These days, when someone mentions the words “health insurance,” the attention is generally focused on the Patient Protection and Affordable Care Act (PPACA).
However, regardless of what the Supreme Court decides about PPACA, there are a number of health plan compliance requirements currently in place under the Employee Retirement Income Security Act of 1974 (ERISA) that all plan sponsors should be aware of and that require action.
Compliance failures can include employer liability for (i) excise taxes, (ii) civil monetary penalties, (iii) criminal penalties, (iv) private legal actions and (v) government audits. The following are a few of the existing ERISA compliance hurdles for health plans that must be addressed by plan sponsors.
Make sure your plan sponsor clients who are eager to wax eloquently about PPACA have first given some thought to ERISA.
(1) Plan Documents
ERISA requires that every health plan be established and maintained “pursuant to a written instrument” These instruments are the plan document and summary plan description (SPD) (a brief and easy-to-understand summary of the terms of the underlying plan). A written plan document is required so that every employee can examine the document and determine exactly what his or her rights and obligations are under the terms of the plan. Here’s where a lot of organizations get tripped up – documents provided by insurance carriers usually lack the necessary provisions to meet the minimum requirements under ERISA.
One way for employers to deal with the plan document requirement is to adopt a “wrap plan.” A “wrap” plan document is simply a document that wraps around, and incorporates by reference, the contracts or booklets provided by insurance carriers for all of the benefits provided by the employer. It also includes additional required information typically not explained in carrier booklets.
It is not enough to simply have these documents drafted only to be kept in a drawer; the documents must be updated when the terms of the health plan change and the SPD must be distributed to each individual who is eligible for benefits under the terms of the plan. In fact, the employer may be penalized $110 per day if it does not provide an SPD within 30 days after a plan participant’s written request.
Even if an SPD is not requested by the participant, the document is required to be provided at certain times in the plan participant’s time with the company. For a newly covered participant, an SPD must be automatically provided within 90 days after the participant first becomes covered under the plan. For newly established plans, an SPD must be automatically furnished within 120 days.
In addition, an updated SPD must be automatically furnished at least every five years if there have been any material changes made within that five-year period. The updated SPD must be furnished no later than 210 days (7 months) following the last day of the fifth plan year after a material change would have been reflected in the most recently distributed SPD. Finally, even if no material changes were made during the immediately preceding 10-year period, a copy of the most recently distributed SPD must be furnished by the plan administrator within 210 days ( 7 months) following the last day of the tenth plan year after a material change would have been reflected in the most recently distributed SPD.