The Best Laid Plans Often Go Awry

Jun 29 2015 | Jessica J. Watts, CEBS, PHR, SHRM-CP, Vice President, Benefits Compliance

When health care reform became law in 2010, one aspect everyone seemed to agree on was the prohibition on pre-existing condition exclusions. Perhaps it was the heartfelt stories broadcast on the news or the fact that everyone seems to know someone impacted negatively by pre-existing condition exclusions, but it seemed to be the one thing that brought Democrats and Republicans together. While there were certainly hurdles to overcome from an underwriting perspective to make the elimination of pre-existing conditions exclusions feasible, the prohibition remained in the law and is fully effective today.

The elimination of the pre-existing condition exclusion certainly had practical implications for employers and plan sponsors. Specifically, the HIPAA Certificate of Creditable Coverage has become obsolete. Previously, this notice had to be provided to any individual who lost coverage under an employer-sponsored group health plan. The purpose of the notice was so that if an individual went to another plan that imposed a pre-existing condition exclusion, that individual could provide the Certificate of Creditable Coverage to the new plan and potentially have the length of the pre-existing condition exclusion reduced.

It seemed logical, then, that in 2013 regulations were issued which wrapped up this provision with a nice bow and eliminated the Certificate of Creditable Coverage notice requirement, effective Dec. 31, 2014. Employers and insurers began to sigh in relief- one less notice requirement to comply with.

So here we are in 2015. And why exactly am I writing a blogpost about this now obsolete requirement?  Because it appears that employers are grappling with the fact that employees are no longer provided Certificates of Creditable Coverage. Employers have apparently been using these certificates for a dual purpose that no one had considered. When employees try to prove that they (or a member of their family) experienced a loss in coverage and attempt to enroll mid-year, many employers accept Certificates of Creditable Coverage as proof of that loss. That was never the intention of these notices, but it has become a secondary, yet regular, use for them.

If Certificates of Creditable Coverage are no longer available, what should an employer use as documentation for proof of a qualifying event? Surprisingly, there is no specific federal requirement relating to verification or documentation to prove that a qualifying life event has occurred. Of course, when allowing mid-year qualifying events under an IRC Section 125 plan, employers need documentation before approving the change in coverage, to be in compliance with IRS requirements. But generally plans are free to design their verification processes as they see fit, and of course they should include any such processes in the plan document.

Some employers use simple employee certifications or a signed affidavit to obtain representations, while other employers require specific documentation to prove the qualifying event occurred (e.g., marriage or birth certificate, or divorce decree). Either of these would be considered sufficient approaches under Section 125 rules, which apply to plans that allow premiums to be paid on a pre-tax basis through employee salary reductions, but may also serve as some general guidance on the topic.

Specifically, Section 125 indicates that employee certification is sufficient proof of dependent status or for a change in election request, so long as the employee certifies certain facts to the employer and the employer has no reason to believe the certification is incorrect. Employers that use these certifications should ensure that employees have sufficient information to understand the applicable definitions and make meaningful certifications to the employer.

That said, if the plan document provides for it and the plan sponsor desires, the plan may request additional documentation, such as birth or adoption certificates or a letter from a prior employer. Employers who want to go that route are free to do so.

However, the employer may want to consider the invasiveness of requesting certain documents, such as tax forms, or having the spouse go back to a prior employer who has just canceled their coverage. Sometimes that is a tricky conversation for the spouse or employee to have. The employer will also want to consider the administrative burden associated with collecting that documentation and the employee reaction to the documentation requirements. For example, is it going to upset employees if they have to provide a letter from a spouse’s employer? Would it be administratively easier to just have the employee certify using an affidavit, reminding the employees that they are financially responsible for any misrepresentations?

Ultimately, those decisions are up to the employer.