Talking About Financial Matters That Affect You and Your Organization
Aug 15th, 2019
Plan sponsors often struggle to manage the growing list of responsibilities with limited time and resources. Maintaining plan member eligibility is the single most important responsibility of a plan sponsor. Most benefit plans are self-administered which means that the plan sponsor, and their appointed plan administrator, are responsible to maintain plan member records on-line or via traditional forms. Failing to enroll or terminate members properly (including dependents) or failing to report member incomes properly results in significant legal risk. Two significant risks include voiding the provider contract and ineligibility of members (which could result in the employer having full financial and legal responsibility to reimburse associated cost had they been enrolled properly).
Here is a quick refresher on eligibility rules.
· Eligible plan members are determined by their employment status (full-time, part-time, contract or seasonal), hours of service, and length of employment – all of these definitions are determined by the employee benefits contract based on the master application signed by the plan sponsor
· Eligible plan member dependents are determined by their connection to the employee-member (spouse and dependent child) – these definitions are determined by the employee benefits contract based on the master application signed by the plan sponsor
· Insured income is a determining factor for income-based benefits such as Life Insurance, Accidental Death and Dismemberment, Critical Illness Short-Term Disability, and Long-Term Disability. It is also important to know what the employee benefits contract states is eligible income (commission, overtime, bonuses) – this definition is determined by the employee benefits contract based on the master application signed by the plan sponsor
Participation requirements are often overlooked when managing the plan. Most employee benefit plan contracts stipulate the required percentage participation of eligible plan members. Failure to comply with this stipulation opens up the ability of the provider potentially voiding the contract. The most common reasons for failure to comply with participation requirements is either ignorance to the requirement, or attempting to reduce costs for the plan sponsor or member. Even the best intentions lead to consequences that can be catastrophic.
Another downside of failing to report an eligible member (beyond legal risk and participation requirements) is the potential for an eligible member being labeled as a late applicant. A late applicant is any potential eligible member who fails to be reported to the program provider within 31 days of their eligibility. This late applicant status may require medical underwriting which could lead to declined or restricted coverage for the member and/or their dependents. Since the plan sponsor and plan administrator have the responsibility to supply the provider with the eligible member information, the legal liability falls on the plan sponsor and administrator.
As this article outlines, the master application (which forms part of the contract with the provider) is a key piece of information that will determine the criteria for eligibility. These criteria can be changed within the contract with a signed amendment. This is important to understand, because if you are managing the plan by providing incorrect information, this could void the contract with the provider. Honesty and transparency is always the best policy.