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Expensive Problems Occurring for Employers Who Don’t Have Clear Health Plan Eligibility Conditions

June 14, 2017

Employers are now two and half years into operating in the employer mandate world. The employer mandate caused many employers to amend the eligibility conditions for their health plans to avoid potential penalties. Unfortunately, some employers are failing to document the eligibility conditions for their health plans. Other employers have documented their health plan’s eligibility conditions but failed to coordinate the eligibility conditions with their insurance company. These two oversights are starting to cause employers expensive problems. This article explores the dangers of not documenting and coordinating the eligibility conditions of an employer’s health plan.

The Affordable Care Act (ACA) requires an Applicable Large Employer (ALE) to offer coverage to its full-time employees or risk paying a penalty. The regulations provide an employer with two options for determining who should count as a full-time employee. The default option, known as the monthly measurement method, treats an employee as full-time if the employee accumulates 130 or more hours of service per month. Alternatively, the regulations allow an employer to adopt a look back measurement method. The look back measurement method allows an employer to measure certain employees’ hours of service over a period of up to 12 months before the employee is classified as full-time or not as full-time. However, to utilize the look back measurement method an employer must adopt a policy explaining the length of the periods and the specific dates selected. A document explaining the look back measurement method is critical in case of an audit. Shockingly, many employers have failed to even document their eligibility conditions. This is creating real problems for some employers.

First, a federal law known as ERISA (Employee Retirement Income Security Act of 1974) requires a plan participant to receive an SPD within 90 days of becoming covered by the plan. The SPD serves as the primary vehicle for informing participants about the plan and how it operates. There are regulations that set out the contents that must be in the SPD. The requirement most pertinent to this article is the SPD must “include a statement of the conditions pertaining to eligibility to receive benefits…” (see 29 CFR 2520.102-3(j)(2)). Before the ACA was in place this requirement was often easy to satisfy as an employer’s eligibility conditions could often be linked to a job title or another simple variable. However, in the ACA world an employer who elects to use the look back measurement method will have to include the details of the initial measurement period and standard measurement period, including dates, in order to satisfy the SPD requirements if the health plan’s eligibility conditions are properly synchronized.

The other pertinent record to this discussion is the document the health plan uses to determine eligibility. An insurance company needs to be able to determine who is eligible for the plan so it knows who to cover with the plan’s benefits. However, an insurance company has no skin in the game as it relates to the 4980H penalties. This is perhaps creating part of the problem as the insurance company does not care if the look back measurement method is accurately (or even correctly) explained and incorporated into the eligibility conditions. Consequently, there is frequently one set of eligibility standards that apply for the purposes of the look back measurement method and a separate set of standards applied to the actual health plan. Furthermore, sometimes the health plan’s SPD is not providing any eligibility conditions. This lack of synchronization is a huge problem.

Any employer who does not synchronize its look back measurement method with its health plan eligibility is at risk of being responsible for large medical expenses. We have become aware of several current cases that involve an employee accumulating hundreds of thousands of dollars of medical expenses and a subsequent dispute involving the employee, the employer, and the insurer on who is liable for the medical expenses. These types of claims are becoming common place when eligibility conditions are not clear. This is perhaps the more important reason the SPD must contain a clear statement explaining the plan’s eligibility conditions which is consistent with the employer’s look back measurement method.

Regardless of the eligibility conditions an employer’s plan uses, the employer must have the specific eligibility conditions in its SPD. If an employer is using the look back measurement method to determine eligibility, the employer must explain the look back measurement method it is adopting with specific dates and times frames. There are countless SPDs being provided to employers from “reputable” cookie cutting SPD providers that are falling short of this standard. While this may have been an accepted practice prior to the ACA, the regulations associated with the SPD clearly require an employer to include “a statement of the conditions pertaining to eligibility to receive benefit…” within the SPD.

Past practices implemented by the health care industry have fallen short of properly explaining a plan’s eligibility conditions in the SPD. The law is clear. A proper SPD must include a statement explaining the eligibility conditions of the plan. The ACA has only complicated the eligibility conditions an employer has to include in its SPD. All employers should review their SPD to make sure the plan’s eligibility conditions are discussed in detail and are synchronized with any look back measurement method policy the employer has in place. Failing to do so could be costly.

About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC and is a Partner at Health Care Attorney's P.C. Ryan received his LL.M. from Georgetown University Law Center and his J.D. from Saint Louis University School of Law. He has distinguished himself as a leader in the Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.

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