COBRA for HRAs

Because an HRA is an ERISA plan, it has COBRA requirements. If a former employee elects COBRA, they have access to remaining HRA funds and the company must continue to make “contributions” to the plan on behalf of the COBRA participant.

Plan sponsors calculate their own COBRA premiums, but the COBRA premium is generally set at the rate of plan utilization. In essence, if employees at a company are using 75% of their HRA dollars on a plan year basis, the COBRA premium is set at 75% of the contribution level, plus admin fees, and an additional 2%.

For companies in the first year of an HRA plan, there is no history of plan utilization. Therefore, the overall utilization rate of Array Health’s existing clients is often used to determine the company’s COBRA premium. For example, if the employees of Array’s clients are using 70% of their HRA dollars, the company could set the COBRA premium at 70% of the employer contribution level, plus admin fees, and an additional 2%.

Please note, individual health insurance is portable and remains with former employees after they leave their company, regardless of whether they elect COBRA. Therefore, former employees do not need to elect COBRA to maintain their insurance coverage.