How to prevent benefits administration errors that lead to liability, excess costs, and denial of/impact to coverage
Health benefits programs are an important component of the compensation package, are integral to supporting physical, mental, and emotional wellness, and can help attract and retain employees. For that reason, it’s not only important to have a plan that aligns well with your particular organization, but equally so that it’s clearly and regularly communicated, and that benefits administration is timely and accurate.
While we at Jouta aren’t benefits specialists, we do have a fair bit of experience in this area, and work closely with our benefits partners, such as Eagle Bay Financial, who provide benefits and retirement plans, primarily to Indigenous communities and organizations. Accordingly, in working with our clients, we generally want to understand what your benefits package entails, so we can ensure it is accurately addressed. And while we don’t always know what the back-end benefits administration looks like, we have conducted a number of in-depth HR assessments for our clients that often include a review of benefits.
In this post, we review some of the common (and not so common, but highly impactful) errors we’ve seen, and in collaboration with Eagle Bay, outline some of the associated risks/liability, as well as ways to address/prevent those risks.
Administration Errors that Can Have a Significant Impact
Errors at Enrollment
- Not consistently telling or reminding employees about their benefits eligibility and missing the 31-day enrollment deadline as a result
- Changing employment start dates on the benefits enrollment form to make up for the application not being submitted within 31 days of the employee becoming eligible
- Allowing some employees to not enroll (e.g. due to spousal coverage) even if the plan is fully mandatory, or if there are mandatory components (e.g. income protection benefits, such as life, AD&D, critical illness, WI/STD and LTD)
- Enrolling employees/dependents who aren’t eligible (e.g. don’t work enough hours, are on contract, dependents who are no longer eligible, etc.)
- Enrolling a Status or Non-Status employee in an incorrect class, based on whether their dependents are Status or Non-Status as well
- Not informing employees that they’re eligible to apply for excess insurance (with medical evidence) above any non-evidence maximum (NEM) in force for life or disability insurance
- Not ensuring that if an employee designates a minor as beneficiary for life insurance, a Trustee must be named
- Handling benefits claims internally such that Finance or Payroll teams (for example) are aware of the personal aspects of claims (e.g. types of prescriptions) and other personal and/or medical information
Errors Related to Premium Costs & Taxes
- Not clarifying with employees at hire that their plans involve a cost share (e.g. that 50% of the plan cost is paid by the employee or that LTD and life premiums are employee-paid)
- Not communicating to employees that when member or dependent life, AD&D and/or critical illness premiums are employer-paid, those premiums are a taxable benefit that will appear on their T4s
- Not communicating to employees that when LTD premiums are employer-paid, their LTD benefit payments are taxed at time of claim
Errors Related to Employees on Leave/Disability
- Not having a timeframe for continuation of other benefits (e.g. extended health and dental) when an employee goes on disability, whether or not an STD/LTD claim is approved
- Not ensuring that employees going on maternity/parental leave are offered the opportunity to continue coverage even if payroll deductions can’t be made
Errors at Termination
- Not terminating employees from the plan who no longer work there
- Not informing terminating employees of any options to convert group coverage (e.g. life insurance, critical illness) to personal coverage
- Not seeking prior permission from the benefits provider before extending benefits at termination (i.e. if done through the notice period and/or as an additional offering)
Major Issues and Risks Associated with Administration Errors
The lack of accurate and timely benefits administration within an organization can not only impact the organization, but more so, can negatively impact an employee’s ability to get/maintain coverage when they most need it.
Medical evidence requirement or denial of coverage – Once an employee is eligible for benefits (e.g. after 90 days of continuous employment, or the first of the month following date of hire), they have 31 days to enroll in the benefits plan. If they don’t do so within this time, they may have to provide medical evidence to qualify, which can be an onerous process – and they may not always qualify, as a result. This means they could be denied coverage that they otherwise would have had, if the forms had been submitted on time.
