Group Insurance For Furloughed & Laid Off Employees

The coronavirus pandemic has taken a toll on many small businesses, and many are now struggling to stay afloat. In order to keep going, many small business owners had no choice but to furlough or lay off employees in order to save money. If you are one of them, you might be wondering what your former employees’ health insurance options are after you let them go. Is there still a way you can offer them group insurance? You can choose whether to pay monthly health insurance premiums on behalf of your employees, but if it is not possible due to financial constraints, your employees do have other options.

Furloughed Vs. Laid Off

person carrying a box of office supplies.

Health coverage for an employee is determined by the employer’s (your) health plan. The plan indicates how many hours an active employee has to work to be eligible for health insurance. There are also rules surrounding what happens to their health insurance when they are no longer an active employee. When an employee is :

  • Laid off, their employment is terminated, even if you are considering the lay off temporary. After an employee is laid off, their health insurance plan ends on the last day of the month they were laid off.
  • Furloughed, their hours are reduced, or they might not be working at all. The difference is that they can expect to return to work again when the furlough is over, so they can continue to get health insurance coverage during the furlough period. If this is the case, the employee will either be responsible for their share of the plan’s premiums, or you, the employer, can temporarily waive employee contributions and pay all of their premium.

ERISA & Federal Income Tax Rules

In general, nothing actually prevents you from paying monthly premiums on behalf of furloughed or laid-off employees. You have the option to choose to pay monthly premiums as long as you are able to. The premium will continue to be excludable from the gross income of the employees. Be aware, though, that if the plan rules do not permit an employee to be covered, then you are in danger of:

  • Potential loss of tax-exempt status of the plan, which means both you and your employees might owe back taxes, since pre-tax qualification would be lost.
  • Your insurance company denying claims for any employees that they determine are not eligible to participate in the plan. 
  • A possible fiduciary breach under the Employee Retirement Income Security Act (ERISA) if plan assets were used to pay for benefits of non-eligible employees.

    COBRA on a piece of paper.
    Laid-off and furloughed employees qualify for COBRA insurance.

COBRA Insurance

Another option to continue coverage for your employees is the COBRA program. Both laid-off and furloughed employees qualify for a Consolidated Omnibus Budget Reconciliation Act (COBRA) plan if their group plan is terminated and you can no longer pay their premiums. COBRA can be expensive for your former employees, because if you do not contribute to their premiums, they will have to pay the full amount. 

ACA Marketplace

Last but not least, losing a job is considered a qualifying life event, so a Special Enrollment Period will open up for your former or furloughed employees after they lose their job and their coverage. This means that they will have 60 days to get a health insurance plan on the ACA Marketplace. This could be a cheaper option for your employees than COBRA.

EZ Can Help

The pandemic has actually caused some changes in the way that group health insurance works. For example, some states have issued orders requiring or encouraging insurance companies to allow employers to make changes to their eligibility requirements so they can continue to offer group insurance to furloughed or laid off employees. Some states are even allowing a grace period for premium payments. To find out if your state is one of them, speak to an EZ agent, who can help find out the information for you. If you are interested in continuing to offer a group insurance plan, we can help you find a reasonable way to provide insurance to the employees that you had to let go. The times we are living in are not normal by any means, and we know it is not an easy decision to let go of your valued employees. EZ can help by offering our services for free, which includes checking all possible options, answering any questions, and comparing quotes.

To get started, simply enter your zip code in the bar above, or to speak directly with an agent, call 888-998-2027.

What Is The Employee Retirement Income Security Act (ERISA)?

The Employee Retirement Income Security Act of 1974, also known as ERISA, was designed to define the rules and standards for retirement and healthcare benefits. It was created to protect the assets of those who are retiring and to set out rules for how employers manage their healthcare plans. If you are an employer who offers a group health insurance plan, whether self-insured or fully insured, then ERISA most likely applies to your plan. There are very few types of plans that are not subject to it. All private companies are required to comply with ERISA laws. So you need to know what ERISA is, what protections it offers your employees, and what rules you are subject to as an employer. 

What Is ERISA?blue book with ERISA on it and money next to it

According to the U.S. Department of Labor, ERISA sets “minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans.” For employees, this means that they will be afforded certain protections under this law when they participate in retirement and health insurance plans through their employer. For you, the employer, it means that you need to take certain steps to protect your employees’ retirement savings from any mismanagement or abuse. You also need to make sure that their healthcare plans are being managed in the best interest of the plan participants. Under ERISA, you also have duties to disclose certain information regarding your plan to your employees, as well as to set out guidelines for how your employees should file claims.

ERISA’s Rules

As an employer, ERISA requires you to adhere to rules surrounding the following: 

silhouette of people sitting down with a person standing up pointing at a backboard
You have to disclose any information about funding with your employees that partake in the plan.
  • Conduct- ERISA sets standards of conduct for plan managers. Because managing your employees’ benefits plan might be complicated and time consuming, you may choose to hire an outside professional (sometimes called third-party service providers). Or you can use an internal administrative committee or human resources department to manage some or all of your plan’s day-to-day operations. Under ERISA, you need to make sure that anyone who is managing your plan is acting in the best interest of your employees.
  • Disclosures– ERISA requires you to provide any employees participating in your plan with information about funding and the different features of the plan. There are set standards for how companies regulate participation in the plan, including defining how long an employee has to work for the company before they can join the plan.
  • Reporting & Accountability– ERISA requires that you, or the third-party plan manager, provide detailed reporting and accountability to the federal government about the plan and participants.
  • Notification of Benefit Determination– ERISA requires that you have a written policy in place that states exactly how claims should be filed, as well as have an appeal process for claims that are denied. Any and all claims appeals have to be conducted in a fair and timely manner.

Further Protection

a lock made up of different health related pictures.
ERISA also protects those who might be discriminated against based on their health.

ERISA is all about making sure that your plan’s funds are protected and delivered in the best interest of plan members. It also prohibits any discriminatory practices when granting plan benefits to qualified individuals. In addition to the rules laid out above, there have also been two  amendments to ERISA that are meant to further protect employees. These are:

  • The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)- This was created to give workers and their families the right to continue their health coverage for a limited time after certain events, like losing their job.
  • The Health Insurance Portability and Accountability Act of 1996 (HIPAA)- This offers protection for workers and their families who might suffer discrimination in health coverage based on factors that relate to an individual’s health.

Offering a healthcare plan to your employees can be beneficial to you (think: tax breaks), but you need to comply with all ERISA rules. Not complying with the rules will not only lead to the loss of your tax advantages, but also to penalties such as thousands of dollars in fines.

If you need advice on group health insurance or need more information on how ERISA works, speak to an EZ.Insure agent. Our agents are highly knowledgeable about group insurance and have access to all the top-rated insurance companies in your area. We will review your needs, make sure you are in compliance with any and all rules, and find ways for you to save money. To get free instant quotes, simply enter your zip code in the bar above, or to speak directly to an agent, call 888-998-2027.