Do you offer health benefits to your employees? In this article coauthored by Capitol Hill insider Chris Condeluci and Benefitfocus’ Vice President of Health Informatics, Traci McGinnis, you'll learn about health plan sponsors' ERISA fiduciary responsibilities.
Sponsoring a health plan and offering quality health benefits to your employees is one way to help attract and retain talented workers. The commitment, however, comes with responsibilities. The responsibilities that we are referring to are “fiduciary responsibilities” under a Federal law called ERISA.
As a health plan-sponsor you are considered an ERISA fiduciary.
As an ERISA fiduciary, you are subject to ERISA’s fiduciary responsibilities.
ERISA’s fiduciary responsibilities are legal obligations requiring a health plan-sponsor to “act in the best interests” of its employees, make “prudent” decisions, and continually “monitor” the entities hired to provide services to the health plan to make sure that these entities are doing what they were hired to do.
The best way to satisfy these legal obligations is to create a strategic plan for fulfilling your ERISA fiduciary responsibilities.
Developing and executing on this strategic plan is intended to help you remain compliant with the law. It will help your efforts to control the cost of health care, manage risk, root out fraudulent and wasteful spending, and develop benefit offerings with the potential to improve the health and financial security of your employees.
You may obtain support, direction and suggestions from a broker, benefit consultant or any other service provider that assists in the delivery of health benefits. Indeed, these relationships are crucial to effectively managing a successful benefits program. But you are the ultimate decision-maker, and it’s up to you to satisfy your ERISA fiduciary responsibilities.
What Does It Mean to Be an ERISA Fiduciary?
“Acting In the Best Interests”
As a health plan-sponsor – and an ERISA fiduciary – you must “act for the exclusive purpose of providing benefits to plan participants,” which is often characterized as requiring the fiduciary to “act in the best interests” of those employees and their family members covered under the health plan.
Examples of “acting in the best interests” range from deciding what benefits and services the plan should cover (and not cover) to covering benefits and services that will improve the health and financial security of the plan participants. Other examples of “acting in the best interests” range from avoiding contracts that charge the plan unreasonable or excessive fees and not entering into agreements that force the plan and its participants to over-pay for covered benefits.
“Prudence”
As a health plan-sponsor – and an ERISA fiduciary – you must make all plan-related decisions “prudently.” In other words, you must make decisions in a way that shows care and thought for the outcome, and your decisions must be reasonable and consistent with what other health plan-sponsors in the same situation would do.
Showing that you acted “prudently” can be accomplished by developing a “process” that (1) justifies your decision-making and (2) creates a record that tangibly illustrates that you spent the requisite time and effort thinking about the decisions you made. As discussed below, this type of decision-making can best be made through the creation of a “Fiduciary Committee” which will also help you document the “process” you went through to ultimately make plan-related decisions.
“Monitoring”
As a health plan-sponsor – and an ERISA fiduciary – you must also continually monitor ALL of the entities you hired to provide services to your health plan. As stated above, this “monitoring” includes making sure that these entities are doing what you hired them to do. This also includes monitoring your broker and benefit consultants to make sure that they do not have a conflict of interest with any other entities you hire to provide services to the plan. This also includes monitoring your PBM, the entity that “rents” their provider network to the plan, and the TPA that processes and maintains your plan’s health claims to make sure they are not over-charging the plan for covered benefits, not over-paying providers in the plan’s network, and not restricting your ability to access the plan’s health claims data.
Such monitoring also requires ongoing determinations that the fees charged to the plan are reasonable (and not excessive) and the receipt of a compensation disclosure from brokers, benefit consultants, your PBM, and TPAs providing specified services to the plan (known as a “408(b)(2)(B) compensation disclosure”).
What Can You Do to Satisfy Your ERISA Fiduciary Responsibilities?
Understanding your ERISA fiduciary responsibilities – and then actually satisfying these fiduciary responsibilities – are two very different things. Here are some best practices to consider following to help satisfy your fiduciary responsibilities:
Setting Yourself Up for Success: As noted above, a helpful step in satisfying your fiduciary responsibilities is establishing a “Fiduciary Committee.” Here, the Fiduciary Committee can help you outline roles and responsibilities, develop a governance model to help you stay compliant with the law and ensure effective plan administration, and document processes for filing reports and regularly reviewing agreements related to your health plan. In addition, your Fiduciary Committee should develop a plan for monitoring plan service providers to ensure they are fulfilling their contractual obligations.
If you follow these best practices, you can likely feel confident during the procurement, RFP, and contracting stages. Moving forward, managing your fiduciary responsibilities becomes much easier because you’ve set yourself up for success from the start, not to mention that you can tangibly show that you are acting “prudently.”
Review: You and your health plan will enter into agreements with brokers, benefit consultants, your PBM, the entity “renting” the provider network to your plan, and your TPAs. Your Fiduciary Committee (with the assistance of legal counsel/ERISA attorney) must review these agreements for accuracy, and to make sure that, for example, you are not contracting away your right to routinely “audit” these service providers and that you have strong indemnification language. Your Fiduciary Committee (with the assistance of legal counsel/ERISA attorney) must also review these agreements to make sure that you have access to a complete and accurate set of health claims data and that there are no “gag clauses” restricting your ability to access health claims and other plan data.
If you follow these best practices, you will put yourself in the best position to satisfy your fiduciary responsibility to “monitor,” and you will be able to continually analyze health plan costs and claims utilization, which will allow you to better understand how you can keep health plan costs low, thus satisfying your duty to “act in the best interests.”
Stay Informed: Because the law is constantly evolving in the health benefits space, an important component of meeting your fiduciary responsibilities involves keeping up with legal changes. For example, you should continually monitor litigation like recent lawsuits filed by employee-participants against health plan sponsors, lawsuits filed by health plan sponsors against their service providers, and any lawsuits filed by the Federal government against plan service providers. In addition, Congress will likely be considering legislation to improve and expand upon existing price transparency requirements (which have become a central issue in benefits management) and requirements that will give health plan sponsors access to their plan’s health claims data (which will allow plan sponsors to adequately “monitor” their service providers in the manner discussed above). The next Administration may also develop new guidance and regulations that will expand and improve on price transparency and data-sharing.
Staying informed on the legal and legislative/regulatory-front will help you make “prudent” decisions, which will help you “act in the best interests,” and as stated, will help you satisfy your duty to “monitor” service providers.
Prioritizing Your Fiduciary Responsibilities for Long-Term Success
Fulfilling your fiduciary responsibilities is not just a legal requirement, it’s the cornerstone of a successful benefits program. By implementing robust governance, maintaining diligent oversight of your service providers, and staying informed about legal and legislative/regulatory changes, you can protect both your organization and your employees. Prioritizing these practices not only mitigates risk but also ensures that the benefits you offer truly serve the best interests of your workforce, fostering trust and long-term success.
See our health care sponsor fiduciary responsibilities checklist.
The information provided does not, and is not intended to, constitute legal advice; instead, all information and content herein is provided for general informational purposes only and may not constitute the most up-to-date legal or other information. Benefitfocus does not act in a fiduciary capacity in providing products or services; any such fiduciary capacity is explicitly disclaimed. This summary is provided by a consultant to Benefitfocus.com, Inc., and any opinions expressed within do not necessarily reflect those of Benefitfocus.com, Inc. or its affiliates and are not intended to provide specific advice or recommendations for any plan or individual.
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