When an employee is on an extended leave of absence, there is often confusion as to whether and to what extent an employer must continue to provide the employee with health coverage under an employer-provided plan. To determine whether coverage is required, the employer should consider the terms of the plan, COBRA requirements, and whether the leave is covered under the FMLA.
Terms of the plan.
Employer-provided health plans include continuous work requirements to maintain eligibility for coverage. For example, a health plan typically requires employees to work an average of at least 30 hours per week to be eligible for coverage under the plan. If an employee takes a leave of absence and their average number of hours worked is usually below the minimum coverage requirement, they may no longer be eligible for coverage under the plan.
FMLA leave.
Assume that an employer is covered by the Family and Medical Leave Act (FMLA). In this case, the employer must provide group health benefits to employees on FMLA leave "on the same basis on which they would have been provided" if the employee had been employed during the entire leave period. This means, for example, that if an employer pays a portion of group health plan premiums for active employees, it must pay the same portion for employees on FMLA leave. The obligation to continue coverage for active employees under the FMLA terminates if the employee does not return to work at the end of FMLA leave. For this purpose, the "end of FMLA leave" is generally considered to be the last scheduled day of FMLA leave. However, if an employee "unambiguously" informs the employer that he or she does not intend to return to work until the last scheduled day of FMLA leave, the end of FMLA leave is the day on which the employee communicated that intention.
Although active coverage terminates as of the last day of FMLA leave, an employer may be required to allow an employee to elect to continue COBRA coverage after FMLA leave ends.
COBRA, as a whole.
Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), an employee must be given the right to elect continuation coverage under an employer-provided health plan (at the employee's expense) if the employee would otherwise lose coverage due to a "qualifying event." An employee's termination of employment and reduction in hours are considered "qualifying events." Therefore, if an employee takes a leave of absence ( i.e. , reduces hours) and loses coverage under a group health plan as a result of the leave, the employee must be offered COBRA continuation coverage. The end of an employee's FMLA leave is also a COBRA-qualifying event. An employee who does not return to work and loses coverage at the end of FMLA leave must also be given the opportunity to elect COBRA continuation coverage.
Vacation Policy.
Often employers will allow employees to continue coverage under an employer-provided health plan during or after FMLA leave, either because the employer is unaware of the coverage requirements or out of a desire to help the employee. While generally well-intentioned, such practices can result in an insurer's refusal to cover an employee's claims (or, in the case of a self-insured plan, a stop-loss carrier's refusal to cover an employee's claims). In this case, the employer may be liable for all or some of the costs associated with the employee's claims. In addition, the employer may be penalized for failure to comply with COBRA. Employers need to review and understand the coverage requirements of the employer's group health plan and implement written policies to properly administer the group health plan in connection with an employee's leave of absence.