A recent federal court decision in McKee Foods Corp. v. BFP Inc. declared that Tennessee’s “any willing pharmacy” requirement was preempted by the federal Employee Retirement Income Security Act of 1974. This decision impacts self-funded group health plans, potentially allowing them to comply with a single set of rules nationwide rather than navigating conflicting state laws.
Todd Solomon recently appeared on the 401(k) Roundtable™ podcast. Hosted by Rick Unser of Creative Planning Retirement Services, the podcast is designed to help plan sponsors, fiduciaries, and members of retirement plan committees stay up to date on recent developments in the benefits industry.
During the episode, Todd explored the changing fiduciary landscape, trends in Employee Retirement Income Security Act litigation, the influence of the Trump administration on the US Department of Labor, and the evolving expectations surrounding fiduciary duties. He delved into the balance between the duty of loyalty and prudence, the significance of participant demographics in making plan decisions, and the difficulties plan sponsors face when weighing cost against value, particularly when choosing investments like target-date funds. Todd and Rick also stressed the importance of thorough documentation, active committee involvement, and creative approaches to improving participant outcomes in today’s intricate regulatory climate.
Employee Retirement Income Security Act class action lawsuits filed earlier this year against the group health plans of two large US employers underscore the importance of implementing formal welfare benefit plan governance structures that include fiduciary committees comparable to the governance structures employer sponsors of retirement plans routinely adopt.
This recent article, published by the Society for Human Resource Management, offers plan sponsors a list of practical action items to consider to help protect themselves from risks related to the fiduciary governance of their health and welfare plans.
Recent lawsuits filed against the group health plans of two large US employers underscore the importance of implementing formal welfare benefit plan governance structures that include fiduciary committees comparable to the governance structures employer sponsors of retirement plans routinely adopt. Establishing such committees can help employers reduce litigation risk and ensure compliance with Employee Retirement Income Security Act fiduciary standards.
Health plan fiduciary issues have taken on increased urgency following a new wave of Employee Retirement Income Security Act class action lawsuits filed by plaintiffs’ firms. Sarah Raaii and Alden Bianchi recently joined the Moving to Value Alliance, a healthcare nonprofit, for a podcast episode focused on how group health plan sponsors and third-party service providers to group health plans can comply with the new fiduciary requirements enacted under the Consolidated Appropriations Act of 2021 (CAA). They also discussed what health plan fiduciaries can do to ensure they fulfill their responsibilities to beneficiaries.
A question in response to last week’s post on self-funding of employer group health plans assumed that stop-loss coverage under a level-funded plan could be provided under a group captive medical captive. However, it cannot (at least not without first obtaining a prohibited transaction exemption from the US Department of Labor (DOL)). While group medical stop-loss coverage can be structured to avoid the Employee Retirement Income Security Act (ERISA) prohibited transaction rules by scrupulously avoiding contact with ERISA plan assets in the plan’s stop-loss layer, it is not possible to prevent such contact in level-funded products.
The early years of group captives saw no shortage of handwringing over fundamental compliance issues. For example: Are group captives multiple employer welfare arrangements (MEWAs) (and should they be regulated as such)? To what extent are states free to constrain or restrain their operation? And which state insurance licensing laws apply?
For the most part, these and other compliance-related questions have been answered, if not completely, then at least substantially so. There is now broad agreement that the group medical stop-loss captive rests on a sound legal and regulatory foundation, which we explained at length in our Special Report. When properly structured, they are not MEWAs; states are free to regulate the stop-loss policy, and the fronting carrier must be licensed in each state in which the captive operates (i.e., where plan participants reside). Critical to their operation, however, is that the group medical stop-loss captive itself does not traffic in plan assets. This means that participant contributions, which are always plan assets, must never be applied to the purchase of stop-loss coverage.
The treatment of stop loss premiums, and their status as plan assets, are set out in two DOL Advisory Opinions:
Advisory Opinion 92-02
A stop-loss insurance policy purchased by an employer sponsoring a self-insured welfare benefit plan to which employees did not contribute is not an asset of the plan if certain conditions are satisfied. These conditions include that the insurance proceeds from the policies are payable only to the plan sponsor, which is the named insured under the policy, and no representations are made that the policy will be used to pay benefits.
Advisory Opinion 2015-02A
Where a stop-loss policy is purchased by a plan that includes participant contributions, the stop-loss policy would not be a plan asset if the facts surrounding the purchase of the stop-loss policy satisfies Advisory Opinion 92-02 and if the employer puts in place an accounting system that ensures that the payment of premiums for the stop-loss policy includes no employee contributions. Also, the stop-loss policy must reimburse the plan sponsor only if the plan sponsor pays claims under the plans from its own assets so that the plan sponsor will never receive any reimbursement from the insurer for claim amounts paid with participant contributions.
In the above-cited Special Report, we provided the following example of how an employer might comply where, as is typically the case, the [...]
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A nonqualified deferred compensation (NQDC) plan is a powerful employee benefits tool. However, NQDC plans can create complications for plan administrators and participants. In this PLANADVISER article, Brian Tiemann and Lisa Loesel highlight several potential NQDC plan pitfalls and offer strategies to mitigate these hazards.
In a recent article in Managed Healthcare Executive, Peter Wehrwein examines the trend of self-funding of group health benefits by smaller employers who used to depend mainly or entirely on fully insured programs.
