBRA coverage on a pre-tax basis. However, it would really depend on the actual COBRA situation.

The only instances where this would really be of any practical benefit would be in the following instances:

1. Reduction in hours of employment - change to non-benefits eligible.

2. Child ceases to be an eligible dependent.

This isn't actual reimbursement, but helps out on the tax side!

Hope that helps.

[Guest Becky Royal]

Can someone provide a source document that indicates that COBRA premiums are not reimbursable under an FSA? Insurance premiums are included in Publication 502 as a deductible expense and I have a confused employee.

Thanks.

[Joe Priselac]

Becky,

Insurance premiums of any kind not just COBRA premiums are not an eligible expense for reimbursement in a health flexible spending account. This rule can be found under the proposed Treasury Regulations Section 1.125, Q/A-7(B)(4).

[SLuskin]

Insurance premiums cannot be reimbursed under a medical FSA ever since 1990 - it became clarified at the same time as the uniform premium provision for medical FSA's took effect.

I disagree with Joe's answer. You cannot run one employer's group insurance premiums (COBRA is part of the group, after all) through another employer's cafeteria plan.

What you can do is this - an employee has a college-aged kid as a dependent on the health insurance. The kid graduates, and is no longer a fulltime student. So, the health plan says he can't be on the plan anymore. The kid elects COBRA. If he is still the employee's dependent for awhile (for income tax purposes), then the employee can run the kid's cobra premium through the cafeteria plan.

Hope this helps.