When to Terminate Coverage for an Employee on Leave
Many employers don’t want to terminate employment or coverage for an employee for circumstances outside of their control. This sticky situation often comes up when an employee takes time off due to an illness or injury and can’t work. Their hope is that the employee will come back to work as soon as possible. This is especially true when it’s a family member or skilled employee that has done a good job.
So when do you terminate coverage for an employee on leave?
Sometimes, the employer will continue to pay health insurance premiums even though the employee isn’t earning a paycheck. This creates problems such as…
- If the employee is unable to return to work, the employer is then left in an awkward position.
- Medical carriers are regularly reviewing Quarterly Wage and Tax Statements for accuracy and finding employees on the coverage that don’t belong. Retroactive terminations can occur leaving the employee in an even tougher dilemma of trying to appeal a late enrollment in individual coverage.
- Potential for discrimination lawsuits exist if another employee in a similar situation doesn’t get their health premiums paid.
We can’t take the awkwardness away, but here are some steps to help you develop a plan for when this happens:
Step 1: Establish a policy for any leave of absence, including the rehiring former employees, and don’t deviate from it.
Defining the rules of the road up front gives the employer and their employees a clear understanding of expectations*. Your leave policy should include requirements for maintaining and paying for health insurance while the employee is off from work and it should address how long the employer will maintain coverage and when employment and coverage will end. For rehiring, most medical carriers will reinstate a former employee if they return within 60 days without a waiting period.
If you’re not sure where to get an employee handbook or leave policy, ARC Benefit Solutions provides clients with access to HR360, which has sample employer manuals that include leave and rehire policies.
*FMLA rules apply to most employers with more than 50 employees and it has specific guidelines that must be followed. Still, setting the expectations around payment of premiums and communications is important.
Step 2: Consider there are other options for health coverage.
In Ohio and Kentucky, when terminating an employee’s employment and coverage, the employee can sometimes qualify for State Continuation of Coverage for groups under 20 employees while COBRA continuation of coverage exists for larger employers. In Ohio, state continuation is only available for an involuntary termination. This allows the employee, if they meet the criteria, to stay on the plan for another 12 months. (State continuation of coverage is not available in Indiana or Michigan.)
In addition, ARC Benefit Solutions has an entire team of agents specialized in individual and senior coverage. They can help your employee find insurance if COBRA or state continuation is not an option.
Step 3: Consider disability coverage.
If you don’t already have disability income coverage, it might be time to take a look at this benefit. Statistics show that 1 in 3 people will have a disability that prevents them from working for two years or more and it’s the number one reason that people declare bankruptcy. Basic disability policies cost about the same as life insurance while having a higher probability of being used. Depending on the size of the group, it can usually be offered on a voluntary basis. This can take away some of the responsibility a business owner may feel about an employee going through a tough time and provides a means for them to pay for their health insurance or other living expenses while they recover.
This can be a confusing time for any employer. Your ARC representative is ready and able to assist you in thinking through these areas to come up with the plan to build goodwill with your employees while keeping your plan compliant and fair.
