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HR Matters E-Tips



FMLA Leave: When Can You Terminate Health Insurance? Q&A

Editor's Note: These question and answer HR Matters E-Tips articles are taken from real questions submitted by our subscribers, a unique feature of the HR Matters Tools and Resource Center online service. If you, too, would like access to our expert editors, click here.
The FMLA regulations provide specific guidelines for health care coverage when an employee takes leave and limit when you can terminate the coverage even for nonpayment of premiums. Find out how to deal with this tricky situation. 
Q: Q: We have an employee on FMLA leave who has not paid her portion of her health insurance premium since she began her leave eight weeks ago. What can we do? She is not on paid leave, so we cannot make a deduction from her pay. Can we terminate her insurance coverage for nonpayment?

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A: Although the FMLA allows you to terminate insurance coverage for nonpayment of premiums or permits your employee to drop the insurance while on unpaid leave, either scenario could cause problems when the employee returns to work and must be restored to full coverage. 

The FMLA, which requires covered employers to provide up to 12 workweeks of leave to eligible employees for various family and medical reasons, has specific requirements about continuation of health care coverage when leave is taken and about how you should handle payment of premiums. In addition, upon return to work, the employee must be fully restored to health care coverage subject to any changes that may have occurred. 

(Download free Leaves of Absence model policy including coverage of FMLA, HR best practices, and legal background.)

If you provide health care benefits under a group health plan, you must provide the same health benefits during an eligible employee’s FMLA leave as would have been provided if the employee worked throughout the leave. Accordingly, the FMLA also requires you to pay the premium on health care coverage on the same terms as you paid the premium before the employee took leave, paid or unpaid. Therefore, if you paid 80% of the premium before the employee took leave, and the employee paid 20%, you must continue to pay at least 80% of the premium after the employee takes leave. You also may be more generous, for example, by paying the employee’s share.

Employees on unpaid leave may elect to discontinue health insurance coverage (unless the employer pays the employee’s share of premiums) during the unpaid period of FMLA leave. However, these employees still must be reinstated to the same insurance benefits when they return to work (see below).
You have a number of options for collecting the employee’s share of health premiums during FMLA leave. The key element is whether the leave is paid or unpaid. If the employee is using paid leave (such as accrued vacation, personal, or sick time), the employee’s share should be paid by the method normally used during any paid leave, such as by payroll deduction. If the employee is on unpaid leave, you have several alternatives for premium payment and may require payment according to one of the following schedules:
  1. Payment for the employee share due on the same date as payroll deductions are made.
  2. Payment due on the same schedule as payments under COBRA. 
  3. Prepayments at the employee’s option and subject to special IRS limitations if the payment is made on a pre-tax basis pursuant to a cafeteria plan. 
  4. Payment due under the employer’s existing rules for payment by employees on unpaid leave, as long as the rules do not require prepayment prior to any unpaid portion of the leave and do not require a higher premium than if the employee had continued working. 
  5. Payment under a system voluntarily agreed to by the employer and the employee, which may include prepayment of premiums (such as through increased payroll deductions when the need for leave is foreseeable).
  6. Advance payment by the employer on the employee’s behalf during the leave. 

You are required to provide advance written notice regarding the terms and conditions under which the premium payments must be made. 

When an employee’s premium payment is more than 30 days late, you are no longer obligated to maintain health insurance coverage. (Additional limitations apply if the premiums are paid on a pre-tax basis through a cafeteria plan.) Before terminating the coverage, you must first give the employee at least 15 days written notice that the premium is late and that coverage will lapse if payment is not made by a specific date. The date you select must be at least 15 days after the date of the letter and at least 30 days after the payment was due. 

Termination of coverage usually is not a smart option, however. Upon return from the FMLA leave, the employee must be restored to the same health benefits coverage as provided prior to leave, subject to any changes in benefit levels that may have occurred during the leave. A returning employee may not be required to meet any qualification requirements normally imposed for entry or reentry into the group health plan, including any preexisting condition waiting period or medical examination requirements. 

Therefore, as a practical matter, if you have an insured plan (as opposed to self-insured), you should try to make arrangements with your insurer to allow immediate reinstatement of coverage without any limitations or restrictions upon the employee’s return to work. Otherwise, you could end up liable for the employee’s health care coverage when the employee returns to work. 

As an alternative, you may find it more practical to pay the employee’s share of premiums and seek reimbursement when the employee returns to work. The FMLA regulations allow you to recover any premium payments made on behalf of the employee in order to continue coverage after a payment is missed. This is true even if the employee chooses not to return to work. 

(Download free Leaves of Absence model policy including coverage of FMLA, HR best practices, and legal background.)

If you still want to terminate health care coverage for nonpayment, you should perform a careful analysis of the consequences to your organization and the employee. In addition, be sure to discuss the implications with your attorney before making the final decision.
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flagship publication, the HR Matters Tools and Resource Center, featuring the Personnel Policy Manual System (PPMS).

Subscribers to the PPMS and HR Policy Answers on CD can find a model disciplinary procedure policy in Disciplinary Procedures, Chapter 808; notes 1 and 14 discuss when disciplinary policies may be treated as contracts.

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Subscribers to the PPMS and HR Policy Answers on CD can find more information on the use of the term introductory period instead of probationary period in Introductory Period, Chapter 204, notes 1 and 2.

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