The shift to self-funding, the article explains, is grounded in the Employee Retirement Income Security (ERISA), which exempts self-funded plans from state health insurance mandates, and in the Affordable Care Act, which strictly regulates small group and individual health insurance policies. Wehrwein presents the issues from the perspective of state and federal policymakers and regulators, which the article characterizes as “worrisome.” But what of the perspective of small employers?
Healthcare costs are rising at rates that are well in excess of the growth of real gross domestic product. This appears unsustainable, but these costs nevertheless keep climbing inexorably. For employers, the pressure to do something is compelling.
The article claims that self-funding is more expensive than fully insured coverage. But compared to what fully insured coverage, exactly? By definition, many small employers can only purchase coverage in the small-group market. This is, however, the very market these same employers are fleeing, and they are doing so precisely because it is too expensive. Indeed, the prohibitive cost of small-group market coverage is why individual coverage Health Reimbursement Arrangements have failed to gain widespread acceptance, particularly in large urban environments.
Wehrwein correctly identifies two options for self-funding: group medical captives and level funding, both of which he views as problematic. Small employers appear to disagree, however, based on their actions. In their view, these options instead represent viable options in their quest to provide competitive group health coverage to their employees. The two options for self-funding identified in the article are fundamentally different solutions that are appropriate for different cohorts of small employers.
Group Medical Captives (50 – 200 Covered Lives)
The term “captive” insurer traditionally referred to a “single parent” captive, which is a subsidiary of an operating company/parent that insures the risks of the operating company/parent and in some instances its affiliates. Historically, single-parent captives insured property and casualty risks and workers’ compensation, but they have more recently been pressed into service to cover employee welfare plan risks.
A group captive allows a group of unrelated employers to form a collective insurance company to manage some portions of their risks. Where, as is the case here, the risk is most often medical stop-loss coverage, the arrangement is referred to colloquially as a “medical stop-loss group captive.” For an extended discussion of medical stop-loss group captive funding arrangements and their accompanying legal and regulatory issues, please see our Special Report.
There is some debate over what size employer might most benefit from participation in a medical stop-loss group captive. While the conventional wisdom is that 200 covered lives is the sweet spot, credible estimates go as low as 50 covered lives. Whatever the appropriate number, medical stop-loss captives can in the right circumstances offer substantial savings when compared to fully insured coverage. [...]
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A recently decided US Court of Appeals for the Ninth Circuit case, Ryan S. v. UnitedHealth Group, Inc., offers some useful insights on the enforcement by private litigants of the Mental Health Parity and Addiction Equity Act (MHPAEA). Like other similar cases, the case invites questions about the impact of potential changes under the proposed regulations issued under MHPAEA last year. Despite that the issues at this stage are procedural, the case nevertheless offers some useful insights, which this post explores.
Our previous MHPAEA content is available here.
According to the complaint, the group health plan under which Ryan S. was covered was administered by UnitedHealthcare. The plan covered outpatient, out-of-network mental health and substance use disorder (MH/SUD) benefits at 70% of covered charges and at 100% once the out-of-pocket maximum was met.
Ryan S. completed two different outpatient, out-of-network substance use disorder programs, coverage for which was denied on multiple occasion and for disparate reasons. As the complaint explains, the denials resulted from UnitedHealthcare’s use of an algorithm that assessed patients’ progress and referred cases for additional review. This additional layer of review was not applied to outpatient, out-of-network medical/surgical (M/S) claims. Ryan S. alleges that UnitedHealthcare applied a more stringent review process to benefits claims for outpatient, out-of-network MH/SUD treatment than to otherwise comparable M/S treatment. The complaint states this disparity in applicable review standards violates:
The Disposition of the Plaintiffs’ Claims
The district court had dismissed all the claims. The Ninth Circuit reversed on MHPAEA and ERISA fiduciary claims but let stand the district court’s dismissal of the claim related to plan terms.
MHPAEA requires that any limitations on “mental health or substance use disorder benefits” in an ERISA plan be “no more restrictive than the predominant treatment limitations applied to substantially all [covered] medical and surgical benefits.” Thus, said the court, to succeed, a plaintiff must show an ERISA plan that offers both M/S and MH/SUD benefits imposed a more restrictive limitation on MH/SUD treatment than limitations on treatment for M/S issues. The court then identified three situations in which such a violation might occur:
In the court’s view, the complaint raises internal process claims. As such, violations cannot be discerned with reference to the plan document. The court therefore saw no reason to disturb the district court’s dismissal of the claim relating to plan terms.
With respect to the MHPAEA and ERISA fiduciary claims, [...]
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In 2016, Inland Fresh Seafood Corporation of America established an employee stock ownership plan (ESOP), a type of defined contribution employee benefit plan. The ESOP then purchased 100% of Inland Fresh stock from Inland Fresh’s former shareholders.
Since the ESOP was founded, it has provided substantial benefits to Inland Fresh’s employee participants.
In November 2022, four former Inland Fresh employees filed an Employment Retirement Income Security Act of 1974 (ERISA) class action complaint against Inland Fresh, a number of its executives, its outside counsel, the ESOP Committee and the ESOP’s independent trustee.
The complaint alleged that the defendants breached their ERISA fiduciary duties, engaged in transactions prohibited by ERISA and ultimately caused the ESOP to pay more than fair market value for Inland Fresh stock during the initial transaction.
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