QUESTION: An employee on unpaid FMLA leave agreed to pay his share of premiums for coverage under our major medical plan by sending in personal checks, but he missed the due date for the first payment. May we drop him from coverage, and if so, when?
ANSWER: Your company’s obligation to maintain the health coverage of an employee on FMLA leave generally ends when the employee’s premium payment is more than 30 days late, unless you have an established policy of providing a longer grace period. Before dropping coverage, however, you must provide the employee with written notice that payment has not been received. The notice must be mailed to the employee at least 15 days before coverage is to end and must advise that coverage will be dropped on a specified date that is at least 15 days following the date of the letter, unless payment is received by that date. So, to drop the employee’s coverage on the earliest possible date, the notice should be mailed at least 15 days before the end of the 30-day (or longer) grace period. If your company has established a policy regarding other forms of unpaid leave that provides for coverage to end as of the date an unpaid premium payment was due (i.e., retroactively), then the employee’s coverage generally may be dropped retroactively in accordance with that policy. Otherwise, coverage may be terminated prospectively, effective at the end of the grace period.
When an employee loses coverage for nonpayment of premiums, a COBRA election notice generally is not required. However, the employee’s failure to return to work at the end of the FMLA leave is usually a COBRA qualifying event, even if coverage was dropped during the leave. Also, while health care reform’s prohibition on rescission of coverage does not apply to the extent that a cancellation of coverage is attributable to a failure to timely pay premiums, a state law with stricter standards regarding when coverage may be rescinded or canceled may apply. Finally, if your employee’s coverage is dropped because he failed to timely pay his share of the premium, but he later returns from the FMLA leave, his coverage generally must be restored.
For more information, see EBIA’s Group Health Plan Mandates manual at Sections XVII.C.4 (“FMLA: When Does the Obligation to Maintain Coverage End?”) and XVII.F (“Restoration of Benefits Upon Return From Leave”). See also EBIA’s Health Care Reform manual at Section X.D (“Prohibition on Rescissions”); and EBIA’s COBRA manual at Section VII.L (“Special Issues: Leaves of Absence”).
Contributing Editors: EBIA Staff.