Imaging you run a health plan and you’re responsible for preventing overpayments for ineligible beneficiaries. Dependent audits sound like a good idea, but when and how do you do them?
Do you think it is better to do a proactive dependent audit to catch improper free riders before they incur big charges or would you rather look at dependents after they start racking up enormous charges, and then disenroll them?
You guessed it: the latter method can be legally dangerous.
It’s dangerous because if an ERISA plan starts out portraying a patient is eligible, then reverses itself, the provider that’s not getting paid may have a strong case that based on an initial representation that the plan would pay. And ERISA’s protections may not help one iota.
That’s what is happening to a health plan and employer that learned that a “dependent” was in fact ineligible only after he had racked up $750,000 in bills. The hospital that treated him looks likely to force the plan to cover that charge, because of alleged mistakes in the way the plan investigated and communicated the non-beneficiary’s ineligibility.
Ineligible Partner Enrolled in Plan
Beverage Distributors Co. enrolled an employee’s domestic partner, Terrance Hood, in its health plan. Hood sustained life-threatening injuries in a motorcycle accident and was admitted to Denver Health Medical Center. His stayed three months and racked up $750,000 in charges. The claims administrator, Principal Life Insurance Co., repeatedly pre-authorized medical coverage for Hood during his stay.
Two months into the stay, however, Beverage rescinded coverage for Hood because he was already married to another woman when he enrolled in the plan. The plan lacked support for rescission: it never told the domestic partner personally he was excluded; it never returned premiums paid for him; and the plan document lacked provisions for misstatements by plan participants and beneficiaries. The plan allegedly did not allow domestic partners to become dependents under the plan, but it enrolled him based on the employee’s attestations.
Denver Health sued, alleging misrepresentation, and demanding relief under ERISA and state estoppel law. It said because the multiple authorizations, it continued caring for Hood and did not begin making arrangements for Medicare or a third party to pay for Hood's care. It was then left holding the bag.
The U.S. District Court for the District of Colorado in DHHA v. Beverage Distributors Co., decided that ERISA did not preempt an estoppel claim against Principal Life, because Denver Health was seeking relief on its own behalf.
Principal said it should not be held liable because all promises it made were as the plan's agent. But the court disregarded this, saying in essence “A promise is a promise,” whether an agent or a principal makes it.
And a negligent misrepresentation case against the employer survived because Denver Health sufficiently alleged that the plan did not properly investigate the dependent’s plan eligibility, the district court said. That’s not good news for the Beverage Distributors health plan.
The court determined that these claims arose not from coverage under an ERISA plan, but because Denver Health brought the claim on its own behalf as a third-party health provider. Denver Health had no standing under ERISA.
The House Subcommittee on Workforce Protections postponed its hearing on controversial regulations extending minimum wage and overtime protections to home health aides, scheduled for March 7, due to the death of Representative Donald M. Payne, D-N.J., a senior member of the panel.
Welcome to SmartHR Manager, your access to the valuable news and resources that will help your company stay in compliance and stay updated on new industry trends. With topics such as Wage and Hour, Leave and Employment Law and Employee Benefits, this blog is the best resource in the market for quick access to the information and news HR professionals need most to do their job efficiently and correctly. This blog is also a gateway to Thompson Publishing Group’s full line of HR and Benefits publications designed to meet your specific needs.