Undocumented Worker Can Cause Health Plan Problems

Employers know that since the 1980s they have been required to check the lawful work status of employees that they hire through the I-9 process. Employers also know that Immigration and Customs Enforcement (ICE) can audit their workplaces, as can the Department of Labor, and impose fines and other sanctions for failure to comply with those requirements. However, employers may not realize other collateral consequences that can occur if an undocumented employee is hired.

Our tale begins with an employee covered under a multiemployer health and welfare plan for health benefits. The employee enrolled his newborn twins under the plan. The twins, born in the United States and therefore citizens of the United States, were born prematurely and incurred substantial medical expenses, over $250,000 for one twin and $450,000 for the other. The self‑funded plan had a stop loss contract in place to cover large claims. The stop loss carrier investigated the claim and discovered that the employee had submitted an invalid Social Security number when hired and consequently might be illegally employed in the United States. The stop loss carrier then concluded that the employee was therefore not an “eligible employee” under the terms of the plan and denied coverage for the claim. Instead, the stop loss carrier refunded the $2,700 in premiums that the plan had paid for coverage for the employee and his family. Not surprisingly, a lawsuit ensued.

The parties filed motions for summary judgment. The stop loss carrier claimed that the employee was not eligible for coverage under the plan because he was not eligible to work in the United States. The plan claimed that the employer had received from the employee a facially valid permanent resident card which the employer believed made the employee eligible to work in the United States. The court concluded that the question was one of contract interpretation under federal and state (California) law. California has a statute that explicitly provides certain protections and benefits to employees who are undocumented. Based on that statute, the court found that the stop loss carrier could not deny benefits based solely on the undocumented status of the worker.

The case must still proceed to trial on various questions, including punitive damages and covenants of good faith. Thus, the case is not yet over.

Not all states have statutes like the California statute explicitly protecting undocumented workers. In addition, because the court’s analysis was largely based on the terms of the stop loss contract, stop loss carriers in the future may be able to deny benefits for undocumented workers by including such a limitation in their stop loss contracts. Employers who self-fund their plans and use stop loss contracts to protect themselves from high claims should carefully review those stop loss contracts for any inconsistencies between the plan provisions and the stop loss contracts. If a stop loss contract excludes claims that the plan otherwise covers, the employer may find itself truly self-insured for that claim.

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Reimbursing Employees for Individual Health Insurance Policies Subjects Employers to Hefty Excise Taxes

What, you may ask? That’s right. It no longer works to reimburse employees for the purchase of an individual health insurance policy. I know, many of you have always done this. Well, not any longer under guidance issued under the Affordable Care Act (ACA). Beginning with an IRS Notice issued in September 2013 and most recently in November 2014 DOL FAQs, the federal government has made it clear that this practice does not work under the ACA. While it flew under the radar for some, this rule became effective in 2014. (more…)

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Attention All You Procrastinators!

The Centers for Medicare and Medicaid Services (CMS) has postponed to 11:59 pm on December 5, 2014, the deadline for health insurance issuers and self funded plans to submit their annual enrollment count for the transitional reinsurance program. The deadline was otherwise November 15, 2014. The payment deadlines of January 15, 2015 and November 15, 2015 have not been extended. (more…)

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Summary Plan Description Format Voids Benefit Limitations – Court Applies “Reasonable Participant” Standard Of Review

The “Limitation of Action” provision, buried deep in Section 9, is not in “close conjunction” to benefits provisions, Sections 1 and 2. Nor is there any reference, adjacent to the benefits description, to the page number on which the “Limitation of Action” provision appears.  . . .

If we were to hold that the placement of the limitation provision in Section 9 satisfies [the] “reasonable plan participant” standard under § 2520.102-2(b), we would, in effect, require a plan beneficiary to read every provision of an SPD in order to ensure that he or she did not miss a limitation provision.

Such a requirement is what the regulation is specifically designed to avoid.

Spinedex Physical Therapy USA Inc. v. United Healthcare of Ariz., Inc., 2014 U.S. App. LEXIS 21132 (9th Cir. Ariz. Nov. 5, 2014) (emphasis added).


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