Family Leave and COBRA
- What Benefits Must Employers Provide
and When Does a Qualifying Event Occur?
A
number of questions have arisen concerning the interplay of the
continuation coverage requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985 (COBRA) and the Family and Medical Leave Act
(FMLA). Questions include how long benefits must continue for employees on
leave and when (or if) a COBRA event occurs triggering the employer's
obligation to provide continuation of health insurance coverage for
employees on leave.
COBRA
applies to employers with group health plans who employ 20 or more
employees.
COBRA
provides certain employees, former employees and their dependents the right
to temporary continuation of health coverage at group rates upon the
occurrence of certain Qualifying Events, including:
- Termination of
employment;
- Reduction in
hours;
- Covered employee
becomes entitled to benefits under Medicare;
- Divorce of the
covered employee;
- Death of the
covered employee;
- Loss of dependent
child status under the plan rules.
This
is important to employees because they must be given the right to continue
their health insurance at favorable group rates following a loss of health
insurance coverage. It is important to employers because there are
substantial penalties for failing to comply with COBRA's
requirements.
The
FMLA provides that eligible employees are entitled to take up to twelve
weeks of family and medical leave per year for specific medical reasons
such as the illness of the employee, to care for a family member with a
serious health condition, or the birth of a child.
Whether
or not the employer must continue to pay for an employee's medical benefits
during a leave of absence and whether the leave (reduction in hours)
constitutes a COBRA triggering event depends on the type of leave of
absence, such as FMLA leave, disability leave, workers compensation leave,
or other paid time off.
Interaction of COBRA and the FMLA
Under the FMLA, employers are required to maintain group
health insurance coverage for an employee on FMLA leave, for the duration
of the leave, at the same level and under the same conditions that coverage
would have been provided if the employee had remained employed during the
leave.
This
coverage is provided under FMLA and is not COBRA coverage. Although a
reduction in a covered employee's work hours normally will trigger COBRA
continuation coverage, under Treasury Regulations, the reduction of hours
that comes with the taking of the FMLA leave is NOT a qualifying event
under COBRA.
Treasury
regulations (26 C.F.R. – 54.4980B-10) provide detailed rules regarding the
interaction of COBRA and FMLA leave. These regulations provide that the
taking of the FMLA leave itself does not constitute a COBRA qualifying
event. However, a qualifying event occurs if the following three conditions
are met:
- An employee (or
employee's spouse or dependent child) is covered under the group
health plan of the employee's employer on the day before the first day
of the FMLA leave (or becomes covered during the FMLA leave);
- The employee does
not return to employment with the employer at the end of the FMLA
leave; and
- The employee (or
spouse or a dependent child of the employee) would, in the absence of
COBRA continuation coverage, lose coverage under the group health plan
before the end of the COBRA maximum coverage period.
If
a qualifying event occurs under these conditions, it occurs on the last day
of the FMLA leave. The maximum coverage period is measured from the date of
the qualifying event - - that is the last day of the FMLA leave or the date
on which the employer is notified that the employee will not return to
work. If however, coverage under the group health plan is lost at a later
date and the plan provides for the extension of the required periods, then
the maximum coverage period is measured from the date when coverage is lost
under the plan.
What Happens if the Employee Doesn't Pay Premiums While on FMLA
Leave?
What
happens if an employee fails to pay the employee portion of premiums for
coverage under a group health plan during the FMLA leave? Under the FMLA,
the employer may require the employee to pay his or her portion of the
premium while on leave. Benefits may be terminated if the employee fails to
pay their portion of the premium. The FMLA requires a 30-day grace period
and 15 days advance written notice.
IRS
regulations (Treas. Reg. – 54.4980B-10) state that loss of coverage due to
non-payment of the employee portion of premiums is not a COBRA qualifying
event and is disregarded for COBRA purposes.
IRS Examples
The
IRS provides the following two examples:
- Employee B is
covered under the group health plan of Employer X on January 31, 2001.
B takes FMLA leave beginning February 1, 2001. B's last day of FMLA
leave is 12 weeks later, on April 25, 2001, and B does not return to
work with X at the end of the FMLA leave. If B does not elect COBRA
continuation coverage, B will not be covered under the group health
plan of X as of April 26, 2001. B experiences a qualifying event on
April 25, 2001, and the maximum coverage period is measured from that
date. (This is the case even if, for part or all of the FMLA leave, B
fails to pay the employee portion of premiums for coverage under the
group health plan of X and is not covered under X's plan.)
- Employee C and C's
spouse are covered under the group health plan of Employer Y on August
15, 2001. C takes FMLA leave beginning August 16, 2001. C informs Y
less than 12 weeks later, on September 28, 2001, that C will not be
returning to work. Under the FMLA regulations, C's last day of FMLA
leave is September 28, 2001. C does not return to work with Y at the
end of the FMLA leave. If C and C's spouse do not elect COBRA
continuation coverage they will not be covered under the group health
plan of Y as of September 29, 2001. C and C's spouse experience a
qualifying event on September 28, 2001, and the maximum coverage
period is measured from that date. (This is the case even if, for part
or all of the FMLA leave, C fails to pay the employee portion of
premiums for coverage under the group health plan of Y and C or C's
spouse is not covered under Y's plan.)
Thus,
generally an employee who does not return to work when FMLA leave ends,
experiences a qualifying event because there is a reduction in hours
coupled with a loss of coverage. COBRA must then be offered at the end of
the FMLA leave - whether or not the employee continued health coverage
during that leave.
What Happens to the Reinstated Employee Who Failed To Pay Their
Share of Premiums?
According
to James C. Paul, a shareholder with the employee benefits law firm of
Chang, Ruthenberg & Long (http://www.seethebenefits.com/), a
tricky question arises when an employee on FMLA leave whose coverage
terminates due to non-payment of premiums then returns to work at the end
of his or her FMLA leave. The employee may now be subject to a waiting
period or a preexisting condition exclusion that prevents him or her from
obtaining group health plan coverage from the employer. Yet, under the
FMLA, the employee is entitled to reinstatement to his or her position with
equivalent benefits - - meaning with no waiting period or exclusion.
Mr.
Paul notes that this problem can be avoided by making sure that the
employer's group health plan documents or insurance policies have been
amended to comply with FMLA's requirements.
Employers need to work with their insurers and confirm what options are
available to address this situation and to make sure that the employer's
plan complies with the FMLA.
Mr.
Paul also notes that one way to avoid this problem is for the employer to
pay the cost or premium for employees on FMLA leave if they fail to pay. It
is important to make sure the benefit plan and insurance contract permit
the employer to continue paying premiums and continue coverage for
employees in this situation.
Advice to Employers
Mr.
Paul advises employers to clearly state in their employee handbooks and
Summary Plan Description(s) how FMLA leave, or other leaves of absences,
will be handled. The employee handbook must not conflict with the plan
documents or Summary Plan Description(s). According to Mr. Paul:
"If
the summary plan description is wrong or is ambiguous, the employer may be
stuck with providing coverage (or worse yet, paying claims that have
occurred.) It is very important that the SPD provide a
clear and accurate description of what benefits are provided when
employees go out on leave and when benefits or coverage may
terminate."
Employers
with questions or concerns should consult with qualified legal counsel.
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