Managing Health Coverage for Employees on FMLA Leave: Handling Late Premium Payments and Account-Based Plans

Managing Health Coverage for Employees on FMLA Leave: Handling Late Premium Payments and Account-Based Plans

by | Apr 24, 2025 | Blog

Navigating the complexities of the Family and Medical Leave Act (FMLA) can be challenging, especially when it comes to maintaining health coverage for employees on unpaid leave. This guide will help you understand what to do when an employee on FMLA leave fails to pay their health insurance premiums on time, and how it affects Flexible Spending Accounts (FSAs), Health Reimbursement Arrangements (HRAs), Health Savings Accounts (HSAs), and COBRA.

Employer Obligations

Under FMLA, employers must maintain health coverage for employees on leave as if they were still working. This obligation ends if the premium payment is over 30 days late, unless your company policy allows a longer grace period.

Steps Before Dropping Coverage

Before dropping an employee’s health coverage, provide written notice at least 15 days before coverage ends, specifying the termination date if payment isn’t received. Send the notice at least 15 days before the end of the grace period.

Termination of Coverage

Coverage can be terminated retroactively if your company policy allows, otherwise, it ends prospectively at the grace period’s end.

Impact on FSAs, HRAs, and HSAs

  • FSAs: Employees can choose to continue or revoke their FSA coverage during unpaid FMLA leave. Payment options include pre-pay, pay-as-you-go, and catch-up contributions.
  • HRAs: Employers must extend COBRA rights to HRAs. Employees can use their HRA balance during COBRA coverage, and employers should calculate a reasonable premium for the HRA.
  • HSAs: Employees can continue contributing to their HSA during COBRA coverage and use HSA funds to pay for COBRA premiums.

COBRA and ACA Rules

A COBRA election notice isn’t required for coverage loss due to nonpayment. However, failure to return to work after FMLA leave is a COBRA qualifying event. ACA allows cancellation for nonpayment, but stricter state laws may apply.

Restoring Coverage

If an employee returns from FMLA leave after coverage was dropped, their health coverage must be restored.

Managing health coverage for employees on FMLA leave requires careful attention to legal requirements and company policies. By following these steps, you can ensure compliance and support your employees during their leave.

Source: Thomson Reuters

Managing Health Coverage for Employees on FMLA Leave: Handling Late Premium Payments and Account-Based Plans

Understanding COBRA Coverage Termination for Small Premium Shortfalls

by | Feb 13, 2025 | Blog

When managing COBRA coverage, it’s important to know what happens if a qualified beneficiary pays less than the full premium amount. Here’s a simplified guide:

Timely Payments and Grace Periods

Qualified beneficiaries must make timely COBRA premium payments, with a 30-day grace period each month. If the full premium isn’t paid by the end of this period, coverage can be terminated. However, there are special rules for small shortfalls.

What is an Insignificant Shortfall?

An insignificant shortfall is a payment that is less than or equal to the lesser of $50 or 10% of the required premium. For example, if the premium is $490, a shortfall of up to $49 is considered insignificant.

Handling Insignificant Shortfalls

  1. Notify the Beneficiary: Inform them of the shortfall and give them a reasonable period (usually 30 days) to pay the difference.
  2. Grace Period: Allow the beneficiary to pay the remaining amount during this period to avoid termination.
  3. Accept Underpayment: Alternatively, the plan can accept the underpayment as full payment.

Best Practices

  • Include Procedures: Clearly outline shortfall procedures in your COBRA plan.
  • Prepare Notices: Have a standard notice ready for shortfalls.
  • Prompt Notification: Send the notice as soon as a partial payment is received.

By following these steps, you can manage COBRA coverage effectively and ensure compliance with regulations. This helps prevent unnecessary termination and gives beneficiaries a fair chance to maintain their health benefits.

Source: Thomson Reuters