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 benefits.
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 positive outcome:

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:

1. Obtain the specific reason the insurer is denying coverage
2. 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.
3. 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.”
In order to ensure the extension will be accepted, the employer should first obtain the specific reason for the denial from the employer and then:

1. Submit documentation proving the proper time frame was met
2. Submit documentation received from the qualified beneficiary
3. Provide the DOL’s 2004 final regulations.

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.