Employee Leave and Health Benefits: What Employers Need to Know
When an employee takes a leave of absence, one of the first questions employers ask is:
“Do we have to continue their health insurance coverage?”
Unfortunately, there isn’t a one-size-fits-all answer.
Whether an employee remains eligible for group health plan coverage during a leave of absence depends on several factors, including the type of leave, applicable federal or state laws, and the eligibility provisions outlined in the employer’s health plan documents. Employers that operate in multiple states face an even greater challenge, as leave requirements can vary significantly from one jurisdiction to another.
Understanding Protected vs. Unprotected Leave
Certain types of leave are protected under federal or state law and may require employers to continue health plan coverage.
Examples include:
- Family and Medical Leave Act (FMLA) leave
Military leave covered under USERRA- Certain state family and medical leave programs
- Leave provided as a reasonable accommodation under the ADA in some circumstances
For example, employers covered by the FMLA must generally maintain health plan coverage for eligible employees on the same basis as if they were actively working.
On the other hand, employees taking personal leave or other employer-approved absences that are not protected by law may not automatically remain eligible for coverage. In these situations, employers should carefully review both their plan documents and internal leave policies before making decisions.
Why Eligibility Matters
One of the most common compliance mistakes occurs when employers continue active health coverage for employees who are no longer eligible under the terms of the health plan.
This can create significant risk, including:
- Potential denial of claims by the insurance carrier or stop-loss provider
- Unexpected financial liability for the employer
- COBRA administration issues
- Compliance concerns under federal regulations
Simply put, extending coverage beyond what the plan allows can sometimes create more problems than it solves.
Don’t Forget About ACA Requirements
Applicable Large Employers (ALEs) also need to consider how an employee’s leave affects their obligations under the Affordable Care Act (ACA).
Paid leave generally counts toward hours of service for ACA purposes, and employees who have already been determined to be full-time under the ACA’s look-back measurement method may need to remain offered coverage during an ongoing stability period—even if they are not actively working.
This is an area where ACA compliance, leave administration, and health plan eligibility can overlap in ways that are not always obvious.
Best Practices for Employers
To reduce risk and maintain compliance, employers should:
- Review health plan eligibility provisions before approving extended leaves
- Understand federal, state, and local leave requirements that may apply
- Maintain clear and consistent leave policies in your Employee Handbook
- Coordinate with insurance carriers, TPAs, or stop-loss providers before extending coverage outside normal eligibility rules
- Ensure proper COBRA administration when coverage eligibility ends
- Consult with benefits and legal advisors when unique situations arise
The Bottom Line
Managing employee leave is about much more than approving time away from work. Health plan eligibility, ACA obligations, COBRA requirements, and state leave laws can all come into play.
A proactive review of your leave policies and benefit plan documents can help prevent costly mistakes and ensure employees receive the coverage protections they’re entitled to.
If your organization operates in multiple states or has questions about how leave impacts health plan eligibility, the JGBC team is here to help, along with our team of risk management and compliance specialists at BizAssure.
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