ERISA: The Safe Health Insurance Plan

By Alex Tate, Health IT Consultant, CureMD
Twitter: @CureMD
Twitter: @alextate07

A great source of confusion in dealing with health plans, health insurance plans, is that some of them are not really insurance. They are what are referred to as self-insured, or ERISA plans. These plans are most often run by the insurance companies that you have come to know, but they operate not under state regulation, as state licensed insurance plans do, but under provisions of the Federal ERISA law. ERISA – Employee Retirement Income Security Act of 1974. ERISA, which was created to protect employee pension plans, provide provisions that large employers and union benefit plans have used to create health benefit plans, which are funded by payment of the medical claims, not by premiums, which fund insurance. Insurance, premiums go into a pool, and payments flow out as bills come in, the financial risk is actually on the insurance company if the pool runs dry. With self-insured plans, the money comes in payments from the employer, and sometimes employee contributions, flowing out as claims come in, but if the pool runs into trouble, more claims than money, the risk for funding it is the employers. Without getting too complicated, most large employers re-insure, that is what is known as stop loss coverage against large claims.

Employers and unions self-insuring, often contract with established insurance companies to operate the plan, provide access to a network of physicians and other providers, process claims, and provide customer service. To the enrollee, and the physician, it appears that the health benefits are the insurance company administering the account. The usual hit is that one the explanation of benefits (EOB) there is a name of the actual responsible party, the name of the employer or union. Rarely will you know if the patient has a self-insurance plan on their identification card.

ERISA is Federal Law, not state law, and Federal trumps state for applicability when it comes to health benefits, so an ERISA plan does not have to follow state regulations, such as prompt pay rules, or even state mandated benefits. Oddly, ERISA allows employers that self-insure to design their own benefit plans that might not provide the usual and expected coverage. An actual example, a union trust plan chooses not to provide coverage for pediatric immunizations.

ERISA plans have been growing, as employers have been trying to blunt the cost of health insurance. If the demographic mix of their employees looks better than the general population, then many are taking the risk of self-insuring, believing that the cost of actual claims would be lower than the insurance premiums, and often they are correct.

Reduce your risk of bad receivables
For practices, self-insured plans, again, often masked by ID cards and other administrative rules by being operated by insurance companies, reinforces the need to verify benefits at each patient visit. ERISA plans actually have the right to change their benefit packages at any time, not just annually, so relying on what the patient had for coverage at last visit might not be accurate information.

Additionally, because ERISA plans are not obligated to follow state payment regulations, such as prompt pay, there is a greater risk to your cash flow. However, if a plan is administered by a licensed insurance company, even if the plan is not subject to prompt pay, you can, and should follow the prompt pay rules and file against the insurer who is administering the plan if payments lag. It tends to get the administers attention, as they do not want negative attention from the regulator that holds their license.

Practices have been known to be stuck when a self-insured plan runs into cash flow problems. The State if Illinois for a period of time, severely behind in funding their employee health benefit plan, this left many practices holding payables, unpaid. Cigna, their administrator was not taking the risk or their cash to advance payment, sending letters out assuring that claims would be paid, when cash was available from that state. Such a risk can be mitigated by taking contingent credit cards, and then using them to charge for the services if payments are not made within the state time frame. Of course, the patient will complain, and you should use that complaint to activate them to pursue payment of your claim from the plan. Most want to keep their cash flow issues from impacting the employees, so employee complaints of being impacted by a slowdown of payment often rises your claim to the top of the pile.

You can not exclude self-insurance business under your contracts with commercial payers. That contract that you signed for participation has little provisions that bind you to their insured products, as well as the self-insured products. Therefore, a bit deeper understanding of self-insurance, and how to identify it can go towards your practices’ cash flow.