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ERISA and reduction in benefits


Guest Simon self funded
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Guest Simon self funded

Hello. I've been reading the posts here for awhile but haven't seen

this addressed.

We have a self funded plan that is subject to ERISA. Our plan document allows the plan administrator to amend the plan from time to time as necessary.

1. Can these changes only be made at renewal?

2. What prohibits a plan from making a plan change that would target a specific employee? For example an employee needs a type of organ transplant and the plan administrator amends the plan to not cover this type transplant. All I can find is that the employees must be notified within 60 days of such a change. Is there a law that prohibits an employer (plan administrator) from doing this?

Thank you.

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A cynic would say that you are conspiring to withhold benefits provided under the plan in an attempt to discriminate against a disabled person.

I am not a lawyer, so my comments are not intended to get you into trouble. However, this is a public forum, and your comments are not protected communications nor deliberations.

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The DOL regulations state any plan amendment must apply to all individuals, and made effective no earlier than the first day of the first plan year after the amendment isadopted. If donein this manner, this is not to be considered to be directed at individual participants and beneficiaries.

Don Levit

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Guest Simon self funded

Whoa... I think my comments were misconstrued.

I'm the cynic and wondered what protections a participant had if something like this happened. I know insured plans are very heavily regulated by the state departments of insurance, and I know they are usually consumer friendly. It just doesn't seem like employees under a self funded plans have much protection.

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Whether self insured or fully insured, the plan sponsor has the right once a year to amend the plan. Health plans are voluntary - they can be established, modified, or terminated, at the sponsor's discretion.

A participant has no more protection from this happening, if the plan is fully insured.

Don Levit

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Guest nicoletrail

A self-funded ERISA plan can be amended at any time by either the board of trustees or whoever it is that has been appointed as the decision maker on the fund. They can amend it at anytime - not just once a year. Health benefits in an ERISA self-funded plan are not vested benefits. Until a participant incurs a claim, the participants in the plan have no right to expect that the benefits they have today will be the same a 2 or 3 months from today. As long as they are given sufficient notice of the change (usually 30 days), the party appointed to make plan decisions can eliminate or add benefits whenever they want.

With regard to eliminating a benefit in order to deprive one particular participant in the plan of that benefit, there are all kinds of laws that prohibit this - IF it can be proved which is not as easy as it sounds. The courts give a LOT of deference to the plan trustees or employer who sponsors the plan.

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Self funded plans are still subject to DOL oversight.

The DOL regulation I cited about amending once a year applied to ERISA plans, so I "assumed" it was including self funded plans.

Can you cite where self funded ERISA plans would not be subject to DOL scrutiny in the matter of how often plans can be amended?

Don Levit

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Guest nicoletrail

"Employers or other plan sponsors are generally free under ERISA, for any reason at any time, to adopt, modify, or terminate welfare plans."

Lockheed Corp. v. Spink, 517 U.S. 882 (1996)

When amending the plan, the plan sponsor or employer is not even considered to be a fiduciary. It is one area where the fiduciary duty doesn't apply. It is a "settlor function" to which the stringent requirements imposed on fiduciaries don't apply.

There does have to be language in the plan allowing amendments and most plans have a standard clause that says they can be amended at anytime for any reason. The plan also have to give adequate notice of the amendment. If they satisfy those 2 things and the amendment doesn't fall into one of the very limited exceptions (see below), they could, theoretically, amend the plan once a week.

The main exception to the rule is where the participant's right to the benefit accrued prior to the amendment. In general, once the participant has satisfied the plan terms for incurring and submitting their claim, it has become "vested" - but, until then, the employer or sponsor can amend any portion of the plan for any reason (as long as it's not discriminatory or otherwise illegal), anytime. There is also an exception which applies to retirees.

As far as the DOL goes - don't get me wrong - the DOL can ALWAYS stick their nose into matters. And you are right, ERISA health plans - both self funded and fully insured - are governed by the DOL regs. But those regs don't change the rule that a plan can be amended at anytime.

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You're both right, IMHO. Plans can certainly be amended at any time. However, amendments which target individuals are prohibited by the HIPAA nondiscrimination rules.

However, those rules state specifically that an amendment made effective as of the beginning of the plan year will not violate the HIPAA nondiscrimination rules. Therefore an employer can adopt an amendment that would otherwise be prohibited if it is effective as of the beginning of the next plan year.

Note that this is a safe harbor for ERISA only. As has been alluded to, there are other laws (ADA, for example) that may prevent the employer from taking this action. The application of such rules would be dependent upon the particular facts.

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Nicole:

You cited Lockheed v. Spink.

Would this case refer to ERISA plans which are fully insured, as well as self insured?

Specifically, assume an employer wants to offer an HSA. In order to do so, he must offer the qualifying HDHP. State law has not been changed to allow insurers to market this plan.

Can the plan sponsor amend his plan to correspond with the HSA/HDHP legislation and still fully insure his plan?

Don Levit

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"Can the plan sponsor amend his plan to correspond with the HSA/HDHP legislation and still fully insure his plan?"

Yes the benefits plan can be amended to offer an HSA/HDHP but that has nothing to do with fully insuring his plan. It is the coverage that is fully insured NOT the benefits plan.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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I will attempt to answer my own question using ERISA definitions, not some subjective whim or opinion, of what a plan is.

An employee benefit plan is established or maintained by an employer or an employee organization for the purpose of providing benefits to participants and their beneficiaries.

