FMLA and COBRA
The connection between COBRA and Family and Medical Leave Act (FMLA) can be
confusing. Plan administrators need to understand that although going on leave
under FMLA does not necessarily trigger a COBRA qualifying event, the failure of
an employee to return to work after exhausting his FMLA leave could create a
qualifying event if it causes a loss of coverage. An employer is not obliged to
extend the benefits of FMLA even if the individual remains an employee during
sick or short-term disability leave.
In a recent case a firefighter was not able to return to work after
exhausting his FMLA leave although he remained an employee because of the sick
leave hours he accumulated after years of employment. He filed a lawsuit against
the City claiming the City violated COBRA when it cancelled his insurance
The case is Neal v. City of Danville, Virginia, 2014 WL 7011123
(W. D. Va. Dec. 11, 2014)
Barry Neal, a firefighter for the City of Danville, was injured on Feb. 1,
2013 in a non-work related accident. Neal used about 2,000 hours of paid sick
leave that he had accumulated since he began working for the City of Danville in
April 1987. Contrary to Neal’s choice, the city put Neal on FMLA on Feb. 15,
2013, although he remained covered under the City’s health plan as he continued
to use his accrued sick leave hours.
The City sent Neal a COBRA election notice after he exhausted his 12 week
FMLA and he was still unable to return to work. The City told him his health
insurance benefits would be cancelled according to the City’s FMLA policy which
states “in all cases, at the point of FMLA leave exhaustion, the employee’s
benefits will be subject to COBRA and/or direct billing, as applicable, based
upon the benefit.” Neal elected COBRA after he exhausted his FMLA leave and paid
approximately $1,872 in COBRA premiums.
On July 17, 2013 Neal was medically cleared to return to work and the City
reinstated his group health benefits. Neal then decided to sue the City stating
that since no qualifying event occurred, the city violated COBRA when they
cancelled his benefits. The City argued that a qualifying event did occur – they
felt that Neal’s use of sick leave was a reduction in work hours that he
actually worked, thereby creating a qualifying event and a loss of coverage.
The court stated the reduction in work hours applies in this case since COBRA
states that a reduction in work hours occurs, “whenever there is a decrease in
the hours that a covered employee actually works.” In Neal’s case, after he
exhausted his FMLA leave, the number of hours he worked decreased to zero. Also
the court stated that the City’s policy clearly states that an employee’s group
health insurance benefits be terminated if the employee fails to return to work
following 12 weeks of FMLA leave. The court decided that both of these facts
support the City’s action in providing Neal with COBRA continuing coverage. The
court stated that Neal’s claim that paid sick leave is equivalent to FMLA leave
did not hold up, noting that COBRA regulations state that absence from work for
any reason “other than due to leave that is FMLA leave” is a reduction in work
hours. The court contended that FMLA regulations clearly provide that an
employer is not obligated to extend the benefits of FMLA if it has a greater
leave policy than mandated by the act. It was determined that the City was under
no legal obligation to extend the benefits elemental to FMLA leave to Neal’s
paid sick leave in excess of twelve weeks.
In this author’s opinion: This case shows that an employer is not obligated
to extend FMLA leave benefits beyond twelve weeks even when an employee has
accumulated paid sick leave. The fact that the employee remained on sick leave
until returning to full time employment did not affect the result. It is
important for employers to make sure their leave policies reflect the connection
between COBRA and other extended coverage such as FMLA.
Issues with Insurance Carriers
The following questions are examples of difficult situations that often arise
between major insurers and employers along with possible solutions for a
What if the Insurer is denying COBRA?
First of all, the employer should
confirm that the COBRA election notice was sent within the proper time frame.
Keep in mind the COBRA statute states, “the employer of an employee under a plan
must notify the plan administrator of a Qualifying Event with 30 days of the
Qualifying Event.” Furthermore, the statute also requires the plan administrator
to notify any qualified beneficiary, with respect to an event, within 14 days of
the date on which the employer notifies the plan administrator of the date.
In the event that the employer failed to send the election notice within the
proper time frame then the insurer can deny COBRA coverage. This means the
employer will become self-insured for any and all claims made during the full
18, 29, or 36 month COBBRA coverage period. If confirmation can be made that the
election notice was sent in a timely manner and everything was done correctly
then the following steps should be taken:
- Obtain the specific reason the
insurer is denying coverage
- Provide documentation of your COBRA
compliance along with applicable legal guidance. These can be found in either
the notice regulations issued by the U.S. Department of Labor (DOL) in 2004, or
the COBRA regulations issued by IRS in 1999 and 2001.
- Examine the COBRA
language in the insurance contract and policy – specifically find the part that
outlines what obligates the insurer to comply with COBRA.
What if the Insurer is denying an Extension of Coverage?
The first thing to
do is make sure the qualified beneficiary was properly notified of their 60-day
responsibility to notify the plan of a secondary event. The notice must include
who should be notified and in what manner. Remember that until a qualified
beneficiary has been notified the “clock does not start ticking.”
to ensure the extension will be accepted, the employer should first obtain the
specific reason for the denial from the employer and then:
documentation proving the proper time frame was met
- Submit documentation
received from the qualified beneficiary
- Provide the DOL’s 2004 final
In summary, timing is of the utmost importance when dealing with
COBRA. In this author’s opinion employers must work in conjunction with
insurance carriers to ensure all rules and regulations are followed. Otherwise,
the employer will run the risk of becoming self-insured which could be
potentially devastating financially.