Significant impact on claims or denial of coverage – If information isn’t complete or not updated, employees may be denied coverage when they make a claim, and/or it could have a major impact on either their own or their dependents’ claims (as for a beneficiary for life insurance). For example, if you haven’t updated an employee’s salary in several years or after an increase, depending on how your policy is set up, the amount received in the event of a life insurance or disability claim could be significantly impacted.
Rates being driven up, and liability for organization – If the plan is being used by ineligible employees or those who’ve left the organization, it could drive up rates based on higher-than-expected usage. Further, if your premiums are co-shared, you would also be paying the full premiums for employees who’ve left. In the case of not having a specific clause related to LTD within your employment agreements, you could end up paying the extended health, dental, and other premiums for many years (we’ve seen this happen over the course of 20+ years).
Family members/dependents blindsided and not protected – In the event of an employee or dependent’s death, it’s conceivable that a beneficiary or other dependent may have been under the impression that the employee or dependent had enrolled/been covered by life or dependent life insurance. This could have a major impact on the beneficiary/family of the employee, in addition to potential liability for the organization.
Inappropriate/ineffective financial advice – If an individual internal to the organization (e.g. Finance or Payroll employees) provide financial planning advice related to retirement/pension plans, this could not only be considered a conflict of interest, but may end up being bad advice, leading to financial challenges for the employee.
Privacy violations – If an employee internal to your organization is handling claims details (which constitutes personal information that an employer doesn’t have a need for/right to), this may contravene privacy and personal information legislation.
Claims against and liability for employers – Employers are increasingly being held liable for such things as failing to provide benefits, negligence in benefits administration, misrepresentation of benefits, etc.
Steps to take to Prevent Benefits Administration & Enrollment Errors, and Mitigate Liability
Recent research has found that nearly 15% of employee records have data issues that could lead to the issues noted above. Based on some of what we’ve seen, our guess is that number is much higher for some organizations – which makes the following steps critical:
- Start by creating a checklist with reminders (e.g. via Outlook) to flag important dates
- Whenever possible, opt for an online enrollment and administration process (usually designed to flag errors) with controlled and secure access to passwords and files
- Ensure that physical security measures are in place to control access to private information
- Be sure internal administrators know what they need to do, have all the necessary documents, are appropriately trained, etc.
- Clearly communicate the process to employees during their orientation, including the 31-day requirement to enroll, and follow up, as applicable; be sure they know that mandatory components are exactly that – and hold them accountable to getting their forms in
- Regularly review (e.g. set an annual timeframe) and update employee information, including addresses, dependents, salaries, beneficiaries, legal names, etc.
- Work closely with benefits providers to ensure benefits summary booklets are accurate and up to date
- Ensure employment agreements/offers outline (at a high level) components included, effective dates (including waiver of waiting period, if negotiated) and any cost-share (e.g. whether it’s 50/50), noting also that the benefits program overall, individual components, and cost sharing are subject to change
- Be sure you have clear documentation indicating what components are paid by you and what are paid by employees (important if ever audited), in addition to whether or not it’s a mandatory plan
- Have employees sign a waiver if they choose not to enroll in components such as extended health and dental due to spousal/alternate coverage (if those components are provided on a voluntary basis)
- Check to see if you have an “actively at work” clause in your benefits policy and ensure those who think they’re eligible but no longer are (e.g. seasonal workers or those who’ve moved from full to part-time, etc.) are aware if/when they’re no longer eligible
- Include a clear clause in your employment agreements and/or handbooks regarding what happens to benefits if an employee goes on LTD for more than a year (or other time as specified), in addition to other non-legislated leaves
- Always seek permission from your benefits provider prior to extending benefits past the termination date
- Never provide financial planning advice related to retirement or pension plans; this should only ever be done by a financial advisor external to the organization
As you can see, while benefits administration is often something that many think “just happens in the background”, it is highly prone to errors – all of which are preventable with planning, regular review, and accountability.
For a high-level audit of your benefits practices, contact Jouta or Eagle Bay today!