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TPA collecting undisclosed 'scrape' on stop-loss premium


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Situation: ER has been self-funded for more than 10 years. About 5 years ago, it switched claims TPAs. The ER pays a health insurance agent about $5/EE/mo for a "broker fee". The ER pays an insurance company about $30/EE/mo for stop-loss coverage. The ER pays the new claims TPA about $31/EE/mo.

Recently, it was discovered that the claims TPA has charged about $5/EE/mo more that the $26/EE/mo that was quoted for claims administration. When asked, the claims TPA merely dismissed it as a 'stop-loss placement fee' on top of the claims administration, and the TPA holds an insurance producer's license. Such a charge had never been disclosed, at least not beyond invoices with $31/EE/mo that the ER received before the one from which the ER discovered the 'over charge'.

In the industry, is it common for a claims TPA to receive an undisclosed 'placement fee' or commission from the stop-loss carrier?

While I understand that the stop-loss policy and coverage are not ERISA plan assets, generally speaking, I've also heard mention of a 9th circuit decision that the payment of the premiums for stop-loss coverage are plan assets until received by the carrier. Anyone have any illucidating thoughts regarding this?

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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  • 2 years later...
Guest Quicksilver

I was wondering about how a payment like that would be reported on the 5500 Schedule C ( I have a new post for that)

It make sense dor the TPA to pay net prem. for stop loss, and then just pay a broker that commission directly, it avoids some prem tax

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Wow, first reply to a 25-month old OP that I'd forgotten about entirely.

Avoiding premium tax was the ostensible reason given by the TPA in my situation for doing so. That didn't quite explain why it was undisclosed, however.

Your question is how that 'stop-loss placement fee' should be reported on the Schedule C to f5500? I think it would be reported as any other insurance brokerage fee. I don't think labeling it a 'placement fee' separately from the fee paid to the actual third party broker means that the 'placement fee' is any thing other than a brokerage fee.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Guest Quicksilver

This was my 5500 post

[TPA Administrative fees and stop loss brokerage commission and net stop loss premiums are billed to and paid by employer, net premium is sent to stop loss carrier, so their schedule A does not include broker commission. TPA pays the broker commission to the broker. Is this reportable on the schedule C as an indirect payment, or does the general rule below apply?

Q-3. Will Schedule C disclose plan expenses which an employer pays directly?

No. Schedule C discloses administrative expenses which the plan pays, directly or indirectly. Schedule C will not disclose an expense which the employer pays directly, and for which the plan does not reimburse the employer. If, however, the plan reimburses the employer for an expense payment, show the expense as a direct payment by the plan to the service provider.

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This was my 5500 post

[TPA Administrative fees and stop loss brokerage commission and net stop loss premiums are billed to and paid by employer, net premium is sent to stop loss carrier, so their schedule A does not include broker commission. TPA pays the broker commission to the broker. Is this reportable on the schedule C as an indirect payment, or does the general rule below apply?

Q-3. Will Schedule C disclose plan expenses which an employer pays directly?

No. Schedule C discloses administrative expenses which the plan pays, directly or indirectly. Schedule C will not disclose an expense which the employer pays directly, and for which the plan does not reimburse the employer. If, however, the plan reimburses the employer for an expense payment, show the expense as a direct payment by the plan to the service provider.

The question boils down to whether the $ in the hands of the TPA constitute plan assets or yet 'employer payments'? There is a 9th Circuit case that treats the $ as 'plan assets' from the time paid by the ER to the TPA until the stop-loss premium is paid. This line of reasoning suggests that if the TPA billed the entire amount (actual premiums + broker's fee + 'placement fee') to the ER all as for stop-loss insurance without any breakdown, then all that the ER pays to the TPA is 'plan assets', and thus the TPA keeping a portion thereof for the 'placement fee' would be an expense paid by the plan rather than the ER. On the other hand, if the TPA's invoicing to the ER breaks out each of the three elements and labels them as such for the ER to see, then it is arguable that the broker's fee and placement fee never become plan assets, and that the TPA's intermediary role in the payment from the ER is an ER payment (unless of course the ER is reimbursed by the plan for making that payment).

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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  • 1 month later...
Guest Nate Ogden - OBA
Wow, first reply to a 25-month old OP that I'd forgotten about entirely.

Avoiding premium tax was the ostensible reason given by the TPA in my situation for doing so. That didn't quite explain why it was undisclosed, however.

Your question is how that 'stop-loss placement fee' should be reported on the Schedule C to f5500? I think it would be reported as any other insurance brokerage fee. I don't think labeling it a 'placement fee' separately from the fee paid to the actual third party broker means that the 'placement fee' is any thing other than a brokerage fee.

Charging a non disclosed fee is never proper nor legal. If it was not disclosed and agreed to up front I would demand it all back. If not you have the makings of a nice misappropriation claim.

The stop-loss inerface fee is silly I never understood why other TPAs don't just charge a fee for their service. If they need to charge $31, wish I was in that market, then charge $31 and cover everything they need.

Is the fee not referenced any where in the service agreement? How many years have they been charging it?

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