The stork has landed: Employers (and insurers) must provide pregnancy benefits

Gov. Jerry Brown recently signed sweeping legislation aimed at affording pregnant women certain employment and insurance protections. Two sets of companion legislation, Senate Bill 299 and Assembly Bill 592, along with Senate Bill 222 and Assembly Bill 210, attempt to ensure that all pregnant women maintain their insurance benefits while on pregnancy-related leaves.

Previously, California law only mandated that an employer maintain health benefits for an employee while on a pregnancy disability leave to the same extent health benefits were maintained for employees on other medical or disability related leaves. Now, SB 299 and AB 592 have amended state pregnancy disability law to require that employers provide pregnant employees the same level of insurance benefits during their pregnancy-related leave as they were provided prior to taking the leave.

Under the law, the employer may offer greater benefits such as providing benefits for more than the four-month period of time the employee is allowed leave under the act. However, in no event, may the employer maintain the health benefits for a period of time less than the four-month period.

Under certain circumstances, the employer may recover the amounts paid for benefits. First, the employer may recover the amounts paid if the employee fails to return to work for reasons other than taking additional leave afforded under the California Family Right's Act. In most circumstances, the additional leave taken by an employee will be "bonding leave" after recovery from the pregnancy-related disability, and thus afforded under the Family Rights Act. In that situation, the employer would not be able to recover the amounts paid for benefits. Second, if the employee does not return to work for reasons other than taking protected leave, and the reason for not returning was within the employee's control (such as finding another job or electing not to return to the workforce), the employer may recover the amounts paid.

At first blush, this may not appear to be that significant of a change in the law. If an employer is covered by the Federal Family and Medical Leave Act, and the employee is eligible for such leave, then the first 12 weeks of insurance benefits must be afforded at the pre-leave level under that law. However, the expanse of the new law is much greater.

First, California's pregnancy disability leave law applies to employers with five or more employees. Hence, this amendment requires small employers to provide continued health benefits to individuals on pregnancy-related disability leave. This is significantly different from the FMLA, which only requires such benefits to be provided by employers with 50 or more employees within a 75-mile radius of where the employee requesting the leave works.

Second, California's pregnancy disability leave laws apply to all employees, regardless of tenure with the employer. Again, this is significantly different from the reach of the FMLA, which requires at least one year of employment and 1,250 hours of work within that year for an employee to be eligible for the benefit.

Equally disconcerting, particularly for small employers that may believe they cannot afford policies covering maternity benefits, is the apparent mandate that the employer maintain the insurance coverage. While the amended statute contains language that the employer must afford the benefit at the same level as was provided prior to the leave, it is clear that the intent of the legislation is to ensure that all employees have medical insurance benefits that cover maternity related events. Hence, this statute is mandating all employers that offer health insurance to their employees, including small employers with five or more employees, to maintain and pay for medical insurance for pregnant employees who have elected coverage under their employer's health plan. The amendments take effect Jan. 1, 2012.

From the tone of the legislation and the legislative history, it is evident that it was proposed, in part, to alleviate the concern that pregnancy is expensive, and should be insured. In order to "guarantee" this, additional legislation was also enacted.

SB 222 and AB 210 were signed at the same time as SB 299, AB592. These two bills amend the state Insurance Code to mandate that all individual health insurance policies must provide coverage for maternity services for all insureds covered under the policy.

Under existing law, if a health insurer provides maternity coverage, it may not restrict inpatient hospital benefits. The change in law actually mandates that the maternity coverage be provided. This law takes effect July 1, 2012.

Read together, the new laws mandate that insurance companies provide maternity/pregnancy benefits and employers, in turn, maintain that insurance for their employees who have chosen coverage under their employer's health plan.

This "one-two" punch change in law is akin to the changes made in 2005 regarding domestic partnerships. Gov. Arnold Schwarzenegger signed into law the California Insurance Equality Act and Domestic Partner Rights and Responsibilities Act. Together, those laws mandated that insurance companies offering employers policies containing spousal benefits had to provide the same level of coverage to registered domestic partners and their children. Because employers could not, by law, find an insurance policy that would not cover domestic partners, if an employer chose to provide insurance benefits to its employees, it would have to cover domestic partners. Similarly, under SB 222 and AB 210, all state employers who provide health insurance to employees must, by law, cover maternity/pregnancy benefits under that health insurance plan.

The passage of these pregnancy-related insurance coverage amendments will have a staggering impact on employers, particularly employers with fewer than 50 employees, especially in these troubling economic times.