Employee benefit landmines

The danger of a landmine is that you don’t know you’ve stepped on one until it’s too late. Here are some employee benefit landmines that even the most seasoned veterans sometimes may not see until it’s too late.

Owners and officers waiving workers’ compensation coverage

Owners and officers can and often do waive workers’ compensation insurance. However, medical plans do not automatically cover work-related medical claims, unless a rider is elected. Medical carriers seldom inquire about workers’ compensation coverage on group paperwork, so this problem can slip through the cracks.

The cost to add 24-hour coverage to the medical plan is many times more expensive than the workers’ compensation premium. The most common solution is to keep the owners and officers on workers’ compensation.

Offering severance packages that include continuation of benefits

From time to time, employers offer severance packages to ex-employees that include a continuation of benefits for a period of time.

Unless you have set up your eligibility language in the carrier’s contracts to include severance package timetables, the ex-employee no longer qualifies for coverage based on your group contract. The problem typically doesn’t surface until the end of the normal COBRA timetable (assuming the employee takes COBRA for the maximum duration.)

The employee assumes and may even have been notified by the employer that the COBRA qualifying event was at the end of their severance package timetable. The actual timetable, according to common carrier contracts and COBRA law, is the beginning of the severance timetable, when the employee’s hours were reduced. The carrier has every right to decline any claims that were incurred beyond the normal timetables.

The solution is to simply agree to pay for the ex-employee’s COBRA premium.

Waiving waiting periods for new hires without written approval from the carrier

Requests for exceptions to established eligibility waiting periods should be rare. Although most requests are approved, they are not guaranteed. Carriers are starting to ask for evidence of insurability on the prospective employee before waiving waiting periods.

The best solution for offering benefits to new employees sooner than normal is to offer to pay their current COBRA premium until they have satisfied the normal waiting period. This typically accomplishes

the ultimate goal of the prospective employee. We recommend requiring the employee to pay his or her normal employee contributions as soon as the company starts paying the COBRA premium.

Canceling current coverage before receiving written approval from your new carrier

This problem occurs more often than people think. Every insurance carrier has some level of underwriting before it will approve coverage. Carriers can take anywhere from 24 hours to 30 days to process your application(s) before the underwriting department approves or declines coverage.

The gravest of problems arises from declining your application for coverage with the new carrier. If you cancel current coverage and afterward are declined by your new carrier, you may be uninsurable. Some carriers are glad to get rid of your risk and would not automatically reinstate your canceled coverage. The end result could include absorbing the entire risk that even the insurance carriers didn’t want.

The most common solution is to start your renewal cycle early enough to complete all the required tasks. Every insurance carrier will need some amount of time to process forms and applications before issuing an approval letter.

When employers wait too long to complete these requirements, they are pressed with a new problem, paying premiums for both new and old coverage for a period of time.

You can wait to renew group coverage up to the last working day of your plan year. On the other hand, you are required to give 30 to 60 days notice on canceling coverage, which is any time after the anniversary date.

As you approach your anniversary date without an approval letter for new coverage, your choices are to either double pay your premiums or cancel coverage assuming you will be approved. Can you hear the click of the landmine?

Starting your renewal process and open enrollment early enough is the key to avoiding this problem.

Bruce Bishop ([email protected]) is director of marketing and managing partner of KYBA Benefits. KYBA Benefits provides consulting and administrative services to more than 400 corporate accounts, ranging in size from 20 employees to more than 7,000. Reach Bishop at (770) 425-6700 or (800) 874-2244, ext. 205.