How to Calculate COBRA for an HRA

Answer from Harry Beker of the IRS Regarding COBRA premiums for HRAs.

From: Beker Harry [mailto:Harry.Beker@IRSCOUNSEL.xxxxxx]
Sent: Monday, March 17, 2008 6:40 AM
To: Ric Joyner
Subject: RE: questions on HRAs and COBRA
Although HRAs are subject to COBRA, we have not provided definitive rules on determining premiums. Until such time that additional guidance is published, I think any reasonable approach would be acceptable.

From: Ric Joyner []
Sent: Friday, March 14, 2008 12:55 AM
To: Beker Harry
Subject: questions on HRAs and COBRA
Hi Harry:Just wondering if you could settle something for me. I have a blog and there is a discussion on it about COBRA premiums for HRAs. I was doing research on this last month and came across an attorney firm in DC that discussed this and said to use the FSA rules for COBRA. Is this ok? It is not what we have used in the past (see the reinhart attorney comment on the blog and that is the one we were doing in the past) The attorney firm does have merit when using the fsa rules. Wondering what you think?



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I am hoping to get some further clarification on how HRA plans work under COBRA. Have a client that is under the impression that once the employee leaves, they do not have to reimburse. Employees are under the impression that the company should still be reimbursing them for their deductible for as long as they are on COBRA.

Any assistance greatly appreciated.

Kim G

Hillsborough NJ



In my upcoming NAHU course March 27th I will be dealing with this very issue. Here is the scoop.

1. The regs state that the employer must offer cobra because it is an ERISA welfare benefit plan

2. But how? The regs say that the (2002-43, 45) COBRA should be calculated by an actuary looking at the claim experience of the plan. This process doesn’t work very well because most groups can’t afford to hire an actuary, most groups are too small to use one, and when the plan is new there is rarely any claim experience. So now what?

3. The IRS has said that you could estimate the COBRA premiums…verbally (Russ Weinheimer to NAPBA conference call). But how do you do that? First, the best way to go is to break down the offerings of COBRA similar to the way you do it for vision and dental premiums.

Example, your offerings could be set up this way.

1. Combination of HRA and Health insurance by combining the premium as one.

2. HRA alone (no one ever takes this option and you will see why in a minute)

3. Health Alone. Most of the time employees elect only the COBRA health insurance.

Next question is what should the group charge for COBRA? The information that was provided Kim, seemed to say that the employer was paying the full boat? If not I apologize.

How to fund COBRA? The closest we can come to any help in the regs short of hiring an actuary is to follow the Flex rules.

The flex rules for COBRA work like this.

A. Money still in the account? Election $2000 for the year and terms mid year. Remainder when termed is $1000. The employer would charge 102% of the account or $1,020 / 6 months left in the plan year. $170.00 per month the EMPLOYEE pays each month. And if they select the health insurance too they usually don’t want to put their own money into an HRA thus they may not to purchase the HRA. But wait you say, “I thought the employer pays the HRA?” Right while the employee is working, but when termed the employee pays the full boat for both health and HRA.

B. No money left in the account. Zero offering of COBRA.

Several prominent attorneys in DC have come to this conclusion. Again this is only an opinion. Seek legal counsel.

Again we will discuss this in the NAHU webinar Part 2 of Landmines.

Thanks again.

Another Version from our Attorney. The regulations state that it must be based on experience.

Ric and Jon

Based on IRS guidance and analysis published by EBIA and other commentators our views are as follows:

(1) We agree with the general proposition that there is room for reasonableness when calculating the COBRA premium for an HRA and hiring an actuary may not be practical for small plans.

(2) We do not believe that a plan can just charge 102% of the full benefit knowing that actual utilization is not at that level. I

(3) We do not believe that the limited COBRA rules that would apply to an FSA that is an excepted benefit would apply to an HRA.

(4) Finally, it is our view that a standalone HRA may offer the same potential for abuse as an FSA. For example, if I continue the HRA through COBRA, I can pay one month’s contribution, schedule lazik surgery, clean out the account, and quit paying COBRA. (Of course, if the HRA has more limited benefits available, then the abuse can be limited.)

If you know of IRS or other commentary supporting a contrary view we would certainly be interested in reviewing it.



Todd W. Martin

Reinhart Boerner Van Deuren, s.c.

22 East Mifflin Street

Madison, WI 53703

(608) 229-2244 (direct)

(608) 229-2100 (fax)

(608) 219-7196 (cell)