"Helath
Uncategorized

Alternative Group Plan Funding Gets a Second Look

Watching their group health plan premiums climb higher with each passing year, some employers start looking into alternative funding strategies in hopes they can get a better handle on their employees’ health costs.

While group plans are the standard, larger employers have typically had more options for funding their group health coverage. But now even small and medium-sized employers – even companies with fewer than 100 employees – can benefit from alternative funding approaches.

There are three main types of alternative funding strategies that are available to employers:

  • Captives
  • Private exchanges
  • Full and partial self-funding.

Captives

With a captive, multiple employers pool their resources and share the risk in providing health insurance to their employees. It is essentially a self-insured pool built into a captive insurance company (an insurer that is owned by the entity that created it). The captive has staff that will administer the health plan.

Captives are also multi-year agreements, so once an employer commits to make it worth their investment, they need to stick with it for a period of time.

Group captives will often have a specific funding mechanism that is broken down into four layers:

Layer 1: The employer is responsible for the first $25,000 of any claim made by one of its employees.

Layer 2: All employers involved in the captive will share the costs of that claim if it exceeds $25,000, up to $250,000.

Layer 3: For claims that cost more than $250,000, the captive will secure reinsurance coverage to cover amounts above that level. This reinsurance is also called “stop-loss” insurance.

Layer 4: Another layer of protection known as “aggregate stop-loss” coverage protects each employer in the captive for the total claims of their employees, ranging from 115% to 125% of expected claim costs in a year.

Private exchanges

Typically, businesses using a private exchange will offer employees a credit that can be applied toward the purchase of a health plan. Employees can then access a variety of health plans through an online portal and can chose and enroll in plans that meet their needs.

Private exchanges are run by insurance carriers or consultancies, and plans on the exchange are regulated as group coverage. Employees shopping on these exchanges are not eligible for the Affordable Care Act’s tax credits or cost-sharing subsidies.

Most employers currently using private exchanges are large; therefore, most private exchange plans are regulated as large-group coverage and are not part of the ACA’s single risk pool. However, to the extent that smaller employers participate in private exchanges, they are subject to the ACA’s small-group rating regulations and risk-pool requirements.

One of the main features of private exchanges is that they enable employees to comparison-shop among multiple health insurance plans.

Self-insuring

There are many different types of self-insurance, from minimum-premium or risk-sharing arrangements to a fully self-funded plan, in which the employer is responsible for all claims.

Employers can choose from:

Retrospective premium arrangements – The insurer will credit back a portion of the unused premium to the employer (typically as a credit for the following year). This is often used in a fully insured arrangement.

Minimum premium arrangements – The employer pays fixed costs (administration charges, stop-loss insurance and network access fees) and claim costs up to a maximum liability each month.

Partial self-funding -The employer takes on more liability and pays fixed costs (administration, network access, stop-loss premiums and some fees and taxes). It’s partial self-funding because the employer will purchase individual stop-loss insurance, which caps the employer’s liability on any given claim to a certain amount, say $50,000.

That way, the employer is self-insuring most of their employees’ medical needs, but is protected in case some of those claims become catastrophic.

Full self-funding – This is like partial self-funding except that there is no stop-loss insurance and the employer is responsible for all costs that are not shared by its employees.  This kind of arrangement is usually only available to large employers.

The takeaway

These alternative funding approaches are what is available now. But the industry is innovating to making health care and insurance more affordable for all involved.

"lawsuits"/
Uncategorized

Protecting Your Firm from Employee Benefit Lawsuits

Employment practices and employee benefit-related lawsuits are on the rise – and employers have to be eternally vigilant when it comes to meeting their compliance obligations as plan sponsors.

Take the case of Visteon, a global automotive industry supplier, which outsourced its payroll and enrollment/disenrollment functions to outside plan administrators. 

