Didn't pay medical premium while on leave

Johanaf

If an employee is on medical leave and doesn't pay the medical premium while out. Can we cancel the insurance? Do they have a grace period? We have an employee out on leave for 3 months and didn't pay for 2 months. The Insurance company confirm that the employee had medical claims during those months.
Can we cancel due to no payment after 30 days?
Please advice! Thanks!!
Johana
Phoenix, AZ

Scott Ruth

The starting point for the answer in your case is "What does your plan or insurance contract say?" and "What have you communicated to your employees about this?" You should particularly look to the SPDs and FMLA paperwork given to participants when requesting leave (I am assuming FMLA applies in this case). You should act in accordance with these documents to the extent they comply with FMLA and other relevant laws.

Generally, FMLA requires that medical benefits be offered on the same terms as to working employees. This means employees can be required to pay their same share of premiums in order to maintain coverage during the leave. If the leave is paid, premiums should continue to be deducted from the employee's pay during the leave. If unpaid, an employee can be allowed to pay on the regular payroll schedule, under a schedule as if on COBRA, or by other method agreed with the employee, including in advance. The employee must be given advance written notice of the terms and conditions of repayment.

In order to cancel for not paying, you have to give the employee a grace period until the later of 30 days from the date the premium was due or 15 days after you provide them with written notice stating that coverage will end if the premium is not paid by a certain date. If coverage is cancelled for nonpayment, coverage must be restored immediately when the employee returns from FMLA leave. This last requirement must be agreed to by the insurance company which often causes employers to pay the employee's share of the premiums during unpaid FMLA. The employee's premiums paid by the employer can be recovered from the employee upon return to work.

If you offer payment of medical premiums pretax through a section 125/cafeteria plan, IRS rules regarding change of elections must also be followed. New regulations effective 1/1/2002 allow an employee going out on unpaid FMLA leave generally allow the FMLA to be followed as outlined above through the cafeteria plan, except that premiums due during the leave cannot be paid pretax if the employee has no taxable income during the leave.

Note, too, that Arizona may have similar laws that supplement these requirements under the FMLA. I would check with your state Department of Labor on that.

I hope this helps in your situation.

Scott Ruth
Miller & Martin LLP

System

I actually had this happen to me once, and when the employee came back to work I had her sign a Payroll Authorization Form allowing me to deduct the delinquent amount on top of her regular deductions from two checks. It left her with about $100 to spend, but she got caught up on her premiums and got to keep her insurance.

The problem with this would occur when the employee doesn't return to the workplace. In Iowa, no pay = no coverage. The policy would be cancelled following the last payment of the premium.

Good luck. You've got your hands full. --Kerry

Gar

An employee can be dropped from an employer's medical plan if the premium payment is more than 30 days late.