Fiduciary Responsibility and You: Self Funded? You’re on the Hook!
Cypress University 2017: Fiduciary Responsibility and You: Self Funded? You're on the Hook!
Tim Callendar: VP of Sales, The Phia Group
By offering a self-funded plan, you are agreeing to be subject to and regulated by ERISA, the Federal law that makes the rules on how such plans are set up and administered. We all know the benefits of self-funding; what many don’t know is that offering a self-funded plan makes the Plan Administrator (the employer) the fiduciary of the plan. What does that mean? For one thing, it means that if a violation of ERISA occurs, knowingly or unwittingly, the employer, including the owner(s) of the company, are legally responsible for all damages that occur in the event of a lawsuit. And that includes both civil and criminal penalties – that means personal financial responsibility and, in the extreme, jail time. Tim Callendar, attorney and Vice President of Sales for our old friends The Phia Group, has a solution that you will be quite interested in learning about. So listen to Tim and learn how to protect yourself against what may be a catastrophic situation.
First held in 2012, Cypress University has evolved into a highly anticipated annual conference that focuses on cost containment strategies for self-funding. It features presentations and panels on the latest topics in employee benefits and explores ways to keep health plan costs in check.
What does fiduciary duty mean in a self-funded plan?
The idea of fiduciary duty means that you have a duty to all of the plan members to spend, or not spend, plan dollars appropriately. It’s meant to ensure that the individuals in charge of the plan are always acting in the best interest of every plan member.
Fully insured vs ASO self-insured vs ‘pure’ TPA self-insured
In a fully-insured model, the carrier is the fiduciary. You simply pay the money, and the carrier bears all the responsibility. This applies no matter what happens with the claims – the carrier is always responsible.
In the ASO model, things get a little more complicated.
The carrier will likely say that they bear fiduciary responsibility, but that’s not entirely true. Often, the carrier will only serve as the fiduciary up to a certain point – that point is second-level appeals. This detail is often lost when a new group is setting up their plan with the carrier.
Plenty of brokers have placed business on the ASO model, only to get a phone call from an account manager at the carrier saying to loop the group in because a claim has reached second-level appeal. Obviously, this is frustrating for both the broker and the group.
Why? The group shouldn’t have to decide whether or not something was medically necessary in a claim. Not only is it inappropriate, and the group is probably breaching their fiduciary responsibility even having that conversation, but the decision-makers at the employer have a personal interest in the claim because they know the patient. Maybe they pay the claim because they want to take care of their friend, who would otherwise have to pay a lot of money out of pocket. however, in doing so they may be breaching their fiduciary duty.
In a ‘pure’ TPA self-insured model, the Plan is typically serves as the fiduciary.
This same thing can happen in the TPA world. Your TPA can handle adjudication and first-level appeals, but if a claim reaches the second-level appeal, they realize that an objective third party should probably be consulted. That decision shouldn’t be on the group – you don’t want the fiduciary liability to be put on your shoulders.
What’s the solution? Transfer the fiduciary liability to a third party. It’s always safer to ask an expert for their input on a complicated claim appeal. No matter who you work with, you need to make sure to get objective and accurate interpretation of the plan document.
This is, by far, the most important item to concentrate on when it comes to fiduciary liability. In claims with strangely-worded exclusions and difficult medical necessity issues, it’s never a bad thing to bounce it off of an objective third party to make sure the plan document is being interpreted correctly.
If you do this, you’re one step closer to making sure you’re staying within your fiduciary responsibility. You’re also making sure you won’t pay claims that you shouldn’t pay, therefore saving more money for the plan.
Fiduciary liability is real, and everyone who participates in self funding needs to think about it. Penalties, fines, even prison are possible for people who may not expect it. Those lines of liability are getting blurred and heading into the consultant world and the tpa world. Start thinking about objective, accurate interpretation of the plan document, and consulting with an expert to make sure you’re safe and your fiduciary duty is fulfilled. This will help your plan succeed, help control costs, and help you do right by your members.