Most employers also reduce their overall financial risk of self-funding claims by purchasing stop loss insurance from an insurance carrier. These stop loss policies reduce an employer’s risk on a specific claim and aggregate claims. An important aspect of a self-funded group health plan lies in the requirement that the employer remain liable for funding of plan claims regardless of the purchase of stop loss insurance. Only the employer has a contractual relationship with the plan participants and beneficiaries. The stop loss policy runs solely between the employer and stop loss carrier and creates no direct liability to those individuals covered under the plan. This in turn is the main difference between fully insured plans and self-funded health plans.
Stop-loss policies are crucial in establishing a worst case scenario, or aggregate for any given year. The aggregate stop loss helps establish a defined number that can be compared to a plan’s guaranteed fully insured cost. If the aggregate cost does not exceed the plans fully insured guaranteed cost, self-funding may be a viable option. The employer in turn creates its own insurance policy with its employees, and in turn purchases an umbrella policy for worst case scenarios.
Most employers find it necessary to contract with a third party administrator to assist in claims adjudication and payment. Third party administrators also provide access to preferred provider networks, prescription drug card programs, utilization review and the stop loss insurance market. Insurance companies also offer similar services to what is referred to as ‘administrative services only’ or ASO contracts. In these arrangements the insurance carrier provides the typical third party administration services but assumes no risk for claims.
An advantage of self-funded plans is simply transparency of claims data. Employers who contract a TPA receive a monthly report detailing medical claims and pharmacy costs. Reviewing this information annually becomes instrumental in controlling costs by allowing the employer to shop for the most effective coverage.
As health care costs continue to increase employers will look for alternative ways to control their overhead costs. Consumer driven plans have also become popular as employers look to shift some of the accountability to employees. HSAs (health savings accounts) and HRAs (health reimbursement accounts) push employees to shop around for the best value when considering elective medical procedure or filling prescriptions.
The Department of Labor recently released their inflation-adjusted penalties for ERISA, the Family Medical Leave Act, and the Genetic Information Nondiscrimination Act.
The chart below shows some of the more common penalties assessed from DOL audits.
|Failure to provide a summary of benefits and coverage||$1,105 per employee|
|Failure to inform employees of CHIP coverage opportunities||$112 per employee per day|
|Failure to comply with FMLA notice requirements||$166 per employee per day|
|Failure to comply with certain GINA requirements||$112 per employee per day|
|Failure to provide an SPD or plan document||$110 per employee per day|
|Failure to provide documents to the DOL upon request||$149 per day, not to exceed $1,496 per request|
|Failure to file an annual 5500 form||$2,097 per day|
The new ERISA penalties serve as important reminders to employers who sponsor benefit plans. Many employers either think they are too small to be audited (not true), or that the medical carriers adhere to all the rules and furnish employees with what is required (not true). It is for this reason that we have taken on the responsibility to protect our clients by providing them with the proper notices and instructions to maintain compliance.
With healthcare premiums continuously increasing year over year, many employers are searching for options to help reduce their benefit costs. A seemingly quick fix would be to eliminate dependent coverage, but you may want to consider eliminating dependent contribution rather than not offering coverage at all.
First and foremost, the circumstances are different for Small Groups in comparison to Applicable Large Employers. If you are considered an ALE, with 51 or more full time equivalent employees, then you are required to offer dependent coverage by law, or you may face an employer shared responsibility penalty. Please note that the definition for Small Group plans has been expanded to include up to 100 employees, so it is possible to be an Applicable Large Employer and still offer Small Group plans (51-100 employee size). Per the Affordable Care Act, and the ‘pay or play’ provision, the definition of ‘dependent’ only applies to children under the age of 26. Spouses are not considered dependents, nor are step children or foster children.
There are two types of penalties you may face if you do not offer proper coverage as an ALE.
- If you DO NOT offer minimum essential coverage to at least 95% of your full time equivalent employees and their dependents then you may face a penalty if at least one of your employees obtains premium assistance from the public marketplace (Covered CA). If just one of your employees receives premium assistance, then you are liable for a $2,000 penalty for each employee, after the first 30 employees. [Total employees – 30, multiplied by $2,000]
- If you DO offer minimum essential coverage to at least 95% of your full time equivalent employees and their dependents, then you may still be imposed a penalty if any employee receives premium assistance from the marketplace. If coverage is offered, but turns out to be unaffordable (more than 9.66% of household income), the employee has the option to purchase coverage and receive premium assistance. The employer in this instance will be penalized $3,000 for each employee that receives the premium tax credit.
If you are considered a Small Employer with 50 or less full time equivalent employees, then it is not a requirement for you to offer dependent coverage. If you elect to eliminate dependent coverage at renewal altogether, then you do not need to offer COBRA since terminating or amending the group health plan does not constitute a listed triggering event.
Dependents are only offered COBRA if:
- Employment is terminated
- Employee hours are reduced
- Employee passes away, divorces, or legally separates
- Employee obtains Medicare
- Loss of dependent child status
The Employee Retirement Income Security Act (ERISA) oversees group benefit plans, and with the onset of the Affordable Care Act, the ERISA Summary Plan Description (SPD) requirements are in the spotlight. More often than not, a plan administrator assumes that a Certificate of Insurance qualifies as an SPD, and that either the insurance company or their broker is responsible for preparing and delivering SPD’s. In this instance, the employer (plan administrator) is solely responsible for ERISA compliance.
An employer must have a written SPD, which serves as the main vehicle for communicating plan rights and obligations to participants and beneficiaries. An SPD that includes the plan’s terms and conditions, such as a Certificate of Coverage, and includes (or ‘wraps’) it with the specific ERISA disclosure language is considered a ‘Wrap SPD.’ One step further would be to produce a mega-wrap document which would encompass all benefit lines into one document, which is HIPAA compliant as long as none of the benefits are self-funded.
ERISA requires that a SPD be distributed to enrolled participants within 90 days of coverage, or 120 days of a new plan being established. If an SPD has not changed, an employer is required to furnish another copy to all participants every five years.
An example of some of the information required in an SPD:
- Plan name
- Employer’s name and address
- Employer’s EIN
- Plan Administrator’s name, address, and phone number
- Type of plan and description of benefits
- Effective and End Dates of the plan
- Eligibility terms
- How refunds are allocated to plan participants
- Claims procedures
- ERISA legal disclosure of participants’ rights
- Sources of plan contributions
- Details descriptions of plan provisions and exclusions
- Information regarding COBRA, HIPAA, and other federal mandates
- Summary of Benefits (SBC)
While it may be a bit overwhelming if your group is not currently in compliance – we are here to help. We offer all of our clients a Wrap SPD that is co-developed and maintained by a major ERISA law firm, and has successfully passed DOL audits.
Feel free to contact us to ensure your group is in compliance.