QUESTION: Our company is changing from an insured medical plan to a self-insured arrangement. Should we create a plan document, or should we use a document from our TPA?
ANSWER: Your company, as the plan sponsor, is responsible for the content and formal adoption of the ERISA-required written plan document. You have these responsibilities whether the plan is insured or self-insured, but they are more significant with a self-insured health plan because the employer typically is financially responsible for paying benefits and often has a greater role in plan administration. As your question indicates, there are two general approaches to preparing a plan document for a self-insured health plan: (1) drafting a single document that comprehensively sets forth the plan’s provisions; or (2) using a document prepared by the plan’s TPA, perhaps in combination with a customized supplement (or “wrap” document) 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, creating a bundled plan.) 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.
Key considerations in deciding which approach to use include:
Design flexibility. Self-insured ERISA health plans are afforded more discretion in plan design than insured plans. Because ERISA preempts (supersedes) state law, the plan (unlike insured plans) is not required to comply with state laws requiring coverage of certain benefits or individuals. For example, you may want to exclude some services that were covered when the plan was insured, or narrow the eligible beneficiaries (keeping in mind, of course, that the plan must comply with federal law). If your plan design deviates from the TPA’s standard offerings, a customized document will be necessary.
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. Presumably, a plan document from your TPA will accurately reflect the TPA’s administrative practices, and it will be less costly to use than a customized plan document. Nevertheless, you should independently review the TPA’s document and make sure you understand its provisions before adopting it. And supplementation may still be needed because, as noted above, the TPA’s document may not address certain aspects of the plan.
Under either approach, experienced benefits counsel—internal or external—should be involved in the plan document process. Your company, not the TPA, will be legally responsible if the plan does not comply with applicable 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. You should also make sure that your plan document language is consistent with your summary plan description and other participant communications. Also, if the company purchases stop-loss insurance, the plan document’s provisions must be aligned as closely as possible with the stop-loss policy, since differences may create financial exposure for the company.
Lastly, the new document must be formally adopted in accordance with the authorization process required under your company’s governing documents and procedures (sometimes referred to collectively as the plan sponsor’s “benefits governance structure”). Be sure that the plan’s procedures are followed—faulty adoption could diminish the plan’s ability to enforce plan provisions.
For more information, see EBIA’s Self-Insured Health Plans manual at Sections III.F (“The Self-Insured Health Plan Team: Roles and Responsibilities”), VIII.F (“Plan Governance for Self-Insured Health Plans”) and IX (“Written Plan Document”). See also EBIA’s ERISA Compliance manual at Section VIII (“Plan Design and the Written Document Requirement”). You may also be interested in our webinar, “Self-Audit Your Group Health Plan Compliance” (recorded on 1/21/2021).
Contributing Editors: EBIA Staff.