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  • Health Flexible Spending Account (FSA) Continuation

    This article outlines how to stay compliant with IRS guidelines and requirements if an employee terminates employment or loses eligibility.

    A participant who loses coverage under the Health FSA component as a result of a qualifying event may be entitled to elect coverage continuation according to federal law.

    An employee cannot be forced to repay or voluntarily repay the company for any amounts exceeding his or her Health FSA account balance. (Under most circumstances, individuals who have overspent their accounts will not elect continued coverage.) The plan cannot accept the additional contributions, because this practice would be a violation of the Uniform Coverage rule.

    The Premium Completion Agreement 

    • If an employee leaves or loses eligibility, they can be required to waive their COBRA rights with respect to the Health FSA as a condition to electing the voluntary Premium Completion Agreement to cover the Health FSA premium for the balance for the current plan year.
    • An employer must discuss this with their employee, and give them the option to make a pre-tax final paycheck salary reduction, or self-pay on an after-tax basis, any remaining contributions for the plan year to their Health FSA account. If their final paycheck does not cover the remaining contributions, an agreement can be made with them to voluntarily pay the remaining funds with after-tax dollars for coverage through the end of the current plan year. 
    • The Premium Completion Agreement is a plan design option. Employers that want to offer premium completion must have it designated in their plan documents before taking any final pre-tax deductions.

    COBRA 

    • Health FSA COBRA continuation coverage will be available if an employer normally employed 20 or more employees on a typical business day during half or more of the preceding calendar year. The COBRA Administrator needs to provide notice to the participant of his or her right to continuation coverage, as well as administer continuation coverage in accordance with applicable law and regulations. 
    • Employers subject to COBRA must offer Health FSA COBRA coverage to qualified beneficiaries who lose their Health FSA coverage as the result of a qualifying event when the account is underspent (taking into account all claims submitted and deductions due before the date of the qualifying event). An employer is not required to offer COBRA when accounts are overspent, but may choose to do so in a uniform manner.
    • The type of COBRA continuation obligation depends on whether the Health FSA is considered to be a qualifying Health FSA or not. 
    • A participant who elects Health FSA COBRA continuation coverage will generally pay for coverage with after-tax dollars by writing a check to their employer each month. However, an agreement can be made with you to make payments with pre-tax dollars, generally on a monthly basis but only through the end of the plan year in which the qualifying event occurred.

    If you would like more information about coverage continuation, or would like to amend your plan to add the Premium Completion Agreement option, contact your PacificSource Administrators Client Service Representative. 

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