Issue Brief – Compliance Considerations When Moving from Fully-Insured to Self-Funded

Compliance Considerations When Moving from Fully-Insured to Self-Funded

Issue Date: May 2018

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When a plan moves from fully-insured to self-funded (also referred to as self-insured), most benefit compliance requirements (e.g., ERISA, COBRA, Section 125) apply in the same fashion. However, there are a few requirements specific to self-funded plans to keep in mind. These requirements are outlined below.

  • Changes in Funding and Administration
    • Obtain actuarial determinations to discern appropriate plan costs for budgeting, setting employee contributions, and setting COBRA premiums.
    • Select and contract with a stop-loss carrier.
    • Select and contract with an administrator to coordinate processing and paying claims.
    • Determine whether the plan will be unfunded (claims paid from employer’s general assets, not segregated) or funded; if funded, a trust is required, and additional reporting is required via Form 5500 (even if fewer than 100 participants), but very few employers other than public entities and union-based plans set up a funded plan.
    • May need to put additional auditing and accounting procedures in place since the employer funds the plan. A formal plan audit is generally not required unless the plan is funded.
  • PCORI Fees
    • The employer is responsible for reporting and paying PCORI fees for self-funded plans.
      • PCORI fees are reported and paid via Form 720 by July 31st of the year following the end of the plan year (also required for short plan years).
  • 105(h) Nondiscrimination Rules
    • Self-funded group health plans may not structure eligibility, benefit coverage, or contributions in a manner that discriminates in favor of highly compensated individuals. §105(h) does not require that all benefits be offered identically for all employees; rather, there are tests that must be run that restrict how much benefits can vary between classifications of employees.
  • Employer Reporting (Forms 1094 and 1095)
    • All employers who offer self-funded group health plans, regardless of size, must report coverage information for all individuals (including non-employees and dependents) who are covered under the self-funded plan.
      • Applicable large employers generally report coverage in Part III of Form 1095-C.
      • Small employers (fewer than 50 FTEs) report coverage on Form 1095-B.
  • HIPAA Privacy and Security
    • Employers likely face an increase in HIPAA compliance obligations because the employer will typically have more access to personal health information (PHI).
  • Plan Documents
    • The third-party administrator (TPA) may provide a “benefits booklet” or coverage certificate that describes benefits provided by the plan, but the plan sponsor is usually responsible for the plan document and a Summary Plan Description (SPD) for plans subject to ERISA.
  • Claims
    • Plan sponsors will have a choice of retaining claims determination authority or outsourcing to a TPA.
      • Claim determination authority should be clearly described in plan documents.
  • Fiduciary Responsibility
    • The plan administrator has a fiduciary duty to manage a self-funded plan in a manner that serves the best interests of the participants and the beneficiaries. This affects several facets of plan administration, ranging from handling of plan assets to selection of vendors.
    • Plan sponsors who convert to self-funded status should educate themselves about their fiduciary duties.

 This is a high-level review of compliance changes triggered by a move to a self-funded medical plan. We’re assuming employers who are contemplating a change like this have obtained appropriate consulting assistance for design and financial analysis.



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