The headache of late applicants

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Does it really matter when benefits plan forms are completed and sent to the insurance company?

The short answer is yes—and not just to make life difficult for clients and employees.

A number of basic underlying principles make group plans a convenient way in which to insure employees generally with very little health information being asked. To make this happen, a number of assumptions are made and procedures must be followed to avoid employees from selecting against the insurer (anti-selection).

Read: Benefits governance: The importance of full enrollment

Some of these common principles in group contracts include employees being actively at work and employees and their dependents enrolling in the group benefits program within 31 days of their becoming eligible.

This not only applies when an employee joins the plan, but if there is a lifestyle change such a marriage, reaching common law status, or adding dependent children to the plan.

Read: 5 rules for coordinating benefits

Avoiding anti-selection

The reason for this, in simplest terms, is that if employees were given the option to join a plan whenever it suited them, it goes to reason they may only join the plan when the need arose or they had claims. This selection against the carrier is a disadvantage not only to the insurance company but to all in the group plan. The end result is the potential to leave few non-claimers paying premiums, and a plan filled with only those using the plan. So more claims with fewer premiums, leading to insurance costs and less plan sustainability for all.

Late applicant trouble

So what happens if an employee, and employer, does not enroll eligible employees and dependents within the required time frame? A lot more headaches. The enrollment or change can still occur but the insurance carrier will treat the transaction as late or classify the employee as a “late applicant”.

With this, a pandoras box gets opened that will, at the very least, cause extra work and may even create a liability situation for the employer. The carrier will ask for details around the change and will most likely include questions about the applicant’s health. It may even require contact with physicians to obtain medical files.

A decision on whether the insurer is willing to provide coverage will be made by the insurance carrier, and for a late applicant, it is the insurance carrier’s prerogative to allow or decline the coverage.

Read: Four most common plan administration liabilities

If the insurance company does agrees to cover the employee, or make the change, the headache may not end there. Most group policies have limitations imposed that will see dental amounts limited in the first year, usually to $250.

Unlike healthcare, where the health history is being investigated and health questionnaires have been requested, this dental restriction exists because there is less likelihood of the insurance carrier having a clear picture of person’s dental health, or uncertainty in risk for claims in the near future. After the first year, however, the late applicant’s annual maximum dental benefits are restored to the full amount. For good measure, while the restriction is being applied, full dental premiums are required.

So to avoid the pitfalls late applicants, remind your clients regularly that timing matters and being aware will help mitigate potential issues even the possibility of declined coverage.

Read: Why plan administration liability coverage matters

Transcontinental Media G.P.