QUESTION: Our company has decided to self-insure our major medical plan (which is subject to ERISA). Since our plan has been fully insured until now, the insurer has made all claims and appeals decisions without the company’s involvement. Now, we are engaging a TPA to provide certain administrative services for the self-insured plan. Will the TPA assume claims and appeals responsibilities like the insurer has? If not, how should we decide what the TPA will do and what the company will do?
ANSWER: Even if you engage a TPA, your company cannot be relieved of all responsibility for claims and appeals under its self-insured health plan. The two primary considerations are responsibility for compliance with the DOL’s claims procedure regulations and fiduciary responsibility relating to claims decisions.
Compliance With DOL Claims Procedure Regulations. Most self-insured health plan sponsors engage a TPA (or other third party) to perform tasks associated with claims and appeals—but the legal obligation to maintain procedures that comply with the DOL’s claims and appeals regulations remains with the plan. (As a practical matter, the plan acts through the ERISA “plan administrator,” which for a single employer plan is normally the employer/plan sponsor even if certain administrative functions have been outsourced; it is extremely uncommon for a third party to agree to serve as the ERISA plan administrator.) Accordingly, even if a TPA contractually agrees to design, implement, and administer claims procedures for your plan, your company ultimately will bear the consequences of non-compliant procedures. Inadequate claims procedures may increase the likelihood that claim denials will be overturned by a court—and in a self-insured plan, the plan sponsor bears the risk of paying those claims. Also, the ERISA plan administrator is liable for penalties for failure to provide certain documents requested by participants—including, according to some courts, claims procedure documents.
Fiduciary Responsibility in Making Claims Decisions. If a TPA exercises discretion in deciding claims or appeals, it acts as an ERISA fiduciary. But even if the TPA agrees to assume this fiduciary role, the plan sponsor does not escape accountability. At a minimum, the sponsor is responsible for prudently selecting the TPA and monitoring its ongoing performance. (Making final appeal determinations is always a fiduciary function and must be performed by a “named fiduciary” of the plan—which may be the plan sponsor or a third party.) Because the company ultimately shoulders the financial liability for paying approved claims (and litigating disputed claims) in a self-insured health plan, the company actually may want to be more involved in the claims and appeals process.
So, how should you determine what tasks to delegate to the plan’s TPA, and what tasks the company will perform? Here is a nonexhaustive list of factors to consider. Additional or different factors may be appropriate based on your company’s (and your TPA’s) circumstances and plan provisions.
Plan Sponsor’s Resources and Expertise. The DOL regulations impose tight timelines for making determinations (particularly for urgent care) and require medical expertise and multiple decisionmakers. Can your company devote the necessary personnel to ensure compliance?
Plan Sponsor’s Philosophy. Does the company want to be involved in making claim and appeal determinations—and does it understand its fiduciary responsibility to make them consistently, in accordance with the plan document, and in the best interests of plan participants and beneficiaries?
TPA’s Capabilities. Is the TPA able to administer your plan design, including any unusual exclusions, conditions, or precertification requirements?
TPA’s Willingness to Assume Named Fiduciary Role. Is the TPA willing to make final appeal determinations?
Contractual Protections. What remedies does the contract provide if you rely on the TPA to design and implement compliant claims procedures, and the procedures are inadequate?
No matter how responsibilities are allocated, make sure that the contract accurately reflects both parties’ understandings and clearly states each party’s responsibilities—including timeliness and consequences of nonperformance. Keep in mind that the TPA’s compensation may not be tied to its approval or denial of claims. And plan to reevaluate the contract language from time to time to make sure it complies with the plan’s terms and operation.
For more information, see EBIA’s Self-Insured Health Plans manual at Sections XXIII.B (“Contracting With Service Providers”) and XXVI.B.2 (“Special Claims Administration Issues for Self-Insured Health Plans”); see also EBIA’s ERISA Compliance manual at Section XXXIV (“Claims Procedures for Group Health Plans”). You also may be interested in our upcoming webinar, “Group Health Plans Year-End Update and Looking Ahead to 2021” (live on 12/17/20).
Contributing Editors: EBIA Staff.