By Nancy Owen, PHR and Laura Pokrzywa, HR Consultant, East Coast Risk Management
Did you know that your company’s summary plan documents dictate what happens to your employees’ benefits when they are on most leaves of absence? And those details will vary depending on the type of leave used. Why does this matter? If an employee is kept on insurance benefits and your plan does not actually cover the employee throughout the leave period, then you are exposing your company to these very real risks:
- The company may be responsible for the claims incurred by the employee during the time the employee should have been off benefits.
- The company may incur hefty fines for violating the Consolidated Omnibus Budget Reconciliation Act (COBRA). This law requires the plan administrator to provide an election notice within 14-days of a qualifying event. That would include the employee losing coverage under your plan due to a leave that extended beyond your plan’s eligibility limits. If the employee loses coverage and is not offered COBRA when eligible, this could result in a statutory penalty of up to $100 per day. And that penalty can be imposed even if the employee did not suffer any harm because COBRA was offered late.
- The company may be exposed to discrimination complaints if an existing policy or practice is not applied consistently. Even though you think you are doing something nice for an employee who is going through a rough patch, when you do not act according to your policy or established practice, your good intentions can backfire.
When should you continue your employee’s health coverage?
The answer to that question depends on the type of leave and the details of your plan.
What about FMLA Leave? Under the federal Family and Medical Leave Act (FMLA), employers must maintain the same health benefits during an employee’s FMLA leave as if the employee was still working. So, if the employee is on the employer’s group plan, the employer must continue to pay its portion of the premiums AND the employee must continue to pay his/her portion of the premiums, just as is done when the employee is working. If that employee’s dependents are on the group plan too, their coverage must be maintained during the FMLA leave, as well. However, coverage may be terminated if the employee fails to pay their share of the premiums on the same day that they normally would. Some employers allow employees to wait until they return from leave to pay their share of the premiums, however, that can be costly if the employee does not return from leave as planned.
While an employee is on FMLA leave, his/her rights to benefits other than group health insurance depend upon the employer’s established policies. Any benefits that would be maintained while the employee is on other forms of leave (including paid leave if the employee substitutes accrued paid time off during FMLA leave) must be maintained while the employee is on FMLA leave.
What about non-FMLA leaves? Employer-provided health insurance plans each have established their own requirements for employee eligibility. Those requirements should be defined in the plan description and communicated to employees in a summary plan document and benefit enrollment materials. The most common requirements for health benefits typically include some length of service with the employer and a minimum number of hours that must be worked each week. Brief absences do not usually jeopardize health benefits eligibility. However, when your employee takes a leave of absence, they could fall below the minimum number of hours required by your plan to maintain coverage. In this case, the employee must be offered COBRA.
Employers should check their plan documents to understand when an employee will lose coverage during a non-FMLA leave of absence. Some plans allow up to 30 calendar days of leave, while others look at average hours over a period of time, and coverage is dropped when the employee’s average falls below the required hours. If the plan does not specify how this is done, employers should check with the plan administrator.
Also, don’t forget to check the requirements of any applicable state laws that provide for a family or medical leave of absence. Some of these laws afford employees benefits protection that is similar to or greater that FMLA.
Best practice: Before you decide to cover the premium for an employee on leave, be sure to consider not only the needs of the employee, but also the federal and state benefit laws and regulations that may apply, the details of your summary plan descriptions, and any policy or practice your organization has already established.
If you are an employer with questions about any safety, workers’ compensation, or human resources issue, contact East Coast Risk Management by calling 724-864-8745 or emailing us at email@example.com. We will be happy to help!
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