Ask the Experts: Using a Health FSA on COBRA

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Question: A terminated employee took COBRA for the health FSA. Can he stop making after-tax COBRA contributions after three months, then just keep paying the 2 percent admin fee and continue accessing the account? Or does he have to make full contributions in order to use it, even on COBRA?

Answer: Health flexible spending account (HFSA) coverage terminates if the employee ceases to contribute. That means that eligible expenses that are incurred after the termination date are not eligible for reimbursement. Expenses that were incurred while participating, but before the termination date, are eligible and can be submitted for reimbursement during the plan’s claim filing period.

The IRS rules permit a HFSA plan to allow employees to suspend making HFSA contributions while on family and medical leave (FMLA), and then make catch-up contributions upon returning to work. In that case, eligible expenses incurred while on leave, but still employed, are eligible for reimbursement.

For terminated employees on COBRA, however, HFSA coverage ends if the full COBRA premium is not paid when due. Most plans require COBRA payments on a monthly basis. If the COBRA participant stops making payments when due, his HFSA coverage terminates as of the last date for which payment was made.

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