Employer-sponsored group benefit plans are generally designed to cover only employees who actively work a minimum number of hours. When employees take short-term leave for vacations, holidays, or sick days during the normal course of business, their benefits continue uninterrupted.

Generosity begins to hurt employer benefit plans when they are improperly administered during leaves of absence (LOAs). Plan contracts, certificates, and SPDs, as well as federal and state/local laws, all influence how long benefits may continue during an LOA. In all cases, benefits during LOAs must be administered in accordance with these policies and laws in a non-discriminatory manner. The following are some considerations for handling benefits while employees are on leave.

Employees can remain on their benefits as an active employee during a LOA depending on two factors:

Does the leave qualify under FMLA or a similar state/local leave law?
What does the benefit policy state regarding coverage termination upon loss of eligibility (reduction of hours)?

Protected Leave: FMLA & Similar Laws

If the leave is protected under FMLA, the employer must maintain the employee’s coverage under any group health benefits on the same terms that would apply if the employee was not on leave. This includes:

Medical, Dental, and Vision policies;
Healthcare Flexible Spending Accounts (FSAs); and
Health Reimbursement Arrangements (HRAs).

FMLA also requires the employer to continue non-health benefits if the benefit would continue during a non-FMLA leave (paid or unpaid, as applicable).

Even if FMLA does not apply, a state or local leave law may offer similar protections. When an employee’s leave qualifies under both FMLA and a state or local law, the laws will generally run concurrently unless the state or local law specifically applies later.

Unprotected Leave and COBRA

If the LOA is not protected (or protections have expired), an employee’s active coverage must end based on the eligibility and termination rules for each benefit. An employer cannot extend the coverage beyond what is permitted by any benefit policy.

Depending on the benefit, coverage may terminate on the date that eligibility is lost, run until the end of the month, or continue during an approved LOA for as long as the employer continues to pay. When a LOA causes a loss of eligibility for a health benefit, the employer must offer COBRA or state continuation, as applicable.

If the employee returns as scheduled, they will transition back to active employee status without any break in coverage. If the employee does not return, then the employer has already taken care of COBRA paperwork and may rely on the established guidelines and procedures for administration. COBRA has built-in rules for collecting premiums, termination of coverage if employee payments are not made timely, and a defined set of guidelines for administration that protect both the employer and employee during an extended LOA.

When Wanting to “Take Care of Employees” During LOA Goes Bad

Many employers do not want their employees to worry about their insurance during LOAs. Unfortunately, problems arise when an employer extends benefits beyond what the benefit policy allows. When a carrier discovers the improper coverage extension, they can determine that the employer is in breach of contract and may deny all claims during the period of ineligibility. If this happens, the employer would then be responsible for paying costly life and health insurance claims out of general assets. Therefore, it is imperative that employers follow the policy’s rules when it comes to benefits during LOA and terminate coverage appropriately.

COBRA-eligible benefits: Employers may subsidize coverage to the rate an employee paid while actively working. The terms and duration of the subsidy should be put in writing.

Life and Disability benefits: Policies are written for actively working employees. FMLA protections do not apply, but some contracts mirror FMLA provisions. More often, coverage ends the month that the LOA starts or at the end of the next month. It is very important that the employer not continue coverage unless the policy permits it. When the coverage ends, the employer must provide conversion and/or portability information in time so that the employee does not lose rights to keep the coverage.

Summary

Numerous court cases exist in which the employer was sued because insurance claims were denied after the employer promised coverage during an employee’s extended LOA. With the increase of state and local leave laws, LOAs are becoming more complex, and employers are responsible for ensuring proper administration. Employers must protect their company by being aware of the legal requirements for administering LOAs and having a policy in place to ensure benefits are continued in accordance with all applicable laws and policy requirements.

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