Question: If you offer a Health Reimbursement Account (HRA) to your regular full time employees, are you obligated to offer the HRA to people that terminate and elect COBRA? If yes, can you charge the employee for the COBRA premium AND can you charge for a premium equivalent rate for the HRA (or administrative charge)?
Answer from the experts at HR.BLR.com:
Thank you for your inquiry regarding COBRA coverage and HRAs.
Generally, COBRA coverage must be identical to the coverage in effect for the qualified beneficiary immediately before the qualifying event. If an individual elects COBRA coverage, an HRA must continue the maximum reimbursement amount available for the individual at the time of the qualifying event. That amount then must be increased at the same time and by the same increment (as well as reduced for claims reimbursed) as for similarly situated non-COBRA beneficiaries.
In calculating the COBRA premium for HRA coverage, the IRS has stated hat an HRA would comply with COBRA if the applicable premium (however calculated) is the same for qualified beneficiaries with different total reimbursement amounts available from the HRA. This suggests, but does not require, an actuarial approach to calculating HRA costs based on similarly situated beneficiaries. That is, the plan administrator would ask an actuary to estimate how much the plan would spend for all covered individuals.
However, while such a “blended” approach seems to be a safe harbor, the IRS did not foreclose other methods. It might be possible to construct a premium structure based on various levels of coverage (such as HRA balances), or based on whether an HRA links to single coverage or family coverage the related group health plan. Then, when a qualified beneficiary elects HRA COBRA coverage, the premium for the individuals most similarly situated to that qualified beneficiary would be used.
Any approach used should be carefully reviewed by benefits counsel. In particular, “similarly situated individuals” must not be classified based on race, sex, health status, or income.