January 2010

The Family and Medical Leave Act (FMLA) allows employees to take job-protected unpaid leave for certain specified reasons: To care for their own or a family member’s serious health condition; to care for a newborn or newly adopted child; or in connection with military family leave, in the event of a qualifying exigency or a serious injury or illness of a covered military member.

Since its inception, one of the most vexing aspects of FMLA administration for employers has been intermittent leave — those FMLA provisions that allow employees to take leave in separate blocks of time, or on a reduced schedule, due to a single qualifying reason. Intermittent/reduced schedule leave can be taken when medically necessary (either the employee’s own or a family member’s serious health condition) or in connection with military family leave. However, if the reason for the leave request is to care for a newborn or newly adopted child, intermittent/reduced schedule FMLA leave is allowed only if the employer consents to it. An example of this would be if the employer agrees to a part-time work schedule after a child’s birth/adoption.

For intermittent leave triggered by a serious health condition, circumstances must be such that the medical need can best be accommodated through an intermittent or reduced schedule. This includes situations where the seriously ill individual requires treatment by a health care provider periodically, rather than for one continuous period of time. Examples include leave taken on an occasional basis for medical appointments; leave taken for several days at a time over a period of months for chemotherapy; and leave taken by a pregnant employee for prenatal exams or for severe morning sickness. An employee recovering from a serious illness who is not yet strong enough to work full time would be an example of a situation appropriate for a reduced schedule FMLA leave.

Regulations state that employees needing leave on an intermittent or reduced schedule basis for planned medical treatment must make a reasonable effort to schedule the treatment so as not to disrupt the employer’s operations unduly. Employees must give 30-days notice for intermittent leave that is foreseeable at least that amount of time in advance, and as much notice as possible for leave that is not so foreseeable. Employers are to account for intermittent or reduced schedule leave using a time increment no greater than the shortest period of time it uses to account for other forms of leave, provided this is not greater than one hour and further provided that this increment cannot be greater than the amount of leave actually taken. However, if an employee on intermittent/reduced schedule FMLA leave cannot, due to the nature of the job, begin work mid-shift — such as an employee who works aboard a train or airplane during scheduled runs — the entire period that the employee is forced to be absent counts against the employee’s FMLA entitlement.

Also to ease the potential disruptive nature of intermittent FMLA leave, an employer can choose to transfer an employee taking intermittent/reduced schedule leave to a position with equivalent pay and benefits if the need for FMLA leave is foreseeable, the employee is qualified for the transferred-to position, and the position accommodates the recurring leave periods better than the employee’s ongoing position. Transfers made for this reason are to be temporary.

Employers that suspect the FMLA intermittent leave allowance is being abused have some tools in the regulations that they can use in an attempt to manage this. For example, employers can require a medical certification for any type of FMLA leave, and also a recertification, to make sure that the leave request is justified. The right to request recertification can be particularly helpful in the case of intermittent leave, which can span a long period of time. If the employer observes a pattern of intermittent leave taking that appears suspicious — such as scheduling the leave increments adjacent to weekends or holidays — requiring recertification can help to establish whether such a leave schedule is necessary.

Other provisions in the regulations can be used to minimize the disruptive potential of intermittent leave. For example, holding leave-requesting employees to the full extent of permitted notice requirements can aid in work schedule planning. Also, as noted above, an employer can transfer an employee temporarily to a position that would be less disrupted by the employee’s intermittent absences. Though this might not result in less leave being taken, it can help operations to run more smoothly.

As employers search for ways to contain employee benefit plan costs, many are undertaking dependent eligibility audits. The logic and potential cost savings is compelling. Why pay for something — in this case, coverage for someone not entitled to it under the terms of a benefit plan — when you don’t have to?

According to the results of client dependent eligibility audits conducted by HRAdvance, a third-party provider of audit services, the percentage of ineligible dependents detected in such audits ranges from 7% to 19%. And, with each employee dependent covered under a health plan running about $3,400 annually (with this amount varying considerably company to company, according to figures from Aon Consulting), the potential cost savings can be dramatic, even for a small company. Aon cites the potential return on investment from dependent eligibility audits as high as 40 to 1. Savings should be considerable, when you consider that each removed ineligible dependent represents dollars saved year after year.

Though the cost savings are compelling, they’re not the only reason to conduct a dependent eligibility audit. ERISA mandates that benefit plans be maintained for the “exclusive benefit” of employees, and employers as plan fiduciaries are required to operate plans accordingly. Arguably, covering ineligible individuals, which can create additional plan costs for all employees, runs afoul of these requirements.

The purpose of a dependent eligibility audit is to verify that individuals listed by employees as eligible for coverage under the plan (primarily spouses and dependent children) indeed meet the plan requirements for eligibility. A simple employee certification or affidavit of dependent eligibility does not provide proof of this, and therefore an audit requires employees to submit documents that substantiate eligibility. An audit will be a significant undertaking.

