HRA COBRA Premiums

Some employers sponsor a high-deductible health plan and concurrently a self-funded health reimbursement account (“HRA”) to which it contributes to reimburse certain amounts towards deductibles, co-pays, and other out-of-pocket expenses. An HRA is an employer-sponsored health plan and as such is subject to COBRA. IRS guidance has long been needed on the determination of COBRA premiums for HRA’s. The applicable COBRA premium for a self-funded program is the cost to the plan for similarly situated beneficiaries for whom a qualifying event has not occurred; plus a 2% administrative fee. But such is not always easily determined with some HRA designs.

In 2015 IRS hinted that specific guidance on HRA COBRA premiums would be forthcoming. But alas, such was not to be the case. Then the other day, IRS released a General Counsel Memorandum on the issue in the form of a response to a Congressional complaint on behalf of a constituent. Ah, practitioners thought, we are finally getting needed guidance. Why else would IRS make this letter public? But, again, all were disappointed.

Here evidently is what happened. A disgruntled ex-employee was displeased with the COBRA premium his ex-employer was charging for the HRA (among other things); contending it was higher than his past reimbursements. He thus decided to write to his Congressman demanding action. Said Congressman in turn wrote to IRS on behalf of his constituent suggesting that the employer be audited to assure it was complying with applicable law. IRS replied that an HRA COBRA premium cannot be based on the beneficiary’s reimbursement amounts from the HRA. Okay, here comes the guidance! Nope. IRS continued by simply offering that the COBRA premium for an HRA is determined under existing COBRA rules; and such rules for any self-funded plan provide that the administrator may calculate the premium based on either an actuarial determination or on past costs to the plan. That was it. So, we are still left wanting for clearer guidance.

The IRS goes on to say that employees may report benefit-related compliance violations to government agencies using Form 3949-A; and that decisions for audit are determined on a number of factors all based  on reliability and accuracy of the information and not on the displeasure of a former employee. Further, IRS replied respectfully that if an audit is triggered by an individual’s filing, the results are confidential and would not be shared with the complainant – or even with a sitting congressman.

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