Watch out for this carrier-switch headache
May 1, 2009 by Bill MeltzerPosted in: Compliance, In this week's e-newsletter, Latest News & Views, Uncategorized
Whenever a company switches benefit plan carriers, there’s always the potential for unexpected problems during the changeover.
One common glitch: some employees enrolled in the old plan fall through the cracks when transferring to the new carrier.
What happens if, for technical reasons, an enrollee is declared ineligible for the new plan? Read the facts and decide – Who won this case?
The facts: A long-time employee was forced to on long-term disability while he battled a usually fatal form of cancer. During the last stages of his lengthy illness, the company switched its supplemental life insurance plan for employees.
The employee passed away, and his family put in a claim for a $150,000 death benefit. The TPA denied the claim, because the plan documents stated that only active employees were eligible to enroll in the new plan.
The employer said: While the situation was unfortunate, the eligibility conditions spelled out in the plan document were crystal clear. Nothing in the plan document stated that exceptions would be made to carry over inactive employees who were inactive due to a pre-existing illness or serious injury.
The employee’s family said: The family was eligible for death benefits under the company’s old life insurance plan. Even after the plan switch, the man was still technically employed by the company. He was placed on long-term paid disability during the final months of his life.
Who won? The employee’s family.
Why: The court said the company, as sponsor of both the old and new plans, had dropped the ball on its ERISA obligations. Simply changing carriers wasn’t enough to release the firm from all of its legal obligations to employees enrolled under the old plan.
Specifically, it was up to the company – before the new policy took effect – to inform anyone who’d soon lose their benefits. It was the firm’s duty to give the man’s family a heads up that, as an inactive employee, he’d become ineligible for the new plan.
After all, the judge said, management at the company knew ahead of time about the employee’s failing health and inability to work.
Cite: Miller v. Rite Aid Corp., Miller v. Rite Aid Corp, 9th Circuit Crt.,
No. 05-35505, 10/11/07.
May 7th, 2009 at 1:37 pm
We have someone collecting LTD benefits from a previous carrier. In June, 2006, our company changed carriers and the person on disability did not go to the new plan. He stayed on the old plan and continues to get payments.
As the article says, you need to look at who is currently collecting on the old policy and make sure they are going to continue to get coverage.
May 14th, 2009 at 10:44 am
It is also very important that when an employee is terminated, they receive information on how to continue their LTD or Life Insurance plans by contributing themselves (plan certificates should have this information spelled out). We make sure that all employees at least have a phone number to call if they want to explore continuing benefits.
May 14th, 2009 at 4:39 pm
Yes, Maggie, I was going to say the same thing. In our case, a former employee became disabled more than 15 years ago and continues to collect LTD under the insurance plan the company had then, even though it’s changed a few times since. Maybe there are different rules for different insurers and/or states, but the example in the article shows how cruel some of those rules might be. It sounds like if that company had given the family the “heads up” in accordance with ERISA rules, the man would have become ineligible. Hard to believe.
May 14th, 2009 at 6:28 pm
Impossible to keep up with all the rules and regulations — it would be nice if we all just “did the right thing” and then we wouldn’t need all the rules and regulations and lawsuits.
May 15th, 2009 at 9:49 am
The issue is not the LTD payments. The employee usually remains with the carrier in effect at the time of disability, regardless of how many times the employer changes. The issue was the life insurance. Most times the premium is waived when the employee goes out on disability. New carriers generally state they cover employees who are active when the policy is effective. So the employee would be covered under the other carrier depending on how the policy is written and agreed upon. This information should be provided to employees upon initial enrollment.
May 15th, 2009 at 1:49 pm
Lynn, thanks for picking up on that. Still doesn’t seem right to lose one’s supplemental life insurance when one is inactive due to terminal illness. From a consumer’s point of view, insurance is supposed to pay when you have a claim. I guess from the insurer’s point of view, the goal is to keep payments at a minimum and not take on any risk. You’re probably aware that the regular life insurance (at least all the ones I’ve seen) reduces the benefit when a person reaches age 65, and again when the person reaches age 70. The closer a person gets to “using” the benefit, the more it shrinks! Such is life (and death) I guess.
May 15th, 2009 at 2:56 pm
Another question I have was “Was it supplemental life or basic life?” Supplemental/voluntary life is usually paid by the employee. He should have received notice to convert it.
Anyway, these scenarios never give you all the details to make a good conclusion. Too much speculation.