Can an Employer Make You Pay Back Health Insurance Premiums?
An employer's ability to recover health insurance costs from a departing employee is rare and legally restricted. Learn the specific exceptions that apply.
Health insurance is a shared cost between an employer and an employee. A common question when an individual leaves a job is whether the employer can require repayment of the premiums it covered. Generally, employers cannot reclaim their portion of health insurance premium costs from former employees. This practice is restricted by law. There are, however, specific circumstances where an employer may have a legal right to seek reimbursement, and these situations are exceptions governed by federal regulations and specific agreements.
Repayment Due to Employment Termination Timing
A frequent scenario involving premium repayment relates to the timing of an employee’s departure. Employers pay for group health insurance premiums in advance for the upcoming month. If an employee’s last day is early in the month, the employer has likely already paid for that individual’s coverage through the end of that month.
Whether an employer can ask for repayment for this post-employment coverage depends on established company policy, outlined in the employee handbook or summary plan description. Some company policies state that health coverage terminates on the last day of employment. If the policy also includes a provision for recouping costs, the employer might bill the former employee for the premium portion covering days after their departure.
Conversely, many employers have a policy where health coverage continues through the end of the month in which the employee leaves. This is often treated as part of the separation process, with no expectation of repayment. If the policy is to cover the full month, the employer absorbs that cost.
The FMLA Recoupment Provision
An exception to the rule against premium recovery is found within the federal Family and Medical Leave Act (FMLA). This law requires employers to maintain an employee’s group health benefits during FMLA leave under the same conditions as if the employee had been working. The employee remains responsible for paying their share of the premium, but the employer must continue its contribution.
The FMLA allows an employer to recover its share of health insurance premiums if the employee fails to return to work after their leave expires. This right applies only if the employee’s reason for not returning is within their control. An employee is considered to have “returned to work” if they are back on the job for at least 30 consecutive calendar days.
However, the employer cannot recover these premiums if the employee’s failure to return is due to the continuation of a serious health condition, affecting the employee or a covered family member, that would otherwise entitle them to FMLA leave. Recoupment is also barred if the failure to return is due to other circumstances beyond the employee’s control.
A related concept involves “key employees,” who are among the highest-paid 10% of the workforce. An employer can deny job restoration to a key employee if their return would cause substantial economic injury to the company. If the key employee chooses not to return after this notification, the employer may not recover the health insurance premiums paid during the leave.
Role of Employment Agreements and State Laws
Outside of the FMLA context, an employer’s power to reclaim health insurance premiums depends on having a clear, written agreement with the employee. For an employer to have a legitimate claim, there must be a pre-existing document, signed by the employee, that explicitly authorizes this action. Such clauses can be found in an employment contract, a standalone repayment agreement, or a bonus agreement.
These agreements must be unambiguous, clearly stating the circumstances under which repayment would be required and the specific costs to be recovered. For example, an agreement might specify that if an employee resigns within a certain period after receiving a benefit, like a relocation package that included health premium payments, they must repay those costs. Without such an explicit, signed authorization, an employer has no legal basis to demand the money back.
Even when a valid repayment agreement exists, its enforcement is constrained by state-level wage and labor laws. Most states have regulations governing what an employer can legally deduct from an employee’s final paycheck. These laws often require an employee’s express written consent for any deductions that are not standard withholdings like taxes.
Methods of Premium Recovery
When an employer has a legal right to recover premium payments, it has several methods to collect the debt. The most direct method is to deduct the amount from the employee’s final paycheck, provided this is permitted by a prior written agreement and applicable state law.
If a deduction is not possible or does not cover the full amount, the employer can send a formal invoice to the former employee. This letter will state the amount owed, the reason for the debt, and a payment deadline.
Should the former employee not respond, the employer may use a third-party collection agency. In cases where the amount is substantial, an employer might pursue legal action by filing a lawsuit to obtain a judgment.