What’s Next: How COBRA Plans Interact with HSAs, HRAs and FSAs

Employees talking about Cobra

The landscape of the employment sector is evolving and adapting to modern needs every day. Given the move to more hybrid and remote work, more employees are finding new career paths that better fit their personal and professional goals. With changes in employment status, it’s important to communicate with your employees to help them understand what happens to their benefits once they experience a job change.

When personnel changes happen it's important to know the impact on an employee's HSA, HRA and FSA account in regards to COBRA so you can help navigate the transition. Let’s take a look at how COBRA affects each of these benefits and how you can help your employees prepare for the future.


How does COBRA interact with HSA?

When an employee enters a COBRA plan, employers should know that Health Savings Accounts (HSAs) are not medical plans and therefore are not covered by COBRA. HSAs are not subject to COBRA coverage requirements, but employers must comply with COBRA compliance regulations if they wish to offer a high deductible health plan with an HSA.

When using an HSA under COBRA coverage, employees can still contribute to their HSA and even use HSA funds to pay for COBRA premiums.

Additionally, if your organization sponsors an HSA contribution, the employer is not required to continue the contribution after the employee leaves.


How does COBRA interact with HRA?

Under COBRA coverage, employers must extend coverage to a Health Reimbursement Account (HRA) for the maximum coverage period. HRAs are funded by the employer to pay employees back for qualified medical expenses. 

Because an HRA is considered to be a self-insured medical plan, the employer is required to extend COBRA rights. While under COBRA coverage, employees must be able to access their unused HRA balance and any additional accruals provided, minus any reimbursements already made from the account.

It’s important for your employees to keep in mind that, unlike HSAs, HRAs are not portable meaning they cannot travel with them if they change employers.


How does COBRA interact with FSA?

Flexible Spending Accounts (FSAs) are considered medical plans that have COBRA rights. When an employee selects COBRA coverage, their employer must offer an FSA. As part of a COBRA continuation plan, they can continue to make contributions to their FSA on a taxable basis, and their entire FSA balance will remain available to use on FSA-eligible purchases.

Unlike an HSA, employees cannot use FSA funds to cover COBRA premiums. Unspent FSA funds that carry over are included in COBRA coverage. It’s important for employees to know that their COBRA coverage may be limited solely to the plan year in which the qualifying event occurs.

Employees who have a balance in their FSA and then terminate employment may want to continue the plan so that they do not have to forfeit their accumulated funds. If they continue to pay premiums and incur expenses before the end of the plan year, they can claim their reimbursement.


Every Step of the Way

No matter what employment changes happen in your organization, Clarity is here to support you and your employees today, tomorrow and every day with evolved benefit solutions for an evolving workforce.

From state-of-the-art technology to world-class customer service, we’ll handle the day-to-day, so you can focus on what matters: building your business. Contact us today to see how Clarity can be your “go-to” leader for navigating employee benefits or visit our Clarity COBRA page to learn more.