What Employers Need to Know About ERISA Compliance for Health Plans
ERISA compliance involves understanding the fiduciary role and the key health plan obligations that the law requires of employers.
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- The Employee Retirement Income Security Act of 1974 (ERISA) dominates the health insurance industry and regulates coverage for around 139 million Americans in 2.5 million health plans, making familiarity with ERISA compliance critical for employers offering health plans.
“The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans,” the DOL site explains.
ERISA covers much more than just health insurance. Most notably, the law regulates retirement plans, but it also applies to vacation benefits, unemployment benefits, scholarship funds, and more.
However, one of the law’s primary goals is to standardize the minimum allowable requirements for employer-sponsored health plans.
Fully-funded or partially-funded employers that have a plan with an insurance company will not have to do much to remain in compliance, the Wolters Kluwer site explains. In such situations, the health insurance company takes on most of the responsibility for compliance. Nevertheless, understanding ERISA can help employers navigate their insurance-related responsibilities.
This article covers the basics of ERISA and should not replace legal counsel.
The Role of ERISA
ERISA does not require employers to offer health insurance. But for employers who choose to do so, the law holds them accountable to the coverage promises they make to employees. ERISA’s goal is to ensure employers properly administer and explain their health plans to employees.
The law also prioritizes federal reform and minimizes state legislation with the goal of streamlining compliance for multi-state or national employers. This is ERISA’s most unique feature, Christine Monahan, JD, an assistant research professor and faculty member at the Center on Health Insurance Reforms (CHIR) at Georgetown University’s McCourt School of Public Policy, explained in a post.
Important amendments to ERISA include but are not limited to the Consolidated Omnibus Budget Reconciliation Act (COBRA), the Health Insurance Portability and Accountability Act (HIPPA), and the Mental Health Parity Act the Mental Health Parity Act.
ERISA-compliant plans
ERISA plans are plans, programs, or funds that were created or are maintained by an employer for the purposes of covering medical, surgical, hospital, or sickness benefits or other benefits related to ERISA’s non-healthcare regulatory functions, according to the Compliance Administrators site.
In general, ERISA regulates private-sector, employer-sponsored health plans, with certain exceptions.
Employers in self-funded and fully-funded plans are subject to ERISA, the Association of Health Plans explains. However, fully-funded plans are not eligible for certain preemptions that ERISA awards to self-funded plans regarding whether they are governed by state laws.
Self-funded plans are exempt from certain state laws under ERISA. This means that employers with multi-state or national offices do not have to comply with dozens of state-specific regulations. However, employer-sponsored health plans, insurance carriers, and health maintenance organizations (HMOs) that are fully funded are not exempt.
Privately purchased, individual insurance can fall under ERISA regulations if employers offer it as a pre-taxed, 125 plan—also known as a “cafeteria plan”—or a “voluntary policy,” according to TASC Online, the largest, privately-held third-party benefits administrator in the US.
Penalties for noncompliance
There are steep penalties for not complying with ERISA requirements. Companies can experience penalties and DOL enforcement actions. The penalties could be up to $1,100 per day, are cumulative, and are not subject to the statute of limitations so DOL can assess penalties for plans as far back as 1988. Reduced penalties occur under certain circumstances. In addition to these federal actions, plan members may sue the employer.
Fiduciary conduct, financial and best-interest protections
One of the core requirements of ERISA compliance is identifying fiduciaries. They oversee the management and administration of a plan or plan assets or may be individuals who offer financial advice, a Compliance Administrators webpage explains.
The fiduciary is personally liable for the health plan. The individuals named as fiduciaries in the plan documents are usually not the only fiduciaries. Typically, there are other individuals who are also considered fiduciaries due to their job functions, such as plan administrators and trustees of plan assets.
Fiduciaries must run the health plan with only the participants’ best interests in mind, DOL has stressed. They are expected to act wisely with the plan’s investments. The department published a booklet to help employers understand their responsibilities as fiduciaries.
For employer fiduciaries, the terms “plan sponsor” and “plan administrator” may also apply.
Requirements related to ERISA health benefits
ERISA impacts employer-sponsored health plans in three main ways. It establishes reporting requirements for these health plans. It also requires plans to construct and offer a plan summary that is available to members. And finally, it mandates that plans have an established procedure for claims, denials, and appeals.
