I Forgot To Cancel Benefits for a Terminated Employee. What Now?

If there is a reason to write a blog about it, you can best believe that it happens… a lot.

Employers and HR professionals are human, and mistakes are part of the job. Terminating an employee—whether voluntary or involuntary—is a challenging and often stressful process. You’re juggling a mile-long list of offboarding tasks while trying to keep operations running smoothly, so it’s no surprise that something might slip through the cracks.

But what if that something is forgetting to cancel an ex-employee’s benefits? It’s a common enough mistake, but it can have some serious implications if not handled quickly. So, what’s the next step if this happens?

Key Variables When Removing Benefits for a Terminated Employee

When it comes to removing benefits for a terminated employee, several variables must be taken into consideration. Here are three factors that can significantly impact how the situation is handled and what steps need to be taken.

1. What Is The Size Of Your Organization?

If you are an employer with 20 or more employees and offer health insurance, your employees are eligible for COBRA coverage. With COBRA, an eligible employee has 60 days to elect continuation of coverage if they wish. 

Conversely, Federal law typically gives employers 44 days from the COBRA qualifying event to produce a COBRA notice to the qualified individual(s). Below are steps that an employer may take to rectify offering COBRA from a delayed standpoint:

1. Terminate the ex-employee’s coverage as of the discovery date or at the end of the current month. Best practice is to follow your plan’s termination rules, whether that’s immediate (per diem) or extending to the end of the month.
2. Draft a COBRA letter acknowledging the error and specifying the date up to which coverage has been paid.
3. Provide a 60-day window for COBRA elections.
4. State the remaining COBRA coverage period in the letter. Subtract the number of employer-paid months from the standard 18 months of COBRA coverage. For example, if you didn’t cancel coverage until four months after termination, the employee would have 14 months of COBRA eligibility left.

Additional Responsibilities Under the ACA for Employers with 50 or More Employees

If your organization has 50 or more full-time or full-time-equivalent employees, you’re classified as an Applicable Large Employer (ALE) under the Affordable Care Act (ACA). The ACA mandates that rescission of coverage is illegal except in cases of fraud or intentional misrepresentation of material fact. 

It’s in the employer’s best interest to terminate coverage either on the date of discovery or extend it until the end of the month of discovery for individuals who were not promptly removed from group health coverage.

2. What Are Your State’s Legislation and Regulations?

State laws can vary widely when it comes to plan termination rules, especially for organizations with fewer than 20 employees.

Employers subject to state continuation of coverage must notify eligible employees of their continuation options. Typically, employers must inform the employee within a month of the qualifying event, such as termination, that would have caused coverage to end. This time limit varies by state, and it is imperative that you look up state-specific laws for exact dates.

Best Practices for Handling State Continuation Notices

When an employee has been mistakenly kept on the organization’s health insurance after termination, the best practice is to follow a process similar to COBRA:

1. Terminate the coverage as of the discovery date or the end of the month of discovery.
2. Send out the continuation of coverage notice as soon as possible, including a written explanation of the delay in terminating the employee’s coverage.

3. How Long Has The Ex-Employee Been Left On Health Coverage?

Sometimes, an ex-employee might still appear on your organization’s benefits invoice, especially if they were recently terminated. This could be due to a timing issue where the carrier hasn’t processed the termination before generating the bill. In such cases, the insurance carrier typically credits back the invoiced amount once the termination is entered into their system.

Dealing with Extended Coverage

If the employee has been separated from the organization for an extended period, the insurance company may retroactively terminate coverage for a few months. However, this retroactive period is generally limited to two to three months. Since each insurance carrier’s policies differ, it’s important to have a conversation with your carrier contact or account manager to clarify the specifics.

Moving Forward: Turning Mistakes into Opportunities for Improvement

Mistakes are inevitable, but they don’t have to be costly if handled correctly. Yes, you may have already paid the invoice for a terminated employee’s benefits, but what matters now is how you can prevent this from happening again. 

So, how should you move forward to mitigate the risk of something like this from happening again? Well, I am glad you asked! 

Below are a few safeguards to put in place to help:

• Provide a termination letter with both voluntary and involuntary terminations outlining, but not limited to, the employee’s terminating benefits coverage and next steps for one of the following:
  • State continuation of coverage
  • COBRA
  • Reconcile your carrier invoices monthly!
  • Produce verbiage in your employee handbook outlining what happens to benefits coverage once an employee leaves your organization.

Feeling Overwhelmed and Need Help?

Whirks can aid with all the above. Not only can we help your organization by fully taking over COBRA administration, but we can also help you draft the appropriate handbook(s), reconcile your benefits invoices monthly as well as fully audit your system to further mitigate the chance of paying for a terminated employee’s benefits.

We take the administrative mess off your plate so you can actually focus on growing your business—not untangling red tape. Why juggle a million tasks when you can hand them over to a team that actually enjoys this stuff?

Let Whirks simplify your life—because, honestly, you’ve got better things to do. 

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