Health Plans – A Pain to Administer But Appreciated by Employees

Administering health plans is not the easiest task.  Such plans are subject to an alphabet soup of laws, including but not limited to ERISA, the Internal Revenue Code, COBRA, HIPAA, GINA, Mental Health Parity, the ADA, the ADEA, and Title VII.  However, a November 2017 American Benefits Council survey may make employers feel better about the time, energy, and resources they spend administering their health plans.

The November 2017 survey shows that employees prefer high quality benefit programs over additional pay by a nearly 2‑to‑1 margin.  This is surprising because many people assume “cash-is-king.”  The survey demonstrates otherwise and highlights how important employer-provided health benefits are to employees.  The survey also shows that employees most often trust their employers to provide high quality health coverage over federal and state governments.

Even though health plans can be difficult to administer, the survey indicates employees really do appreciate these benefits.  Accordingly, as employers read the following list of common mistakes, they should remind themselves of how valuable health benefits are to their employees.

1. No written plan document or SPD.  Health plans subject to ERISA are required to have a written plan document and a summary plan description.  Employers seem to be much better at complying with this requirement for pension and 401(k) plans.  Employers may want to consider making sure their health plan documents are up-to-date.
2. Not timely distributing summaries of benefits and coverage (“SBC”).  The Affordable Care Act (“ACA”) requires group health plans to distribute SBCs at various times.  One of the most important times SBCs are required to be distributed is at open enrollment so employees may easily compare the health plan offerings available to them.  Unfortunately, insurers and TPAs often do not finalize the SBCs in time to go out with open enrollment materials.
3. Not fully complying with HIPAA privacy and security rules.  The HIPAA privacy and security rules are incredibly complex.  The first step employers may want to consider in complying is figuring out which of the employer’s health plans are subject to HIPAA, and to what extent.  For example, even an employee assistance program that is an ACA “excepted benefit” may be subject to HIPAA.  The next step employers may want to consider is adopting appropriate HIPAA health plan amendments and then consider doing everything else that is required, such as:  (1) distributing HIPAA privacy notices; (2) adopting HIPAA policies and procedures; (3) implementing a security management process (e.g., risk analysis and management); (4) training your workforce on the various HIPAA requirements; and (5) adopting appropriate business associate agreements.  And then, of course, employers are required to periodically revisit these requirements, especially as technology and workforce changes occur.
4. Retroactively cancelling health care coverage and not following ACA rescission rules.  ACA includes a rule that prohibits employers from retroactively cancelling health coverage except in limited situations, such as failure to pay premiums, or fraud or intentional misrepresentation of material fact.  If an employer intends to retroactively terminate health coverage, it may want to consider complying with the ACA rescission rules.  One of the oddest rescission rules is that a participant must be given a 30-day advance notice of a retroactive rescission.  If at the end of 30 days the decision to retroactively terminate coverage has not been reversed, coverage can then be retroactively terminated.  Many employers do not understand these rules, and they are not routinely followed.
5. Not sending COBRA initial or election notices.  Recent court cases highlight how important it is to timely distribute COBRA initial and election notices.  If an employee is not given an initial COBRA notice, the employee can later argue that he or she was not aware of a requirement to notify the plan of coverage termination events, such as a divorce or a child turning age 26.  Similarly, if a plan does not provide a timely COBRA election notice, a qualified beneficiary might argue many months down the road that he or she is entitled to retroactive COBRA benefits.  Insurers and stop-loss carriers often will not insure COBRA benefits if an employer does not fully comply with all COBRA notice and timing rules.  In such cases, employers may have to self-fund COBRA benefits.
6. Failure to perform nondiscriminatory testing.  Many health plans fail to perform nondiscrimination testing.  Employers are usually fairly good about performing required testing for their pension plans and their 401(k) plans.  However, many employers fail to realize that similar rules apply to health plans.  For example, a self-funded health plan may be subject to not only Section 105(h) of the Internal Revenue Code, but it may also be subject to cafeteria plan nondiscrimination rules under Code Section 125.  The testing rules for health plans have not been updated in a very long time, and the rules often do not reflect what is going on in the health plan world.  However, that doesn’t mean the rules do not apply.

Employers may want to consider routinely reviewing their health plans to make sure they comply with all applicable laws, not just those listed above.  Failure to comply can result in penalties, excise taxes, taxation of benefits, and various other adverse consequences.