What Every Employer Should Know About Employee Health Plan Coverage During Military Leaves of Absence
by Jennifer Suich Frank, J.D. Lindquist & Vennum PLLP, Minneapolis, MN
Since September 11, 2001, more than half of a million men and women serving in our country's uniformed services have been mobilized, which represents the largest military deployment since World War II. With statistics like this, it has become increasingly imperative for all employers to comply with the Uniformed Services Employment and Re-employment Rights Act (USERRA) and other laws governing military leave of absence.
In December 2005, the Veterans’ Employment and Training Service (VETS) of the U.S. Department of Labor (DOL) issued final regulations (codified at 20 C.F.R. Part 1002) that interpret USERRA, which in turn assists employers in understanding their obligations under the law. The regulations, drafted in an easy-to-read question-and-answer format, are available at http://www.dol.gov/vets/regs/fedreg/final/2005023961.pdf.
Many employers have questions about the maintenance of benefits that USERRA requires for employees who leave their current employment to serve in the military or are out on such a leave. This article will focus exclusively on health coverage issues under USERRA for employees on a military leave of absence.
Health Plan Coverage During Military Leave
A frequent question of employers covered under USERRA is how to handle health coverage for employees on military leave. In general, employees who are eligible for a military leave of absence from their employers have the right to elect group health plan continuation coverage, so long as they were participants in the plan before the leave. If employees did not already have health plan coverage at the beginning of their leave, USERRA does not require employers to permit employees to initiate new coverage at that time, nor to establish a group health plan for employees where one is not already in place.
It is clear that USERRA’s continuation coverage and reinstatement provisions do not apply when the service member is a dependent of a covered employee, or if the service member is a retiree, because the coverage is not in connection with his or her position of employment as required by USERRA. However, under the provisions of the Servicemembers Civil Relief Act, these individuals may be entitled to reinstatement of health plan coverage after completing their military service.
What Health Plans Does USERRA Cover?
USERRA defines a health plan as “an insurance policy, insurance contract, medical or hospital service agreement, membership or subscription contract, or arrangement under which health services for individuals are provided or the expenses of such services are paid.” USERRA applies to group health plans as defined under the Employee Retirement Income Security Act of 1974 (ERISA) in addition to plans not subject to ERISA, such as those sponsored by state or local governments.
Health care flexible spending arrangements (FSAs) of cafeteria plans under Section 125 of the Internal Revenue Code qualify as health plans under USERRA, as clarified in the preamble to the final regulations. As such, these plans must also comply with USERRA’s continuation coverage and reinstatement provisions. Accordingly, employees on a military leave of absence who are receiving some form of continued pay from their employer while absent can make pre-tax contributions to the health care FSA. If they are not receiving some form of pay while on leave, they are still permitted to make after-tax contributions while absent at the same time as normal employer payroll periods, or even pre-pay them on a pre-tax basis before the leave begins. To the extent allowed by the employer, service members returning from leave may pay their costs for continued participation in the plan during the unpaid portion of their leave on a pre-tax basis from any compensation earned after they return to work. Employees on military leave may find it advantageous to elect continuation coverage until amounts they have allocated to the health FSA are exhausted.
Are USERRA’s Provisions the Same as COBRA’s?
USERRA’s health plan continuation coverage provisions are similar, but not identical, to continuation coverage provisions under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). While both laws permit the continuation of existing employer-based health coverage, USERRA permits continuation coverage regardless of the size of the employer’s workforce or whether the employer is a governmental entity.
What is the Maximum Continuation Coverage Period under USERRA?
A plan must allow the employee to elect to continue coverage for a period of time that is the lesser of (1) 24 months, commencing on the date military leave begins; or (2) the period beginning on the date leave begins and ending on the date when the employee fails to return from military leave or apply for reinstatement. Of course, employers are always free to provide group health plan continuation coverage in excess of what USERRA requires.
Election, Payment and Cancellation of Health Plan Coverage
Because USERRA does not specify how employees may elect continuation coverage, health plan administrators are at liberty to develop their own reasonable requirements for election of continuation coverage consistent with the terms of the plan and USERRA’s exceptions to the requirement that employees give advance notice of their military leave of absence.
For example, if an employee’s failure to provide advance notice of service is excused under USERRA because it was precluded by military necessity, or because it was impossible or unreasonable to do so, the plan administrator must allow the employee service member to elect continuation coverage. If the employee’s health plan coverage was canceled, the plan administrator must retroactively reinstate the coverage upon his or her election to continue coverage and payment of all amounts due. The employee must not incur any administrative costs related to reinstatement. In cases where an employee’s advance notice of military service is not excused and the employee fails to give the employer such notice, plan administrators are permitted to cancel health plan coverage when the leave of absence begins.
In cases where an employee covered under a group health plan leaves for military service and has given the employer proper advance notice but fails to elect continuation coverage, the plan administrator is permitted to cancel the employee’s coverage at the beginning of the leave. Plan administrators who have adopted reasonable procedures specifying the time during which an employee may elect continuation coverage must allow reinstatement of uninterrupted coverage retroactive to the beginning of the leave, if the employee promptly elects continuation coverage and pays any amounts due. Plan administrators who do not establish reasonable procedures, including required election time frames, risk having to permit retroactive reinstatement or uninterrupted coverage to the date of departure whenever the employee makes an election and pays any required amounts due.
In any case, if a plan administrator cancels a covered employee’s group health plan coverage because of service in the Uniformed Services, it must be reinstated upon reemployment. The plan administrator cannot impose any exclusions or waiting period in connection with that reinstatement.
How Much Do Employees Pay for Continuation Coverage?
Employees who serve for fewer than 31 days are required to pay only the regular employee share, if any, for continued health plan coverage. However, employees serving for 31 days or more can be required to pay up to 102 percent of the full premium under the plan, which represents the employer’s share and the employee’s share, plus a two percent administrative fee. Because USERRA does not address methods for paying for continuation coverage, health plan administrators are free to develop their own reasonable payment procedures that are consistent with the plan, and can allow cancellation coverage if an employee fails to make timely payment.
Where Can Employers Receive Further Assistance?
Employers are always encouraged to contact their employment law or employee benefits counsel when confronting issues that arise under USERRA. In addition, several other valuable resources are available. One is the United States Department of Labor, which administers USERRA through the Veterans’ Employment and Training Service (VETS). VETS provides employers with information about USERRA, as well as assistance to individuals experiencing service-connected problems with their civilian employment. VETS also created the “USERRA Advisor” to help employers and employees understand their rights and responsibilities under USERRA. To access the USERRA Advisor main menu, go to www.dol.gov/elaws/vets/userra/mainmenu.asp.
Another excellent resource is the Employer Support of the Guard and Reserve (ESGR), a Department of Defense organization. The ESGR is a staff group within the Office of the Assistant Secretary for Defense for Reserve Affairs; it maintains a national network of over 900 trained volunteer ombudsmen who attempt to resolve USERRA issues between employers and employees before those issues turn into formal complaints. In fact, the volunteers are quite successful in resolving issues at an early stage. For further information, visit www.esgr.org or contact them via e-mail at ESGRMailbox@navy.mil or by phone at (800) 336-4590.