Compliance Considerations for Self-Funded Health Plans
In general, self-funded plans give employers more flexibility to design employee benefit plans. Additionally, employers have more control over how the plan is administered. Increased administration and design control can result in significant reduction in costs. However, employers should be aware of increased compliance investment needed for self-funded plans.
The following are important compliance issues that employers should discuss with their employee benefits consultant before switching from a fully-insured to a self-funded plan:
Service Provider Agreements
The employer/plan sponsor should have a contract with the service provider that clearly allocates responsibilities between the plan sponsor and the service provider. Some typical provisions in the agreement are: compensation, fiduciary status, indemnification, subcontracting, contract termination, responsibility for claims and appeals, HIPAA, COBRA administration, and record retention.
Monitoring of Service Providers
Employer/plan sponsors must regularly monitor the performance of service providers. For example, plan sponsors should consider setting performance standards, retain the right to audit the service provider, and establish the timing and content of reports at regular intervals or upon request.
HIPAA Privacy, Security, Breach Notification, and EDI Compliance.
A self-funded plans bring greater responsibility for HIPAA privacy and security compliance. For example, the employer/plan sponsor will need to designate a privacy officer, establish policies and procedures, provide HIPAA training for staff who have access to protected health information.
Determine Cost-Sharing and Contribution Strategy
The cost-sharing design of employer and employee contributions can raise compliance issues with respect to:
- Grandfathered plan status
- ACA requirements for out-of-pocket maximums and “minimum value” and affordability
- Surcharges for spousal coverage
Self-funded plans are subject to nondiscrimination requirements that don’t apply to fully-insured plans. Confirm that the intended plan design does not discriminate in favor of highly compensated individuals with respect to eligibility or benefits.
Code 213(d) Medical Expense Exclusion
Employers sometimes switch to a self-funded model so that they have more flexibility in plan design. However, if a plan covers expenses that do not qualify as Code §213(d) medical expenses, there will be adverse tax consequences.
Self-funded plans are also subject to most of the requirements that apply to fully-insured plans, including written plan documents, 5500 reporting, SPDs, SBCs, and other employee communications. If you are considering a self-funded arrangement, reach out to your Northwestern Benefits Consultant for more information.