Employers face difficult situations when a long-term employee has a chronic or terminal illness. An owner or manager may believe that they are helping the employee by leaving them on the benefits program even though they have exhausted all leave time and no longer meet the qualification of actively-at-work. While well-intentioned, this approach creates significant liability for the employer. Consider the following example: An employer, ABC Company, offers a fully-insured health plan through Typical Insurance Company. The contract language for the health plan requires that employees be terminated from the health plan if not actively-at-work for a period greater than six months, regardless of whether it is an approved leave for the employee. Bob, an employee, has been diagnosed with terminal cancer, and the employer mistakenly believes that he is helping Bob and his family by leaving him on the group plan after all leave time is exhausted. Bob is the sole income earner for the family, his medical bills are costly, and his only life insurance policy is the group plan.

After nine months, Typical Insurance Company discovers that Bob is not actively-at-work. The insurer regards the employer's failure to report the situation as fraud or a misrepresentation of a material fact and cancels coverage for the employee (and his family) back to the six month mark. ABC Company now has the liability of self-funding the entire value of benefits out of the company's general assets. Since 90 days have elapsed since the termination, COBRA eligibility is exhausted and the carrier is not required to reinstate coverage for COBRA. In addition, the employer could also be responsible for payment of the death benefit as a result of not administering the group life insurance plan according to the contract.

Your group benefits - including life insurance and group medical policies - have an actively-at-work clause for eligibility. It is important that you know how each of your insurance contracts define actively-at-work. Stop loss/reinsurance contracts also have similar provisions.

Although the length of time you can allow an employee who is not actively-at-work to remain on the plan varies from one carrier to another, the actively-at-work issue is generally administered in the same way. In the event of a large medical expense or a death claim, carriers tend to audit eligibility by requiring proof of employment, usually payroll records.

When in doubt, talk to your HUB advisor. We can tell you how your contract requires the plan to be administered and guide you through communicating all rights and obligations to your employees, including "porting" or converting their coverage.