When did she enter the UK?
Assuming she's here under the 5 year route then she will have to apply for another FLR visa. After reaching the 5 years, assuming she has achieved (current) B1 English test and Life In The UK test pass then she will be able to apply for ILR. When she has ILR she can then progress on to citizenship.
Unfortunately yes, she will still have to pay the NHS fee until she achieves ILR.