Under the Employee Retirement Income Security Act (ERISA), employers must provide a plan document and SPD for their health insurance plans. Despite these requirements, employers may simply have a certificate of coverage—written by the insurance carrier—rather than an actual SPD, Richard Schwartz, partner at Seyfarth Shaw’s Employee Benefits & Executive Compensation department, said during the firm’s health care event, “Provide Health Coverage or Pay a Tax Penalty: What Employers Need to Know About Health Care Reform.”
The certificate of coverage from the insurance company satisfies insurance laws, but is not always drafted with ERISA in mind, he said. Beyond ERISA requirements, these documents sometimes fail to contain language that is protective of employers, he added.
“There’s some exposure out there, if upon audit the DOL asks [an employer] for their SPD,” Schwartz told PLANSPONSOR.
The employer could also run into trouble if an employee asks for an SPD that does not exist. The worst-case scenario would be if a claim goes to litigation and the employer cannot provide an SPD, he warned.
There are two kinds of risk, Schwartz explained: The risk of a problem arising, and your exposure should it arise. “Sometimes you can’t mitigate the risk of something happening,” he said, but you can be prepared if it does.
When preparing or reviewing SPDs, Seyfarth Shaw said plan sponsors should:
- Review the insurance certificates and make sure their understanding of the program is the same as the insurer’s or third-party administrator’s (TPA’s) understanding of it;
- Identify any substantive or legal provisions that are missing or inadequate;
- Identify any desirable or protective language that is missing or inadequate; and,
- Ask the insurer or TPA if they will correct any inadequate provisions or add any “missing” provisions.
Plan sponsors that do not have actual SPD documents for their health care plans can contact their ERISA attorneys. “This is an extremely important subject,” Schwartz concluded.