Reporting requirements
The plan administrator for each ERISA plan must file an annual report (“Form 5500: Annual Return/Report of Employee Benefit Plan”), according to TASC. However, plans that have less than 100 participants at the beginning of the plan year are exempt from the reporting requirement, whether they are unfunded, insured, or a combination of unfunded and insured.
Plans with multiple employer welfare arrangements (MEWAs) that provide health benefits also must file a Schedule M-1 (“Schedule M-1: Reconciliation of Income (Loss) per Books With Income per Return”). Welfare benefit plans may have additional reporting requirements.
Small businesses must fill out financial statements about their companies’ financial health, Wolters Kluwer’s website states. They can use Form 5500 or Form 5500-SF and add attachments to satisfy this requirement.
Wolters Kluwer also stresses that employers should identify which compliance tasks their insurers will handle and which are in their purview.
Employers can visit the EFAST2 Internet site, a DOL site, to determine who should file the report, find forms, file forms, filing deadlines, and other reporting details. Forms are also available for reference on the DOL website.
Plan document, summary
Under ERISA, employer-sponsored health plans must outline certain plan details in a single document called a plan document. Plans also must provide a plan summary, with additional information.
The ERISA plan document must include six pieces of information, the Compliance Administrators site shares:
- The plan’s funding policy
- How operation and administration tasks and responsibilities will be allocated
- HIPAA compliance policies related to protected health information
- Plan asset distribution after plan termination
- Who who can change the plan and amendment procedures
- Payment processes for payments both to and from the plan
The plan summary is a shorter document that provides a summary of plan benefits, provider network details, and cost-sharing information. Employers must share information about the health plan in general terms that enrollees can understand.
According to Compliance Administrators, the summary’s content should include, but is not limited to:
- Plan identification data such as the plan name and employer’s name and address
- Descriptions of plan benefits, eligibility factors, and benefits denial circumstances
- Amendment, termination, and subrogation details
- Claims procedures
- Coordination of benefits and offset provisions
- Plan contributions and funding information
- Refund allocation policies
- Lawsuit limits
- Language options for members who are not proficient in English
- A grant of plan administrator’s discretion and statement of ERISA rights
There are many other particulars that employers can include. The actual content requirements will vary from plan to plan based on various factors.
This document should be sent out to all beneficiaries at enrollment or re-enrollment, upon request. Employers should also distribute it every five years if the plan administrator or plan sponsor makes changes, whenever they make a material modification or reduction in benefits, or every 10 years if the plan persists unchanged for 10 years or more.
Time frames to distribute the summaries vary based on the trigger. For example, employers must send it to new enrollees within 90 days of coverage. After a material modification, they must send it within 210 days of the end of the plan year in which the change occurred.
It is important that employers check with their third-party administrators and insurers or their legal counsel to verify plan summaries. Health insurance companies may send out materials to their clients’ members, but these will not necessarily cover all of the information that ERISA requires.
Grandfathered health plans must comply as well as group health plans, with the exception of certain “excepted benefits.”
Claims, denials, appeals procedures
ERISA regulates timeframes that govern claims, denials, and appeals procedures for ERISA plans.
There are three claim types under ERISA and the claim type determines the timeframes for each of these processes, according to a DOL guide. Members may submit urgent care, pre-service, or post-service claims. The deadline for payers’ claim decisions can range from 72 hours to 30 days depending on the claim type. Plans can extend the timeframe under ERISA guidelines.
If a claim is denied, the plan must offer an overview of the review process and the reason behind the denial. The explanation should reference the plan provisions, describe the materials that were lacking and why they were needed (if applicable), explain or offer a statement upon request detailing the lack of medical necessity (if applicable), and remind claimants of their legal rights.
Members can request a free copy of the procedures and plans must comply. They can also appeal the health plan’s decision. As with the original claim decision, in the case of an appeal, the timeline for a review is subject to the claim type.
If a plan denies the appeal, it must send the member a notice explaining the decision. This notice shares some of the same requirements as the original denial notice, including a reminder of the claimant’s right to a judicial review.
The review process might vary depending on whether a plan is a self-funded plan, in which case it will typically adhere to DOL procedures, or a fully-insured plan, in which case state processes will apply. DOL has provided a fact sheet that dives into greater detail on these requirements.
Employers have various resources available to them to help ensure compliance. DOL has an online application that offers companies guidance on general ERISA-related topics as well as a self-compliance tool. However, none of these can replace legal counsel.
