Summary: When an employee takes a leave of absence under the federal Family Medical Leave Act (FMLA), employers might experience confusion around whether they are required to maintain group health plan coverage and other benefits during the leave. This article provides compliance guidance for employers to follow with respect to FMLA leave and maintenance of group health benefits.
Read on for more information.
FMLA Background
The federal Family and Medical Leave Act (FMLA) requires covered employers to provide eligible employees with up to 12 weeks of unpaid, job-protected leave for an eligible employee’s own serious health condition or to care for the eligible employee’s spouse, child, or parent with a serious health condition. Eligible employees may also take up to 26 workweeks of leave during a single 12-month period to care for a covered servicemember with a serious injury or illness, if the employee is the spouse, child, parent, or next of kin of the servicemember.
FMLA leave is also available for eligible employees to take time off work for the birth, adoption, or foster care placement of a child and to bond with the child.
Eligible Employees: Employees are eligible for FMLA leave if they work for a covered employer for at least 12 months, have at least 1,250 hours of service for the employer during the 12 months before the leave, and work at a location where the employer has at least 50 employees within 75 miles.
Covered Employers: Covered employers under the FMLA include:
- Private sector employers who employ 50 or more employees for 20 or more workweeks in the current or preceding calendar year, including joint employers or successors in interest to another covered employer,
- Public sector employers, including federal, state, and local government employers, with any number of employees, and
- Local educational agencies, including public school boards, public elementary and secondary schools, and private elementary and secondary schools, with any number of employees.
Group Health Plan Coverage During FMLA Leave
The FMLA requires employers to maintain an employee’s group health plan benefits coverage during the leave, and must maintain the coverage on the same conditions as prior to the leave.
Example: If the employee was enrolled in family coverage under the group health plan before FMLA leave, the employee must be allowed to continue this family coverage during the FMLA leave.
Group health plan benefit changes that apply to all active employees — such as changes in coverage, premiums, or deductibles — must also apply to employees on FMLA leave. This includes open enrollment rights, which apply to employees on FMLA leave in the same way as active employees.
Note that employers are advised to consider mailing legally required communications typically distributed electronically during the open enrollment period to the home address of employees who are on FMLA leave, since they may not have access to their work email.
An employer may require employees taking FMLA leave to pay the employee share of the group health plan premiums. However, employees may not be required to pay more than what they would have paid if they had remained actively employed.
Employees’ entitlement to non-group health plan benefits during an FMLA leave is determined by the employer's established policy for providing such benefits when employees are on other forms of leave (paid or unpaid).
Group health plan benefits include:
- Medical & prescription drug plan
- Dental plan
- Vision plan
- Health flexible spending account (FSA)
Non-group health plan benefits include:
- Life insurance plan
- Disability insurance plan
- Vacation/sick pay
- Retirement plan (including pension & 401(k) plan)
Collecting Employee-Share of Group Health Plan Premium During FMLA Leave
The Internal Revenue Code Section 125 cafeteria plan rules provide three options to collect the employee-share of the group health plan premium during FMLA leave, as detailed below.
- Pre-Pay Option: Employee pays for coverage in advance of the leave on a pre-tax basis through payroll deductions (generally on the last or series of last paychecks prior to the leave). This option works best when an employee is able to plan for the FMLA leave well in advance.
Limitations of the pre-pay option are:
- Cannot be the sole option offered, and the employer must offer at least one other option (as detailed below), and
- Not allowed to pay for coverage in the subsequent calendar year on a pre-tax basis. Practically, this can occur when an employee’s FMLA period starts later in the calendar year and extends into the next calendar year.
- Pay-As-You-Go Option: Employee pays for share of group health plan coverage in installments during leave, generally on a weekly, bi-weekly, or monthly basis.
- For paid FMLA leave: An employee will pay for group health plan benefits through the method normally used during any paid leave, typically through payroll deductions.
- such as when an employee substitutes accrued paid leave during FMLA leave*
- For unpaid FMLA leave: An employee will typically pay for group health plan benefits on an after-tax basis, outside of payroll deductions during the leave.
*In accordance with 29 C.F.R. § 825.207(a)
- Catch-Up Option: Employee agrees in advance to pay for coverage upon return from leave, typically on a pre-tax basis on the first or series of first paycheck upon return from FMLA leave. This option can present a financial risk to the employer if the employee does not return from FMLA leave.
Employers should confirm that the payment options offered to employees on FMLA leave are permitted under their applicable group health plan documents, including their Section 125 cafeteria plan documents. Regardless of which payment option is offered, an employer must provide the employee with advance written notice of the conditions under which the benefit payments must be made and may not require a payment method that is not required of employees who are on non-FMLA leave.
Employee Fails to Pay for Group Health Plan Coverage While on FMLA Leave
An employee may choose not to remain enrolled in group health plan coverage while on FMLA leave or may stop paying premiums for their coverage. The employer is not required to maintain group health plan coverage for an employee on FMLA leave if the employee’s premium payment is more than 30 days late, unless the employer has an established policy with a longer grace period.
