COVID-19 Furloughs, Layoffs & Leaves: How It Affects Your Employee’s Health Benefits

As COVID-19 continues to test our economy, many employers are being forced to make the difficult decision to layoff employees and institute furloughs or other temporary leaves of absence.

A unique challenge with this public health emergency is how these layoffs and furloughs impact employee’s benefits, which are essential to combating the spread of the virus. Several existing employee benefits laws and regulations guide the decision-making process for offering benefits during a layoff, furlough or other leave of absence.

What is the difference between a layoff, furlough, and other leaves of absence?

• Furlough: a temporary unpaid leave from work where the employee remains employed
• Layoff: an employer-initiated termination of employment that may be temporary or permanent
• FMLA: a federally mandated unpaid leave for family and medical related care
• Other Leave: non-legally mandated leave of absence that may be paid or unpaid

When does the law require that the employer continue to offer coverage to its employees?

Who covers the cost of the coverage?

Employees that maintain active coverage due to working the minimum hours requirement or having full-time status in a stability period, maintain the employer’s usual contribution strategy. If the employee enrolls in COBRA coverage, the employee pays up to 102% of the cost of coverage. Employers may choose to subsidize the cost of COBRA coverage but should do so consistently.

Under FMLA, the employer has five options for premium payment during the leave: 1) payment due at the same time as it would be made if by payroll deduction; 2) payment due on the same schedule as payments under COBRA; 3) payment prepaid under the cafeteria plan at the employee’s option; 4) follow employer’s existing rules for leave without pay; and 5) another system voluntarily agreed to by the employer and employee. For all other non-regulated leaves of absence, the employer’s plan documents should guide decision-making.

When are employees who were furloughed during their waiting period eligible for coverage?

Generally, the employee is eligible for coverage when he or she satisfies eligibility by working the required minimum number of hours per week for the duration of the waiting period. However, whether the employee receives credit for the furlough period of the waiting period depends of the terms of the employer’s plan document and any actively-at-work provisions that apply. The HIPAA nondiscrimination rule states that an employer cannot, “refuse to provide benefits because an individual is not actively at work on the day that individual would become eligible for benefits.” If the actively-at-work clause denies entry into the plan because the employee is not actively at work due to a health factor on the day he or she would otherwise enter the plan, the clause is prohibited under HIPAA.

Upon return to work from a break-in-service of less than 13 weeks, an employer is prohibited from reapplying a waiting period to an employee that has already satisfied the waiting period. Likewise, with a break-in-service of less than 13 weeks, an employer is prohibited from restarting the look-back process from the beginning. If an employee was in a waiting period or measurement period when the furlough occurred, the employee will generally resume that process at the same stage as before the break-in-service. For breaks-in-service of 13 weeks or longer, the employer is permitted treat the employee as a new hire. NOTE: The ACA Rule of Parity may be an alternative to the 13-week rehire rule. Employers have the option to be more generous than the ACA’s 13-week break-in-service rule, but must ensure their plan documents are updated accordingly and the insurance carrier will permit reenrollment.

What if an employer is not required to continue coverage but wants to continue it during a furlough, layoff, or other leave of absence, or otherwise be more generous?

ERISA plans have a fiduciary duty to adhere to the terms of its plan documents. To offer coverage to employees who do not meet the plan’s eligibility requirements, the employer must amend its plan documents to add eligibility for the otherwise ineligible employees. Otherwise, unless a government agency has issued enforcement relief or guidance, the employer may violate its ERISA fiduciary duty to adhere to the plan documents. In drafting its amendment, employers should be specific regarding which changes it is making – for example, does the exception apply to medical only, or also dental, vision, and other benefits?
If an employer chooses to make exceptions for otherwise ineligible individuals, such as waiving the waiting period or continuing coverage without meeting the minimum hour requirement, the employer should do so consistently among similarly situated employees as not to violate the various nondiscrimination rules. Additionally, employers should be mindful of whether the carrier will cover these additional employee’s that would otherwise be ineligible.

When employees return to work, how will furloughs, layoffs, and other breaks-in-service impact benefits eligibility?

For more on this topic, view the COVID-19 Employer Advisory Session: Furloughs, Layoffs & Leaves: How It Affects Your Employee’s Health Benefits.

For more information on evolving compliance regulations in the wake of the COVID-19 pandemic, visit our OneDigital Coronavirus Advisory Hub, or reach out to your local OneDigital advisory team.