What Happens to Health and Welfare Benefits When an Employee Is Rehired?

When a former employee returns to work, it may be tempting to process the individual just like any other new hire. For health and welfare benefits, however, a rehire may need to be treated differently depending on the length of the break in service, the terms of the employer’s plans, and the particular benefit involved.

Employers should have a consistent process for reviewing benefits when an employee is rehired rather than automatically reinstating prior benefits or applying all new-hire rules.

Start With the Plan Terms

The first step is to review the eligibility and rehire provisions of the applicable plans. Medical, dental, vision, flexible spending account (FSA), life insurance, disability, and other health and welfare benefits may have different rules regarding returning employees.

For example, a plan may provide that an employee rehired within a specified period does not have to satisfy the new-hire waiting period again. Another plan may treat the returning employee as newly eligible.

Employers should therefore determine the employee’s prior termination date, rehire date, previous eligibility status, and applicable plan provisions before establishing a new benefits effective date.

Does the Waiting Period Apply Again?

One of the first questions HR should address is whether the rehired employee must complete the health plan’s waiting period again.

The answer should come from the applicable plan terms rather than simply from how the employee is coded in payroll or the HR system. Depending on the plan, a returning employee may regain eligibility immediately or may be required to satisfy the waiting period applicable to new employees.

Employers should also make sure that their actual administrative practices are consistent with their written eligibility provisions.

What Happens to the Employee’s Previous Elections?

Employers should not assume that all of a rehired employee’s previous elections automatically resume.

Depending on the benefit, cafeteria plan provisions, length of the break, and circumstances of the rehire, an employee may be required to resume a previous election or may have an opportunity to make new elections.

This makes it important for HR to determine what elections are required before simply restoring the employee’s previous medical, dental, vision, FSA, or other benefit deductions in payroll.

Pay Particular Attention to FSAs

Flexible spending accounts can create additional complications when an employee terminates and later returns.

The employee’s eligibility to participate again and ability to make a new election should be determined under the employer’s cafeteria plan and FSA terms. Employers should also remember that a new period of FSA participation does not automatically make expenses incurred before that participation eligible for reimbursement.

For example, an employee who returns in 2026 and makes a new health FSA election generally cannot use that new election to obtain reimbursement for an expense incurred while participating in the FSA in an earlier plan year.

Don’t Forget the ACA Rehire Rules

Applicable Large Employers (ALEs) also need to consider the Affordable Care Act when a full-time employee returns.

ACA rules include specific break-in-service provisions for determining whether a returning employee may be treated as a new employee or must be treated as a continuing employee. Generally, an employee with no credited hours of service for at least 13 consecutive weeks may be treated as a new employee for ACA purposes. Special rules can also apply to shorter breaks in service.

This distinction can be particularly important for employers using the look-back measurement method. If a returning employee must be treated as a continuing employee, the employer may need to take the employee’s previous measurement and stability-period status into account rather than simply starting the ACA process over as though the individual were a new hire.

An employer’s health plan rehire provisions and the ACA’s rehire rules serve different purposes. Employers should therefore consider both rather than assuming that satisfying one set of rules resolves the other.

Coordinate With COBRA Administration

If an employee lost health coverage when employment previously terminated, the employee may have been offered COBRA and may even still be receiving COBRA coverage when rehired.

HR should promptly communicate the rehire and new active-coverage effective date so that the employee’s active benefits and COBRA administration can be coordinated appropriately. Delays or incorrect dates can result in overlapping coverage, incorrect premium collection, or other administrative problems.

Make Sure Payroll Gets the Right Information

Once the employee’s eligibility and elections have been determined, payroll should receive accurate information regarding the effective date of coverage and the appropriate employee contributions.

Simply restarting the employee’s old deductions may not be appropriate. The employee may have different elections, benefit options may have changed, or contribution rates may be different from those in effect before the employee left.

Health and Welfare Benefits Are the Focus

The rules discussed here concern health and welfare benefits, such as medical, dental, vision, FSAs, life insurance, disability coverage, and COBRA. They should not be applied to an employer’s 401(k), pension, or other retirement plans.

Retirement plans have their own detailed rules regarding eligibility, breaks in service, vesting, prior service, and rehired employees. Employers should separately apply the terms and legal requirements governing those plans.

Have a Rehire Process

A rehire should trigger more than simply changing an employee’s status back to “active.” HR should review the employee’s prior termination date, rehire date, health and welfare plan eligibility, prior elections, applicable waiting periods, ACA status, and any COBRA participation. The appropriate information should then be communicated to payroll and benefits administrators.

The key is not to assume that every rehired employee is a new hire or that every prior benefit simply resumes. A consistent rehire process can help ensure that returning employees receive the health and welfare benefits for which they are eligible while avoiding coverage, payroll, and compliance errors.