IRS Provides Guidance on Interplay Between FMLA and COBRA

April 1, 1995 Advisory

Since the passage of the Family and Medical Leave Act (FMLA), employers have rightly been confused about the relationship between the FMLA and COBRA continuation rights. COBRA notice, required by law in the case of a "qualifying event," is intended to apprise employees of their right to continue participation in an employer's group health plan, at the employee's own expense, for a period of time (usually 18 months).

In the COBRA context, the greatest problems for employers since the passage of the FMLA have been determining when an employee is on an FMLA leave:

  • what constitutes a "qualifying event;" and
  • the date from which the COBRA maximum coverage period is measured.

The Internal Revenue Service, in Notice 94-103, recently issued guidance concerning these questions.

IRS Definition of "Qualifying Event"
According to the IRS, a "qualifying event" in the FMLA context occurs if an employee:

  • is covered under the employer's plan on the day prior to the start of the FMLA leave;
  • does not (or serves notice that he will not) return to active service at the end of the FMLA leave period; and
  • would, as a result, lose group health coverage.

A "qualifying event" does not occur, however, if the employer eliminates health coverage for a class of active employees, and in the process, eliminates coverage for an employee who happens to be on an FMLA leave.

According to the IRS Notice, the COBRA qualifying event occurs on the earlier of:

  1. the last day of the employee's FMLA leave (which could be as long as 12 weeks); or
  2. the date the employee gives notice that he will not return to covered employment.

COBRA'S maximum coverage period is measured from this date. However, if the employer voluntarily extends employer-paid coverage and does not provide COBRA notice until the end of the extended coverage period, the maximum COBRA coverage is measured from the date that the additional employer-paid coverage ends. COBRA coverage must be offered even if the employee's coverage has lapsed for failure to pay premiums.

Connecticut law provides that an employee can take a total of 16 weeks of family or medical leave every two years. According to IRS Notice 94-IO3, COBRA notice must be provided at the expiration of the 12 week federal family leave period, not at the end of the 16 week period.

Recovery of Medical Insurance Premiums
Under certain circumstances, an employer may recover medical insurance premiums paid on behalf of an employee on leave who does not return to work at the end of an FMLA Leave. However, an employer may not condition an employee's right to COBRA coverage on repayment of amounts due to the employer under the FMLA. Even if an employee fails to repay the medical insurance premiums paid on his behalf by his employer, the opportunity for COBRA coverage must still be extended to the employee.