Continuing Employee Health Insurance Coverage During Leave or Extended Absence: What’s an Employer’s Obligation?

November 27, 2018

When employees take leave from work for an extended period due to injury, illness or another reason, employers may be unsure if they must continue providing health insurance during the absence. The answer depends upon the circumstances, including the reason for the employee’s absence, the terms of the health plan, the size of the employer, and the applicability of one or more federal laws including FMLA and COBRA.

An organization puts itself at risk by not having – or consistently applying – an established policy regarding how long to continue benefits during an employee’s leave of absence (LOA). Without an established LOA policy, it’s difficult to tell an employee their benefits are being terminated in the middle of a leave, especially when the leave is due to the health condition of the employee or a loved one. Good intentions can lead to significant financial exposure and increased risk of discrimination complaints. Employers should consider not only the needs of the employee, but also the carrier contractual provisions, federal and state benefit regulations and the employer’s own policies.

Answering these three questions can help provide direction in determining a LOA coverage policy:

1. Does the FMLA apply?

For companies with more than 50 employees, the Family and Medical Leave Act (FMLA) applies to eligible employees who:

  • Have been employed for at least 12 months,
  • Have accumulated at least 1,250 hours of service in the past 12 months, and
  • Work where the employer has at least 50 employees within 75 miles.

Eligible employees who have a serious health condition or who take leave to care for a qualifying family member are entitled to employer-sponsored health insurance during FMLA leave. The employer must continue to pay its share of the employee’s healthcare premiums during FMLA leave. FMLA generally requires that health benefits be continued for the duration of the protected leave, up to 12 weeks (or 26 weeks depending on state leave regulations).

If an employee exhausts FMLA leave or is otherwise not eligible or entitled to FMLA leave, the  employer’s obligation to continue paying its share of health insurance premiums stops. But there may remain an obligation to continue healthcare coverage under COBRA or analogous state law.

2. Does COBRA or a similar state law go into effect if FMLA does not apply?

COBRA provides employees and their qualified beneficiaries continued health insurance coverage under the company’s plan at the employee’s expense when a “qualifying event” would normally result in the loss of eligibility. “Qualifying events” include resignation and termination, but also reduction of an employee’s hours or a leave of absence causing the employee to lose coverage under the terms of the employer’s health plan.

The threshold for reduced hours or absences disqualifying an employee from plan coverage depends upon the terms of the particular health insurance plan. When the employee loses coverage under the terms of the plan, COBRA provides an opportunity for the employee to purchase continuation coverage at the employee’s expense. Employers with fewer than 20 full- and part-time employees are not subject to federal COBRA, but may be subject to state COBRA laws for small employers.

3. Is there another source of payment?

The reason for an employee’s absence could trigger other obligations or sources for payment of medical expenses and insurance premiums, whether or not an employer must continue health insurance coverage under FMLA or provide continuation coverage under COBRA or a similar state law. For example, if an employee is unable to work due to a workplace injury, workers’ compensation may cover medical expenses and lost wages related to the injury. The terms of the employer’s health plan may require coverage to continue during a workers’ compensation leave of absence. Even where the employer’s coverage obligations cease, short- and long-term disability policies may provide an employee a source of funding for payment of insurance premiums.

If there’s still no clear answer to how long benefits should be continued during a LOA, the decision may be left to the discretion of the employer and internal policies or prior precedents. To minimize risk and ensure consistency, it’s even more important to have a LOA policy in place that clearly addresses the maximum length of time an employee may be covered while on leave before COBRA is offered due to the reduction in hours worked. In developing this policy, keep in mind any contractual restrictions imposed by the carrier, regulatory mandates and ACA compliance. Check your plan’s eligibility and termination conditions to determine whether your plan document or contract with your insurance (or reinsurance) carrier specifies the maximum period of time coverage can be continued during an approved leave.

Work closely with your benefits advisor to make sure contractual provisions not only mirror your LOA policies and intentions, but also comply with regulatory requirements to avoid unintentional financial and legal exposure. Your benefits advisor can also ensure your plan documents have been updated to reflect your current practices.