Self Insured Health Plan - Late enrollment on appeal

[Guest akwallace]

We have a self funded medical plan. A newly hired employee failed to enroll within the 31 day initial eligibility period. Due to her circumstances, we are inclined to grant an exception, and allow her to enroll.

Does her effective date need to be her original eligibility date (since eligibility dates are defined in the plan) - in this case, 2/1/02. Or can we make her effective date an alternate date (let's say 6/1/02)? My initial thought is that we have to make it 2/1/02, since the only other effective dates allowed under the plan are due to status change or open enrollment.

Your input appreciated.

[mroberts]

Since you're self-insured it really depends on how you want to handle it. Just remember that by making an exception your are setting a precedent, so just be careful.

What I would advise is to start the coverage effective 2/1/02 and have the employee make up premiums for those months. Since you are inclined to make an exception I would assume there is a fairly good cause behind it, not that she's desperately sick. She shouldn't be allowed to have medical coverage for four months without paying for it.

[papogi]

I know this thread was not posted on the cafeteria plan board, but, if you take pre-tax deductions, this will help you with your decision. As a self-funded company, you have some latitude how you apply your underlying plan. You do not have the luxury, however, of bypassing Section 125 rules if you take pre-tax deductions. In this case, the coverage should probably be effective on the day you receive the employee's election. Section 125 is clear that elections an only be made on a prospective basis. This applies to all benefits offered under 125, such as medical coverage, FSA's, etc.

If you do not take any pre-tax deductions, you can do what you want, although mroberts' warning of the precedent being set is a good one. Even in this case, I would still make the effective date the date you received the form. Allowing coverage for past dates welcomes adverse selection, and may not look good in the eyes of a stop-loss carrier, if you contract with one.

[Guest akwallace]

We do take pre-tax deductions, and I see your point about Section 125.

But what about the fact that selecting an effective date other than the original eligibility date violates the plan rules as stated in the contract.

Could the actual "legally correct" answer be to make the coverage effective 2/1/02, and either take the retro. deductions on an after-tax basis, or not at all?

[papogi]

Selecting an effective date other than that listed in the plan doc is going against the plan, but so is allowing this person on the plan outside the time frame to enroll. Either way, you are making an exception. Going back to 2/1/02 with pre-tax deductions is definitely not allowed under 125. It appears you could take no deductions or post-tax deductions for the time period from 2/1/02 to the date the employee turned in the form (Can anyone else think of a legal reason you couldn't? Please reply.) Doing so would potentially open yourself up to stop-loss problems, although you might not have reinsurance. Also, that particular precedent might not be one you will want to make. What if the next person that comes to you in a situation like this actually has $50,000 worth of claims during that window of time. I recommend sticking with the date the forms were returned.