But because of internal mistakes at the firms that Visteon outsourced these noncore HR functions to, some of its former employees who should have received COBRA eligibility notices after leaving the firm never received them. At first it was just a handful, but ultimately 741 co-workers signed on to a class-action lawsuit

Visteon argued in court that it was not its own mistakes that had caused the error, and that it had made a good-faith effort to hire outside experts to take over this function for them. Payroll and enrollment, after all, are not core competencies for an auto parts supplier, the company said, and it had been relying on the expertise of these other payroll companies to properly execute these functions and provide these notices.

The court didn’t buy Visteon’s argument. Rather, it held the company responsible in 2013 for poor internal tracking systems, negligence in overseeing its third party administrators, and failure to accept responsibility for its COBRA notification efforts.

That exposed them to the statutory penalty of $110 per worker per day for failure to provide notification.

In the end, for doing what tens of thousands of employers are doing nationwide – relying on third party administrators to handle payroll functions that are regulated under COBRA – Visteon was slapped with $1.8 million in penalties.

Employers are frequent lawsuit targets

As much as companies rely on their employees to generate profits, simply having them around and administering their benefit plans potentially exposes employers to significant possible liability.

According to a survey from insurer CNA, employment-related disputes are the fastest-growing category of civil lawsuits in America.

Employers face risk from the potential of lawsuits employees may bring for alleged failure to fulfill their fiduciary duties as sponsors of retirement plans under ERISA, for example, or for accidental or unauthorized leaks of personally identifiable information, which carries significant penalties under HIPAA.

Sponsors of defined contribution pension plans, such as 401(k)s, are particularly frequent targets of lawsuits for various fiduciary failures, errors or omissions.

Protecting your firm from legal action

So how can employers protect themselves against the potential costs of employee benefit-related litigation? You should:

  • Carefully monitor your plan third party administrators. Insist that they document their own compliance practices to you. Don’t take their word for it.
  • Reconcile your own lists of recently departed employees with your payroll company’s COBRA notifications.
  • Understand that your commercial general liability insurance policy usually will not cover you against liability arising from improper administration of employee benefit plans, ERISA, COBRA, USERRA, wage and hour laws, Title VII related lawsuits, and the like.
  • Consider employment practices liability insurance. This coverage will often protect against lawsuits like this and cover legal expenses, and even judgments.
  • Conduct regular reviews with advisers of investments in pension and 401(k) plans. Investments should be reviewed at least annually – and quarterly is not unusual.
  • Ensure that fees paid to 401(k) and other plan administrators are not excessive. You don’t have to go with the cheapest provider (that can be trouble, too). But if you do choose a higher-fee vendor, document why you made that decision so that you can show your reasoning in court and defend your decision-making as sound and prudent.
  • Invest in data security and HR compliance expertise.
"COVID-19
Uncategorized

Testing Workers for COVID-19 Raises Privacy, Discrimination Issues

Employers whose businesses continue to operate are obviously concerned about the coronavirus spreading through their worksites, so many have started testing their workers.

Recent U.S. Equal Employment Opportunity Commission guidance authorized employers to conduct COVID-19 testing and check temperatures of employees. But doing so could expose a business to a number of employee legal actions from invasion of privacy to discrimination and wage and hour charges, say employment law attorneys.

While the EEOC guidance refers to existing Americans with Disabilities Act regulations requiring that any mandatory medical test of employees be “job related and consistent with business necessity,” it left many questions unanswered.

So, if you decide to start testing workers, you will have to navigate a number of issues, such as:

  • Which tests are appropriate?
  • What are the standards for protecting workers’ privacy?
  • Should employees be paid for the time they wait in line to be tested?
  • Should you get written consent?
  • How will you ensure that the policy is applied consistently?

Employment law experts say there is often a surge in employee lawsuits when new rules or guidance are being issued, and more so with such a sensitive issue as one’s health during a pandemic. 

