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Health FSAs are Group Health Plans Too!

Health FSAs are group health plans and that means that all COBRA notice requirements apply to them.  As usual, however, there are special considerations to be aware of as well.

First and foremost, if an employer maintains several group health plans, they should consider sending one initial notice and one election notice that covers all the plans.  But each notice must clearly identify the group health plan to which it applies as well as any differences in the way COBRA is applied (ex. special limited COBRA for applicable health FSAs).   

For employers that offer health FSA carryovers, COBRA notices should inform participants that carryovers are not counted for purposes of determining COBRA premiums as the premium will be based on the sum of the employee’s salary reduction election for the year and any nonelective employer contribution.  Additional clarification is required to inform the beneficiary whether carryover amounts will be available until exhausted or until the COBRA period ends.

Employers have the option of taking advantage of the special limited COBRA obligations regarding health FSAs, whereby they will only offer COBRA coverage through the end of the current plan year or potentially through the end of the grace period and only to beneficiaries with underspent accounts.  In this situation, the initial notice and election notice should have additional clarification disclosing the limited duration of the health FSA COBRA coverage as well as the underspent account qualification requirement.

The special limited COBRA obligations also affect the Notice of Termination.  A Notice of Termination must be sent when the plan administrator terminates COBRA coverage before the end of the maximum coverage period which is typically 18 or 36 months.  But when COBRA coverage ends at the end of the plan year or grace period for a Health FSA, no such notice is required as long as the limited duration was explained in the initial and election notices. 

A Notice of Unavailability must be sent when a qualified beneficiary notifies the plan administrator of a qualifying event, but the plan administrator determines COBRA is not available (ex. a beneficiary does not notify the employer of a qualifying event in a timely manner).  Although there is a lack of guidance on the issue from the DOL, this could apply to an FSA group health plan if the beneficiary has overspent their FSA account.

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NOTICE: This is not legal advice and should be viewed for educational purposes.