|Since it was first signed into law in early 2010, the Patient Protection and Affordable Care Act (PPACA) has continued to serve as the subject of headlines, fodder for talking heads, debates in social media, and, ultimately, docket space with the United States Supreme Court. And even since the highest court upheld the federal statute in June 2012, it has continued to cause consternation and confusion regarding exactly how it will impact so many different groups. And additional scrutiny may be on the way.
Self-funded health plans continue to serve as an attractive alternative for businesses that are looking for creative ways to reduce health benefit costs without imposing limits or restrictions on coverage. With hands-on management of a self-funded plan, employers can customize a plan of benefits that will more effectively help retain and attract employees. Vendors are available in the industry to assist self-funded prospects, including third-party claims administrators, pharmacy benefit managers, stop loss insurers and other various administration vendors. Several recent media reports in human resources publications have indicated that the Department of Labor will be increasing the frequency and rigorousness of ERISA compliance reviews for self-funded plans. ERISA, the Employee Retirement Income Security Act of 1974, establishes minimum standards for retirement, health, and other welfare benefit plans (including life insurance, disability insurance and apprenticeship plans). The proper setup of a self-funded plan, along with compliance monitoring and vendor management, is critical to ensure ERISA compliance.
The steep economic decline that began in 2008 and the subsequent impact it had on retirement plans helped spur further attention and examination from the Department of Labor with the intent to ensure that employees, plan participants and their money was being properly managed. Plan managers, administrators and ERISA trustees need to be aware of increased ERISA compliance reviews and the potential liability they face for infractions these reviews identify. Working with self-funded plan managers to impose self-assessments, ensuring compliance and monitoring for any potential problems, such as unreasonable fees, is a good way to provide them with peace of mind while continuing to serve as a valuable resource. Regardless of intent, the detection of an error can carry a significant fine and with it the potential for civil or criminal action against the plan administrator as well. The trustee of a self-funded plan can face personal liability for any discrepancies or violations, and their awareness of these facts is critical.
Employee Benefits Security Administration (EBSA), the compliance arm of the Department of Labor, extends oversight to more than 708,000 retirement plans, 2.8 million health plans and nearly as many other welfare benefit plans, such as life or disability insurance. In 2010, nearly 75 percent of 3,112 civil investigations conducted and closed by the EBSA resulted in monetary fines or corrective action. The new PPACA enforcement is also stepping up the ERISA regulation enforcement and audits, having allocated a larger EBSA budget for 2013 to accommodate increased audits.
The Department of Labor can assess penalties for a variety of ERISA infractions, including failure to complete or file Form 5500s, failure to respond in a timely manner to requests for information, prohibited transactions, and other breaches of fiduciary duty. A civil penalty equal to 20 percent of the amount recovered under a settlement agreement with the Secretary of Labor will be assessed against the fiduciary or other responsible party.
Examples of ERISA civil violations, according to the Department of Labor, include:
- Failure to operate the plan prudently and for the exclusive benefit of participants;
- Use of plan assets to benefit select parties related to the plan – including the plan administrator, the plan sponsor, and any parties related to these individuals;
- Failure to properly value plan assets at their current market value or to hold plan assets in a trust;
- Failure to follow the terms of the plan, as consistent with ERISA terms;
- Failure to properly select and monitor service providers;
- Invoking action against an individual for exercising his or her rights under the plan (i.e., termination, fines or discrimination).
The review process begins with a document request letter from the Department of Labor outlining the scope of the review – either limited targeting or an open investigation. On-site interviews are used to gather information for the review, and ultimately, depending on the findings, a decision to refer the matter for civil litigation or a criminal investigation could be the end result. Fines for violations could exceed millions of dollars.
If you haven’t already started, it is wise to work with the trustees who administer self-funded plans for your clients to regularly schedule formal review processes to help ensure compliance. Some common areas to consider include:
- Evaluating notices received from the service provider about possible changes to their compensation and other information they provided when hired (or when the contract or arrangement was renewed);
- Reviewing the service providers’ performance;
- Reading any reports they provide;
- Checking actual fees charged to ensure they are “reasonable;”
- Asking about policies and practices (such as trading, investment turnover, and proxy voting);
- Following up on participant complaints.
Source: U.S. Department of Labor, Employee Benefits Security Administration
Some have theorized that self-funded ERISA plans are a “loop hole” to PPACA, and the administration will use regulatory authority to pressure groups away from self-funded plans to fully insured plans, which are more specifically addressed by PPACA legislation. If this observation is true, the EBSA reviews are a means to that end. But for years, self-funded health plans have been a smart alternative for clients to reduce the overall cost of benefits for their employees, and to have close, hands-on management of their plan by working with a trusted advisor to ensure compliance. Know that self-funded plans have a place in the benefits landscape, but also be cognizant of the regulations associated with those plans and, more importantly, make sure your clients do as well.
To learn more about how AmWINS can help you meet the needs of your clients, reach out to your local AmWINS broker or firstname.lastname@example.org.
Legal Disclaimer: Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.
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