Fully-insured medical coverage provided as a benefit under a cafeteria

[Moe Howard]

My Question:

An employer offers only fully-insured medical coverage in its cafeteria plan. Does the medical plan have to prepare a Summary Plan Description and issue it to employees ?

Before you think about this question .... I found conflicting answers in the Benefits Link Q & A Section as follows:

Q&A Section: CAFETERIA PLANS (question # 94 of 12/28/98) answered by R.C. Morris Incorporated. He says NO !

Q&A Section: ERISA (question # 60 of 07/21/99) answered by Royce Charney ...who is some kind of world famous TPA guru. He says YES !

(Does anyone know which of these professionals is correct or am I simply not understanding something ?)

[KIP KRAUS]

Moe Howard

What does having a fully insured medical plan have to do with an SPD being required? Section 101(a) of ERISA requires SPDs.

[jeanine]

We had the insurance plan/ERISA question explained to us this way by an ERISA law firm:

If the "plan" offers health benefits through an insured product plan, it is still ERISA.

If you sell an insurance policy to the employer, it is non-ERISA, state law controls, and SPD is not necessary.

Very abstract concept to understand. I'm not sure if I agree with it entirely, but our state sure does regulate our insured product plans.

[Moe Howard]

Jeanine - Thanks.

Can you explain what an "insured product plan" is as compared to a "fully insured insurance policy sold to employer" ?

[david rigby]

Sounds to me like some confusion in terminolgy.

The requirement for an SPD is on the PLAN. The insurance policy is merely the method (or one of the methods) that the plan uses to provide the benefit.

[KIP KRAUS]

I agree with PAX the plan is required to be in compliance with ERISA no matter how you fund it. By the way jeanine, most group insurance policies are issued to the employer, not the employee.

Even in the case of some HMOs that say their contract is with the individual participant, an agreement is made with the employer to sponsor and remit premiums to the HMO on behalf of the participant. Maybe I'm wrong, but I think this makes the employer a sponsor. If there is some loop hole in ERISA that says these types of arrangements are not subject to ERISA I would like to know.

[jeanine]

A fully insured plan would be one that provides health benefits through an insurance policy. (I guess I need to be more careful in the terms I throw out). If it is sold to the employer, the employer is listed as the "owner" of the policy under the master group policy. This is what we are told takes it out of ERISA and places it under state insurance law only. I don't quite understand this myself, but we were advised that we could get ERISA protection by providing the product to the plan, not the employer. We declined to do this. We administer many ERISA plans and we also administer 2 insurance company lines of products that are part of the same company as us. We treat the insured product plans as state law controlled with state law requirements such as a benefits booklet, copies of amendments. The information supplied is pretty much as detailed as any we would have to disclose in an SPD.

Pax, your explanation is enlightening to me. However, none of our groups who offer a insured plan take any advantage in saying that the plan is subject to and protected by ERISA.

[Guest nader12]

Just a few thoughts-

If an employer provides group health benefits to its common law employees, it establishes a "welfare" plan, subject to ERISA requirements (plan document, spd, annual report (if over 100 participants, etc.). The employer may elect to self-fund the benefits, fully insure the benefits or use a combination. In all cases, the health care plan is subject to ERISA.

If the plan is fully insured, the plan is still subject to ERISA, but state insurance laws may regulate the insurance policy.

Most insurance certificates issued to employees fail to include ERISA-required provisions, so many employers use a "wrap-around" document to bring the insurance certificate into compliance with ERISA.

Thus, a fully insured health care plan may be subject to both ERISA and state insurance laws.

[Moe Howard]

Here's a slightly different situation:

An employer has 5 employees. The employer has a group Blue Cross medical fully insured policy. The employer pays 100% of the premiums for all 5 employees ...(nothing is paid or withheld from the employees).

MY QUESTIONS:

1) Does a welfare benefit plan exist (or is this simply a fringe benefit plan) ?

2) If it is a welfare benefit plan (then I realize that no Form 5500 is required... because less than 100 participants), BUT is a SPD required to be prepared & given to the 5 participants?

[Guest nader12]

Assuming the employer is not exempt from ERISA, the employer paid benefit is a welfare plan, subject to ERISA. This means that an SPD is required.

BC/BS should issue each participant a certificate of coverage that substantially complies with ERISA. It is probably missing the boilerplate ERISA rights section and plan information (named fiduciary, administrator, number, etc.)

A number of employers simply prepare a short addendum that includes the ERISA info and attach it to the certificate. I would venture to guess that most small employers do nothing but distrbute the certificate.

Let me know if this answers your question.

p.s. If you reach 20 employees, be careful of COBRA requirements.

[KJohnson]

I agree with Nader12.

Unless you are a big group, must insureres will not put all that is required in an spd in their insurance booklets. You need an addendum with things like an ERISA statement of rights, plan number, employer EIN etc. that will not be in the booklets

[KIP KRAUS]

nader12 has explained as accurate as it can be explained. Keep in mind that full-insured group medical and HMO plans are all governed by state/commonwealth insurance laws. This is one of the reasons some employers opt to self-insure so they can avoid madated levels of coverage.

Trying to avoid compliance with ERISA based on the fact that group indureance is controlled by the state seems odd at the least. I also would be surprised if any group insurance sales person would advise an employer that this is an out for complying with ERISA. Group insurers, ever since ERISA was inacted have been providing employer with ERISA compliance information related to sale of their products.

