Q: We are changing our company’s group health plan from insured to self-insured. Do we need to create a plan document, or can we use a document that our TPA gives us?
A: Your company, as the plan sponsor, is responsible for the content and formal adoption of the ERISA-required written plan document. While this is true whether the plan is insured or self-insured, these responsibilities often take on more significance with a self-insured health plan because the employer is financially responsible for paying benefits and generally has a greater role in plan administration. As indicated by your question, there are two general approaches to plan documentation for a self-insured health plan: drafting a single document that comprehensively sets forth the plan’s provisions; or using a document prepared by the plan’s TPA, perhaps in combination with a customized supplement that sets forth important elements not covered by the TPA’s document. (The customized portion could also incorporate other health and welfare benefits—insured or self-insured—that your company offers.) In either case, it is important to work closely with the plan’s TPA to understand the TPA’s procedures and ensure that the plan’s provisions will be administered as intended.
Deciding which approach to take involves many considerations, including the following:
Design flexibility. The company may wish to take advantage of the significant discretion in plan design that is afforded to self-insured group health plans subject to ERISA. Because ERISA preempts (supersedes) state law, the plan (unlike insured plans) is not required to comply with state laws requiring certain benefit coverage. For example, you may want to exclude some services that were covered when the plan was insured, or narrow the definition of eligible beneficiaries (keeping in mind, of course, that the plan must comply with federal law). Alternatively, you may decide for employee-relations reasons to keep the prior provisions in place.
Administrative and financial considerations. A plan design that adheres to one of the TPA’s standard offerings may result in lower administrative fees than a design that requires specialized administration (in addition to saving the expense of drafting an entirely customized document). Presumably, the TPA’s plan document accurately reflects the TPA’s administrative practices. But you should adopt the TPA’s document only after independently reviewing and understanding all of its provisions. And, as noted above, if the TPA’s document does not address all aspects of the plan—for example, eligibility criteria—you will need to supplement it. Also, if the company purchases stop-loss insurance, you will want to align the plan document provisions as closely as possible with the stop-loss policy, since any gaps create potential financial exposure for the company.
Under either approach, experienced benefits counsel—internal or external—should be engaged as part of the plan document process. It is the plan sponsor, rather than the TPA, that will be legally responsible if the plan does not comply with legal requirements. In addition, there are instances where having particular language in your plan document, although not legally required, can make a crucial difference when enforcing plan provisions in court—for example, when defending a claim denial or enforcing the plan’s subrogation and reimbursement rights. The new document also needs to be formally adopted in accordance with your current plan document’s amendment provisions, including any applicable procedures or delegations of authority. Be sure that the plan’s procedures are followed—faulty adoption could diminish the plan’s ability to enforce plan provisions in court.
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