What to Do with Your HCFSA When Your Job Changes
Are you confused about what to do with your Healthcare Flexible Spending Account (HCFSA) when your job changes? You’re not alone. When your employment ends, whether it was voluntary or not, access to your HCFSA also ends unless you’re eligible to continue coverage through the Consolidated Omnibus Budget Reconciliation Act (COBRA).
Keep in mind, your HCFSA is not tied to your major medical coverage, so access to your HCFSA and Benefits Debit Card will be shut off on your last day of employment – not at the end of your major medical insurance coverage.
However, you may still be able to access funds from your HCFSA.
It all comes down to one question: Did you overspend what you have contributed before your termination date?
If the answer is yes, I have spent more than I have contributed:
You are generally not eligible for COBRA continuation coverage. But, you don’t have to do anything! You’re not responsible for paying back any portion of your HCFSA, even if you overspent what you contributed.
What it means to overspend your contribution:
Let’s say you elected to have $1,000 in your HCFSA and your plan year is from Jan. 1 to Dec. 31. Your full election amount will be available to use on Jan.1, but you will contribute from each paycheck throughout the plan year.
On Jan. 15 you had a $1,000 dental procedure and used your HCFSA account to pay for it. Although you’ve used all the money in your account, you still contribute to the account out of every paycheck for the rest of the plan year. If you leave employment before the end of the plan year, that means you’re not contributing to the account anymore, but you’ve already spent your entire election for the year.
Even if you have “overspent” our HCFSA, but you still have an account balance you may be able to use the remainder of your election. If you paid out of pocket and need to reimburse yourself, you are still able to submit reimbursement claims and documentation for expenses incurred during your active employment through the end of the plan year and runout period. Expenses that are incurred after your termination date are not eligible for reimbursement.
If the answer is no, I have not spent what I contributed, you have a few options.
Option 1: You can continue to contribute.
You can continue to contribute to your HCFSA through COBRA, which will make it possible for you to have access to the complete amount you elected for the plan year even for expenses incurred after you terminated employment. However, you will no longer be able to contribute pre-tax since the contribution will no longer come out of your paycheck.
While you won’t have the benefit of contributing pre-tax, if you don’t continue to contribute, you will not have access to the funds you’ve already contributed for future purchases or procedures. So, if you’ve already contributed $600 of the $1,000 you elected, you won’t be able to access the $600 you already contributed unless you have expenses incurred during active employment or you contribute the entire $1,000 – meaning you still need to contribute $400 through COBRA.
What does that mean? If you have a procedure scheduled for after your termination date, the only way you can use any of your HCFSA to pay for it is if you are eligible for COBRA and continue to contribute to the plan. You will receive information about COBRA coverage from your employer. Let your employer know you’d like to do this. Your employer will get in contact with your HCFSA provider and get you set up to continue payments. You do not have to elect COBRA for major medical or anything else in order to elect COBRA coverage for your HCFSA.
Option 2: You can opt not to contribute but submit claims for purchases/services that occurred before your termination date.
If you’ve contributed $600 of the $1,000 you elected in our example, you have the rest of the plan year and runout period to submit purchases/services expenses incurred before your termination date for reimbursement up to the annual election amount, which in this case is $1,000. If you had that procedure before your termination date but have been dragging your feet on submitting your reimbursement claim, now’s the time to gather those receipts and send them in.
It’s a lot to think about, but you don’t have to decide what to do on your last day. You have 30 days to elect COBRA for the HCFSA and continue active coverage.
If you have an American Fidelity HCFSA and want to know how your HCFSA works, visit our HCFSA page.
If you’d like to see what expenses are eligible, visit the eligible expenses list.
Related FSA Articles
The Internal Revenue Code (IRC) allows participants to reduce their taxable income by participating in a Healthcare Flexible Spending Account (HCFSA).