Administering Benefit Coverage During a Leave of Absence – The Necessity of a Leave of Absence Policy
Employee leaves of absence take on various forms, but whether such leaves are provided as a matter of law or pursuant to employer policy, they create unique challenges from a health and welfare benefits compliance standpoint. Indeed, common issues for employers to analyze when employees are absent from work for an extended period of time are whether health and welfare benefit coverage should be continued and, if so, for how long. The answers are contingent upon various factors such as the circumstances surrounding the leaves of absence, the size of the employer, the terms of the applicable plan documents, and the applicability of various federal and state laws. Establishing and implementing a carefully drafted leave of absence policy addressing the provision of benefits is an essential component of benefit administration during a leave of absence.
Implementing a carefully designed leave of absence policy addressing the provision of health and welfare benefits is an easy way for an employer to reduce its risk of employee disputes, discrimination complaints, and financial exposure related to the provision of benefits. However, care needs to be given to such policy’s terms. At the onset, an employer’s policy needs to address what types of leaves of absence are permitted. Federal law mandates that certain employers provide job protected leaves of absence under the Family and Medical Leave Act of 1993 (“FMLA”) and the Uniformed Services Employment and Reemployment Rights Act of 1994 (“USERRA”). However, many employers also offer extended leave options for non-qualified and/or extended medical, personal, and/or other various reasons. For each type of permitted leave under an employer’s policy, specific issues related to the provision of benefits need to be addressed. For example, issues related to the provision of benefits that should be addressed within and/or considered in conjunction with an employer’s leave of absence policy include, but are not limited to, the following:
- What Benefits are Continued and For How Long? An employer must decide when to cut off eligibility for various benefits for employees on a leave of absence and then draft its policy carefully to carry out its intent. Generally speaking, an employer covered by the FMLA must maintain coverage under any group health plan (as defined under the FMLA) for the duration of a FMLA leave at the level and under the conditions that coverage would have been provided if the employee had continuously employed for the duration of the leave. Similarly, under USERRA, an employer is required to provide certain benefit rights to employees who take a leave of absence for service in the uniformed services. USERRA generally requires an employer to continue to maintain the employee’s health plan (as defined in 20 C.F.R. section 1002.163) benefits for up to 24 months on the same terms and conditions as if the employee was still an active employee during an USERRA qualifying leave. An employer generally has more leeway with respect to determining how long to continue benefits during leaves not subject to the FMLA and USERRA (either because the protected leave has ended or the leave was not protected to begin with) and benefits not required to be continued under the FMLA and USERRA (e.g., life insurance, accidental death and dismemberment, disability, business travel, etc.). However, with respect to major medical coverage, an employer also needs to consider coverage implications under the Patient Protection and Affordable Care Act’s Employer Shared Responsibility Mandate (i.e., Pay or Play).
- Has the Insurance/Stop Loss Carrier Agreed to the Continuation of Coverage? Determining how long the insurance company/stop loss carrier has agreed to continue benefits during a leave of absence or other period of time where the employee is not actively working the hours required for eligibility is imperative. Providing coverage that has not been agreed to by the insurance company and/or stop loss carrier can result in substantial exposure through the required self-funding of claims incurred after the carrier refuses to pay due to the participant’s ineligibility. Such financial exposure may be catastrophic to an employer if the claim involves life insurance coverage or massive medical expenses.
- What Do the Applicable Plan Documents Say? It is necessary for an employer to review the plan documents (including active at work requirements and hour thresholds) to ensure that an employee remains eligible prior to continuing coverage during a leave of absence. All plan eligibility and participation provisions must be drafted with care to address extended eligibility during a leave of absence. Ambiguity and/or inconsistency between the plan documents and employer policy can lead to participant disputes, litigation, and potential self-funding of claims.
- How Will Benefits Be Paid For During the Leave? An employer must address how long any employer contribution towards the cost of coverage will be continued. Additionally, the policy should articulate how the employee needs to pay for his or her portion of the cost of coverage during the leave of absence. The requirements associated with the payment of an employee’s share of the cost of coverage can be particularly tricky if the leave of absence is unpaid. Issues to be addressed include, but are not limited to, the timing of the required payment and whether such payment is made on a pre-tax or after-tax basis. Careful attention needs to be paid to federal laws and regulations, such as those related to Code Section 125 cafeteria plans, FMLA, and USERRA.
- When are COBRA Requirements Implicated? A leave of absence is a reduction of hours and is therefore a triggering event that may cause a loss of coverage. COBRA rights may be implicated during a leave of absence if an employee loses eligibility for group health plan coverage. The loss of an employer contribution towards the cost of coverage may also implicate COBRA rights. COBRA requirements need to be carefully analyzed in conjunction with an employer’s benefit structure during a leave of absence to determine whether a qualifying event occurs and, if so, when such event occurs. Failure to timely and accurately provide COBRA continuation rights can result in significant financial ramifications to an employer.
Thus, an employer’s leave of absence policy must be drafted with care taking into account of a plethora of factors. An employer must ensure that it understands when benefits are supposed to end, not only as a matter of its internal company practice, but also as articulated within the applicable plan documents. Ensuring that the employer policy does not create obligations that do not exist within the plan documents is essential. It is equally important for an employer to ensure that it follows the terms of its established leave of absence policy. Deviations from policy terms for one employee can set unintended precedent for future employees. However, case by case analysis may also be required under disability discrimination laws as a leave of absence can also be deemed a reasonable accommodation. Thus, an employer is encouraged to consult with its legal counsel in conjunction with drafting, establishing, implementing, and administering a leave of absence policy.
Elizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2018 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.