I recently got an urgent call from a Plan Administrator that I work with. “I think I’ve made a big mistake!”, sounding very concerned.

When I asked her what was wrong, she told me one of their best employees just got an unwelcome letter from their insurance company. It stated that he and his family cannot enrol onto the group benefits plan unless they 1) complete medical forms and 2) are approved by the insurance company.

Naturally, the employee was upset and so was the business owner. If the employee couldn’t get group insurance coverage for his family, his job just became much less valuable to him.

“Why do they need to prove that they’re healthy?”, she asked, “No else has ever needed to fill out medical forms. What did we do wrong?”

What is a Late Applicant?

A Late Applicant is an employee who applies for group insurance benefits after the allowable deadline.

The consequences of being a Late Applicant are:

1. the employee and their family may not be able to get coverage

2. the dental coverage is restricted for the first 12 months

Employees who apply for group benefits before the deadline have the privilege of obtaining coverage without having to answer any medical questions. This is one of the main advantages of group insurance compared to buying a personal health & dental plan. However, employees who miss the deadline must go through a screening process, involving them and their family members. This puts them at risk of being denied coverage.

Additional Consequences of Being a Late Applicant

Even if the Late Applicant (and their family) are healthy and coverage is approved by the insurance company, there are usually further consequences. Late Applicants are commonly given a restricted dental maximum for the first 12 months. The penalties vary from one insurer to the next but a typical limit is $100 to $200 (for each family member) for the first 12 months. When the 12 months have passed, the dental maximums return to their normal limits.

When is the deadline to enrol so that employees don’t become Late Applicants?

Most group insurers require that an employee enrol no later than 31 days after the benefits plan Waiting Period has ended. This 31-day window is called the Grace Period.

Here’s an example of how it works:

Let’s assume an employee is hired on June 5th.  June 5th is his Hire Date.

The 3-month period after his Hire Date is called the Waiting Period. During the Waiting Period, the person is employed but not yet eligible to join the group benefits plan. The Waiting Period for the employee runs from June 5th to Sept 4th.

Once the 3-month Waiting Period has ended, coverage begins. This date is called the Effective Date. Our employee’s Effective Date is Sep 5th.

If the employee hasn’t enrolled by the Effective Date, he is given an additional 31 days to apply. This 31-day window is called the Grace Period. If he applies during the Grace Period, he is not late and can join the plan without consequences.

If the employee attempts to enrol after the Grace Period has ended, he is a Late Applicant. Our employee’s 31-day Grace Period ends on Oct 6th. This is the Application Deadline, which means it’s the last day he can enrol without being late.

Here is a visual timeline for the employee who was hired on June 5th.

Why do insurance companies care when employees join the benefits plan?

If employees were allowed to join the plan anytime they liked, many would choose to delay enrolment until they were facing a large health & dental expense or were on the verge of being disabled. This behaviour would quickly cause the claims (including health, disability, critical illness and life insurance claims) to become excessively high. If claims get out of control, the insurer will have to increase the premiums and the plan will become unaffordable and unsustainable. This is a lose-lose situation for both the insurer and the company being covered.

Part of the insurer’s job is to maintain a healthy balance of claims and premiums, which allows the plan to have stable long-term costs. The insurers are already taking on a degree of risk by blindly covering a group of employees for which they have no medical or lifestyle information. This risk is reduced by requiring employees to enrol at a specific time – when they’re first hired.

Other than enrolling employees – who else could become a Late Applicant?

There are situations where employees and/or family members can become Late Applicants long after they’ve joined the group benefits plan.

For example, an employee may waive health & dental coverage for the family because of duplicate coverage through a spouse’s benefits plan. If the family loses the spousal health & dental coverage, they may choose to reinstate the health & dental which was previously waived. If they don’t apply to reinstate the coverage within 31 days of losing the spousal coverage, they become Late Applicants.

Again, this rule is designed to stop employees from reinstating health & dental coverage simply because they are facing a large dental or medical expense.

Can employees be Late Applicants with Group RRSP Plans or Health Spending Accounts?