Employers must notify employees on FMLA leave before group health care coverage is terminated for lack of premium payments. Generally, an employer must provide written notice to the employee at least 15 days before coverage is terminated. The notice must explain that the payment has not been timely received and that coverage will terminate on a date that is at least 15 days after the date of the letter, unless payment is received by that date.
Alternatively, if an employee fails to make premium payments for group health plan benefits while on FMLA leave, the employer may decide to maintain the employee’s coverage by paying both its share and the employee’s share of the plan premium. The employer may recover the employee-share of the plan premium not paid by the employee during this period of FMLA leave.
Return from FMLA leave
If an employee stopped paying group health plan premiums during their FMLA leave and subsequently returns to work upon FMLA exhaustion, the employer must reinstate the employee to the same benefits and coverage levels they had prior to taking leave.
The employer may not impose a waiting period before reinstating group health plan coverage for an employee returning from FMLA leave.
Employer Recovery of Group Health Plan Benefit Premiums
Employers may recover the employer-share of the group health plan premium if the employee fails to return to work after exhausting unpaid FMLA leave.
Exceptions to this rule permitting recovery of employer-share of the premium include failure to return from FMLA leave due to:
- serious health condition of employee or employee’s immediate family member,
- care for a servicemember, or
- circumstances beyond employee’s control.*
*Examples of other circumstances beyond the employee's control provided in the FMLA regulations include, but are not limited to:
- a parent chooses to stay home with a newborn child who has a serious health condition
- an employee's spouse is unexpectedly transferred to a job location more than 75 miles from the employee's worksite
- a relative or individual other than a covered family member has a serious health condition and the employee is needed to provide care
- the employee is laid off while on leave
Additionally, an employer may not recover its share of group health plan premiums for any period of substituted paid leave.
FMLA Exhaustion & Health Benefits
Once an employee exhausts their FMLA leave and does not return to work, an employee’s group health plan benefits will typically terminate, since group health plans typically require employees to work a minimum number of hours to be eligible for health coverage. At this point, the employer will be required to provide the employee with an opportunity to continue their coverage under COBRA[1] (or a state continuation coverage insurance law).
In these instances, the COBRA qualifying event occurs on the last day of the FMLA leave period. COBRA coverage can last up to 18 months following a termination of employment or reduction in hours.
Extended Leave Beyond FMLA & Health Benefits
If an employee exhausts their job-protected FMLA leave but still needs additional time before returning to work, they may request extended leave (beyond FMLA) as a reasonable accommodation under the Americans with Disabilities Act (ADA).
Brief, Non-Exhaustive Overview of the Americans with Disabilities Act (ADA)
The ADA is a federal law that applies to all public employers and any private employer with 15 or more employees for each working day in at least 20 calendar weeks in the current or preceding calendar year. The ADA prohibits employers from discriminating against employees with disabilities, and also requires employers to provide reasonable workplace accommodations to qualified employees (as well as applicants) with disabilities.
A disability is generally defined under the ADA as a physical or mental impairment that substantially limits one or more major life activities. An employer is required to provide reasonable accommodations to employees with disabilities under the ADA as long as doing so does not create an undue hardship* on the organization.
As a general point of reference, the ADA only requires employers to maintain group health plan coverage for employees granted leave under the ADA if the employer does so for similarly situated employees.
*Undue hardship generally means significant difficulty or expense and focuses on the resources and circumstances of the particular employer in relationship to the cost or difficulty of providing a specific accommodation, typically on a case-by-case basis.
Employers should review their group health plan documents and leave policies to determine whether an employee’s group health plan coverage must be terminated during an extended leave, such as leave granted as a reasonable accommodation under the ADA. The group health plan’s eligibility rules may define the period of time that an individual would still be eligible for coverage after FMLA leave has been exhausted.
If an employer’s extended leave policies (outside of FMLA leave) contain rules for group health plan coverage that are more generous than the plan document permits, be sure to:
- secure approval from the applicable health insurance carrier (for fully insured plans) or stop-loss carrier (for self-funded plans) for the more generous plan coverage rules to avoid unintended employer liability for denied claims, and
- amend the plan document language to reflect the more generous plan coverage rules for consistency and alignment purposes.
Employer Takeaways
The information provided above detailing rules in connection with group health plan benefits for employees on FMLA leave should provide a helpful roadmap to follow as your organization navigates through the complexities and nuances of FMLA administration and compliance.
Reminder: Certain states and local jurisdictions have their own FMLA and/or paid family medical leave (PFML) laws in place that might intersect with the federal FMLA group health plan rules detailed above. As such, employers are advised to pay close attention to applicable state and local FMLA/PFML requirements regarding group health plan coverage and comply with the relevant provision that is most generous to the employee.
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[1] COBRA stands for the Consolidated Omnibus Budget Reconciliation Act, which gives workers and their families who lose their group health benefits the right to choose to continue the benefits for limited periods of time under certain circumstances, such as job loss, reduction in hours worked, and others.
