Hiring undocumented workers not only increases your company’s chances of incurring hefty fines, but may also cost your company its healthcare plan.
A recent case before a U.S. District Court in California showcased hidden costs associated with hiring undocumented workers. Recently, a stop-loss carrier refused to honor claims stemming from the care of an undocumented employee's children, causing the small business employer to file a lawsuit. Stop-loss insurance is purchased by companies with self-funded employee health benefit plans, and is designed to protect businesses from significant losses, by transferring liability to an insurance company for eligible losses that surpass deductibles.
"Hiring undocumented workers can not only result in massive fines for small business, but can lead to extra health care costs, and lengthy and expensive litigation with stop-loss carriers."
Unfortunately, improper workplace stringencies such as internal Form I-9 audits, and the E-Verify prohibited practice of employing undocumented workers can result in fines, extra health care costs, and possible litigation with stop-loss carriers.
In the case of the California small business, an employee was hired, and subsequently enrolled his children in the company's health care plan. The premature birth of his twins resulted in significant medical charges. The company-funded health care plan included a stop-loss contract to cover large claims. However, when the stop-loss carrier investigated the claim further, it discovered that the employee presented an invalid Social Security number at the time of hire. The stop-loss carrier denied coverage citing the employee’s possible undocumented status as preclusion to the eligibility under the stop-loss contract.
The stop-loss carrier refunded the coverage’s $2,700 premium costs. Thereafter, the small business filed a lawsuit. The employer claimed that the individual had presented a facially valid U.S. Permanent Resident Card during the hiring process, causing the company to reasonably believe he was eligible to work in the U.S.
Case outcome and what it means for employers
Unfortunately for the stop-loss carrier, California law includes a statute protecting undocumented employees in such cases. Its Senate Bill 1818 specifically provides that “all protections, rights, and remedies available under state law, except any reinstatement remedy prohibited by federal law” to “all individuals, regardless of immigration status who have applied for employment, or who are or who have been employed” in California. Accordingly, the court held that the stop-loss carrier could not deny health benefits to the undocumented employee based solely on his undocumented work status. While the case has not concluded, and other questions remain unanswered, the possible consequences for employers are clear. Hiring undocumented workers can result in more than government fines; it can result in time-consuming and costly litigation involving insurance carriers.
It is important to remember that states have varying legislation, some of which protect undocumented workers, while others do not. This will, undoubtedly, result in different outcomes. Accordingly, employers are encouraged to review and ensure that their summary plan descriptions and enrollment materials are unambiguous on subjects including eligibility and the right to retroactively rescind coverage in cases of fraud and deliberate misrepresentation. Finally, all employers are advised to adopt comprehensive Form I-9 compliance policies to reduce the risk of hiring undocumented workers, which can prompt a host of legal burdens.
Any employers utilizing stop-loss contracts to cover health benefits should carefully review their contracts in light of this case. Additionally, to safeguard the hiring process, it is important to ensure that Form I-9 employee verification the Form I-9 is completed correctly and thoroughly each time.