Court decisions have held that an employee benefit plan will be subject to ERISA if one can ascertain the intended benefits, the procedure for obtaining those benefits, the source of funding, and the intended beneficiaries.

I will be happy to provide the cases, if you wish.

Now, please tell me how you can separate the plan and the benefits?

Without the benefits, you have no plan.

Without the plan, you have no benefits.

Now, which came first, the benefits or the plan?

Don Levit

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You have not used "ERISA definitions". Without quoting and/or citing all you have done is give your own interpretation, opinion, whim and fantasy.

There are no cases that you can cite that would support much of anything that you have posted. That you would want to post cases without first covering the governing IRC, Treas Regs, DoL Regs indicates a lack of understanding, which is what I have been trying to point out to you.

The Plan, its supporting documents (the PD and SPD etc), the scope of benefits, the coverage medium (fully insured (PPO, HMO etc) or self insured) and the provider are all separate items with separate principles, procedures, rules and regs.

I do not have the time this weekend to explain benefits basics to you and hope that someone else will make the effort.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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GBurns:

I will be the first to admit that I have a lot more to learn about ERISA. And, It is helpful to review the basics, in order to remain sharp.

My definition of an "employee benefit plan" comes from ERISA Sections 3(1), 3(2), and 3(3).

The court cases are Scott v. Gulf Oil Corp., 754 F.2d 1499 (9th Cir. 1985); Donovan v Dillingham, 688 F.2d 1367 (11th Cir. 1982); Elmore v. Cone Mills Corp., 23 F.3d 855 (4th Cir. 1994).

From these basics, remember, we are trying to ascertain if an employer has the freedom to design his plan and negotiate with an insurer regarding the plan's structure.

Don Levit

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That is not what the discussion is. I replied to your posted question:

"Can the plan sponsor amend his plan to correspond with the HSA/HDHP legislation and still fully insure his plan?

Don Levit "

From there you went off in a tangent with irrelevant references and opinions etc. In particular regarding plan, benefits and insurance coverage.

It is easy to understand the diferences, The definition of an accident and health plan starts with Treas Regs 1.105-5 which also explains that the "arrangement" can be insured or not insured. Which in plain language means that the "arrangement" or plan can have coverage that is either fully insured or self funded thereby indicating that there is a differentiation between the 2 items "plan" and "coverage".

Benefits is easy, there are health, medical, STD, LTD, dental, vision, DCAP, PTO etc etc etc. of which not all are accident and health nor are all insureable.

What the extent of coverage, limitations, pre-xs etc provided for each benefit depends on what the plan wishes to do.

The Plan has a Plan Document and supporting material such as SPD. Again showing a differentiation between Plan and Plan Document.

I am trying to point out that there are various components that are each separate, even if related, and each with their own rules etc.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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GBurns:

Let us assume that I agree with your premise that each part of the plan is related, yet separate, and that each has separate documents.

Would you agree that for the plan to exist, that each separate piece must exist?

If that is true, is this statement true or false?

The plan sponsor can amend his plan to correspond with the HSA/HDHP legislation, and still fully insure his plan?

Please explain why, in your opinion, the statement is true or false?

I look forward to learning of your comments, as well as any others who are following this discussion.

Don Levit

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"Would you agree that for the plan to exist, that each separate piece must exist?"

True, but that is not an issue.

"The plan sponsor can amend his plan to correspond with the HSA/HDHP legislation, and still fully insure his plan?"

True, but can only "fully insure" if there are HDHP qualified insurance coverage available. Availability depends on whether or not the State has approved any products.

But then again that is not the issue.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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"plan benefits or plan adnministrative structures" are not insurance coverage issues.

The fact that the Plan has medical and dental is not an ERISA issue.

The fact that the medical has a $20 copay instead of a $5 is not an ERISa issue.

The fact that the plan decides to use an HMO instead of a PPO is not an ERISa issue.

The fact that BCBS does not have a particular Dr in its provider network is not an ERISA issue.

The fact that the plan must have Mental Health Parity is not an ERISA issue.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Whether the plan has medical or dental benefits, co-pays, and how it is insured are ERISA issues, for the employer has the freedom to decide how the plan is structured. State laws that dictate or restrict choice of plan benefits or administrative structures are completely preempted by ERISA. They are completely preempted, whether the plan is self insured or fully insured.

What does complete preemption mean? It means that the state has to remove itself from how the employer wishes to design his plan. It may not dictate or restrict his choices. Only the 4 federally mandated benefits can dictate or restrict his choices.

I understand and appreciate where GBurns is coming from. For years, I too believed that self insurance was the only way to attain this freedom.

Years of cases dealing with ERISA preemption have given employers these abilities.

Unfortunately, by custom, we have been imprisoned for so many years, that to think otherwise, well, it's just too good to be true!

By the way, I have several other federal documents and Supreme Court cases which support my premise.

Don Levit

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Don:

Your last post rasied a host of issues. I will only deal with one. You said:

State laws that dictate or restrict choice of plan benefits or administrative structures are completely preempted by ERISA. They are completely preempted, whether the plan is self insured or fully insured.

That is incorrect. ERISA does not preempt state laws governing insurance. ERISA Section 514. Thus, for example, states can enact laws or adopt regulations that mandate that all health insurance policies issued in the state provide certain benefits. This was upheld in the U.S. Supreme Court decision of Metropolitan Life Insurance Co. v. Massachusetts, 475 U.S.724 (1985).

Kirk Maldonado

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