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April 12, 2020

Employer Situations Related to Furloughs, Layoffs & Benefits Continuation

Writing about benefits continuation.

By: Zack Pace, SVP

Unfortunately, due to this COVID-19 hurricane, many employers that have not already implemented employee furloughs and layoffs are now evaluating their options. A key consideration with any furlough or layoff is often benefits continuation. As a benefits consultant, I’ve had dozens of recent conversations with my clients, discussing how benefits can and cannot continue during these events. What I’m noticing is that employers are often viewing benefit continuation options as an open-architecture topic. That is, they are first considering how they prefer benefits to continue, then considering what their peer group is doing, and next building their policy from that foundation.

But, like a new waterfront property owner within a Chesapeake Bay critical area quickly realizes – the design of their expansive dream cottage, which will replace the existing 1930s era bungalow, doesn’t really matter if the rules say you can only build within the existing footprint.

Regarding benefits continuation, the footprint is what the health plan says. Thus, the good news is that employers already have foundational rules in place governing what it can and cannot do. From this foundation, an employer can build out its continuation policy, using other possible tools at its disposal, such as plan amendments, carrier negotiations, and special carrier accommodations.

For context, let’s take a quick look at three real-life employer situations that crossed my desk over the past week:

Employer #1 – Stability period offers benefits continuation during a 3-month furlough

Faced with reducing revenues, this employer needed to quickly evaluate implementing a 3-month furlough or layoff program. Knowing that CBIZ has many similar clients within this employer’s industry, their initial question was what its peer group was doing. Our answer was that its peer group was following the rules of its respective health plans and that this employer’s benefits continuation blueprint was relatively simple:

  • Prior to the implementation of the Affordable Care Act’s employer shared responsibility provisions, this employer amended its health plan document to define eligibility for ongoing employees, in short, based upon a standard 12-month measurement period and a corresponding 12-month stability period. Naturally the 12-month stability period and the health plan year are the same time period – July 1 to June 30.
  • Thus, if a furloughed employee (that is, an employee in a temporary suspension of work that does not constitute a termination of employment) entered the furlough as a benefits eligible employee, he or she would generally remain eligible for the duration of the stability period (as long as employment did not end). Moreover, if the stability period reset in the middle of the furlough (for example, July 1, 2020), most individuals on furlough would remain eligible for the plan, as most would have averaged 30 hours during the previous 12-month measurement period.
  • On the other hand, per the terms of the health plan, if the implemented program was a layoff (that is, a reduction in force resulting in a termination of employment), benefits would generally end on the last day of the month following the date of employment termination (with COBRA being offered for COBRA-eligible benefits, such as medical, dental, vision, FSA and EAP).
  • Fortunately, when the employer amended its health plan several years ago to include these eligibility provisions, its other third-party administrators and insurers (dental, vision, life, disability) agreed to amend its certificate of coverages to refer back to the health plan document for the eligibility terms.

Employer #2 – Health plan leave of absence provision is better than insurer’s special accommodation

Facing moderate financial headwinds, this employer sought to proactively map out its furlough and layoff benefit continuation options should these headwinds increase in velocity. Because this employer does not have a Wrap Document / Wrap Summary Plan Description and because all benefits are fully insured, the eligibility terms within each fully insured vendor’s certificate stand on its own. Items of interest from our re-review of these certificates:

  • The carrier providing medical and dental benefits recently issued a “special accommodation” to all of its fully insured clients, offering to extend eligibility for any furloughed employees through May 31, 2020. This extension was limited to those enrolled on the plan as of Mar. 1, 2020 who had been working 30 hours or more. As Exhibit A of why it’s critical to actually read the health plan documents, it turns out that this “special accommodation” was more restrictive than the existing terms outlined in this vendor’s certificate of coverage for this employer! Specifically, the existing certificate stated that benefits during a furlough could be extended for 60 days for anyone who normally had worked 20 hours per week. And, no matter when you are reading this essay, 60 days from now is way past May 31, 2020 and 20 hours is much more accommodating than 30 hours.
  • The fully insured vision carrier’s provision allowed for indefinite benefits continuation as long as premiums were paid and there was no employer discrimination between which employee’s benefits were extended and which employee’s benefits were not.
  • The fully insured life and disability carrier’s provision extended benefits in a furlough until first of the month following 1 month. Further, for a TBD timeframe, this carrier offered to extend the benefits continuation to first of the month following 2 months.

Employer #3 – Health insurer agreed to abide by employer’s internal leave of absence policy

Abruptly faced with a class of employees that will have no customers or work requirements for several months, this employer similarly asked what its peer group was doing and what accommodations its vendors could provide. Similar to Employer #2, this employer does not have a Wrap Document and all benefits are fully insured, with each of the employer’s fully insured certificates independently defining eligibility terms for the respective underlying benefit programs. However, we reminded this employer of its internal leave of absence policy that would generally apply to a furlough event. How did this employer’s internal policy impact the eligibility terms?

  • Under the leave of absence policy, dental and vision benefits do not extend beyond the end of the month following the beginning of the leave. That is, COBRA continuation rights would be offered normally. This policy provision is consistent with the underlying dental and vision certificates of coverage provisions.
  • Per the leave of absence policy, life and disability would also normally also end at the end of the month following the beginning of the leave. This provision was consistent with the life and disability certificate but also left the door open for the employer to take advantage of certain optional emergency relief provisions the insurer is now providing.
  • While the medical insurer’s certificate includes a leave of absence benefits continuation provision, it was not as generous as the terms of the employer’s leave of absence policy. Fortunately, this conflict was discussed and negotiated at length with this health insurer several years ago. In short, the insurer ultimately cited in writing that it would honor the benefit continuation terms of the employer’s policy but, because of state filing requirements, “could not” alter the terms of its underlying certificate. Unfortunately, this cited conflict is not uncommon when it comes to fully insured vendors and small to mid-size employers. In most cases, having an authorized representative of the carrier put the accommodation in writing is the best solution available.  

Could these three relatively similar employers have any more different considerations based upon their plan documents and policies?

Final Considerations:

  1. What about Wrap Documents? If Employer #2, for example, had a Wrap Document in place, unless the fully insured carriers’ certificates of coverages referred back to the Wrap Document for the eligibility terms, the terms of the insurers’ certificates would prevail. In other words, an insurer is not bound by the eligibility terms of a Wrap Document. While, insurers will often readily agree to refer back to a Wrap Document for eligibility terms for its larger clients, these negotiations usually fail for smaller employers.
  2. In any true layoff situation, double-check the rehire provision in the documents. This provision generally governs under what timeframe the eligibility waiting period is waived for a rehire and if any other policy limitations would apply. For example, would the pre-existing condition limitation on the long-term disability contract reset?
  3. Do not underestimate the risk of continuing to cover an individual on life and disability benefits that is not eligible per terms of the plan. This financial risk can easily be equal to or greater than the medical risk, especially for employers with generous life and disability benefits.
  4. Reject out-of-hand comments and advice that sound like:
    1. “Surely, given this crisis, the insurer won’t enforce the eligibility rules in its contract.”
    2. “But, what are the chances anyone will even know we covered this individual?”
  5. This essay only scratches the surface of everything one needs to know about a benefits continuation in a furlough or layoff. And, there are of course many other aspects to consider beyond benefits continuation! Please be sure to involve your benefits consultant, attorney, accountant, and other advisors before finalizing any plans.

Further Reading:

 

Zack Pace, SVP

zpace@cbiz.com

www.linkedin.com/in/zackpace/

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