Consider that you will need to:

• Review health plan documents (and the documents for any other plans for which the audit is being conducted) to determine the definitions for all possible eligible dependents.
• Determine the documentation you will require for substantiating eligibility. For example, in the case of a spouse, this might be not only a marriage license or certificate, but also a recently filed joint income tax return to show that the marriage continues to the present day.
• Establish a time line for informing employees about the audit and a deadline for submitting the required documentation, and develop communications materials accordingly.
• Determine the process by which employees can submit their documentation, and set up a mechanism to receive materials.
• Review submitted documentation to determine whether they meet the requirements for establishing eligibility, and establish a notification and grace period process for employees who fail to submit materials properly and/or on time. Inform employees of the audit results.
• Since these audits generate a large amount of paper, arrange for secure storage and/or disposal of the materials employees have submitted.
• Since the audit will likely generate questions from employees, a knowledgeable person or persons must be assigned to field employee inquiries.

Some companies choose to outsource dependent eligibility audits instead of conducting them in-house. Audit service providers cite the potential cost savings that can be achieved and the amount of work involved in a thorough, well-designed audit to argue that contracting for such services delivers a good return on investment. If you decide to use an outside resource, you’ll likely have a choice of vendors. With more and more employers conducting dependent eligibility audits, an industry specializing in this particular employee benefit plan service has developed.

Other design considerations can impact the workload an audit generates. For example, in order to make the process more manageable, some companies audit only a particular dependent group, or a single company division or location at a time, instead of requiring all employees enrolling dependents to submit dependent documentation. If you’re considering homing in on particular dependent groups, data from HRAdvance’s client audit shows the distribution of ineligible dependents to be 43% children under age 19, 29% children over age 19, and 28% spouses. Another consideration that can impact the manageability of the audit is whether to conduct it retrospectively (and try to recover claims that shouldn’t have been paid) or on a forward-looking basis only. Many employers also choose to precede the audit with an amnesty period during which employees can voluntarily remove dependents from the plan with no penalty.

Since most companies traditionally have run on an honor system when covering dependents — basically taking an employee’s word for it that those dependents enrolled for coverage indeed meet a definition of eligible dependent — advance communications to alert employees of the audit, and the reasons for it, are critical to employee cooperation and, ultimately, how successful the audit will be. Use all available media, and stress that removing individuals who are not eligible for coverage will benefit not only the company, but all employees who are paying to have themselves, and family members, covered by the plan.

Implementing cost-sharing increases or cutting benefits in an effort to bring health plan costs under control can be unpleasant for employers, with concerns about how the news will impact employee productivity and morale. The better employees understand the reasons such plan changes are necessary, however, the greater the chance that the changes will have a positive impact. According to the 2009 UBA Employer Benefit Perspectives survey from United Benefit Advisors, more than 80% of employers felt employees are at least aware of the health care crisis and the reasons for increased cost sharing or benefit reductions; a little less than 20% of employees themselves said they were upset about the benefit reductions or cost increases that their employers implemented. Since communications can play an important role in bringing employees on board with health plan changes, what steps can employers take to make implementation as smooth as possible?

Here are a few ideas, both for plan-change-targeted and ongoing health plan communications:

• Make sure employees are aware of the reality of health care costs. Research and publicize to employees national health care cost data and cost trends. Be specific: For example, contrast the average cost of a hospital stay or doctor’s office visit today with that of five or 10 years ago. Do the same for the average cost of coverage under various types of health plans.
• Share specific cost data from your company’s health plans. Employees frequently think of the cost of the health plan only in terms of what they pay in premiums, and overlook the employer’s contribution. This narrow view hides the true cost of health care coverage, as well as what the employer pays toward the cost of coverage (which, ideally, employees should see as part of their total compensation package).
• Use concrete examples to illustrate how health plan spending can cut into the ability of the company to make outlays in other areas. For example, determine the approximate dollar amount increase in the company’s health plan contribution one year to the next, and compare it to some other company expense. Is the amount of the increase equal to an employee salary? Stated differently, has health plan spending growth prevented a needed hiring? Use this process to show how health plan cost increases can eliminate raises and bonuses, result in the cancellation of company events, delay the purchase of new equipment, and the like.
• Help employees see that when they use their health benefits astutely, they not only save themselves money, but also keep plan costs down as well. For example, when employees use preferred providers, they receive the highest plan benefit, and the plan pays the lower, negotiated preferred provider rate. When employees understand how health plan spending can impact salary increases, staffing, and other investments, this can motivate them to use the plan more wisely.
• Use statistical data to show employees how, generally, unhealthy people use more health care, resulting in higher plan costs. If employees accept this, they’re more likely to try to follow recommended preventive care schedules, attempt to change unhealthy behaviors, and aim to become more physically fit overall.

Employers want employees to be active participants in controlling rising health care costs. To-the-point communications can bring employees on board in this effort, resulting in more manageable costs for employer and employee alike.