April 21, 2022
Many of the benefits-related laws apply to fully insured and self-insured health and welfare plans in the same manner. However, there are differences that employer plan sponsors should be aware of when they contemplate changing between the two. This webinar discusses some of the major compliance obligations to consider when a plan goes from fully insured to self-insured (or vice versa).
Agenda
- Self-insured Plan Overview
- Coverage Mandates
- ERISA and Plan Funding
- Other ERISA Considerations
- COBRA Obligations
- HIPAA Privacy and Security Requirements
- ACA Implications
- Nondiscrimination Rules
- Final Takeaways
What does it mean to be fully insured vs. self-insured?
- With fully insured plans, the employer contracts with and pays a premium to the insurer to assume the financial obligations for all plan claims and administrative costs.
- With self-funded plans, the employer assumes responsibility for all financial risks of plan claims and costs.
- Stop-loss coverage can reduce some of this risk.
- A level-funded plan is a hybrid solution where the employer pays a set monthly amount to the insurer to cover the estimated claims, stop-loss premium and plan administrative costs.
- If costs are lower than expected, the employer may receive a refund.
What are potential advantages of self-insuring?
- The coverage can be customized to the employer's goals and employee population.
- The plan is not subject to state insurance laws and mandates.
- The employer has more control over selecting, monitoring and coordinating plan service providers.
- The employer may be able to retain funds if health claims are lower than anticipated.
- Potential cost savings - Unlike insured coverage, there are no profit or risk margins paid to the insurer or state premium taxes.
And the possible disadvantages?
- The employer is exposed to financial risk of loss due to employee demographics (e.g., older workforce) and unexpectedly high claims.
- Plan costs and expenses may be unpredictable.
- There is a potential risk of in-house fraud due to the employer's greater financial involvement.
- Employer has increased fiduciary and compliance obligations.
- Understanding these obligations is key!
- Otherwise, the employer could face penalties and even lawsuits due to errors and oversights.
Takeaways
- The transition from a fully insured plan to a self-insured plan can result in additional plan design flexibility and potential financial advantages.
- Plan sponsors should understand the financial risks and compliance considerations in making the switch.
- Initial steps include projecting the plan costs and determining the appropriate funding method(s).
- Additional compliance obligations for self-insured plans arise under ERISA, the ACA, HIPAA, COBRA and the Section 105 nondiscrimination rules.
- Plan sponsors will likely engage service providers to fulfill certain obligations but should understand their duty to monitor the providers.
- Service contracts should sufficiently address ongoing benefits compliance obligations