If an employee doesn’t return to work following FMLA or state law leave, when should benefits terminate?

Following the expiration of any federal FMLA or state protected leave, an employee may stay on health benefits for as long as the eligibility terms of the plan allow. The Summary Plan Description, any employee handbooks or other communication describing benefit eligibility during leaves of absence should be consistent with the plan terms and approved by the carrier (stop-loss carrier if self-insured). In addition to ERISA’s fiduciary requirement to follow the terms of the plan, if a group unilaterally allows an employee to stay on the plan for longer than the carrier allows, then they risk having to self-insure claims incurred during the extended period.

A solid leave policy can support consistent and predictable benefits administration during extended employee absences. However, deciding an employee’s benefit eligibility while on leave as a one-off or promising more than what’s allowed in the plan document further risks setting a precedent or inadvertent discrimination, even if intended as generosity. For example, the ADA could be implicated if an employer has an informal practice of allowing only nondisabled employees on sabbaticals to remain on the plan longer than disabled employees on medical leave.

Applicable large employers (ALEs) also need to consider the employer mandate. If an ALE uses the look-back measurement method to determine health plan eligibility, an employee who earned full-time status in the most recent measurement period would remain eligible throughout the stability period regardless of the number of hours worked. The chosen measurement method should be incorporated into the health plan’s eligibility terms consistent with the SPD, employee handbook and other benefits communications. Note that when employment ends during a stability period, the individual is no longer an active employee under the terms of the health plan or for employer mandate penalty purposes.

A COBRA qualifying event occurs when benefits (but not necessarily employment) are terminated consistent with the plan’s eligibility requirements and any employer leave policy. That is, a reduction in hours (extended leave of absence) has caused a loss of coverage.

The right to continue those coverages during leave for other, non-health benefits (e.g., disability, life) is similarly governed by the eligibility terms of each respective plan document. Employers should review their disability and life plans and carrier contracts to determine whether they hold any administrative responsibilities for providing conversion notices or paperwork when coverage terminates.

Administering benefits during leaves can be complicated. There are different state and federal laws at play depending on a given employee’s reason for leave and work location. Employers should work with their legal counsel and HR experts to set up solid leave policies and ensure compliance with all applicable laws. Employment termination for those who do not return from FMLA or state protected leave is a separate issue for which employers should consult with employment law counsel.