Welcome to the first in our series Hot Takes with Frank. In this series, industry expert Frank Pennachio is going to lay it all out. Frank has been a presence in the broker world for years. He is sharing some of his best insights with us here. Frank’s advice can help you navigate hard markets, clinch a BOR, and give your clients the tools they need.
Property and casualty (P&C) agents and employee benefits (EB) agents often mix together about as well as oil and water. Yet, as the business world becomes more complex, it is increasingly critical that they work closely together. Unique risks are emerging that require cooperation and collaboration between P&C and EB agents. Without it, clients face unchecked risk. And agents, on the other hand, will fail to capture prospective clients.
The first reason arises from a provision in the group health policy. Group health insurers require that all members meet specific conditions in order to be eligible for coverage. There are usually three ways for employees and covered dependents to comply with eligibility requirements.
Many plans require employees actively work a certain number of hours to maintain eligibility. The number of hours may vary from plan to plan, but the requirement typically ranges between 28 and 32 hours.
So, assume a covered employee injures themself in the course and scope of employment. As a result, the employee is subsequently placed on a no-work status. The workers’ comp policy is paying the medical bills and lost time wages for the injured employee. But protected the injured employee’s group health benefits.
How many P&C agents are aware that an injured employee on a no-work status due to a work-related injury may become ineligible for coverage under the group health plan? Are EB agents aware that when employees go out on a no-work status, additional steps must be taken to protect that employee’s, and perhaps their dependents, eligibility to remain on the group health plan?
In addition to weekly hours worked, employees usually have two additional eligibility options. If qualified, which depends on the size of the company and the employee’s length of service with the employer, the employer can initiate Family Medical Leave (FMLA). If an employee is on FMLA, then they continue to be eligible under the plan. Or if the employee is not eligible for FMLA, then the employer should initiate COBRA. If the employee has not returned to work, they are likely no longer eligible to be covered under the group health plan unless one of these steps has been taken.
Employers and employees can expect the group health carrier to request payroll records in the event the employee or covered dependent has a serious medical condition, separate from the work-related injury, to verify eligibility. If the group health carrier discovers that the employee is not on the payroll, they will inquire as to whether they meet the eligibility requirements of FMLA or COBRA
If the employee has not qualified under any of those eligibility requirements, then the carrier will likely deny the claim and return premium back to the date when the employee became ineligible. This is an extraordinarily serious risk, but also an extraordinary opportunity in the sales process.
The second reason P&C and EB agents must work together is because it is relatively common for corporate officers to choose to exempt or exclude themselves from their workers’ compensation. However, most P&C agents don’t realize that an injury to a corporate officer arising out of the course and scope of employment would be covered under the group health policy. EB agents might not even be aware, and frequently fail to inquire as to whether the corporate officers are exempt under the workers’ compensation policy.
Owners and officers simply assume that when they are not covered by a workers’ compensation policy, their group health policy will cover them in the event of an injury or illness arising out of the course and scope of employment. Maybe it will, maybe it will not, but it is another reason P&C and EB agents need to work together. Before anyone faces a coverage exclusion, agents should conduct a thorough review. The EB and P&C agents can review the group health policy together. It is up to P&C agents make sure officers or owners don’t face from coverage exclusions without consultation.
The third reason P&C and EB agents need to work together is a bit more complex. We are seeing an escalating risk of fiduciary liability claims due to successful plaintiff court cases arising from 401K plans. Plaintiffs’ attorneys are now moving into the group health arena and filing similar fiduciary liability suits. This is a direct result of this established case law. Keep in mind that fiduciary liability puts the employer’s business and personal assets at risk.
Due to the increasing costs of group health insurance, many employers—including smaller, less sophisticated ones—are purchasing self-funded plans. These plans have lots of moving parts and are exceedingly complex. In addition, some plans have cost containment services with heavy fees. This causes a fiduciary liability. So if the EB agent is selling a self-funded plan, there must be an extra step. They need to bring in the P&C agent to discuss the need for fiduciary liability insurance coverage.
There are risks that only collaboration between agents can address. There is often fear that one agent’s mistake could jeopardize an account. This has led to hesitation on both sides. However, to best protect the clients, agents must dispel their fears and work together. Otherwise, clients face risks alone. And agents can’t connect with opportunities with prospective clients.
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