One of my employees is out on leave. Can I charge her the full amount of her healthcare premium? Can I terminate her coverage?
This frequently asked question resonates with many of our Members. Healthcare coverage issues are often complex, but knowing what your obligations are as an employer is critical in order to be compliant. Failure to do so could result in legal liability.
The MEA Employers’ Hotline exchange below explores the topic of how to legally and responsibly manage healthcare premiums when an employee is out on leave.
Member: One of my employees is currently out on leave. Can I charge her the full amount of the healthcare premium? Or can I terminate her coverage?
MEA Expert: Thank you for calling the Hotline for insight on this matter. To answer your question accurately, I’ll first need to more information about the leave. Is the employee’s leave designated in accordance with Family Medical Leave Act (FMLA) regulations?
Member: No, it is not. Does that matter?
MEA Expert: Thank you for clarifying. Yes, the type of leave is a significant detail when it comes to determining your obligations as an employer. For example, if an employee is out on FMLA the employer is responsible for continuing to pay its share of any group health care premiums it paid prior to the FMLA leave, while any share of these premiums which had been paid by the employee prior to leave must continue to be paid by the employee during the FMLA leave period. But note that maintenance of health insurance policies which are not a part of the employer’s group health plan are the sole responsibility of the employee. Finally, provided the employer identified the consequences of failing to pay employee’s share of premiums during leave in the Rights and Responsibilities Notice, the employer would be able to terminate coverage (and issue a COBRA notice) if the employee failed to pay their share of group health care premiums.
Member: I see. But my employee’s approved leave is not FMLA. Does that mean I can in fact charge her the full premium rate or terminate coverage?
MEA Expert: That’s a good question. In this case, you would have to adhere your company’s specific policy on how healthcare coverage and leaves of absence are managed. Does your company have an established policy in place?
Member: No, I don’t believe we ever formalized a policy for this type of situation.
MEA Expert: Ok, is there a past practice that you can recall implementing in a similar situation involving a leave of absence?
Member: Yes, we did experience a situation in which an employee was out on approved leave. We did not charge him the full premium, and we did not terminate his coverage. We simply required him to pay the premiums when he returned.
MEA Expert: This is helpful to know. Is there any reason why you simply don’t apply the same practice to the employee currently out on leave?
Member: Yes. With this employee, we know that she won’t be returning for an additional two months, so we want to make sure that she pays her premiums.
MEA Expert: Ok, have you communicated to her the cost of the premiums and when she is expected to pay?
Member: No, not yet. I wanted to first verify that I am allowed to require her to pay the premiums now instead of upon her return.
MEA Expert: It’s a good thing you called the Hotline before proceeding because in your case, you don’t have an established company policy or sound practice in place, which means that you are in fact under obligation to follow past practice. In other words, you are expected to allow the current employee who is out on leave to pay her premiums upon return in the same manner that you allowed your former employee to do so. If, however, you have never in the past paid an employee’s premiums for longer than two months, you may be able to cease paying the premiums for this employee beyond two months; however, if you plan to require the employee to pay their share of coverage at some point (like after the two month mark), you should communicate this to the employee as far in advance as possible. Consistent with your past practice, and in accordance with your particular health plan policy, you may also be able to stop paying the employer’s share of premiums at some particular point, at which time you would issue a COBRA notice. This would also be a very good time to implement a consistent practice in respect to these issues, and memorialize that practice in a written policy.
Member: Are there legal implications associated with failing to follow past practices?
MEA Expert: Good question. In this case specifically, there is legal risk. Your current employee could claim discrimination because you are assigning payment terms to her that you did not require from your former employee who was also out on leave.
Member: I see. So what is the best course of action in this case?
MEA Expert: Again, the advisable course of action for you and your company moving forward would be to establish a sound and comprehensive policy for when an employee is on non-FMLA approved leave that includes the duration of time in which an employee can remain at the employee benefit premium rate, when it expires, and when and under what circumstances the employee would be offered COBRA.
Member: That makes sense. Can we establish the policy this week, make it effective immediately, and then apply it to the employee currently on leave?
MEA Expert: It’s OK to do it immediately, but I would not apply that policy to this particular employee if the policy is less generous than your past practice. This could result in a retaliation claim, since it appears you changed your policy specifically in response to this employee’s leave. It is paramount that once you establish a policy that sets clear limits and puts all of the risk on the employer, you call your benefits broker to ensure that it does not interfere with any agreements in place by the healthcare provider. Again, if this policy is less generous than your past practices, you must wait a reasonable amount of time before putting the practice into effect.
Member: What is considered to be a “reasonable” amount of time?
MEA Expert: It’s really up to company discretion, but 30-60 days is best practice. You want to make sure that you clearly communicate the new terms to all of your employees and let them know the exact date when the new policy will be put into effect.
Member: There is a lot to consider here, and we’ll get started right away. Is it ok if I call back with additional questions?
MEA Expert: Of course. With MEA, HR guidance is only a phone call away.
MEA’s goal is to provide current, detailed and useful information to hotline callers, but our responses do not constitute legal advice about what you should or should not do in a particular situation. You should always consult legal counsel, in the context of a confidential attorney-client relationship, before taking any action that could have legal implications for you or your business.
