With PPACA comes potential coverage of dependents to age 26. But how do you confirm dependent status and what can you do with non-cooperative participants? Many plans are undertaking to conduct "dependent audits" to make sure covered dependents are actually eligible for coverage. But what happens when you find someone on the plan who should not be there, or you can’t get cooperation.
This was the situation in Muhammad v. Ford Motor Co. (E.D. Mich. 1/12/12). The Ford plan had discretionary authority to (1) determine eligibility, (2) demand proof of dependent status and (3) garnish wages to recover overpayment of benefits. Ford repeatedly asked Muhammad to provide proof that his dependents met the qualifications of eligibility under the plan, which he refused to do. ford terminated the dependents and also garnished his wages to recover over payment for the dis-enrolled dependents. He sued and lost because, in the minds of the court, the plan had acted fairly and in accordance with its terms.
What most likely saved Ford in this case was that its plan documents and notices specifically laid out its rights and remedies. The plan has the right to set its proof for dependent status and as long as that requirement is evenly applied and reasonable, it can also dis-enroll (or deny enrollment) for failure to satisfy those requirements. Similarly, if the administrative processes are followed as written, the discretionary authority grant in the plan will serve to protect the plan administrator when it makes a decision.
So plans should consider doing audits to make sure they are only covering eligible dependents. Plus, plan sponsors should undertake to update or amend their plan language to allow them to require proof and state specific remedies for failure to provide proof. Then, set up administrative guidelines for establishing how those proofs will be treated. Don’t assume you can require proof and terminate without it. Check your language and work with your plan service providers to make sure you can do what you need to do.