Understanding Employee Benefits

Bad Things Can Happen to Employers Who Do Not Follow the Terms of Their Group Health Insurance Policies

By | May 16, 2012

Blue Cross of Northeastern Pennsylvania (“Blue Cross”) insured New Life Homecare, Inc. (“New Life”) under a group health insurance contract. The insurance contract required New Life to enroll at least 75% of its eligible participants in the plan and provided that no more than 15% of the eligible employees could reside more than 20 miles outside the service area where Blue Cross operated. New Life fell below these limitations and Blue Cross declined to renew the coverage for the following year. New Life offered to cure the violation by terminating coverage for some of the individuals who lived outside the service area but Blue Cross refused to allow the correction. Both New Life and some of the employees who lost coverage sued Blue Cross claiming that Blue Cross should have allowed New Life to correct the violation. The U.S. District Court for the Middle District of Pennsylvania disagreed and dismissed New Life’s action on a summary judgment motion.

The message to employers is that the employer’s policy with the insurance company is an enforceable contract. The insurer is allowed to cancel coverage if the employer does not follow the terms of the policy even if that leaves employees without coverage. Employers should make certain that they know and understand the terms of their insurance contracts and get permission from carriers before deciding not to follow those terms.

Contact Benefits Notes for more information.