August 9, 2012
Authored by: benefitsbclp
As we near the first anniversary of benefitsbclp.com, it is a good time to reflect on the past, such as one of our first posts on the importance of clear eligibility terms in a self-funded health plan. This is a particularly timely reflection because the case discussed on that post was just upheld by the Sixth Circuit Court of Appeals in an unpublished opinion.
For those unfamiliar, in the case, an employee who was participating in a self-funded medical plan went out on FMLA leave. When that leave expired, she did not return to work and the employer put her on short-term disability, but continued to allow her to be eligible for the medical plan. After her short-term disability period expired, the employer offered her COBRA, which she elected.
However, the terms of the medical plan provided that eligible employees were those regularly scheduled to work a minimum of 40 hours per week with an express exception only for FMLA leaves. When the stop-loss carrier inquired about her eligibility, the employer said it had a “corporate practice” of continuing to allow employees on short-term disability to be covered under the plan. The stop loss carrier, however, had only committed to provide its coverage for claims that were covered under the terms of the self-funded medical plan. In arriving at its decision, the court narrowly construed the medical plan’s eligibility provisions. (A few additional details are noted in the prior post.)
As we noted in our prior post, in a battle of the policies (company policy v. stop loss policy), the stop loss policy will usually win. This means that all eligibility criteria should be spelled out in the plan document. Care should be taken to ensure that the language is complete and not prone to narrowing interpretations.
Whether or not an employer has stop loss coverage, it is still important to spell out eligibility clearly. Otherwise, a common risk is the possibility of disputes arising with employees over their eligibility status. In such a dispute, a court is likely to defer to the employer’s interpretation of the plan only if the employer is following the terms of a written plan document.
The bottom line is that an employer should make sure its plan document (medical or otherwise) spells out eligibility clearly so that everyone (the employer, the third-party administration, the employee, and the stop loss carrier) is on the same page.