It can be confusing when an employee is either ineligible for FMLA or has exhausted FMLA but remains an active employee. Sometimes employers have their own internal leave of absence policy that covers someone for a leave that does not fall under FMLA. This can happen if the employer is not subject to FMLA, the employee is not yet eligible, or if the employee was eligible for FMLA but has exhausted the allowable 12 weeks. Other employers may not have any internal leave of absence policy that grants rights outside of FMLA.
First, an employer needs to review the plan’s eligibility terms in the plan document/SPD (the wrap document) to determine when eligibility is lost. If the employer has a leave of absence policy that provides benefit continuation, the plan documents should address it. The documents should include how long the employee remains eligible during the leave.
If there are no special terms in the employer’s plan document per SPD, then the employer should review the carriers’ certificates or plan documents for the plan eligibility terms. They may have a specific number of work hours required to be eligible for the plan (e.g., 30 hours/week). When an employee no longer meets the terms of eligibility, coverage should be terminated, and COBRA should be offered (if applicable).
Medical: Additional Rules
If an employer is an applicable large employer (ALE) that is subject to the ACA employer mandate and if they use the monthly measurement method, then an employee who reduced their work hours to fewer than 30 hours per week or 130 hours per month (e.g., an employee who is on an extended leave) could be terminated from coverage at the end of the month with COBRA offered for the reduction of hours. However, if an employer uses the look-back measurement method and the employee worked at least 30 hours per week on average during the preceding measurement period, then the employee would remain eligible through the end of the stability period regardless of the number of hours they work during a leave unless the employee experiences an employment status change (e.g., full-time to part-time).
Additionally, for an ALE, if employees return to work after 30 days but before 13 weeks, they would be reinstated to eligibility and would have the right to change elections. If they return beyond 13 weeks, then they may be treated as new hires and need to meet a new waiting period or start a new measurement period.
Health FSA
When eligibility under the health FSA is lost, COBRA should be offered for any employee with an underspent balance. If employees want coverage for the leave period, they would have to elect and pay for COBRA. If the employer does not wish for their employees to lose eligibility while on extended leave, the internal policy would need to allow continued eligibility during the leave period.
Premium Payments During Leave Period
For active employees, employees pay for their premium contributions through a paycheck deduction. Employers must consider how employees who are on leave without pay can make premium contributions without a paycheck to deduct from. Generally, the rules for FMLA premium payment can serve as useful guidelines. For instance, the employer may require that employees pay during the leave period by personal check. The payments may be due per pay period or per month. The employees should be provided with written notice of the payment method, due date, and consequences for nonpayment (termination of coverage). Alternatively, the employer could permit the employee to pay upon return. The employer would want to have a policy in place on how to handle situations where the employee fails to return.
COBRA
Under COBRA, a reduction in hours that causes an employee to lose eligibility for health coverage is a qualifying event that triggers the right to elect COBRA continuation coverage. Therefore, employers that are subject to COBRA should work with their COBRA vendor to ensure that COBRA election notices are provided on time when an employee loses plan eligibility.
For additional information on midyear election change events and COBRA rules, please ask your broker or consultant for a copy of the NFP publications Midyear Election Change Events: A Guide and Matrix for Employers and COBRA: A Guide for Employers.