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The Five Ws, and One H of Leave of Absence (LOA) and Health Benefits

This is the fourth article in our Compliance 101 blog series where we use six questions to break down important compliance topics. Below you will learn more about Leave of Absence or LOA policy. Read more below! 

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Who should have a Leave of Absence (LOA) policy?   

  • Employers of all sizes should develop a LOA policy to minimize risk and communicate the procedures and practices for an employee’s group coverage continuation while on leave.
  • Although mandatory leave governed by state and federal laws have ‘rules’ that must be followed, there are items that may be discretionary (e.g. collection of premiums method). Therefore, having clearly defined policies guides an employer’s decision making, encourages consistent administration (e.g. decision process & documentation) which may lessen the possibility of the regulations being violated, leading to fines or other penalties.
  • Employers who offer voluntary leave options not governed by any laws, are free to design the rules based on their discretion. However, employers should explain their policies and guidelines in clear language in the company’s employee handbook.
     

What is a Leave of Absence?  

  • LOA is when an employee is away from work – voluntary, involuntary, paid, or unpaid, for a period of time approved by the employer.
  • LOA in certain situations may be protected under Federal Law e.g. FMLA, USERRA, ADA and more than one law may apply to a given LOA situation.
  • Numerous states such as; California, the District of Columbia, Massachusetts, New York, New Jersey, Rhode Island, and Washington have paid employee leave laws, each with its own rules and requirements.
  • The rules for health benefits differ depending on the type of LOA.
     

Which benefits must remain active during a LOA?   

Employees who take qualifying LOA under the Family and Medical Leave Act (FMLA), the Uniformed Services Employment and Reemployment Act (USERRA), or many state laws are provided multiple protections, and stipulate an employer’s obligation regarding health insurance:

  • FMLA
    • A covered employer must maintain group health coverage during FMLA leave, up to 12 weeks, if coverage was provided before the leave was taken.
    • Coverage—whether medical, surgical, hospital, dental or vision, mental health counseling, or substance abuse treatment, among others—must be maintained if provided in a group health plan by the employer on the same terms and conditions as if the employee were continuously employed.
  • USERRA
    • Employers are required to allow employees the right to elect to continue their existing coverage for themselves and their dependents for up to 24 months. If they choose not to continue coverage, they have the right to be reinstated on coverage when they return following their uniformed service.
  • ADA
    • An employer must continue health insurance coverage for an employee taking leave or working part-time only if the employer also provides coverage for other employees in the same leave or part-time status.  The coverage must be on the same terms normally provided to those in the same leave or part-time status.
  • State Leaves
    • Each state with leave laws has its own requirements. Some follow FMLA rules, while others make changes in the qualified reasons for leave, applying the requirements to smaller business or requiring the leave to be paid. State leave however is beyond the scope of this blog.  Review the laws in your state(s) or check with your Alera consultant for additional details.
       
  • Employees who take an unprotected, unpaid, personal leave, offered per company policy, not governed by federal or state mandates:
    • The maximum time-period active coverage may be continued will depend on their employer’s plan document and/or carrier’s contract.
    • In general, coverage terminates when the employee’s leave starts (or at the end of the month in which leave begins).
    • Different benefits (e.g. medical, dental, disability, life) may have different rules for how long coverage may continue.  Assuming no other continuation policies and that the employer is subject to COBRA, COBRA must be offered as appropriate.
    • Employers need to consider their carrier’s (or stop-loss provider if self-insured) contractual provisions when drafting their voluntary leave policies.
    • Carrier’s usually will allow the employer to offer coverage during an unprotected leave subject to the employer’s leave policy, but an employer will want to obtain carrier approval first.
    • Employers' voluntary leave policies should clearly address the maximum length of time coverage may continue before benefits are terminated and COBRA offered, where applicable, due to a reduction in hours worked.
       

When during LOA may coverage terminate for an employee who is eligible for health benefits?

