Is a Dependent Care FSA COBRA Eligible?
Navigate the complexities of benefit continuation post-employment, specifically for dependent care funds and their interaction with COBRA provisions.
Understanding how employer-sponsored benefits are affected by employment changes is important. Knowing the options available for continuing these benefits can provide a sense of security during transitions.
Dependent Care FSA Basics
A Dependent Care Flexible Spending Account (DCFSA) is an employer-sponsored benefit that allows employees to set aside pre-tax money for eligible dependent care expenses. This arrangement helps families manage costs associated with the care of qualifying individuals, such as children under age 13 or dependents incapable of self-care. Funds are typically reimbursed for expenses already incurred, like childcare or elder care services.
These accounts are governed under Internal Revenue Code Section 129. For most participants, the annual contribution limit is $5,000 per household for single taxpayers and married couples filing jointly, or $2,500 for married individuals filing separately. A defining feature is the “use-it-or-lose-it” rule, meaning any funds not used by the end of the plan year are generally forfeited.
COBRA Basics
The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law providing temporary continuation of group health coverage. This law applies to employers with 20 or more employees and allows former employees, retirees, spouses, and dependent children to maintain health benefits after certain qualifying events. These events can include job loss, reduction in hours, death of an employee, divorce, or a child losing dependent status.
COBRA specifically covers “group health plans,” which typically include medical, dental, and vision insurance plans. Its purpose is to ensure individuals do not immediately lose access to health coverage when their employment status changes.
COBRA Eligibility for Dependent Care FSAs
Dependent Care Flexible Spending Accounts are generally not eligible for COBRA continuation. This is because COBRA is specifically designed for “group health plans,” and DCFSAs are not classified as health plans under federal regulations. Since DCFSAs cover dependent care expenses rather than medical care, they fall outside COBRA’s provisions. Therefore, the option to continue a DCFSA under COBRA does not typically exist upon a qualifying event.
Managing Your Dependent Care FSA After a Qualifying Event
Since COBRA does not apply to Dependent Care FSAs, managing your account after a qualifying event requires understanding different rules. Upon a qualifying event, your ability to incur new expenses typically ceases. However, you can submit claims for eligible expenses incurred up to your termination date.
Most DCFSA plans include a “run-out” period, a specific timeframe after coverage ends during which you can submit claims for previously incurred expenses. This period commonly extends for 90 days from your qualifying event. Submit all eligible claims before this run-out period expires.
Some employer plans may offer a “spend-down” provision for DCFSAs, allowing participants to incur and claim expenses for a limited period after termination, potentially through the end of the plan year. This provision is not standard and depends entirely on your employer’s specific plan document. Any unused funds remaining after the run-out period, and any applicable spend-down period, are typically forfeited due to the “use-it-or-lose-it” rule.
To understand the precise rules, review your specific plan documents. Contacting your human resources department or benefits administrator can provide clarity on claim submission deadlines and any available options for your Dependent Care FSA balance.