Does COBRA apply to Health Reimbursement Arrangements (HRAs)?
Yes. Health Reimbursement Arrangements (HRAs) are subject to COBRA requirements (for employers with over 20 employees), meaning employers must allow employees and/or dependents to continue their HRA coverage after termination if they pay the cost themselves.
HRAs, like other group health benefit plans, are subject to the continuation requirements of COBRA. Employers must give terminated employees the option to continue HRA coverage for a period after termination, and may charge the terminated employee up to 102% of the cost of this coverage.
If the participant participated in both the HRA and a group health insurance plan while employed, the employer may require that the terminated participant elect COBRA coverage for the group plan in order to elect COBRA for the HRA. In other words, the employer may give the terminated participant the options of electing: (a) no COBRA, (b) COBRA coverage only for the group health insurance, or (c) COBRA coverage for both the group health insurance and the HRA, but need not give the participant the option of electing COBRA only for the HRA.
For most purposes, terminated participants who have elected COBRA coverage are treated exactly like current, similarly situated employees. They should continue to receive HRA allowances and have the ability to submit new claims just like a current employee. If the HRA plan for current employees is changed or terminated, the change affects any current COBRA participants in the same way. The key difference is that the employer may charge the terminated participant and/or dependents for the cost of their coverage.
In general, an employer may charge a terminated employee and/or dependents monthly up to 102% of the cost of the coverage for a similarly situated individual in the plan. The IRS has not released specific guidelines for calculating the cost of an HRA plan in order to determine COBRA premium, except that the determination may not depend on the participant’s current HRA balance.
Note: This should not be taken as legal or tax advice.