If there is a reason to write a blog about it, you can best believe that it happens… a lot. Employers and Human Resource professionals are humans too and will make a mistake now and again. Termination of an employee—whether voluntarily or involuntarily—is never an easy process. Not only do you have a mile-long list of offboarding steps, but you also must ensure that operations are impacted as little as possible throughout this change. Therefore, mistakes will happen at some point or another. So what do you do if you forgot to terminate an employee’s benefits upon their separation from the company?
There are many variables that come into play when removing benefits from a terminated employee. Some of these variables are below:
What is the size of your organization?
If you are an employer with 20 or more employees and offer health insurance, your employees are eligible for COBRA coverage. With COBRA, an eligible employee has 60 days to elect continuation of coverage if they wish. Conversely, Federal law typically gives employers 44 days from the COBRA qualifying event to produce a COBRA notice to the qualified individual(s). Below are steps that an employer may take to rectify offering COBRA from a delayed standpoint:
- Terminate the ex-employee’s coverage from the date of discovery or end of the current month. Best practice is to terminate based on your plan’s termination rules (either per diem or extend to the end of the month).
- Draft a COBRA letter that speaks to the employer’s error and that coverage has been paid up until the specific date specified in the letter.
- Provide the appropriate 60-day window for COBRA elections by the previous employee.
- State in the COBRA letter the number of remaining months that he or she could be covered under COBRA. Subtract the number of employer-paid benefits based on the employer’s error by the standard 18-months of COBRA coverage. For example, if you failed to remove an ex-employee from benefits coverage until 4 months had passed, the employee would have 14 months remaining of COBRA eligibility.
If you are an employer with 50 or more full-time or full-time-equivalent employees, you have additional responsibilities as an applicable large employer, or ALE, under the ACA (Affordable Care Act). The ACA states that an ALE, “rescission is illegal except in cases of fraud or intentional misrepresentation of material fact as prohibited by the terms of the plan or coverage.” Therefore, it is in the employer’s best interest to terminate coverage either on the date of discovery or extend coverage until the end of the month of discovery for individuals who were never termed from group health coverage.
What is your state legislation?
Many states differ in plan termination rules, state continuation of coverage (if smaller than 20 employees) and other rules and regulations. Employers subject to state continuation of coverage must notify eligible employees of the option of continuing their coverage. Typically, employers must notify the employee within a month of the qualifying event (termination in this case) that would have caused coverage to end. This time limit varies by state, and it is imperative that you look up state-specific laws for exact dates.
The best practice concerning state continuation notices for someone who has been left on their organization’s health insurance after termination is to follow a similar process as mentioned above for COBRA. The organization should terminate coverage effective via the date of discovery or the end of the month of discovery. Secondly, the employer should send out the continuation of coverage notice as soon as applicable along with written notice of not terminating the employee from coverage in a timely manner.
How long has the ex-employee been left on health coverage?
There are times when it appears that an employee is still covered under an organization’s benefits when the carrier invoice is reviewed. If the employee exited the organization a month ago, there is a chance that this employee’s appearance on the carrier bill is due to a timing issue. The carrier may not have processed the termination of the employee’s benefits before the list bill was generated. If this is the case, the insurance carrier will credit back the invoiced amount once the termination is entered into their system.
If the employee has been separated from the organization for an extended period, the insurance company may retro back coverage for a few months, but typically this time limit is limited up to about two to three months. Each insurance carrier is different, so it would be best to have a conversation with your carrier contact/account manager.
Overall, mistakes happen and can be costly. On the other hand, you have more than likely already paid the invoice for this individual, so how should you move forward to mitigate the risk of something like this from happening again? Well, I am glad you asked! Below are a few safeguards to put in place to help:
- Provide a termination letter with both voluntary and involuntary terminations outlining, but not limited to, the employee’s terminating benefits coverage and next steps for one of the following:
- State continuation of coverage
- Reconcile your carrier invoices monthly!
- Produce verbiage in your employee handbook outlining what happens to benefits coverage once an employee leaves your organization.
Need more help?
Whirks can aid with all the above. Not only can we help your organization by fully taking over COBRA administration, but we can also help you draft the appropriate handbook(s), reconcile your benefits invoices monthly as well as fully audit your system to further mitigate the chance of paying for a terminated employee’s benefits. Check out our new all-inclusive service offering, The Whirks, so you can offload these responsibilities and focus more of your time on growing your business.