Does COBRA Apply to Your Company's HSA Contribution?

This column is an excerpt (Question 143) from a book to be published later this year to help guide account owners, employers, benefits managers, and administrators understand Health Savings Account compliance issues. The format consists of a common question, an explanation in easy-to-understand English (often with an appropriate example), and citation from government documents to support the answer. The book is designed to inform. It is not a legal document, and the contents should not be construed as legal advice.

Question: I recently left my job and have continued my coverage through COBRA. Do I still receive my company’s periodic employer contribution?

 Answer: Typically, no. Your COBRA rights extend to your medical coverage. The financial component of the Health Savings Account program isn’t subject to COBRA, however. Your employer can stop contributions to former employees. Most companies do.

When you remain HSA-eligible, you can continue to contribute to your account and deduct those deposits when you file your personal income tax return. Your contributions aren’t tied to employment (see Question 36) and aren’t restricted to earned income (see Question 37).

And don’t forget that you can continue to reimburse qualified expenses tax-free, even if you’re no longer eligible to fund your account. The list of qualified expenses expands to include premiums for your medical coverage when you exercise your COBRA continuation rights or are collecting unemployment benefits (see Question 80), and it includes Medicare premiums once you turn age 65 (see Question 82, Question 83, and Question 84). You never lose the opportunity to make tax-free distributions to reimburse qualified expenses, even when you’re no longer eligible to fund your Health Savings Account (see Question 78).

Reference:

IRS Notice 2004-2:

 Q-35. Are HSAs subject to COBRA continuation coverage under section 4980B?

A-35. No. Like Archer MSAs, HSAs are not subject to COBRA continuation coverage.

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The content of this column is informational only. It is not intended, nor should the reader construe the content, as legal advice. Please consult your personal legal, tax, or financial counsel for information about how this information applies to you or your entity. HSA Question of the Week is published every week, alternating every other Wednesday with HSA Wednesday Wisdom and every other Monday with HSA Monday Mythbuster.