Keep up with benefits plan maintenance to avoid potential serious claims issues
Poor benefits plan maintenance—regardless of size or industry—causes a litany of problems that adversely affect members and employers alike. Consider the instance when member claims are paid incorrectly or outright denied because of inaccurate information provided to the insurance carrier. A sponsor can be left responsible for thousands of dollars in claims if a terminated employee is not removed from a plan in a timely manner.
And beyond simple claims errors that are routinely fixed by the plan advisor or insurance carrier, sponsors need to be aware of an even bigger issue: liability. When members find themselves declined for insurance or underinsured because of an error in the administration of a plan, the employer can be responsible for exorbitant costs that are frequently associated with getting lawyers involved.
For example, in Pittman v. Manufacturers Life Insurance Company (1990), Pittman had applied for optional group life insurance, but his employer never forwarded the documents to the insurer. When Pittman’s wife passed away, he brought a claim forward for payment of the policy and the court of appeal found in his favour. In such cases, insurers can claim indemnity from employers that make administrative errors.
Some of the simplest oversights made by a plan administrator are also some of the simplest to correct or avoid. Here are the basics that plan administrators need to focus on.
Managing Eligibility/Enrollments/Changes
All eligible employees need to be on the benefits plan. Timely enrollments eliminate the risk of employees being late applicants or being declined for coverage. If changes to family status or dependants aren’t reported, claims payment can be disrupted, and unreported terminations can be abused by a member who leaves but continues to make claims, which drives up a plan’s costs.
Reporting Salaries
When a plan has coverage based on income (e.g., life or disability), it is the responsibility of the sponsor to report changes in a timely manner. Failure to do so can leave a member underinsured at the time of a claim and turning to the plan sponsor to make up the difference in benefit (a liability of potentially thousands or millions of dollars).
On-time Payments
When premiums are not paid on time, claims payment is suspended, disrupting pay-direct drug cards and all other benefits to members. By ensuring payments are made on time—either with scheduled reminders or with pre-authorized debit—this issue can be eliminated.
Taxability of Benefits
Premiums paid by the sponsor for life, disability and critical illness must be added as a taxable benefit for the member. More importantly, members must pay the premium for disability benefits in order to collect the benefit at the time of claim on a tax-free basis. Otherwise, members who need these benefits will be left with reduced payouts that could lead to legal action. Sponsors need to remember that those who administer plans are only human—they can make mistakes. Arguably, plan administrators are often individuals not extensively trained in group plan administration and likely have a long list of other duties that fall under their responsibility. If sponsors focus their efforts on being diligent with the basics, they can ensure that coverage is in place when members need it and reduce their risks of a severe claims issue.
Fact File
Kris Kubin has been in the group benefits industry for more than 25 years and is currently a consultant with STRATA Benefits Consulting. kriskubin@stratagroup.ca
BIRTHPLACE
Winnipeg
PREVIOUS EMPLOYERS
North American Life
Great-West Life
ENCON Group Inc.