 The kinds of claims that employers may see as a result of employee testing include:

  • Invasion of privacy
  • Failure to protect employees’ personal health information
  • Discrimination
  • Retaliation
  • Wage and hour actions if waiting for testing takes time.

What you can do

Typically, employers would not be allowed to test a worker’s temperature for a specific disease, but these are unusual times and the threat of infection is too great.

Most lawyers are interpreting the EEOC guidance as meaning that employers may take steps to determine whether employees entering the workplace have COVID-19 because an individual with the coronavirus will pose a direct threat to the health of others. Therefore, an employer may choose to administer COVID-19 testing to employees before they enter the workplace to determine if they have the virus. 

To cover your bases, you should plan your testing in detail, including:

  • How you will be conducting tests (providing at-home test swab kits, testing upon arrival, or offsite).
  • Designate a person who is authorized to conduct tests.
  • Document how you will be administering tests.
  • Plan for how you will account for false positives or false negatives.
  • Decide how often should you be testing.
  • Budget for the testing.
  • What will you do if a worker tests positive or has a fever (if you are just checking temperatures)?
  • Don’t have exceptions to the policy or, if you do, keep them to a minimum. The more exceptions to a policy, the more likely you are to be sued.
  • The policy should comply with guidance from the Centers for Disease Control and Prevention, such as using non-contact thermometers and ensuring social distancing during the process.

Insurance

The risk of being sued when administering testing is real and you should do everything you can to make sure it’s carried out fairly and consistently. But even if you do everything by the book, you can still be sued.

During bad economic times when people are losing their jobs, employee lawsuits tend to rise and, even if you are eventually found to have acted within the confines of the law, you still have to pay the legal fees.

One type of policy that could step in to protect you is employment practices liability insurance. EPLI will cover awards and legal costs in employee-initiated lawsuits. Each policy is different though, so it’s best to consult with us first.

If you are testing or are considering testing your staff, you may want to consider it.

"Group
Uncategorized

How to Handle Group Health Coverage for Laid-off, Furloughed Staff

As the COVID-19 pandemic wears on, many employers have had to lay off or furlough staff due to a tremendous drop-off in business. Besides the loss of income they face, these workers will often also lose their employer-sponsored health insurance.

With this in mind, many employers have been wondering if they can permit coverage to continue during the time the staff is temporarily laid off or furloughed due to the COVID-19 outbreak. If you are looking at options for keeping these employees on your group plan, you’ll need to read your policy to see if it’s possible and explore all of your options.

The options

Most group health plans will define what constitutes an eligible employee. Typical requirements include working at least 30 hours a week. The policy may also address how long an employee can be absent from work before they lose eligibility for the plan. Some policies allow coverage to continue for a furloughed employee, but not for someone who is laid off.

Another option is to approach your group health plan provider and ask them to amend policy language to allow for laid-off or furloughed staff to continue coverage. If your policy doesn’t address these workers or prohibits keeping them on the plan, you will need to approach the insurance company about this.

Due to the COVID-19 pandemic, several states have issued orders requiring or encouraging insurers to let employers make changes to their eligibility requirements.

Some states have extended grace periods to give employers and workers more time to make their premium payments if they are under financial duress. You can check with your state’s insurance department to see what accommodations are available.

If you maintain health insurance for furloughed employees, you need to decide if you will require them to continue paying for their share of the premium. Some employers allow employees to defer their contribution until they are working again.

Whatever you decide, you will need to have the appropriate documentation and administrative procedures in place.

COBRA and exchanges

Most employers who have staff they cannot keep on the group health plan, will be required to offer them and their covered beneficiaries continuation coverage through COBRA.

But COBRA can be expensive, and most workers are better off purchasing coverage on an Affordable Care Act insurance exchange. 

They can qualify for a premium tax credit if they have seen their income fall or disappear, and shop for a plan that will likely cost them less than COBRA continuation coverage. If any employee is laid off, they qualify for a special enrollment period to sign up on the exchanges.

