Is an HRA a COBRA eligible benefit?

Dear Gina – We have a Health Reimbursement Arrangement (HRA) where the plan documents states that a terminated employee won’t have access to their HRA funds after termination. We are a COBRA eligible employer. Don’t we have to offer COBRA for the HRA and put the HRA on the COBRA notice?

Yes. If you are a COBRA eligible employer, then you must remove that language from your HRA plan document. Just like you cannot keep a terminated employee from enrolling in your group medical plan as a COBRA participant, you cannot keep a terminated employee from enrolling in the HRA as a COBRA participant and having access to those benefits. I will note that there is an additional COBRA premium that a terminated employee will pay to continue to access the HRA funds. At SBA, our COBRA notices include 1) the medical COBRA premium and 2) the HRA COBRA premium.  That way the COBRA participant has the option to waive the HRA coverage and the employer is not on the hook for reimbursing ex-employees’ HRA expenses (which was your goal in the first place!).  The calculation of the amount of the HRA COBRA premium is a much larger subject that I will cover in a future article.

Employee Benefits Institute of America (EBIA) manual says:

If an employer is subject to COBRA, it must offer qualified beneficiaries who lose their HRA coverage due to a COBRA qualifying event (e.g. termination, reduction of hours, divorce) the opportunity to continue their HRA coverage for the COBRA-prescribed time period (e.g. 18 months for termination of employment).  If COBRA is elected, the qualified beneficiary will have access to the unspent HRA balance and, in addition, will be entitled to the monthly or annual HRA accruals that active employees get.

IRS Notice 2002-45, 2002-28 I.R.B. 93, Part III.

IRS Notice 2002-45, 2002-28 I.R.B. 93, Part VII

Thanks for asking!

– Gina



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