No, the risk of having a Late Applicant only applies to Group Insurance plans. It does not apply to Group RRSPs or Health Spending Account plans.

How can I avoid having a Late Applicant in my company?

There are steps that you can take to ensure that employees don’t miss out on the opportunity to get the coverage they want and need.

1. Have a process to complete the form early

The earlier that you can have your employees complete their enrolment forms, the better. I recommend that Plan Administrators have new employees complete the enrolment forms on the day they’re hired.

There are many advantages to this, including:
a) the employee will probably be in the office on their first day. Once they begin working “in the field” it can become much harder to track them down.
b) the employee is less likely to try and tell you they don’t have to join the plan. Sometimes employees forget who’s in charge once they’ve been working for a company for a few months.
c) you are less likely to forget to have them enrol. By completing the group benefits enrolment form with the rest of the onboarding paperwork, you have one less thing to keep track of.

Some Plan Administrators object to having their employees complete the form early. There are 2 most common objections I hear often. The first is “If the employee leaves the company during the Waiting Period, then enrolling them is a waste of time.” This is true. However, most enrolment forms take less than 3 minutes to complete. This is a small price to pay to ensure that you never have to deal with Late Applicants.

The second objection I hear is “My employees might mistakenly think they’re covered right away if the form is completed early.” This is a valid concern. If an employee isn’t aware of the Waiting Period and thinks that they’re covered just because they completed the paperwork, they may try claiming health & dental expenses. If they do, they’ll quickly find out their coverage hasn’t begun yet and they will not be reimbursed.

Situations like this can be overcome with good communication. I recommend giving each new employee a written summary of their benefits plan which includes a statement such as “Employee Benefits coverage begins 3 months after the date you become a Full-time Permanent employee with our company.” Also, the employee’s benefits card may arrive in the mail before their Effective Date. Do not give the card to the employee until their coverage starts. If you give it to them early, they may assume it can be used for health & dental claims.

2. Ensure that you have a written company policy stating that the benefits plan is mandatory and enrolment is a condition of employment.

By making the plan mandatory and taking steps to set up official company policies you reduce the likelihood of uncooperative employees refusing to complete and return their forms. You have also made it clear that failure to enrol on the benefits plan is insubordination. If for any reason, you do allow an employee to fully waive group benefits coverage, make sure that you have them sign a written waiver. (Waivers should be reviewed by your legal advisors.)

3. Make sure your employees are aware of the consequences of being a Late Applicant.

This is especially important for all employees who are on the benefits plan but have waived health & dental. They may not understand that if their spouse loses their benefits coverage, they only have 31 days to enrol onto your plan.

What should I do if I think I might have a Late Applicant?

Don’t panic. The first thing you should do is call your group benefits broker. They may be able to help you remedy the situation in a way that doesn’t involve anyone having to complete medical forms.

For example, with Debra, we were able to get permission to enrol her late employee retroactively to the date his coverage should have started. This meant having to pay back-premiums but it was a better option than being denied benefits. Solutions like this may not be possible, depending on the insurers and the circumstances. However, your advisor can help you find the best path to correct the problem.

Can’t I just say that the employee was hired 3 months ago, even though they weren’t?

Never misrepresent information to your insurance company such as making up a false hire date. Not only is this fraudulent but it may have future unintended consequences.

If an employee has a serious claim, such as disability, critical illness or even life insurance, the insurer may ask for employment records that will reveal the employee’s true hire date. If the records don’t match with the hire date that you gave them at enrolment, they may deem the employee to be a Late Applicant at that time and deny the claim. This could create enormous hardship for the employee or their family, not to mention potential liability for the employer.

What happens to Late Applicants when you change insurers?

When a company changes insurers, the Late Applicant employees are normally allowed to enrol onto the new plan immediately without having to prove they’re healthy. This provides a fresh start for employees who have been denied coverage with the previous plan.

Conclusion

Do You Have Questions About Employee Benefits?

To learn more, please complete the fields below and we do our best to answer your questions.

Alternatively, you can text or call us at 403-343-9210.

This article is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, you are advised to consult with your own legal, tax, or other financial advisors regarding your specific situation.