Using Your HSA or FSA Account on COBRA
If you’re enrolled in a High Deductible Health Plan (HDHP) and have an HSA or FSA, you can continue to use those funds for qualified medical expenses even if you elect COBRA continuation coverage. These accounts are individually owned, and the funds remain available to you regardless of employment or coverage changes.
If you continue your HDHP under COBRA, you may still contribute to your HSA. However, if you move to a non-HDHP plan through COBRA or another source, you can no longer make new HSA contributions, though existing HSA or FSA funds can still be used for qualified expenses.
Typically, FSA funds must be used by the end of the plan year.
About Health Savings Accounts
A Health Savings Account (HSA) is a tax-advantaged account that helps you save and pay for qualified medical expenses. It is available only to those enrolled in a High Deductible Health Plan (HDHP). Contributions are made with pre-tax dollars, lowering taxable income, and unused funds roll over each year. Money withdrawn for qualified medical expenses is tax-free, and you can choose to invest the balance for future growth. Withdrawals for non-medical expenses before age 65 are subject to taxes and penalties.
About Flexible Spending Accounts
A Flexible Spending Account (FSA) is an employer-sponsored account that lets you set aside pre-tax dollars to pay for eligible medical, dental, and vision expenses. FSAs can lower your taxable income and help cover out-of-pocket costs like copays and prescriptions. Unlike HSAs, FSA funds generally must be used within the plan year, although some employers offer a short grace period or allow a small balance to roll over. Any unused funds after that period are forfeited.