May 23, 2007 by blog.

A common practice of many employers, insurers, and benefits consultants is to personalize the enrollment materials for employees. This is usually done for two reasons: (1) to simplify the enrollment process for employees and (2) to speed up enrollment meetings. While this is usually not a problem, a recent case, Crosby v. Rohm & Haas Co., out of the Sixth Circuit (which is controlling in Tennessee) provides a cautionary tale. In this case, the facts are somewhat unusual. The employer provided a personalized enrollment worksheet to each employee that listed the coverages in which that employee was currently enrolled. It further stated that the employee would be enrolled in those same coverages for the next year unless the employee made a change during the enrollment process. Unfortunately, the information on one employee’s worksheet was incorrect, showing that the employee had more life insurance than the employee was entitled to under the plan. The employee died later that year, and a lawsuit ensued over the amount of life insurance.

Luckily, the court held that the errors on the worksheet were not binding. Had the court ruled that the employee’s estate was entitled to the additional life insurance, the employer (not the insurance company) would have been liable for the additional amount. Although the court ruled in favor of the employer, this case highlights the potential problems with providing personalized enrollment materials.

COMMENT: If you want to provide personalized enrollment materials, at least make sure that you include a disclaimer on the form, indicating that such coverage is subject to any limitations in the plan documents. In addition, make sure that the actual plan documents do NOT reference any personalized forms. The reason? If the plan document references coverages that are outlined in other documents (such as a personalize benefit statement or worksheet), such documents may become part of the actual documents. Had that been the case in Crosby, the outcome would likely have been different.

One last note of caution. If personalized statements or worksheets are provided, make sure you understand who is responsible for any errors. While errors on health or dental coverage might be easily corrected, other coverages, such as life or disability insurance, might not be correctable. In the event the error cannot be corrected, who is liable?

Posted by Mike Cain.

Posted in Employer Liability | 1 Comment »

May 23, 2007 by blog.

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.

Posted in Employer Liability | No Comments »