Compliance Tips for Employers Considering a Move to Self-Funded Major Medical 

By Stacey Stewart

Is self-funding your major medical starting to sound enticing? You’ve heard it might help you control plan cost and save money plus give you more flexibility in plan design. All good things! Just keep in mind that moving to self-funding also means taking on greater responsibility in most aspects of the plan, from compliance to plan operations and beyond. Here are some tips from a compliance perspective to help keep you on the straight and narrow. 

Ensure Your Stop-Loss Will Be There When You Need It

One of the first things that comes to mind when folks think about self-funding is…what happens if we have a really big claim or a bunch of claims that add up to more than we expected? That’s where stop-loss insurance comes in. It is designed to help you handle these budget-busting events. Most folks understand the importance of getting stop-loss – it’s a no brainer. But not everyone takes the time to review all the contracts and other documentation that comes along with it. 

If you want to ensure stop-loss is there when you need it, you need to carefully review the service agreement and other documentation so you understand your obligations and the provider’s expectations. For example, providers base stop-loss coverage on the terms of the major medical plan document, which tells them who is eligible for coverage, when benefits begin/end and what benefits are available. They may need other documentation to clarify coverage, such as your leave policy. If you do not timely provide these items or fail to keep them updated for plan changes, then stop-loss may deny claims based on their determination that an individual was ineligible for the coverage.

Set Yourself Up for Success…from a Fiduciary Duty and Fiduciary Liability Perspective

An ERISA-covered employer should always be mindful of fiduciary duties under ERISA. However, self-funding really “ups the ante” for compliance with fiduciary duties. For example, ERISA generally requires (among other things) that plan fiduciaries act prudently in hiring and monitoring plan providers and ensure fees are reasonable. 

One way you can set yourself up for success is by making sure your vendor agreements do not unduly restrict the ability to discharge fiduciary duties under ERISA. Carefully review and negotiate agreements with plan service providers to ensure they allow such access to data as is needed to monitor and evaluate the provider’s performance and fees. Pay special attention your ASO/TPA, stop-loss provider and pharmacy benefit manager agreements where the potential for this issue to arise is particularly high. 

Also, this might be a good time to consider adding fiduciary liability coverage. Fiduciary liability insurance can protect the plan fiduciaries if a breach of fiduciary duty occurs. This insurance differs from a fidelity bond which protects the plan (not the fiduciaries) against losses caused by acts of fraud or dishonesty. 

Be Prepared for Additional ACA Reporting Obligations

Small employers who are not applicable large employers (ALEs) under Affordable Care Act (ACA) rules need not worry about ACA reporting with a fully insured plan. That changes when you decide to self-fund the group health plan. Self-funded plan sponsors that are not ALEs must provide a Form 1095-B to plan participants every year and file a Form 1094-B with the IRS (along with copies of the 1095s). 

ALEs that sponsor self-funded health plans use IRS Forms 1095-C and 1094-C to report to plan participants and the IRS, respectively. While ALEs must report on these forms regardless of their health plan’s funding status, moving to self-funding means you now must include additional information about covered individuals in Part III of the 1095-C.

In any event, you want to think through the additional reporting obligations that arise in the move to self-funding. Take steps to ensure you can gather the information needed and complete the reporting in a timely fashion. That may mean you need to engage an ACA reporting vendor or find a workable ACA reporting solution. If you already have an ACA reporting vendor or other solution in place, you may need to reevaluate and perhaps change the arrangement. This can involve additional administrative time, fees and the like so it’s a good idea to start the process as early as possible.

Don’t Forget to Factor in PCORI Fees

Speaking of fees…self-funded health plan sponsors are subject to an additional fee used to fund the Patient Centered Outcomes Research Institute – referred to as a “PCORI fee.”  PCORI fees are generally based on the number of lives the plan covers, and there are different methods you can use to calculate the fee. It’s important to take the time to figure out which method produces the lowest fee as it can vary significantly based on calculation method. PCORI fees will cease to apply to plan years ending after September 30, 2029. 

Do these fees sound familiar? Perhaps you previously paid PCORI fees for an HRA offered with your fully insured plan. If so, never fear…the fee won’t double. If the HRA only covers folks in the self-funded major medical plan, then the PCORI fee is based on covered lives in that plan. However, if an HRA covers anyone outside of the major medical, then an additional PCORI fee applies for those lives.

Self-Funding Means Greater Obligations under HIPAA

The move to self-funding often significantly increases HIPAA privacy and security compliance obligations. This is because the carrier bears the HIPAA privacy responsibility for most fully insured plans. While all fully insured plans must comply with the HIPAA security rules, to do so is less burdensome for those plans with limited access to PHI.

Start by assessing your plan’s current compliance with these HIPAA rules to help you determine what additional action is needed to comply with the full range of HIPAA requirements for self-funded plans. Many plans will need, among other things, an updated security risk analysis and HIPAA privacy and security procedures as well as to develop and distribute a HIPAA notice of privacy practices and institute workforce training. Sound overwhelming? Don’t despair! There are plenty of vendors, law firms and other advisors who can help you bring your plan into compliance. 

Self-funding major medical comes with many advantages; however, don’t let the potential for dollar savings blind you to additional compliance obligations. Take the time to think through how the change affects compliance. Okay, maybe it’s not the most appealing part of the move, but just take it one step at a time and seek the help of your trusted advisors when you need it. You got this!