Additionally, about a dozen states have also opened up special enrollment periods during the coronavirus crisis for people who are suddenly uninsured to sign up for coverage.

The dangers

Whatever you do, you should not try to game the system by continuing to keep laid-off or furloughed staff on the group health plan if the plan prohibits it. Some of the risks you would face include:

  • Your plan potentially losing its tax-exempt status (health benefits are usually not taxed). This would cause both you and your employees to potentially be saddled with back taxes.
  • The insurance company could deny claims for employees it determines were ineligible to participate in the plan.
  • COBRA violations, in particular for failing to send out notices to laid-off staff who are no longer eligible for the group plan.
  • A possible fiduciary breach under the Employee Retirement Income Security Act) if plan assets were used to pay for benefits of non-eligible individuals.
"COVID-19
Uncategorized

COVID-19 Changes to Health Plans Must Be Documented, Circulated

A number of plan sponsors have made changes to their group health plans in response to the COVID-19 pandemic, such as covering testing and sometimes treatment without any cost-sharing by the plan enrollee.

But any changes that are made must be followed up by amending the plan and communicating the changes to the enrollees.

Under the Employee Retirement Income Security Act, all health plans are required to deliver a Summary Plan Description (SPD) to enrollees to inform them of the full spectrum of coverage and their rights under the plan.

Whenever a plan sponsor makes a material modification to the terms of the plan or the information required to be in an SPD, they must amend the plan and let participants know about the change through a Summary of Material Modification (SMM).

Material changes

To qualify as “material,” a change must be important to plan enrollees. Examples include adding or eliminating a benefit, changing insurance companies, or changing rules for dependent eligibility.

Plan changes related to the COVID-19 pandemic that would have to be included in the SMM and SPD could include:

  • Offering continuing coverage to staff who would otherwise lose coverage due to a furlough, layoff or reduction of hours.
  • Changing eligibility terms to allow workers who may not have been eligible for coverage before to secure coverage (this could include part-time workers).
  • Covering a larger portion of an employee’s premium share.
  • Adding an employee assistance program to provide counseling for workers who may be undergoing unusual stress.
  • Adding telemedicine coverage.
  • Using funds in health savings accounts (HSAs) and flexible spending accounts (FSAs) to purchase over-the-counter medications.
  • Covering COVID-19 testing with no cost-sharing. 
  • Covering COVID-19 treatment without cost-sharing.

Some of the above changes are required by new laws and health plans must respond accordingly by changing their SMMs and SPDs. For example, the Families First Coronavirus Response Act requires that group health insurance and individual health insurance plans cover coronavirus testing with zero cost-sharing.

And the Coronavirus Aid, Recover and Economic Stabilization Act reverses an Affordable Care Act rule that barred policyholders from using funds in HSAs and FSAs to pay for over-the-counter medications. 

When the plan sponsor adopts these changes, it must also amend its plan summaries.

And SMMs must be delivered to plan participants within 60 days after a change has been adopted. You can deliver the SMM by mail, e-mail or posting it on your company’s intranet site. It’s recommended at this time that you opt for e-mail delivery.

One of the issues that may come up with any changes implemented in response to the COVID-19 outbreak is that some of the changes may be temporary. 

If that’s the case, the plan needs to include the termination date of any benefits that are adopted on a temporary basis.

However, if you don’t know how long the temporary benefits will be in effect, their temporary nature must be communicated in the SMM. Employers need to issue another SMM when the temporary benefit or coverage term ends.

The takeaway

This is an unusual time and unusual times call for unusual measures. It’s unusual for changes to be made to a plan in the middle of a plan year but because of the way the pandemic crash-landed, many plan sponsors have had to make changes. 

That said, you should work with us and your carrier on ensuring that the amended documents are sent out to staff.

As the employer, you should be aware of all the changes that have been made in response to COVID-19 so you can discuss them with any employees that have concerns or questions.

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