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What happens to your health insurance during a period of disability? Does the answer differ if you are on unpaid leave of absence covered under FMLA?
There are actually two sets of issues and FMLA sometimes affects both answers.
First, you may want to know whether your employer can cancel your coverage during the time you are unable to work. The answer is often yes – so finding options that cover needed medical care becomes important.
Second, you might be curious about who pays the premiums. At a minimum, the after-tax cost of your usual obligation will rise. Once again, you may want to explore options that are more affordable.
Health Insurance Cancellations During Disability
Can your employer cancel your health insurance while you are out on disability? The sad reality is that many people can lose their coverage when they need it the most – when an accident, illness, or maternity leave prevents them from earning an income – and they need access to medical care in order to recover.
The Family Medical Leave Act (FMLA) requires temporary group health insurance continuation for a portion of workers – not all. You could easily fall into one or both of these cracks.
Fortunately, the loss of coverage is a qualifying life event!
- Begin a new plan immediately during a special enrollment period
- Cover pre-existing condition with no waiting period
- Income-based subsidies may help lower your premiums
Family Medical Leave Act
Can you lose your health insurance while on FMLA? An employee’s own serious medical condition is a qualifying reason. In addition, the Department of Labor rules states the following.
“A covered employee is entitled to the continuation of the group health insurance coverage on the same terms as if he or she had continued to work.”
However, many employers are not subject to FMLA and many employees are ineligible.
- Covered Employers
- Employ 50 or more employees for at least 20 workweeks
- At one or more worksites within 75 miles
- Eligible Employees
- Worked for that employer for at least 12 months
- Worked for at least 1,250 hours over the 12 months
- Works at a location with 50 or more employees within 75 miles
On the other hand, some states have similar family leave laws that may extend the time, and/or expand coverage to more employers and employees. In addition, your employer may choose a policy that is more generous than the legal requirement. Research the laws in the state where you work and read your employee handbook for answers.
Your employer has less freedom to cancel your health insurance while you are out on short-term disability due to an off-the-job accident or illness. FMLA rules protect a larger portion of people with temporary medical conditions.
- Eligible People who return to work within 12 weeks are safe
- Employees more than 30-days late on premium payments can lose coverage
- Ineligible individuals can lose their coverage right away
Your employer has more freedom to cancel your health insurance while you are out on long-term disability due to a non-occupational accident or sickness. By definition, a long-term disability lasts much longer than 3 months.
FMLA legal rights end after only 12 weeks – which is about 3 months. Therefore, people out on long-term disability often lose coverage after FMLA expires and need to find an alternative.
- Apply for Medicaid
- Enroll in a marketplace plan
- Opt into COBRA continuation
- Wait for Medicare coverage
Similar logic applies to whether your employer can cancel your health insurance while on Workers Compensation – with a twist. Workers Compensation provides four types of benefits for on-the-job (occupational) accidents and sicknesses.
- Pays for all reasonable and necessary medical treatment
- Rehabilitation services to overcome your limitations
- Wage replacement for temporary and permanent disabilities
- Death benefits to surviving spouse and dependents
Therefore, you may lose insurance for non-occupational medical conditions while on Workers Compensation. However, coverage for the on-the-job issue must continue until you recover.
Health Insurance Premiums During Leave of Absence
Health insurance premiums during an unpaid leave of absence can really stretch a family budget. The cost of coverage often goes up at the same time that your income goes down. The unplanned uptick in expenses comes from two sources.
- Loss of the pre-tax payroll deductions means you must pay the premiums using after-tax dollars. For example, this can increase out-of-pocket charges by 30%.
- 22% federal income tax
- 65% FICA tax
- Loss of your employer contribution to the group health premiums often comes with sticker shock. For example, people feel the shock when they enroll in COBRA if they are ineligible for FMLA or after their rights expire.
Marketplace plans may prove to be more affordable – if you are eligible for premium subsidies – which are income based. Now that an unpaid leave has hurt your earnings, you may meet the criteria for extra help. Remember, loss of coverage is a qualifying life event.
Who pays the health insurance premiums during FMLA? The answer depends on whether you plan to return to work and the reasons behind the choice. For example, many women choose to quit their jobs after maternity leave so they can stay home with their newborn baby.
- Returning to Work: Both employers and employee pay the premiums on the same basis as if the person was still working. However, during an unpaid leave, you must pay these premiums using after-tax money.
- Not Returning to Work: The employer may require the employee to pay the employer share of the premiums if the person fails to return to work (maternity leave example). However, this person is exempt for circumstances that are beyond his or her control (ongoing disability).
The affected person pays 100% of the COBRA insurance premiums – plus an additional 2% administration fee. After you exhaust FMLA, your employer no longer has to pay its portion of the group health costs.
In order to meet the criteria for continuation your group plan must be covered by COBRA, a qualifying event must occur; and you must be a qualified beneficiary for that event.
- Covered Groups: Have 20 or more employees
- Qualifying Events: A reduction in hours worked by the person
- Qualified Beneficiaries: An individual covered by a group health plan on the day before a qualifying event occurred