Although clients rarely ask the question, the issue of whether a client company can (or more appropriately, should) cover someone who is not eligible on their health insurance plan comes up all too often. Unfortunately, doing so is not without risk, even if the insurance company accepts the premiums. A recent case out of North Carolina (Carolina Health Plan, Inc. v. Auddie Brown Auto Sales of Florence, Inc.) highlights the dangers of doing so. Although the most recent ruling in the case deals with a technical issue regarding the court’s jurisdiction, the underlying claim is important.
The employer, Auddie Brown Auto Sales, had continued to pay the insurance premiums of a terminated employee on its group health plan. The case does not say why, but it is not unusual for an employer to do so. Ultimately, the insurer, Carolina Health Plan, paid more than $650,000 in claims for the former employee, and then sued the employer for negligent failure to inform the insurer that the former employee had become ineligible.
As with many group insurance contracts, the Carolina Health Plan contract called for the employer to certify the correctness of the eligibility of the covered employees. When the employer kept the terminated employee on the bill without notifying the insurer of the termination, the employer breached this certification.
Unfortunately, this issue arises in many different ways. Employers cover terminated employees, family members, employees that do not actually meet the eligibility requirements, and various other “employees” that otherwise would not be eligible under the health plan. Often, the employer is doing a “good deed” in providing the coverage. However, as the old saying goes, “no good deed goes unpunished.” Here, regardless of the reason Auddie Brown Auto Sales kept the former employee on the plan, it appears the employer is now going to pay the price for its generosity.
Another common occurrence in smaller companies is to cover family members of the owner, or maybe a part owner that is not actually employed by the company. Although some insurers may not care if the employer does so, such occurrences may give rise to the same problem in the event that person has significant claims.
COMMENT: If you, as an employer, have “covered employees” on your plan that do not meet the eligibility requirements, you should take steps to rectify the situation. At a minimum, make sure you notify your insurer of the status of such employees. Although some insurers will allow you to cover such people, it would be best to have some documentation that the insurer was made aware of the person’s status. Even better, though, would be to make sure only those persons that actually meet the eligibility requirements are covered.
Posted by Amy Cain.
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