Ineligible employee/dependent coverage has become a big issue with health plans today. Sometimes it’s a matter of not realizing coverage has lapsed, while in other cases, employers may knowingly cover someone who doesn’t meet eligibility requirements. Many times, it happens as an intended act of kindness – when an employer is trying to lend a helping hand to an employee or his/her family member during a tough medical situation, and isn’t familiar with the rules.

In any case, it’s a risky move. How so? If your company has a self-funded plan, you must follow the exact language outlined within the summary plan description (SPD). Your SPD dictates who is covered and the circumstances that terminate coverage. Employers who don’t follow their SPDs and continue to offer coverage to ineligible participants can incur huge out-of-pocket expenses as any health claims these employees/dependents accumulate will not be reimbursed.

So how can you avoid the costly consequences of covering someone who is no longer eligible under your health plan? Two things to be diligent about: your documentation and recordkeeping.

Here are some tips for employers.

  • First of all, make sure you understand everything outlined within the SPD from your third party administrator (TPA) and compare the language to your own company-issued policies to be sure they are consistent.
  • You should also complete regular assessments to ensure you are adhering to all eligibility requirements and check that you have enrollment applications and related paperwork on file.
  • Another must-do is to monitor all changes to employee/dependent status and maintain detailed documentation for work hours completed as well as any absences (sick leave, vacation time, FMLA, etc.)
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