Not following terms of the Plan - Employer Risk

[waid10]

We have recently changed our health plan from 20 hours per week to 30 hours per week to be eligible. We have a few employees that will no longer be eligible due to the change. My boss in HR wants to grant an exception to a few (not all) of those employees affected; as in, he wants to continue to cover them even though they don't meet the Plan's eligibility requirements. Can anyone help me to understand what the risks are in doing this?

Thanks.

[hr for me]

from an HR side (rather than benefits) :

(1) disparate impact/discrimination if the group picked happens to all be on gender/race etc compared to those no longer eligible (even if not direct)

(2) PR/employee morale side when those who don't get to stay eligible find out that others did (and they will I can guarantee it)

(3) the carrier's assumptions on the group and who is eligible...they are making assumptions in underwriting and if they find out you are allowing ineligible employees onto the plan (for whatever reason), it is possible they could cancel your coverage due to fraud.

[My 2 cents]

from an HR side (rather than benefits) :

(1) disparate impact/discrimination if the group picked happens to all be on gender/race etc compared to those no longer eligible (even if not direct)

(2) PR/employee morale side when those who don't get to stay eligible find out that others did (and they will I can guarantee it)

(3) the carrier's assumptions on the group and who is eligible...they are making assumptions in underwriting and if they find out you are allowing ineligible employees onto the plan (for whatever reason), it is possible they could cancel your coverage due to fraud.

Not a health benefit practitioner, but I can easily imagine the insurer refusing to cover medical expenses for the people being allowed to stay in contrary to the plan provisions/limitations. And, since they would not have been given proper COBRA notice, well, it might not be a pretty sight!

[Peter Gulia]

Does the human-resources person have authority to decide such an expenditure without the approval of some other executive?

If the employment-law, business, and other risks beyond employee-benefits law and tax treatment don't deter the decision-maker, is it feasible to amend the health plan's documents to specify exactly who is eligible?

When the employer asks for its lawyers' advice, it might ask whether treating as eligible or covered persons who are not so entitled under the plan documents' provisions is a breach of a fiduciary's duties of obedience, loyalty, impartiality, or prudence?

[Chaz]

You'll definitely want to speak to counsel on this but here are some general thoughts from an EB perspective:

1-ERISA does not prohibit an employer from setting different eligibility requirements for different employees, even if the employees work the same hours. The plan documentation just needs to reflect the proper eligibility requirements.

2-As mentioned above, an insurer may object to this arrangement. This is less likely if the plan actually reflects the eligibility requirements. Similarly, if the plan is self-insured, the employer will likely want to run this design by its stop-loss carrier, if applicable.

3-The employer needs to consider the cafeteria plan and, if self-insured, the 105(h) nondiscrimination tests, in the unlikely event that the 20-hour employees with coverage are HCEs. If the plan is fully insured, the new ACA fully insured nondiscrimination tests (not yet in effect) may limit the ability to have this arrangement.

4-Under HIPAA, an individual cannot be denied eligibility for benefits or charged more for coverage because of a health factor. I presume that is not the basis that the employer will use to determine who is eligible and who is not.

5-The employer will want to run this design by an employment attorney to make it does not run afoul of any employment laws.