When employers opt for self-insurance in managing their group health plans (GHP), they inherently shoulder significant fiduciary responsibilities toward plan participants and beneficiaries. To mitigate fiduciary risk, plan sponsors commonly enlist insurance carriers as third-party administrators, leveraging their provider networks, administrative expertise, and cost-control practices.
While the traditional turn-key approach simplifies administration and provides a network of providers, it may also limit flexibility, hindering the implementation of third-party cost containment solutions not supported by the chosen carrier. In the era of technology-driven healthcare solutions disrupting traditional models, many plan sponsors are reconsidering this approach. However, before embracing change, sponsors must assess their readiness to navigate the fiduciary challenges associated with such a transition.
Understanding Plan Sponsor Basics
As organizations establishing GHP plans for their employees, plan sponsors must adhere to essential rules to fulfill their role responsibly. A valuable starting point is reviewing the U.S. Department of Labor’s publication, “Understanding Your Fiduciary Responsibilities Under A Group Health Plan.” This publication offers a simplified explanation of the Employee Retirement Income Security Act (ERISA), outlining fiduciary standards for non-governmental and church plans. The key responsibilities summarized in the publication include:
- Acting solely in the interest of plan participants and beneficiaries, with the exclusive purpose of providing benefits.
- Prudently carrying out duties.
- Following plan documents.
- Holding plan assets in trust (if any).
- Paying only reasonable plan expenses.
Plan sponsors, acting as named fiduciaries under ERISA section 402(a), are responsible for the design, implementation, amendment, and termination of the plan. While an insurance carrier may act as a third-party plan administrator for day-to-day operations, the plan sponsor continues to serve as the plan administrator, as defined by ERISA section 3(16).
Board Responsibilities and Oversight
The plan sponsor’s board holds the responsibility of providing direction, sound governance, fiduciary oversight, and strategic direction. The board’s composition and size depend on the plan’s nature, size, and complexity. Regular meetings are essential to oversee plan operations, ensure legal compliance, safeguard financial integrity, and establish anti-fraud measures. Advisors, including attorneys, plan actuaries, benefit consultants, and accountants, are often engaged to fill knowledge gaps or provide specialized skills.
Questions for Consideration
As plan sponsors contemplate moving away from turn-key approaches, they must assess how the plan’s complexity and operating environment may change. This ensures that the board and its advisors possess the necessary knowledge and skills to meet fiduciary responsibilities effectively. Considerations include:
- Board goals and how the current plan and operating environment align with short- and long-term objectives.
- Changes planned for the plan and its operating environment, evaluating whether costs outweigh benefits.
- Implementation timelines for proposed changes.
- Metrics for measuring success and required reporting.
- New duties and functions for the plan sponsor and their impact on internal and external resources.
- Changes needed in the board's oversight and monitoring to mitigate operational, regulatory, and vendor risks.
Proactive Planning Is Key
For plan sponsors considering a shift away from traditional turn-key approaches, proactive planning is the key to success. Evaluate your short- and long-term goals, understand the implications of changes to your plan, and ensure your board and advisors are equipped with the knowledge and skills necessary for effective fiduciary oversight. Successful implementation of change requires careful consideration, and engaging with experts in the field can provide valuable insights. Embrace the opportunity for improved healthcare outcomes and cost efficiencies by aligning your plan with innovative solutions. The time for careful planning and strategic action is now.