United States: Compliance Checkup: Does Your Company's Retiree Medical Coverage Get A Passing Grade?

Last Updated: April 12 2014
Article by Erik D. Vogt

Does your company offer retiree medical coverage? This article highlights some of the common legal compliance issues we've noted recently when reviewing post-retirement medical coverage, and provides recommendations for dealing with these issues. This article is not intended to be a comprehensive checklist of every legal rule applicable to retiree medical plans.

The Spin-Off: Separate Plans for Retirees and Employees

Traditionally, employers offering retiree medical coverage provided this coverage through their active employee plan. The desirability of covering retirees and active employees under the same medical plan changed after enactment of the Affordable Care Act (ACA or ObamaCare). This is due to the fact that the ACA imposes various mandates, such as a ban on lifetime and annual dollar limits that are often incompatible with the retiree health care arrangements offered by many employers. Fortunately, these restrictions, including the ban on annual and lifetime dollar limits, do not apply to plans covering fewer than two participants who are current employees, such as a "stand-alone" retiree medical plan.

If your company's medical plan covers both active employees and retirees, but imposes annual or lifetime dollar limits on retiree coverage, we suggest that you "spin-off" the retiree medical coverage into a separate plan. To do so, you should create separate plan documents for active employees and retirees. This would include separate formal plan documents, separate summary plan descriptions (if applicable to your company), and depending on the number of plan participants involved, separate Form 5500s (if applicable to your company). In addition, if you fund your medical benefits through a trust, there should be separate sub-accounts for contributions made on behalf of retirees and active employees to avoid the possibility of intermingling funds between the plans.

Even if the coverage offered to retirees currently complies with the ACA mandates, you should keep this issue in mind if you modify benefits provided to retirees in the future. If your modifications would cause the coverage offered to retirees to fail to comply with the ACA mandates, then the retiree plan should be spun-off into a separate plan at that time, as described above.

Document Review: Does Your Insurance Policy Cover Retiree Medical Benefits or Are You Inadvertently Self-Insuring Retiree Medical Coverage?

Is your retiree medical coverage insured? If self-insured, do you have stop-loss insurance coverage limiting your liability for retiree medical claims? If you answer "yes" to either of these questions, then this section may be of particular relevance to you.

Many insurance policies limit coverage to employees. Stop-loss policies provide insurance protection for benefits provided by the underlying self-insured plan, which is often drafted to limit coverage to employees. By definition, retirees are not considered employees.

This is commonly overlooked by employers, who often provide retiree medical coverage to their retired employees, but forget to amend their insurance policies or their self-insured plan document to actually state that retirees are covered. This issue may result in liability if a retiree incurs significant medical claims. When an individual incurs large claims, an insurer is more likely to investigate to determine whether he or she is actually eligible for coverage under the policy/plan. If coverage under the policy/plan is limited to active employees, then the insurer may deny the claims (even if premiums have been paid for such coverage) and your company may be "on the hook" for the retiree's medical bills.

To avoid a situation in which you are inadvertently self-insuring retiree medical coverage, you should review any relevant insurance policies and the terms of your self-funded plan to confirm that the policy/plan covers retirees. You may also be required to obtain the consent of the insurance carrier to any such changes.

In Focus: Stand-Alone Health Reimbursement Arrangements After the ACA

Health reimbursement arrangements (HRAs) are utilized by employers to provide employees and/or retirees with a spending account to reimburse them for qualified medical expenses. HRAs are considered group health plans subject to the ACA mandates, including the ACA's prohibition against imposing lifetime and annual dollar limits on essential health benefits.

The prohibition against annual and lifetime limits effectively eliminates an employer's ability to offer a stand-alone HRA to active employees. However, as described above, a group health plan that covers solely retirees is not subject to the prohibition on annual and lifetime dollar limits.

Accordingly, employers may continue to offer stand-alone HRAs to retirees. To do so, we recommend having separate HRA plan documents and separate trust sub-accounts with respect to the HRA for current employees and the HRA for retirees, to help preserve the exception from the ACA mandates for the retiree-only HRA.

A Twist: Rehired Employees and Independent Contractors

As described above, certain ACA mandates, including the prohibition on annual and lifetime dollar limits, do not apply to retiree-only health plans. However, what happens when a retiree is rehired or when a retiree classified as an independent contractor is actually an employee?

If rehires are allowed to continue participation in the retiree health plan (including being allowed to receive reimbursement from a retiree HRA), the retiree plan may become subject to the requirements of the ACA (including the prohibition on annual and lifetime dollar limits).

We suggest carefully monitoring re-hires to ensure that coverage is not inadvertently provided to an active employee under the retiree plan. We'd also suggest reviewing the terms of the retiree plan and amending the plan as necessary to indicate that rehired employees are excluded from plan participation while an employee.

Another area of concern is independent contractor or consulting arrangements with retirees. These arrangements should be scrutinized to determine whether the individual is actually acting in an employee capacity, in which case covering such individual under the retiree medical plan may subject the plan to the ACA mandates.

The Checkup: Compliance Roadmap

(1) Does your company offer medical coverage to active employees and retirees under the same plan?

  • If Yes, does the coverage you offer to retirees impose any restrictions that would violate the ACA mandates (such as annual or lifetime dollar limits or limits on preventive care)?
    • If Yes, your company's retiree medical coverage does not comply with the ACA. The retiree medical coverage should be "spun off" into a separate plan, as described above.
    • If No, go to Question 2.
  • If No, go to Question 2.

(2) Is the coverage offered to retirees insured or, if self-insured, does your company have a stop-loss policy capping the company's liability for medical claims?

  • If Yes, does the insurance certificate or self-insured plan document indicate that retirees are eligible for the policy/plan?
    • If Yes, go to Question 3.
    • If No, revise the insurance policy or plan document (if permitted by the insurer) to indicate that retiree medical benefits are covered expenses. In any event, future policies should indicate that retiree medical benefits are covered expenses.
  • If No, go to Question 3.

(3) Does your company offer HRAs to retirees?

  • Yes, are retirees covered under the same HRA plan as active employees?
    • If Yes, the coverage offered to retirees does not comply with the ACA. You should "spin-off" the retiree HRAs into a separate plan.
    • If No, go to Question 4.
  • If No, go to Question 4.

(4) Does your stand-alone retiree medical plan exclude rehired employees?

  • If Yes, no action is required.
  • If No, we'd suggest amending your plan to specifically exclude rehired employees. This will reduce the likelihood of your retiree plan inadvertently becoming subject to the ACA mandates.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions