A group health plan is an employee welfare benefit plan established or maintained by an employer or by an employee organization (such as a union), that provides medical care for participants or their dependents directly or through insurance, reimbursement, or otherwise. Employers that offer health insurance benefits can either purchase health insurance from an insurance company (fully insured plans), or provide health benefits directly to employees (self-insured plans).
As plan sponsors seek to reduce health care costs, hospital systems in particular have increasingly looked to their own claims administrator, network of health care providers, and facilities as a way to reduce expenses. This use of affiliates in the provision of health care to employees was encouraged by the Affordable Care Act, which endorsed the creation of coordinated care efforts to both improve care and reduce costs. Where successful, both the plan and the plan sponsor share in the cost savings. These arrangements include Accountable Care Organizations (ACOs) under Medicare, Shared Savings Arrangements (SSAs) for non-Medicare plans, and other arrangements involving a plan and parties affiliated with the plan sponsor.
Retaining an affiliated party to provide services to an employee benefit plan raises potential prohibited transaction and self-dealing concerns under ERISA. These issues revolve mainly around parties affiliated with the hospitals providing services to these plans for a fee or other benefit. The Department of Labor (DOL) has not provided clear guidance to hospital systems using or seeking to use affiliates to provide services to medical plans, and the limited guidance that does exist is in the form of individual prohibited transaction exemptions that apply only to specific in-house providers. While these exemptions provide insight into the DOL’s perspective, they do not provide relief for any other parties. In addition, DOL officials under the Trump administration have stated that they are focusing investigatory resources on group health plan payments and reimbursements to plan sponsors. Given the limited guidance and renewed regulatory focus, hospital systems and their advisors have become increasingly aware of and attentive to the risks associated with affiliates providing services to group health plans.
Whether or not a plan sponsor and its advisors decide to seek an individual prohibited transaction exemption, sponsors may wish to engage in additional due diligence to support the reasonableness of any health and welfare plan arrangement involving an affiliated party. Such due diligence may involve retaining an advisor to review the arrangement, or addressing potential conflicts of interest by delegating fiduciary responsibility to an independent third party. Issues considered can include, among other things, the use of (and any payments to) affiliated third party administrators, the retention of an affiliated insurance broker, the reimbursement of direct expenses, and the structure and use of affiliated provider networks. Plan fiduciaries should remain vigilant in representing the interests of plan participants and beneficiaries and managing the risks associated with affiliated health care arrangements. Properly structured and administrated, these arrangements offer the potential for significant cost savings for both plan sponsors and group health plan participants.
To download a copy of this article click here
Newport Group and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before making any decisions. 690123 (12/2018)