On December 6, the Internal Revenue Service issued Notice 94-103 clarifying some open issues related to the interrelation of COBRA and the Family and Medical Leave Act (FMLA). The clarifications will probably please few employers.
As was anticipated, the Notice provides that the taking of FMLA leave does not constitute a qualifying event. Instead, a qualifying event occurs if:
the employee (or the employee?s spouse or dependent child) is covered under the employer?s group health program on the day prior to the first day of FMLA leave,
the employee does not return to employment at the end of the leave, and
the employee (or the employee?s spouse or dependent child) would lose coverage under the group health plan prior to the maximum period of coverage under COBRA.
Generally, the date of the qualifying event will be the last day of the FMLA leave and the maximum period of coverage will be measured from that date, even if the actual loss of coverage occurs at a later date. However, if the plan provides (as permitted under COBRA) that the maximum period of COBRA coverage is measured from the day of actual loss of coverage and the loss of coverage occurs after the last day of FMLA leave, the measuring period starts on the date coverage is actually lost. The differences are demonstrated in the following examples.
Example 1
X, an employee of B, begins FMLA leave on January 9, 1995. X does not return to work 12 weeks later on April 3, 1995. B?s health plan provides that coverage under the plan ceases upon the employee?s termination of employment. B?s personnel rules provide that an employee?s employment is terminated upon failure to return from an authorized leave of absence. The qualifying event occurs on April 2, 1995, and the maximum period of COBRA coverage is measured from that date.
Example 2
Same facts as Example 1, except that B?s health plan provides that coverage under the plan ceases on the last day of the month in which termination of employment occurs. The qualifying event occurs on April 2, 1995, and the maximum period of COBRA coverage is measured from that date, even though X will not actually lose coverage under the plan until April 30, 1995.
Example 3
Same facts as Example 2, except that B?s health plan also provides that the maximum period of COBRA coverage is measured from the actual loss of coverage. The qualifying event still occurs on April 2, 1995, but the maximum period of COBRA coverage, and the applicable period for giving notice under COBRA, is measured from April 30, 1995.
It is important to note that the qualifying event will not always occur on the last day of the 12th week of FMLA leave. If, during the period of FMLA leave, the employee informs his employer that he will not be returning to work, the employee?s FMLA leave terminates on that date, and that date becomes the date of the qualifying event. Thus, if, in Example 1, X informed B on February 15, 1995 that he would not be returning to work, the date of the qualifying event would be February 15.
The rule that the qualifying event generally occurs on the last day of FMLA leave holds true even if the employee declines coverage under the group health plan during the period of FMLA leave, or fails to pay premiums for coverage during that period. Moreover, the right to COBRA continuation coverage may not be conditioned upon the employee reimbursing the employer for any health premiums paid by the employer to maintain coverage during the period of FMLA leave.
Example 4
At the commencement of FMLA leave, X, an employee of B, declines coverage under B?s group health plan and, therefore, has no health coverage for the entire 12 weeks of FMLA leave. In week 12, X learns that he will have to undergo surgery one month later. X does not return to work when the FMLA leave expires. B must offer X COBRA coverage when the qualifying event occurs (on the last day of the FMLA leave). If B?s health plan contains a 6-month waiting period for participants who have allowed their coverage to lapse, B is, in effect, self-insured for X?s surgery.
Example 5
At the commencement of FMLA leave, X, an employee of B, elects to continue coverage. X voluntarily enters into an arrangement with B pursuant to which (1) X?s share of premiums will be paid by B during the period of the FMLA leave, and (2) B will be reimbursed by deducting the amount so paid from X?s wages, after X?s return from leave. X takes 12 weeks of leave during which the employer pays X?s share of the premiums - $1,000. X never returns to employment and never offers to reimburse B for the $1,000. B still must offer X continuation coverage under COBRA. B may, however, treat the $1,000 owed by X as a debt that may be collected through litigation.