The rules may differ depending on the type of leave an employee is on:

  • FMLA
    • Requires employee be provided an option to drop health plan coverage.
    • If an employee’s premium payment is more than 30 days late, an employer may drop the employee’s health insurance coverage if FMLA termination rules are followed. For example:
      • Employer must provide written notice via mail to the employee regarding late payment and that their insurance coverage will end at a specified date at least 15 days after the written notice unless payment is received by that date.
    • Employer may retroactively drop coverage due to unpaid premiums only if it has established policies for other unpaid leave dropping coverage retroactively to the date that the unpaid premium was due. However, if no other policy, coverage may be terminated only at the end of the 30-day grace period.
    • If coverage is voluntarily dropped by the employee, or by the employer due to non-payment, this is not a COBRA qualifying event.
    • If employee’s benefits were not retained during leave, the employer is obligated to restore the same coverage upon return as soon as administratively possible, without re-satisfying a waiting period.
    • If an employee fails to return to work on the day after FMLA ends or notifies the employer they are not returning, coverage may be terminated, and COBRA offered.
  • USERRA
    • An employee may elect to discontinue coverage, which is likely when the absence will be longer than 30 days as the servicemember and their family often qualify for free health insurance through the military.
    • Employers may establish reasonable rules in their written policies cancelling coverage if timely payment is not made. The best practice would be to follow rules similar to FMLA.
    • If an employee’s benefits were not retained during leave, the employee may reenroll without a waiting period if health care would have been provided if it were not for military service.
  • Unprotected LOA
    • Employee is permitted under Section 125 to revoke coverage election during unpaid LOA.
    • Employers may establish reasonable rules in their written policies cancelling coverage if timely payment is not made. The best practice would be to follow rules similar to FMLA.
    • If employee’s benefits were not maintained, whether benefits are restored upon return without restrictions will be situational. (e.g. LOA length, what ACA measurement method is being used, carrier/plan’s provisions).
       

Why must carrier's (or stop-loss provider's) contractual provisions be considered?

  • Employers risk being financially responsible for claims incurred by an employee during their LOA, if the employer fails to follow the rules of the carrier (or stop-loss provider if self-insured) and allows an employee to remain on benefits longer than the terms of the plan permit. Often, especially if large claims are incurred, carriers will request documentation and information regarding the situation to ensure the benefit continuation rules were properly administered and can deny, or reverse claims incurred when the participant was not eligible.
     

How are premiums handled?

  • FMLA
    • Employer may not require an employee to pay more than an active employee.
    • Employee must pay their share of the premium if they want to retain coverage during the leave.
  • USERRA
    • Employees on leave for less than 31 days, premiums continue to be paid as though the employee were active, e.g. employee required to pay the same amount as prior to taking leave.
    • Employees on leave for 31 or more days, the employer may require the employee to pay the entire cost plus a 2% administrative fee.
  • Voluntary Leave Options
    • Leaves not ‘protected’ by FMLA, USERRA, or State Law, an employer is required to follow their written policies and apply them consistently.
    • If leave is paid, the normal method for paying (e.g. payroll deduction) should continue to be used.
    • If the leave is unpaid, the employee may be required to pay either the employer or the insurance carrier directly. An employee’s premium may be collected:
      • Pre-pay: if permitted under the employer’s cafeteria plan, employees may pay their portion of the premium before leave begins. However, for protected leave, prepay may not be the sole option available. i.e. Employers may not require prepayment if on protected leave.
      • Pay as you go – by check or other method on the same schedule as active employees, or another schedule agreed to by the employer & employee.
      • Catch-up Upon Return – employee & employer agree in advance the employee will pay their premiums upon return from leave and the length of the repayment period.

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Disclaimer: This blog was written by Michelle Turner, MBA, CEBS, Compliance Consultant, Alera Group Central Region. This blog post intends to provide general information regarding the status of, and/or potential concerns related to, current employer HR & benefits issues. This blog should not be construed as, nor is it intended to provide, legal advice. The opinions expressed herein are based upon the author’s experience as a Compliance Consultant and may not reflect the opinions of your counsel. 

The information contained herein should be understood to be general insurance brokerage information only and does not constitute advice for any particular situation or fact pattern and cannot be relied upon as such. Statements concerning financial, regulatory or legal matters are based on general observations as an insurance broker and may not be relied upon as financial, regulatory or legal advice. This document is owned by Alera Group, Inc., and its contents may not be reproduced, in whole or in part, without the written permission of Alera Group, Inc.

This article was last reviewed and up to date as of 08/21/2020.

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