Insurance Issues: FMLA, Extended Leave, and Terminations

August 7, 2024

As many employers discovered during the COVID pandemic, one of the most complex components of leave can be whether an employee's health insurance is continued throughout the leave or, according to the health insurance contract, it ends if an employee does not meet certain minimum weekly hours worked. Issues of this type can occur during any extended leave, including accommodations under the ADA/ADAAA, during layoffs, or for personal leaves.

Extended Leave

As a way to address concerns regarding coverage, insurance carriers may suggest putting specific time limitations on any leave that will be extended after FMLA is exhausted. Due to the requirement of the FMLA, insurance companies frequently extend eligibility for a 12-week period even though the employee is not working the required minimum weekly amount to qualify under insurance. The issue becomes complicated when FMLA no longer applies.

When no FMLA or other state-mandated leave, such as pregnancy leave under Iowa Code 216, is involved, insurance companies do not have the same limitations in terms of disqualification from insurance. Extended leave outside of the parameters of any kind of legally mandated leave can result in the employee being disqualified from coverage under the insurance policy - which is not a surprise that you or an employee wants. As noted, many insurance companies may suggest mandated minimums for leaves, but this may not typically be allowable under the ADA/ADAAA or PWFA as all extended leave requests based on an employee's healthcare condition or pregnancy must be assessed on an individualized basis.

Remember, accommodation is an interactive and individualized discussion, which means that flat leave limitations without any wiggle room can be problematic. They make a good baseline but are not necessarily appropriate as a hard stop. One way for employers to address this is with their policies - shifting from covering the insurance if the employee remains an otherwise qualified employee during the term of leave to COBRA or other benefit continuation once they are outside legally mandated leave.

For example, employees on FMLA would continue to be offered insurance as if they were employed but when the mandated timeframe (12 or 26 weeks) lapses, the employee may be extended additional leave but the benefit profile changes with the employee being placed on COBRA. It is not unreasonable to be concerned about the effect of policies of this type as it is likely to place an additional burden on the employee in terms of cost. Alternatively, it would address some of the more common insurance disqualification issues that occur.

Severance

A similar insurance issue may occur when offering severance to a terminated employee. Some employers offer continued benefit coverage as part of the severance package. However, unless your insurance contract allows you to continue covering people who no longer work for you, this may invalidate coverage under the existing insurance contract. Employers could be better served, depending on the structure of their insurance, to simply offer a lump sum payment or something else to offset the cost of COBRA rather than attempting to continue the insurance.

The Big Picture

Each insurance contract can be different and the type and nature of the insurance you use can also impact leave issues. It is important to remember that most insurance contracts do not look at whether or not you consider someone an employee, but if they are, in fact, working and how many hours per week they are averaging. So, the insurance company is looking at hours worked. As such, you need to understand the terms of your insurance policy before offering extended leaves or severance that include benefits.