Employee Changed Social Security Number -- Health Plan Administrator Requires Indemnification from Sponsor before It Will Enroll the Employee

I represent a self-funded group health plan where the following occurred. Due to some type of issue with the Social Security number that was initially issued to an employee, the employee had to request a new number which was issued by the Social Security Administration. The third party administrator is prohibiting the employee from enrolling in the group health plan unless the plan sponsor signs an agreement indemnifying the TPA from any liability resulting from the newly issued SSN. The plan collects premiums and the TPA adjudicates and processes claims. Since neither group health plan coverage nor reimbursements of benefits are subject to federal income tax, this request seems to be grossly unreasonalbe. Has anyone encountered such a situation like this? If so, and you were successful in not having the sponsor sign the indemnification clause, what arguments did you raise that successfully got the TPA to back down from its stance?

Thank you!

It's not about taxes, it's about (potential) fraud.

 Wfhile I can see the validity of your point, especially since the TPA is likely more solvent than the plan, the employer and the employee. However, at the end of the day, if the plan or employer is calling the shots as to whether an individual should be covered as an employee, a court would be more likely to conclude that the liability properly belongs to the plan or the employer and not to the TPA. Another factor is the impact of the statute of limitations. In addition, at some point, I would imagine that the passage of time would extinguish any potential liability for fraud.  Perhaps the plan could enter into an agreement with the TPA that the plan or the employer determines who is eligible as an employee and that the TPA has no liability for such determination. This might still result in an indemnification agreement with the TPA but it should mitigate the TPA's potential liability. 

I don't have all the facts here, but it is likely that the employer has to enroll the (presumably otherwise eligible) employee into the plan in accordance with the ACA so the employer may have few options here  I think the likelihood of the TPA being held liable for the incorrect SSN is relatively low, even in the case of the employee's or employer's fraud (e.g., immigration-related) so I think entering into a very, very narrowly tailored indemnification agreement may be unavoidable.

I would consider the TPA's position on this, however, when renewal comes around.

Considering the agreement between the health plan’s administrator and its TPA service provider:

Does the agreement provide that the service provider is not responsible for following the plan administrator’s direction?

Does the agreement provide that the employer indemnifies the service provider against a third person’s claim that results from following the plan administrator’s direction?

If so, an employer/administrator might argue that another writing ought to be unnecessary. But a service provider might argue that it merely seeks a further assurance consistent with the agreement.

This is not advice to anyone.

Hold harmless agreements are quickly becoming the new NDAs for vendors.  They seem to require them much more frequently now for routine matters that have little to no chance of causing any liability.  Anything remotely novel or gray, they just use it as a CYA crutch. 

My general feeling in these situations is that unless there are egregious terms in the hold harmless, they typically are not the hill to die on.  Ultimately, they are still acting at the employer's direction, which is the key point.  In this particular situation, I don't really see how covering the employee with the SSN issue could cause either party any liability to be honest.  The much greater potential liability would be refusing to cover the eligible employee.  But if the TPA wants it so the employer doesn't sue them for processing claims for a potentially ineligible individual, and the terms are typical of these types of agreements, I would generally be fine completing it to resolve the matter.