Dear Friends,
Some SPBA members are reporting that their clients and potential clients are getting fuzzy double-talk which seems to say that if the client uses a large insurer as ASO or some large medical entity as PHO, they are somehow "insured" or otherwise better protected or with less liability exposure than when dealing with TPAs. It is, of course, absolutely untrue.
When comparing two self-funded plans, an ERISA plan is an ERISA plan is an ERISA plan...and who the hired independent administrator is has no effect on the level of liability incurred by the plan sponsor. First, let me review two important vocabulary terms & concepts:
1. In employee benefits, a plan is either self-funded or it is fully-insured. In the marketplace, we throw around various terms to describe back-up systems such as "stop-loss" etc. However, they do not become "partially insured" or "partially self-funded" (because there is legally no such thing). It's either self-funded, in which the responsibility always falls to the employer/plan sponsor (though he may arrange back-up protections such as stop-loss)....or fully-insured, in which the responsibility falls to the insurer. There are legally no in-betweens.
2. ERISA self-funded plans have the official Administrator, who is the employer or plan sponsor or plan trustees...as described in the text of Title I of ERISA, section 3(16)(A). In an ERISA plan, the primary responsibility always rests with the official Administrator. Of course, for technical expertise and efficiency, most official Administrators hire some form of outside Third Party Administrators (TPAs) . While both TPA & ASO also take on fiduciary responsibility, they are simply hired to do the work delegated under the service contract by the official Administrator. This is very similar to when people hire a tax preparer to fill out their tax forms. There is no question that the person is still the taxpayer responsible. The paperwork is simply delegated.
Comments or innuendo made to employers or plans that ASO or other arrangements purport to be more "secure" and pay things that a TPA couldn't or wouldn't on behalf of the plan are scary. Almost any possible interpretation of such a hint raises serious legal warning flags for the employer/plan sponsor and broker recommending the deal. For example:
(a). A TPA or ASO is not expected to pay any plan claims expenses out of his own pocket, so the depth of the TPA or ASO pockets is irrelevant. If an insurer is intimating that it would be using plan assets more generously than the TPA would under the plan language, then the insurer is proclaiming that it plans to be "imprudent", and thus bring down the wrath of the Department of Labor (DOL) on the employer/sponsor, hired administrator, and plan. Legally, any hired contractor would pay only what the plan language allows, and in case of doubt, should ask the official Administrator for decision in cases of doubt.
(b). If the "extra security" refers to the insurer's intent to use itself as the stop-loss provider, the insurer seems to be proclaiming his intent to do the ERISA prohibited transaction of "self-dealing", which can bring criminal (jail time) penalties for the self-dealer and anyone in cahoots. All such services should have some prudent shopping.
(c). If the insurer is intimating that it will step in with its own money and pay more plan claims, another problem arises. The federal McCarran-Ferguson Act says that anytime there is a direct relationship between an insurer and an individual plan participant (such as a person's claims), it automatically becomes "the business of insurance", and the plan becomes subject to the full panoply of state insurance regulation, premium taxes, mandated benefits, etc.
(d). If the insurer plan is, indeed, fully insured (even though it may have some twists of co-pay, minimum risk, etc.) the state regulation, premium taxes, mandated benefits, etc. apply (which they do not under the self-funded ERISA plan).
From SPBA's participation on several of the government's panels of experts, the basis of the problem seems to be a common misperception. People sometimes think that if they have any relationship with a big-name insurer, they assume they are "insured" with that company standing behind them. Not so!
If the insurer does have some new twist in which it is playing Santa Claus and giving away money to or subsidizing plans out of the goodness of its heart, the employer should get it very specifically in writing in the plan document and administrative contact...though, even the Santa Claus arrangement raises some legal liabilities such as those described above.
Sincerely,
Frederick D. Hunt, Jr.