Managing Employee Health Insurance Premiums under Revised FMLA Regulations

When an employee takes unpaid Family and Medical Leave Act (FMLA) leave, how do you legally manage his share of premiums for group health care coverage under the new FMLA regulations? What are the potential liabilities, and how can you avoid them? What are an employer’s rights? The answers to those questions are provided below.

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Problem
Unless an employee drops his health care plan, his employer must maintain his group health care coverage during FMLA leave at the same level and under the same conditions that coverage would have been provided if he’d continued working without taking leave. That means that during unpaid FMLA leave, the employee must continue to pay his portion of the premium. Unfortunately, making sure that happens isn’t always easy to do.

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Solution
Employers have a number of options for getting an employee’s share of the premium during unpaid FMLA leave. Specifically, it can require payment:

1. at the same time as if made by a payroll deduction;
2. at the same time COBRA payments are made;
3. under an employee-elected cafeteria plan;
4. under existing rules for payments by employees on “unpaid leave” (provided the rules don’t require prepayment of the premiums due for the period of unpaid FMLA leave or higher payments than if the employee had continued to work instead of taking leave); or
5. under any other system voluntarily agreed to between the employer and the employee, including prepayment of premiums (e.g., increased payroll deductions when the need for FMLA leave is foreseeable).

The overriding principle is that an employer cannot require any more of an employee on unpaid leave than it would of an active employee who is not on leave. For employees receiving workers’ compensation payments while on FMLA leave, the burden is on the employee to make arrangements for payment of his share of the premiums through the options mentioned above.

Absent a voluntary prepayment, the most effective way to manage an employee’s share of premium payments during unpaid FMLA leave is to require him to pay the premium when it would have been due if made by payroll deduction. That method, however, requires you to adhere to some specific administrative requirements.

First, the employer must provide the employee with advance written notice of the premium payment requirement, the amount of the payment, and the date it is due.

Second, if the employee fails to pay the premium on time, the employer may terminate coverage only if (1) the payment is more than 30 days late and (2) it has provided written notice to the employee that the payment wasn’t received and that coverage will terminate on a specified date (at least 15 days after the date of the written notice unless payment is received by that date).

Third, if the empoyer has established policies about other forms of unpaid leave that allow you to cease coverage retroactively to the date the unpaid premium was due, it may cease coverage retroactively in accordance with the policy (provided it has sent the 15-day written notice). If no such policy exists, the employer may terminate coverage at the end of the 30-day grace period. Again, a 15-day written notice must be sent first.

An employer’s obligation to continue coverage ends when (1) the employee informs it of his intent not to return from leave, (2) the employment relationship would have terminated but for the leave (e.g., a reduction in force), or (3) the employee fails to return from leave.

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Caveat
If an employee’s coverage lapses because he failed to make his premium payments, the employer must restore his coverage when he returns from FMLA leave. Specifically, you must restore him with coverage that is equivalent to what he would have had if he hadn’t taken leave and the premium payments had not been missed. In that situation, the employee cannot be required to meet any qualification requirements imposed by the plan, including new waiting periods (e.g., open enrollment) or passing a medical exam to be reinstated. That can make it difficult to exercise your right to cancel coverage.

If the plan (insured or self-insured) doesn’t allow reenrollment after return from a leave of absence, the employer should continue the employee’s coverage and pay his portion of the premiums until he returns to work. Doing so meets your obligation to provide equivalent benefits after he returns from unpaid FMLA leave. If you fail to restore the employee with equivalent coverage, you may be liable for the lost benefits, along with other losses resulting from the failure to restore coverage, and other equitable relief proportionate to the harm suffered by the employee.

If an employer pays for an employee’s missed premium payments during an unpaid FMLA leave, it can recover those payments whether or not the employee returns to work. The revised FMLA regulations do not restrict your options for recouping an employee’s share of premiums paid by the company. Additionally, you may recover payments from any sum owed to the employee, including unpaid wages and vacation pay, provided the deductions don’t violate applicable federal or state wage laws.

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