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Termination of Self Funded Insurance Plan


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It is my understanding that upon termination of a self-funded/self-insured plan, any assets left over can be used to fund premiums in the fully insured plan. (Fully insured plan is replacing the self-funded plan).

Is that correct? If so, is there a citation that I can refer to. Thank you.

QPA, QKA

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Guest JKonsult

I'm a little confused. What assets would you have in a self-funded plan? If you have stop-loss, that would be premium paid monthly. Other assets would be pay-as-you-go through an ASO bank account with called drafts on submitted claims. If anything, your issue should be IBNR -- will the insured contract pick up incurred but not reported claims prior to the effective date?

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MarZDoates:

There is one problem associated with doing that. Because the funds will not be dissipated by the end of the plan year in which the self-insured arrangement is terminated, you will have to file a Form 5500 for the next plan year, even if you would have been exempted from filing one because you are a small plan that is fully insured.

Of course, this is irrelevant if you have to file a Form 5500 for the next plan year anyway. (Plans that are small enough to be exempt from the Form 5500 filing requirement shouldn't be in self-funded plans anyway, but I've had two clients over the years that were self-funded even though they had well under 100 participants.)

Kirk Maldonado

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If any of these funds "left over" were derived from employee salary reductions that were the employee share of the "cost" of the self-funded coverage, I do not think that there is any authority that allows these funds to be used for other than the purpose intended and therefore could not be used as part of the employer cost of the new fully insured coverage.

What is the source of these funds?

What were you intending to label the contributions to the fully insured coverage as? Employer premium or employee premium contribution?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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