“No good deed goes unpunished.”
By Christy Showalter
While this is certainly not the golden rule I live by in my personal life, in the world of human resources, sometimes “just being nice” can sadly prove this outlook true. I have seen this play out time and time again as an employer inadvertently put itself at risk by not having – or inconsistently applying – an established policy to determine how long to continue benefits during an employee’s leave of absence (LOA).
Without an established LOA policy, it’s difficult to tell an employee that benefits are being terminated in the middle of a leave – especially when the leave is due to the health condition of the employee or a loved one. It’s easy to make an emotional decision rather than a sound business decision, but good intentions can lead to significant financial exposure and increased risk of complaints of discriminatory treatment. Employers should consider not only the needs of the employee, but also the interplay of carrier contractual provisions, federal and state benefit regulations and the employer’s own policies. It’s critical that companies proactively establish a LOA policy – before a question arises. Has yours?
Carrier Contractual Provisions
Arguably, the most important consideration in developing a LOA policy is the determination of how long your insurance carrier has agreed to continue benefits when an employee is either on leave or not actively working full-time hours. Whether fully-insured or self-funded, you want to be certain that the employee remains eligible under the terms of the contract or plan document before continuing coverage during a leave. It is becoming more common for carriers to request documentation relating to an employee’s leave, particularly when there has been a large claim. If the carrier determines that the employee was ineligible for continued benefits, the employer could unexpectedly find itself financially responsible for claims incurred during or even after the leave.
Check your plan’s eligibility and termination conditions to determine whether your plan document or contract with your insurance (or reinsurance) carrier specifies the maximum period of time coverage can be continued during an approved leave. Keep in mind that periods of coverage may vary from plan to plan (i.e., medical, life, disability) and for each type of leave (i.e., FMLA versus non-FMLA leave, and leave due to the employee’s own illness versus leave for other reasons). Work closely with your benefits advisor to make sure these contractual provisions not only mirror your HR policies and intentions, but also comply with the regulatory requirements outlined below to avoid unintentional financial and legal exposure.
Federal and State Leave Regulations
A related consideration is whether the employee’s leave is protected by the FMLA or other state leave regulation. If yes, then the FMLA generally requires that the employee’s health benefits be continued for the duration of the protected leave, up to 12 (or 26) weeks. State leave laws may require an even longer extension of coverage. For example, the Tennessee Human Rights Act requires that certain employers offer up to 16 weeks of leave related to adoption, pregnancy or childbirth. Failure to provide benefits in compliance with these federal and state regulations could result in legal exposure.
You should work closely with your benefits advisor to determine if your plan documents provide for continued coverage in compliance with all applicable federal and state leave regulations. You don’t want to be in a position where your plan document requires termination of coverage following 12 weeks of FMLA leave, while state law requires 16 weeks of benefits. It is also important to classify and document leaves of absence in a timely manner. Documentation may be important to prove compliance with the law’s notification requirements or explain why coverage was continued while an employee was not actively working full-time hours.
The ACA and Stability Periods
Additionally, if you are an employer subject to the ACA, your choice of measurement method (monthly or look-back) may be a consideration in how long to continue benefits during a LOA. Eligibility for coverage under the monthly method is determined by current hours worked on a month-by-month basis and may be influenced by a LOA. Eligibility under the look-back method, however, is dependent on historical hours worked during a measurement period and is not generally impacted by a LOA (at least until the subsequent stability period). When an employee is classified as full-time during a stability period, coverage should continue to be offered through the end of the stability period, regardless of the number of hours worked (unless, of course, employment is terminated). This is, again, where it’s important to work closely with your benefits advisor to ensure your plan documents have been updated to reflect your practices, including your measurement method and any applicable stability periods. Otherwise, the document’s contractual terms and limits on continuation of coverage during a leave could force you to terminate coverage early – before the end of the stability period – potentially resulting in penalties under the ACA.
Employer Policies and Precedents
After considering the above issues, what if there’s still no clear answer to how long benefits should be continued during a LOA? In this case, the decision may be left to the discretion of the employer, and internal policies or prior precedents will be determinative. To minimize risk and ensure consistency, it’s even more important to have a policy in place that clearly addresses the maximum length of time an employee may be covered while on leave before COBRA is offered due to the reduction in hours worked. In developing this policy, keep in mind any contractual restrictions imposed by the carrier, regulatory mandates and ACA compliance. Thinking through these questions before an employee goes on leave will help avoid emotional decisions related to benefits during the leave. And that will help ensure your good deeds are rewarded rather than punished.