[Guest Jordan]

I agree with Nader12 on this one (by the way, nice to see you on-board Nader12). Clearly an ERISA plan even if benefits are provided through a fully insured product paid for by the employer. Note that if the insured product is made available by the insurer to employees to buy into or not at their discretion and the employer has no involvement other than to allow the insurer to publicize the product and collect and remit premiums to the carrier, you would not have an ERISA plan per the 2510.3-1(j) regulation.

Jordan

[jeanine]

I'm getting clobbered on this one. We are still relying on the previous advice of counsel as per my original answer. This does bring up another issue for me though. Once the final regs are released this month regarding claim payment turnaround time, what's the effect on our insured product plans? State law states that prompt pay of clean claims is 24 days. Final regs state (probably) 15 day turnaround time. We keep saying these aren't ERISA (I know, I know, no one here agrees with that). I have already made the case that I want outside counsel to look at this once the regs are out. Any guesses at to which timeframes apply? First reaction here is to turnaround all clean claims based on final regs so that all processors are doing the same thing.

[KJohnson]

I would have to disagree with Kip's comment that "Group insurers, ever since ERISA was inacted have been providing employer with ERISA compliance information related to sale of their products."

My experience has been just the opposite and that the employer's contact with the insurer often does not even know what an SPD is. They simply provide the certificates of insurance to employers without ever telling them that anythng more is required under ERISA. Even if you find someone who understands the issue, the response has simply been that "we leave that to the employer." I would hate to guess how many insured plans there are out there that do not fully comply with the SPD requirement. I think jeanine's comments are indicative of the erroneous "understanding" of may employers.

[GBurns]

I thought that Nader12 had adequately covered the issue in two responses, but let me give my thoughts...

I think that you have confused your Employee welfare Benefit Plan with your medical coverage and as a result confused the Q&A answers which were both correct but not related to each other. Your EWP is the arrangement (written or otherwise) that the employer makes agreeing to provide a benefit or set of benefits. These can be provided on an insured or an uninsured basis. in otherwords be self-funded or be insured or a combination. If insured then the employer buys an insurance policy.

Your EWP is the Plan.......Your medical coverage is the benefit and which is provided through an insurance contract.

Your EWP is under ERISA which requires an SPD.

Your medical coverage is through a State regulated insurance product which requires a certificate of coverage etc.

These are 2 separate issues.As pointed out by jeanine the SPD is not necessary for the insurance policy but is necessary for your EWP.

I agree with KJohnson, I have found very very few insurance agents or companies that know about SPDs.

Regarding your last issue about claims turnaround time, Are you the Claims Administrator? I thought that you said that this was a fully insured product. If not, what is their position? I cant see why this is your problem.

[jeanine]

We are everything to all people. I wish I were only joking. We are a TPA and administer over 100 self-funded plans, plus about 1400 insurance policies issued by 2 insurance companies owned by same parent group. I understand what you are saying about the EWP. The problem is that we do everything for all our clients. We even draft SPD's for the Self-fundeds to approve and adopt. I have been in this position a little over a year. One of the first things I suggested was a wrap-around for the insured products. We got legal advice which we took to mean we did not have to draft wrap arounds. I understand you to mean that we (the insurer and TPA) don't have to do the wrap around but the client does. So in effect, since we baby our clients through the entire process of everything--every change in state and federal law--we should be getting on them to adopt a wrap around that we will provide.

As for the turnaround time issue--as a TPA we are interested in both. Perhaps this is the time for me to push the ERISA compliance for the insured since we will be looking into the change in ERISA.

[GBurns]

You still seem to miss the main point that quite a few people have been trying to get across. There is no ERISA requirement for the insured product because it is State regulated. There is an ERISA requirement for your PLAN. Two different things that you dont seem to grasp. Your medical insurance is a benefit it is not the Plan. ERISA covers Plans not benefit products.

[jeanine]

I think I do understand what you are saying. The employers to whom we sell insurance should have a wrap-around document describing the plan that references the fact benefits are provided through insurance. And I think that is what counsel was telling us. The problem is that we operate in a small market and control a majority of market share. Our clients expect us to do everything for them and we agree to it.

So, are you saying that our clients who buy an insurance policy, even though the plan is ERISA, can allow the longer state claims time if and when the final regs are issued and have a shorter turn around time?

[Moe Howard]

So, after all is said and done .... is it safe to say that 1) Title I of ERISA puts no legal reguirements on insurance policies but does put legal requirements on ERISA plans 2) Insurance policies are not ERISA plans, but insurance policies may be used by ERISA plans to provide medical coverage to employees 3) ERISA requires an ERISA plan to prepare a Summary Plan Description but does not require an insuance policy to have/prepare a SPD and 4) Employee participants in a fully-insured group health ERISA plan can sue the insurance company in state court for breach of their medical coverage rights ... while employee participants in a self-insured group health ERISA plan must sue the employer in federal court under ERISA laws.

[KJohnson]

ERISA provides concurrent jurisdiction in state and federal courts for participant suits (although a defendant plan can usually remove a state court action to federal court).

As to jeanine's question, once the claims regs are finalized, they would apply to both insured and self-funded plans.