Ask an Adviser: Why is managing self-funded plan eligibility so risky?

Welcome to Ask an Adviser, EBN’s weekly column in which benefit brokers and advisers answer (anonymous) queries sent in by our readers. Looking for some expert advice? Please submit questions to askanadviser@arizent.com. This week, we asked Ben Conner, CEO of Conner Insurance, to weigh in on the following: Why is managing self-funded plan eligibility so risky? 

Self-funded health plans are wonderful ecosystems that can be custom-built to the needs of both employers and their employees. It allows for an employer to choose different components that can enhance the benefit experience for employees, as well as allow them to manage cost-containment opportunities. There are many reasons why any employer with 50-plus employees should explore this avenue to deliver health insurance.

A key area of financial protection in a self-funded program is the ability to buy stop-loss insurance. This allows organizations to protect themselves against the largest claim risk (specific stop loss) and catastrophic event of having a bad year (aggregate stop loss), which usually will happen every 5 years.

However, if the agreed upon eligibility rules aren’t followed by the plan sponsor, it will allow for the stop-loss insurance provider to deny reimbursement of the individual whose eligibility was mismanaged.

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Managing eligibility is defined as the processes for new hires, life events, terminations, ACA classifications, dependent eligibility, etc. These are seemingly basic administrative functions, but they can cause significant financial damage if not properly followed.

Here’s an example: An employer has a long-standing employee who is going through a horrible medical event and has been off of work for an extended period of time; the employer has processed the FMLA paperwork. Toward the end of that leave, it is obvious that the employee still isn’t going to be able to return to work. So the employer decides to grant another six weeks of leave because the employee in question is one of their best, and the employer wants to do what’s right.

But that additional six weeks of leave isn’t standard protocol, nor is it listed in the plan document for how the employer typically manages leaves. So the stop-loss provider has the right to deny reimbursements for this employee, who isn’t eligible to be on the plan.

Unfortunately, this scenario happens all too often, and it usually stems from an employer trying to be kind in their employment practices. This has now, unfortunately, put financial risk on the company because it is operating outside of the plan document and stop-loss contract.

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The following steps will help ensure that employers aren’t adding additional risk by mismanaging eligibility:

1. Verify that the employee handbook, insurance company contracts and plan documents list the eligibility that matches the employer’s intent and practice.
   
2. Process FMLA and leaves of absences according to plan documents and employee handbook — no exceptions.
   
3. Remove terminated employees from the plan within 30 days of their termination.
   
4. Provide training to front-line supervisors so they understand how serious eligibility and leaves are to insurance coverages and risk.
   
5. Obtain proper documentation when administering eligibility so you are only offering coverage to eligible employees.