Insights

The $11,000 Per Day Liability, “Hidden” Inside Your Health Insurance
POSTED 9.20.17 Fiduciary, Insurance

If you’re offering health insurance to your employees, you may not know it, but there’s a “hidden” liability waiting inside your plan. It’s waiting for you, the fiduciary of the plan, to make a simple clerical mistake. When you do it will cost you $110 per day, per employee. For a 100-person firm, that’s $11,000 PER DAY!

I thought fiduciary duties only applied to retirement plans
Whether they know it or not, business owners who provide health insurance to their employees are recognized by the federal government as fiduciaries. That means there’s a specific, legally defined, standard of care you must apply towards your employees.

A fiduciary is a person or entity with the discretionary authority to control and manage the operation and administration of a benefit plan covered by the Employee Retirement Income Security Act, (ERISA).  Some think of ERISA in terms of retirement benefits (pensions and 401(k)s); however, ERISA also sets the minimum standard for conduct for fiduciaries of health plans.

Under ERISA, employers can be held liable for any mistakes in administration, documentation or compliance of their health plans.

What if we outsource the management of our health?
Unfortunately, you’re still on the hook, even when you outsource all these tasks to a health insurer or benefits management company.

You, not the outsourced provider, are viewed (and held responsible) as the fiduciary of the plan.

What’s the biggest source of liability?
Changes in health insurance are coming and employers who fail to communicate those changes to their employees (known as a Summary Plan Description or SPD) will be subject to fines by the DOL amounting to $110 per employee per day, for every day the SPD is delayed.

Health insurance premiums are high enough, so adding on the cost of fines and penalties related to these plans can literally put a company out of business.

How can I avoid fines and costs?
The challenge with the fiduciary rules is that they set a “standard of care.” And that standard is both situational (unique to each company and each plan) and open to interpretation. The easiest, and surest way to protect yourself personally, and protect your company is to purchase a Fiduciary Liability policy along with your health plan.

The Fiduciary Liability policies today provide you with legal defense costs coverage, investigations costs coverage as well as coverage for HHS and DOL fines and penalties – all of which are specifically excluded from most commercial insurance programs.

Unlike an ERISA bond or Employer Benefit Liability, Fiduciary Liability covers the legal defense to respond to a government action (including investigations) as well as reimbursing employers for corresponding fines and penalties.

Fiduciary liability insurance is cheap (compared to the potential risk)—just $2,000 to $3,000 for firms with under 200 employees.

The cost for Fiduciary Liability is negligible, and the benefits are enormous. The next time you speak with your health insurance representative, tell them you want to look at what it might cost to add Fiduciary Liability.  If they don’t offer it or simply don’t know where to turn, contact us at pstroth@rubiconins.com or call 650-931-2321 and we’ll help.