In uncertain times, we just want simple answers. COVID-19 has certainly brought uncertainty, we are still searching for those simple answers. These days, many of you are asking, “Do I need to offer COBRA to my furloughed employees?”
Let’s see if we can offer a little more clarity (and hopefully some simplicity).
What is a furloughed employee? How is it different from a terminated employee?
A furloughed employee is an employee that remains a legal employee of an organization but is on a leave of absence, typically involuntarily.
Alternatively, a terminated employee is no longer an employee of the company. An organization may choose to furlough an employee over termination in order to continue to offer some benefits to the employee. But, unfortunately it is not quite that simple. Let’s continue.
Do furloughed employees maintain their health benefits?
As long as there is no loss of coverage, furloughed employee would generally have the ability to maintain their benefits.
So this is where we say, it depends. The first step is to check the eligibility conditions of your benefit offerings.
In other words, what does an employee need to do to remain eligible for current benefits? Some benefits will have a minimum hours worked requirement. If this applies, furloughed employees would not be eligible for benefits and it would likely result in a loss of coverage.
Loss of coverage is a COBRA-qualifying event and you would need to offer COBRA to your furloughed employees. However, as long as there is no loss of coverage, a furloughed employee would generally have the ability to maintain their benefits.
What options do employees have with their benefits during a furlough situation?
Employees may have a few options depending on the specific benefits they are enrolled it.
Revoke an FSA Election
Employees may choose to revoke their FSA election prior to leave and can make a new election upon returning to work. Claims would not be accepted for dates of service during the time that the election was revoked. Generally, the election is reduced to the amount contributed or the amount reimbursed, whichever is greater.
Continuing Coverage
Employees may also choose to continue coverage. For some benefits, this creates a situation in which employers are now responsible for collecting premiums or payments from employees that are not actively receiving a paycheck. Employers should have a written agreement with the employee regarding how payments will be collected for the leave period.
How do I collect premiums from furloughed employees?
Given the unplanned nature of the current situation, employers will typically use one of two options to collect premiums from employees.
Option 1: Catch-up deductions
Upon returning to work, the employee may make catch-up deductions for coverage during the leave.
The catch-up option may put the employer at added risk. Employers should always refer to their plan documents for plan parameters and seek legal counsel as-needed.
Option 2: Pay-as-you-go
Employees pay their share of premiums and contributions on an after-tax basis throughout the leave. Direct Billing can be a great option for collecting these premiums.
If you are interested in discussing Direct Bill services, please reach out to your Assigned Representative or contact us.
