If an employee fails to pay their share of group health plan premiums during FMLA leave, can the employer terminate the coverage and offer COBRA?

FMLA requires a covered employer to maintain an employee’s coverage under its group health plan on the same basis as would have been provided if the employee had been continuously employed during the entire FMLA leave period. However, an employer may terminate an employee’s coverage during FMLA if the employee’s premiums are paid late, provided certain rules are strictly followed.

Under these rules, when an employee agrees to pay their share of group health plan premiums during FMLA leave (a.k.a. the “pay-as-you-go” payment method) but is late with a premium payment, then, in the absence of an established employer policy for a longer grace period, an employer may terminate an employee's coverage if an employee’s payment of their share of the premium is more than 30 days late. 

In order to terminate coverage on this basis, however, the employer must provide advanced written notice informing the employee that payment has not been received and coverage will be dropped on a specified date (which must be at least 15 days after the date of the notice) if the payment is not received by the specified date.

Furthermore, if the employer has established policies regarding other forms of unpaid leave that provide for coverage to cease retroactively to the date on which the unpaid premium payment was due, the employer may drop the employee from coverage retroactively in accordance with that policy given that the 15-day notice was given. As a practical matter, the notice should highlight the coverage would be terminated retroactively with the specified date.  

Note that even if an employer does terminate the coverage for this reason, the employer must still restore the employee to coverage and benefits equivalent to those of the employee upon the employee’s return from FMLA leave. Importantly, COBRA would not be triggered during FMLA leave even when coverage is terminated due to late premium payment.

But what if this employee does not return to work after exhausting their FMLA leave? 

While COBRA is not triggered during FMLA leave even when coverage is terminated due to late premium payment, COBRA would be triggered under these circumstances, even if their coverage was terminated for the failure to pay premiums during the FMLA leave, provided that the employee was covered on the day before the first day of the FMLA leave under a group health plan of the employer and the employee would lose coverage under the group health plan before the end of the maximum coverage period in the absence of COBRA coverage. 

For these purposes, the COBRA maximum coverage period would generally begin on the last day of FMLA leave. While the regulations are not entirely clear on this point, standard practice indicates that the last day of FMLA leave is either the last day of the period of leave to which the employee is entitled, or earlier, if the employee notifies the employer that he or she is not returning to work. 

It is important for the employer to detail their FMLA leave policy clearly in their employee handbook or other materials and communicate it to their employees in advance of the leave. Furthermore, employers are required to retain employees’ benefits premium payment records (among other FMLA-required records) for at least three years. 

Employers should work with their employment legal counsel and HR experts to set up comprehensive leave policies and practices to ensure compliance with all applicable federal and state laws. 

For additional information on this topic, please refer to:

DOL FMLA Employer Guide

DOL FMLA Advisor: Employee Failure to Pay – Health Plan Premium Payments

DOL FMLA Advisor: Employee Payment of Group Health Benefit Premiums