Going Where Others Fear to Tread: When COBRA and the FMLA Cross Paths
By Jennifer Stanley, In-House Counsel & Compliance Officer for iaCONSULTING, a UBA Partner Firm
n some of my previous blogs, the foundation of the Consolidated Omnibus Reconciliation Act of 1985 (COBRA) continuation coverage was reviewed. Now that the groundwork has been laid, it is time to tread into the territories (or laws) where employers can lose their footing. The area covered in the following is that of the intersection of COBRA and the Family and Medical Leave Act of 1993 (FMLA).
The FMLA affects COBRA continuation coverage requirements. The FMLA entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons for up to 12 weeks. The FMLA also protects employees, spouses, and dependents who are covered under a group health plan (GHP); those covered are entitled to the continuation of coverage while on leave on the same terms as if the employee was continuing to work.
Confusion may arise when FMLA and COBRA cross paths. A few problematic areas include determining when a qualifying event occurs, when calculating the maximum coverage period, and the consequences of an employee’s failure to pay their share of premiums during FMLA leave.
Typically, FMLA and COBRA intersect if an eligible employee does not return to work after exhausting his or her FMLA leave. While FMLA is not a COBRA qualifying event, a qualifying event could occur if the employee does not return to work or notifies the employer of his or her intent to not return to work at the end of the FMLA period. A qualifying event occurs if: (1) an employee or the spouse or a dependent child of the employee is covered under a GHP of the employee’s employer on the day before the first day of FMLA leave (or becomes covered during the FMLA leave); (2) the employee does not return to work at the end of the FMLA leave; and (3) the employee or the spouse or a dependent child of the employee would, in the absence of COBRA continuation coverage, lose coverage under the GHP before the end of the maximum coverage period. When it comes to the qualifying event of reduction in hours, the IRS specifically excludes FMLA leave from that category.
If the employer eliminates coverage under the GHP for the employee’s class of employees during the employee’s FMLA leave, then there is not a qualifying event. Any lapse of coverage under a GHP during FMLA leave is irrelevant in determining whether a set of circumstances constitutes a qualifying event or when a qualifying event occurs. Assuming the employer does not eliminate the GHP, the qualifying event occurs after the FMLA leave is exhausted and the employee does not return to work (or notifies the employer of the intent to not return to work).
Maximum Coverage Period
A qualifying event occurs on the last day of FMLA leave. The maximum coverage period is measured from the date of the qualifying event. If, however, coverage under the GHP is lost at a later date and the plan provides for the extension of the required periods, then the maximum coverage period is measured from the date when coverage is lost. For example, if the last day of FMLA leave is on the 21st of the month but the plan does not terminate coverage until the last day of the month, the last day of the month is the day of the qualifying event. The maximum coverage period is calculated from the last day of the month.
If state or local law requires coverage under a group health plan to be maintained during a leave of absence for a period longer than that required under FMLA (for example, 16 weeks of leave rather than for the 12 weeks required under FMLA), the longer period of time is disregarded for purposes of determining when a qualifying event occurs.
(Not) Paying Premiums
While on FMLA leave, the employee must continue to make any normal contributions to the cost of the premiums. Employers have a few options for handling payment of premiums during unpaid leave; the adopted policy should be documented in the employee handbook and discussed prior to the employee taking FMLA leave, if possible.
An employer’s trap arises if an employee does not pay his or her portion of the premium while out on unpaid FMLA leave. The employer may be tempted to discontinue coverage upon failure of the employee to pay their share. However, this is problematic if the employer cannot guarantee that the employee will be provided the same benefits on the same terms upon returning to work.
The employee’s failure to pay their share of the premiums while on FMLA leave does not create a COBRA qualifying event. Additionally, employers may not condition COBRA continuation coverage on whether the employee reimburses the employer for the premiums the employer paid while the employee was on FMLA leave. Moreover, it is not acceptable for an employer to increase the COBRA premium rate above 102 percent in order to recoup “past premiums due” when the employee was out on FMLA leave.
What happens if an employee experiences a COBRA qualifying event and elects COBRA, after which the employee takes FMLA leave, during which the employee fails to pay the COBRA premiums? Recall that the FMLA requires an employer to reinstate the employee to the same group health benefits after returning from FMLA leave. COBRA, however, is not a group health plan under FMLA. Consequently, an employee’s failure to pay COBRA premiums while on FMLA leave does allow the plan to terminate the employee’s coverage. (Remember, there may be grace periods for late payment or more generous state laws impacting the decision and time to terminate coverage. Be sure those timelines are followed and documented.)
While there is potential for the weary employer to misstep, the intersection of FMLA and COBRA can be handled, so long as it is with care and caution.
For an in-depth look at qualifying events that trigger COBRA, the ACA impact on COBRA, measurement and look-back issues, health FSA carryovers, and reporting on the coverage offered, request UBA’s ACA Advisor, “COBRA and the Affordable Care Act”.