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Employer-Provided Health Coverage During Employee Leaves of Absence
Thursday, June 20, 2024

When an employee is on an extended leave of absence, there is often confusion regarding whether and to what extent the employer must continue to provide coverage to the employee under the employer-provided health plan. To determine whether coverage is required, the employer should consider the terms of the plan, COBRA requirements, and whether the leave is covered by FMLA. 

The Plan Terms. Employer-provided health plans include continuing service requirements for continuing eligibility. For example, it is common for a health plan to require employees to perform an average of at least 30 hours of service per week to be eligible for coverage under the plan. When an employee goes out on a leave of absence, and the employee’s average hours of service typically fall below the minimum coverage requirement, the employee may no longer be eligible for coverage under the plan.

FMLA Leave. Suppose an employer is subject to the Family and Medical Leave Act (FMLA). In that case, the employer must maintain group health benefits to employees on FMLA leave “on the same basis as coverage would have been provided” had the employee been employed throughout the leave period. This means, for example, that if an employer pays a portion of the group health plan premiums for active employees, the employer must pay the same portion for employees on FMLA leave. The obligation to continue active-employee coverage under FMLA terminates if the employee does not return to work at the end of the FMLA leave. For this purpose, the “end of the FMLA leave” is generally the last scheduled day of the FMLA leave. That said, if the employee “unequivocally” communicates to the employer that the employee does not intend to return to work before the last scheduled day of the FMLA leave, the end of the FMLA leave is the day that the employee communicates such intent.

While active coverage terminates as of the last day of the FMLA leave, the employer may have an obligation to permit the employee to elect to continue coverage under COBRA following the end of the FMLA leave.

COBRA, Generally. Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), an employee must be given the right to elect to continue coverage under an employer-provided health plan (at the employee’s expense) if the employee would otherwise lose coverage due to a “qualifying event.” An employee’s termination of employment and reduction in hours are considered “qualifying events.” So when an employee goes out on leave (i.e., the employee’s hours are reduced) and the leave causes the employee to lose coverage under the group health plan, the employee should be offered COBRA continuation coverage. The end of an employee’s FMLA leave is also a COBRA qualifying event. An employee who does not return to work and loses coverage as of the end of the employee’s FMLA leave should also be offered the opportunity to elect COBRA continuation coverage. 

Leave Policies. Often, employers will let employees continue coverage under the employer-provided health plan during a leave of absence or after an FMLA leave, either because the employer is unclear about the coverage requirements or out of a desire to help the employee. While generally well-intentioned, this practice could lead to an insurer’s refusal to cover the employee’s claims (or, in the case of a self-insured plan, the stop-loss carrier’s refusal to cover the employee’s claims). In that case, the employer may be liable for all or some costs of the employee’s claims. In addition, the employer may be penalized for failing to comply with COBRA requirements. It is essential that employers review and understand the coverage requirements of the employer’s group health plan and implement written policies to properly administer the group health plan in connection with employee leaves of absence.

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