Is flexible spending account covered by cobra if employee is terminated?

Answer 1

IRS regulations limit COBRA participation in most FSAs. The continuation coverage under the FSA need not be offered for any plan year after the plan year in which the qualifying event occurs if the FSA satisfies two conditions:

a) The employer offers another group health plan; and

b) For the plan year in which the qualifying event occurs, the maximum amount that the FSA could charge as a premium for a full plan year of COBRA continuation coverage equals or exceeds the maximum benefit available under the health FSA for that year.

This almost always occurs.

FSAs need not make COBRA continuation coverage available as of the date of the qualifying event if:

c) The maximum benefit available to the qualified beneficiary under the FSA for the remainder of the plan year is not more than the maximum amount that the plan could require as payment for the remainder of that year to maintain coverage under the FSA.

If all three (a, b, & c) are satisfied, COBRA does not have to be offered for the FSA at all.

If just a) & b) are satisfied, COBRA has to be offered for the FSA for the balance of the current plan year only.

If both the first two conditions (a & b) are not satisfied, COBRA has to be offered for the full 18, 29, or 36 month period that would normally apply, depending on the qualifying event. This will usually only be true where the employer offers the FSA only and does not offer another group health plan.