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Can ER Continue using this TPA?


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Situation: ER is "plan administrator" of a self-funded health plan. The cost of coverage borne by the EEs is elected and then effected through a cafeteria plan. The ER pays monthly to a TPA the amount invoiced to cover approved claims. The ER also pays an Admin Fee, out of which the TPA pays certain expenses like the cost of PPO participation. The ER also pays the TPA a lump sum month for the cost of stop-loss coverage. Out of that, the TPA pays the insurer a net premium (no commissions component). The TPA keeps the rest--an amount not disclosed to the ER.

The ER has discovered this situation, and is in the process of investigating further before it works towards recouping the undisclosed amount.

The TPA appears to have become an ERISA fiduciary by reason of not having specified in its annual renewal proposals, invoicing or elsewhere how much the TPA was keeping as a 'stop-loss placement fee'. And for the same reason, to have breached that fiduciary duty. Patelco Credit Union v Sahni, 262 F3d 897 (9th Cir 2001) and Chao v Crouse, 346 FSupp2d 975, 988 (SD Ind 2004).

Despite the billing problems, the ER is asking if it exposes itself to any fiduciary, co-fiduciary or other liaibilities by reason of continuing with the TPA if the stop-loss placement fee is returned and the ER hereafter monitors the TPA more closely. The ER has not decided if it even wants to continue with the TPA on those terms, but wants to know if that's an option.

Initially, my thoughts are that if the ER ever becomes unable to cover the cost of any health benefits promised and at that time the ER's assets have been improperly depleted by amounts collected by the TPA, the CEO, president and board of directors might be held personally liable to the employees for having caused the ER to continue using the TPA knowing of the fiduciary breaches uncovered at this time.

Any other thoughts?

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 months later...

The concern over the undisclosed stop loss placement fee might be the lesser of their concerns. Since there are employee deductions involved, then those are plan assets. And apparently they are being transferred to the TPA. Which (I assume) is not an insurance carrier, bank, or IRS approved custodian. Thus, it seems to me this is a direct violation of ERISA asset trust requirements. Which requirements were put in place for the exact concerns expressed by both you and the employer.

Just a thought.

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  • 3 weeks later...

Thank you, Jacmo.

The EE contributions, like the ER ones, are all within the context of a cafeteria plan. DoL Technical Release 92-01 specifies the DoL's nonenforcement policy with respect to the trust fund requirement in the cafeteria plan context.

Only after the TPA has received a health claim and determined it valid does the TPA then report such to the ER. The next day, the TPA draws that amount from the ER's general bank account for payment to the third party health care providers. Until that draw occurs, there is no segregation of the ER's general assets.

In addition, the TPA sends an invoice for the cost of the stop-loss coverage and the charges for the TPA administering the plan. Here is where the discrepancy creeped in. The line item for the stop-loss coverage on the TPA's invoices is greater than the amount the TPA has to pay over to the stop-loss carrier for premiums. Due to the TPA having unilateral discretion (unbeknownst to the ER) of what to do with the difference does a problem arise. Patelco Credit Union v Sahni, 262 F3d 897 (9th Cir 2001) and Chao v Crouse, 346 FSupp2d 975, 988 (SD Ind 2004).

With these added details, your further thoughts and comments are sought.

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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I wonder about your conclusions when you cite Chao v Crouse. I have not looked at the other cited case.

I do not recall Chao v Crouse as having any facts or circumstances that have any similarity to your situation. There was no stop loss and apparently no claims adjudication or history of claims payment.

In any case, I have a problem with the TPA invoicing for and receiving insurance premiums. I doubt that this was approved by the insurer and seems to raise state insurance law issues.

Who is the named insured on the stop-loss policy?

Who is the writing and servicing agent ?

Who does the policy say is the premium payor?

Now that I think about it, Are you sure that a stop-loss policy exists ?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Thanks, George, for your post.

The Crouse decision is pertinent due to the following passage, and its citation to Patelco:

While ERISA provides that a fiduciary may defray reasonable expenses of administering the plan, it does not allow a fiduciary to set its own administrative fee and directly collect those fees from plan assets. See Patelco Credit Union v. Sahni, 262 F.3d 897, 911 (9th Cir.2001) (holding that, "at the very least [the fiduciary] determined his own administrative fees and collected them himself from the Plan's funds, in violation of ยง 1106(b)(1)."). That is what occurred here.
Who is the named insured on the stop-loss policy?
ER
Who is the writing and servicing agent?
TPA
Who does the policy say is the premium payor?
ER
Now that I think about it, Are you sure that a stop-loss policy exists?
YES-There is a policy from the stop-loss carrier, separate and apart from TPA

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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I would advise the ER to change TPAs. Too many issues, too much potential liability, to much chance of a problem.

Here you have an insurer accepting payment for other than the named payor (probably inadvertently). This sets up a bad situation in case of litigation or conflict if there is a denial of coverage for some reason some day in the future.

Then you have an agent invoicing for premium. I don't think this will fly with the dept of insurance.

Then you have the issue of undisclosed or disguised invoicing.

Then you have an insurance agent billing for what amounts to compensation for services related to the sale and servicing of insurance, with or without disclosure. I do not think that many states allow a "placement fee".

I now see the relevance of Chao v Crouse now that you point it out. It is a further nail in the coffin of this situation, especially pertaining to the administrative fees.

This situation is so rife with potential problems that I think that any ER who knowingly continues with it would be guilty of negligence, imprudence and a breach of fiduciary duties.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Thanks again, George.

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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