While conversations about finances are always first on the agenda at annual renewal meetings, there are a variety of reasons why plan sponsors and HR should be paying attention to carrier invoices year-round. As a former account manager, I cannot count the number of times that a client who nearly had a heart attack when reviewing a carrier renewal – and understandably so – would allow company money to be misspent by failing to term ineligible participants in a timely fashion. In addition to the obvious problem of unnecessarily letting money out of the company door, there are compliance issues that can arise by not paying attention to invoices.
In no particular order, below is a non-exhaustive list of reasons why plan administrators should pay attention to invoices as they come in.
The Affordable Care Act prohibits insurers and group health plans from rescinding coverage of covered individuals except in very limited circumstances, specifically fraud or “intentional misrepresentation of material fact.” To rescind coverage is to retroactively cancel it, and even in circumstances where rescission is permitted, 30 days’ advance notice is required… and the plan document(s) should clearly indicate circumstances when rescission is permissible (i.e., in the event of fraud or intentional misrepresentation).
Both fraud and intentional misrepresentation are a high standard and require the plan sponsor to be able to show that something beyond an inadvertent misstatement or plan error has occurred. For example, regulators addressed whether it would be permissible to cancel coverage due to an employee’s misrepresentation of their use of tobacco to qualify for a lower premium and indicated that the remedy would be to recoup the appropriate premium rather than rescind the coverage altogether. This means that, in most circumstances, coverage termination must be prospective, occurring no earlier than coverage back to the date of the termination of employment or failure to pay the employee’s share of premiums.
When a participant is left on coverage, particularly in circumstances where the individual remains on the plan well beyond the date of eligibility for benefits, the question of when COBRA should be offered becomes complex. While the employer plan sponsor may want to terminate coverage as of the date of the loss of eligibility for benefits (which also typically raises rescission concerns), you are left with the problem of timely notification and how to recoup the participant’s share of premium payments. COBRA election notices must be provided to qualified beneficiaries within 14 days after an administrator receives notice of a qualified event from the employer or a qualified beneficiary. Where the employer is also the COBRA administrator, the employer must provide an election notice to the qualified beneficiary within 44 days of the latter of the date of the qualifying event or the date on which the qualified beneficiary loses coverage due to the qualifying event.
As an example, let’s say that ABC Company uses a COBRA administrator, COBRA Admin Company, and has a former employee who terminated employment on June 10th whose coverage should have been terminated on June 30th. It is now October 30th and ABC Company wants to terminate coverage as of the loss of eligibility. Clearly, ABC Company has failed to notify COBRA Admin Company of the qualifying event within the required timeframe, so no approach is without some risk. ABC Company could choose to terminate coverage as of June 30th and request that COBRA Admin Company send the COBRA election notice to the former employee’s last known address as soon as possible, or ABC Company could terminate coverage immediately and notify COBRA Admin of a termination date of October 30th (or October 31st if coverage runs through the end of the month). In either case, the former employee must be provided 60 days to decide whether to elect COBRA and then 45 days from the date of their COBRA election to make the first payment.
Under the first option, it may be more difficult for the former employee to come up with several months of payment for COBRA premiums upfront, and it may increase the likelihood that the former employee is upset about the delinquent notice. An advantage is that the plan sponsor would only be tied to offering 18 months of COBRA, absent the occurrence of a second qualifying event. Some plan sponsors will give individuals an extended period of time in which to make initial payments when there has been a delinquent notice, and others will offer to pay some or all of the retroactive premiums in order to offset concerns with the delinquent notice. The second option leaves the plan sponsor on the hook for several months of premium during those months where the former employee has not elected coverage and was nonetheless on the plan. This approach effectively extends the amount of time during which the former employee could be on COBRA…the 4 months they were left on the plan when they should have been terminated, and the 18 months of actual COBRA coverage they are eligible for due to the termination of employment.
Clearly, neither option is ideal. However, even if retroactive termination would be permitted under the rescission rules -- such as in cases where termination is occurring due to non-payment of premiums -- because of the administrative challenges and potential for an upset former employee, terming an individual prospectively and offering COBRA from that date of termination is typically the better approach.
As a general rule, insurers and reinsurers expect plan sponsors to abide by the terms of their contracts, and the plan sponsors’ own plan documents, when monitoring participants’ eligibility for coverage. While the principle is fairly basic, this can be a painful lesson for the unwary when a participant who is ineligible under the terms of the contract hits the plan with large claims. Vendors do not typically police eligibility, at least until a large claimant is identified. We have seen a carrier deny large medical claims because coverage was continued for an employee on an extended leave of absence where the plan sponsor had no written policy or documentation of the practice of continuing benefits during extended leaves of absence. It is not uncommon for carrier documents to include provisions limiting coverage to 12 weeks of FMLA or 30 days of non-FMLA leave. Even where a carrier contract does not state a specific length of time under which coverage may be continued, there is then the expectation that the employer abide by their plan’s own eligibility provisions…and no plan document is (nor should it be!) so generous as to provide coverage to former employees or even current employees on extended leaves of absence for an indefinite period.
As painful as regular bill reconciliation is, the effort of proactive review is worth the potential savings, and avoidance of compliance headaches, for both plan sponsors and participants.
Stephanie Raborn, JD
Vice President
Employee Benefits Compliance Officer
