ERISA and ACA Compliance for Health Plan Sponsors
As an employer, you want to do the right thing for your workers. For your company, that may include providing access to a company sponsored health insurance plan since it provides a valuable benefit to your employees and makes your company an attractive employer. Since the implementation of the Affordable Care Act (ACA), depending on your company size, it may also be financially punishing if you don’t.
Sometimes, No Good Deed Goes Unpunished
Let’s create a scenario for our company president, Bob.
Being a responsible employer and all around good guy, Bob recognizes the need to provide his employees with a company sponsored health insurance plan. Bob makes a call to his local health agent or even goes on-line to the healthcare.gov website to get some health insurance quotes for his company. After the tedious underwriting and application process, Bob analyzes each plans affordability and coverage and selects a plan for his employees that he wants to go with. Next is the enrollment process and communicating the plan rules and coverage information to each of his employees. Bob doesn’t know much about the rules of the ACA or ERISA. Bob assumes his insurance carrier’ enrollment paperwork will communicate all the necessary details about health insurance plans. Bob thinks he is good to go.
Then one sunny day, Bob gets a letter from the US Department of Labor (DOL): It begins with “Dear Plan Administrator, our office has scheduled your company for an investigation. Please forward the following documents to our office.” Bob sees that the DOL wants him to provide a laundry list of items related to his company’s health and welfare benefit plans including:
• Plan documents
• Summary plan descriptions (SPDs)
• Summary of benefits and coverage (SBC)
• Contracts with all carriers
• Sample certificates of coverage under the Health Insurance Portability and Accountability Act (HIPAA)
• Copies of written procedures for enrollments
• Claims denials
• 5500 filings over the past four years
• A copy of the plans’ internal claims and appeals processes, etc.
Bob is overjoyed at getting this letter, so he promptly shares it with his HR staff (if he has one) and his health insurance broker. Bob’s team puts together the requested information but Bob has no clue that one of the major areas of interest to the DOL is whether the SPD and SBC contains the language required by ERISA and the ADA …after all, Bob assumes the insurance people handle all that stuff. That’s where Bob made a mistake. According to Tom Jacobs, (president of eflexgroup) writing in the NAPEO Insider magazine (June/July 2015).
“Most employers don’t realize that the plan documents, contracts, and SPDs provided by their health and welfare benefit carriers do not contain the requisite ERISA and ACA language. If they don’t, then your plans, and you, are out of compliance in the eyes of the DOL and IRS. Compliance penalties can be steep: $110 to $200 per participant per day, and additional penalties of up to $100 per day per participant by the IRS, including potential additional fines and civil liability. Most fines for non-compliance are not tax deductible.”
In the eyes of the DOL and IRS, Bob’s company is the plans sponsor and is therefore required to be ERISA and ACA compliant regarding employee communications. The insurance company is just Bob’s vendor. If the regulators decide to levy fines, Bob’s company will be on the hook.
Moral of the Story – Don’t Be That Guy – “Bob”
If Bob had joined a Professional Employer Organization (PEO) who also offered his company access to the PEO’s health insurance plan, then liability for DOL and IRS fines and penalties would be on the PEO, not on Bob’s company. However, if Bob had joined a PEO but elected to obtain his own insurance policy, the PEO should have reviewed and advised Bob regarding the HR best practices that would have avoided the non-compliance problems. Whether the PEO would be liable would depend on the language stipulations of the PEO/Client Customer Service Agreement (CSA). In either case joining a PEO could have saved Bob a mountain of grief.