As COBRA has evolved, the challenges of managing COBRA continue to to become more difficult. Leaves of Absence (LOA) during employment has made COBRA even more complex. LOA used to be about sick time and vacation. Now it can include leaves for maternity, paternity, personal, family, childcare, medical, military, sabbatical, adoption, ADA and other reasons.
For any LOA scenario, the employer should address the terms of the leave in writing prior to the employee taking leave so that he/she understands clearly what the policy involves or requires. Things like benefit elections during the leave, and details regarding payment of any applicable insurance premiums should be explained in detail.
This communication should be consistent with the employer’s LOA policy and FMLA (if applicable), and well as other considerations listed below. Unfortunately, in emergency leave situations, the employer is often not aware of the need for leave until after the start of the leave period. This starts a process in which the employer is playing “catch up.” In some scenarios, all coverages are continued for the employee, paid by the employer, and when the employee fails to return to work within a period of time the employer is left in a position where it cannot or does not recoup premiums advanced for the employee. Another challenging issue is when to terminate the coverage, which is addressed below.
Leave of Absence and COBRA
As stated, employers must have a formal, written LOA policy. This policy should be consistent with FMLA (if applicable), the employer’s written plan documents (Summary Plan Descriptions, or SPDs) for health and welfare benefits, and the policies of any applicable insurance carriers.
It is also a really good idea to coordinate your LOA policy with your COBRA policy. Most leaves of absence are unpaid leaves — whether FMLA, non-FMLA, or workers’ compensation related. This is where COBRA coordination can get tricky. Once leave begins, it may be confusing as the employee is no longer at work and the ability to collect premiums via payroll deduction is no longer an option. Without a formal leave policy, the reduction in hours could trigger a COBRA event since the employee is no longer reporting for work.
In these scenarios, the general practice is that the individual is allowed the option to: (a) continue benefits, with the employee’s share of premiums paid to the employer during leave or in another way approved by the employer; or (b) discontinue benefits during the leave by requesting a qualifying event change and preserving the option to reenroll in benefits at the conclusion of the leave.
Payment of Premiums During Leave
Employers have options for collecting the employee’s share of premiums for coverage during a leave of absence. If the employer has a LOA policy, it will usually allow the employee to pay for benefit premiums at the beginning of each month they are due.
Due to the risk that an employee may not return from leave (which then triggers the COBRA event of termination of employment), a best practice is typically for the employer to require that premiums be paid on a monthly basis by the employee by check or other method. If premiums are due from the employee during leave and not paid timely, the employer then has the option to terminate coverage for nonpayment after reasonable notification.
This is another scenario which gets challenging when coordinating LOA and COBRA. Failure to pay premium during leave where the employee fails to return to work could trigger the COBRA event back to the loss of coverage date and a COBRA notice would then be sent offering COBRA continuation due to the termination of employment.
Termination of Coverage or Employment
If the employee goes on leave, pays the necessary premium and returns to work, all is well. One of the most difficult issues for employers is if and when to terminate coverage for an employee who does not return from leave or has a leave period extended beyond the normal FMLA period (12 weeks). Consistent with the above information, best practice is for an employer to include in a formal LOA policy – consistent with the SPD(s) of applicable plan(s) as well as insurance carrier policies – that coverage for inactive employees ends after a certain timeframe.
A common eligibility provision in carrier contracts and benefit plan SPDs is that coverage for an inactive employee ends after 3 calendar months or 13 calendar weeks. Here’s a sample provision:
An individual will remain eligible only for a limited time if active, full-time work ceases due to an FMLA leave of absence, employer approved non-FMLA leave of absence, certified disability or workers’ compensation leave, or temporary layoff. Eligibility will end upon the conclusion of the three (3) calendar month period immediately following the month in which the person last worked as an active employee.
In this scenario, once an employee goes on leave, if he/she does not return within the specified time, coverage is terminated, and COBRA is offered. (If the employer is not subject to COBRA due to size, then state continuation would be offered for health coverage.) The technical COBRA triggering event is reduction of hours, since the employee is still technically employed, but status has gone from active to inactive.
This offer of COBRA protects not only the employee, but the employer, since if the employer fails to terminate coverage and offer COBRA, there will likely be issues down the road when the carrier refuses to continue coverage for the individual for more than 3 months (inactive employee limitation) plus 18 months (COBRA period). An employer’s failure to adhere to this timetable could result in liability for excess claims or coverage beyond what the carrier is legally required to pay.
As a reminder, similar termination and COBRA concepts apply to other group health benefits, including dental, vision and others. While COBRA does not apply to life and disability benefits, those benefits have portability provisions that may need to be communicated to employees. Try to remember to keep COBRA in mind before, during, and after any leave of absence. As always, do your best.
