As alternative health benefits solutions like health reimbursement arrangements (HRAs) grow, so do questions about how they work alongside existing programs, including the Consolidated Omnibus Budget Reconciliation Act (COBRA).
In this article, we’ll go over what COBRA is and how it works with three different types of HRAs: the qualified small employer HRA (QSEHRA), the individual coverage HRA (ICHRA), and the group coverage HRA (GCHRA).
What is COBRA?
COBRA provides certain employees, retirees, spouses, former spouses, and dependent children the right to temporarily continue their employer-sponsored health benefits.
Generally, all private-sector organizations that employed at least 20 people (including both full-time and part-time workers) on more than half of the previous year’s business days are subject to COBRA.
Circumstances that allow employees to get continued coverage under COBRA include:
- Voluntary or involuntary job loss
- Reduction in hours
- Transition between jobs
- Death of a loved one
Normally, in order to participate in COBRA, an employee must pay the full cost of the premium or benefit. However, the American Rescue Plan made some changes to help those who lost their employer-sponsored coverage because of COVID-19 (not those that voluntarily left their jobs).
If an employee was laid off, furloughed, or had a reduction in hours because of COVID-19, they’re eligible to receive a 100% subsidy on their health insurance premium, allowing them to stay on their employer’s insurance plan, cost-free, through the end of September 2021.
Do COBRA rules apply to HRAs?
Whether or not a plan is subject to COBRA requirements depends on if it is considered a group health plan. In the case of HRAs, some are considered group plans, while others aren’t.
We’ll go over three types of HRAs to give you a better idea of which ones are subject to COBRA requirements:
Qualified small employer HRA (QSEHRA)
First up is the QSEHRA, also known as the small business HRA, which allows organizations with fewer than 50 full-time equivalent employees to reimburse them, tax-free, for qualifying medical expenses, including personal insurance premiums.
Because the QSEHRA was created as an “excepted benefit” to the Affordable Care Act—not as a group health plan—it’s not subject to COBRA requirements.
That means small businesses using a QSEHRA are under no obligation to offer continuing coverage options to employees who are terminated, quit, have their hours reduced, or who experience any other event that would entitle them to COBRA benefits.
While the QSEHRA isn’t subject to COBRA requirements, employees who lose QSEHRA eligibility are entitled to some benefits. Specifically, these employees can request reimbursement for any expenses they incurred before losing eligibility.
After an employee loses QSEHRA eligibility, they have up to 90 days to request reimbursement for expenses incurred before eligibility was lost.
Individual coverage HRA (ICHRA)
Next is the ICHRA. With an ICHRA, organizations of all sizes can offer the benefit, allowing their employees to get tax-free reimbursements on their medical expenses and individual insurance premiums.
An ICHRA is considered a group health plan, which means COBRA requirements apply. However, remember that only private-sector organizations with more than 20 employees are subject to COBRA.
Organizations with fewer than 20 employees, some federal employees, churches, and church-related tax-exempt organizations are not subject to COBRA. So if they offer an ICHRA, they can do so without adhering to COBRA requirements.
All other organizations are subject to COBRA and must provide all covered individuals a chance to elect COBRA coverage if they become eligible.
Group coverage HRA (GCHRA)
Finally, there’s the group coverage HRA, also known as an integrated HRA. A GCHRA is a way for employers offering a traditional group health plan (such as a high deductible health plan, or HDHP) to supplement their group plan.
Through a GCHRA, employees can get tax-free reimbursements on the out-of-pocket expenses that aren’t fully paid for by the insurance company.
Employers are required to offer COBRA coverage for their traditional group health plan, however, employees won’t receive an extended GCHRA allowance through COBRA. This is because only current employees are eligible to participate in an organization’s GCHRA.
However, just like a QSEHRA, after an employee loses GCHRA eligibility, they have up to 90 days to request reimbursement for expenses incurred before eligibility was lost.
Can employees get COBRA premiums reimbursed through their HRA?
If an employee elects COBRA coverage, the IRS outlines that they can use their HRA funds to pay for COBRA premiums, as long as the plan is set up to accommodate this.
It’s always a good idea to confirm with your plan administrator, third-party administrator, or refer to your summary plan description (SPD) to be sure.
HRAs are an ideal solution for organizations both big and small to offer an affordable and flexible health benefit to their employees. Making sure you coordinate your HRA with COBRA regulations ensures that you’re compliant and your employees get the unemployment benefits they’re entitled to.
This article was originally published on February 7, 2010. It was last updated June 21, 2021.