Because access to non-emergency or elective medical services has been substantially curtailed due to COVID-19 stay at home orders, reducing insurance carriers’ claim expenses, some insurers have announced they would provide premium credits to employers sponsoring group dental and/or vision plans during the national emergency. While plan sponsors should consult with their legal counsel regarding how these premium reductions should be handled, we believe the best approach would be to treat them similarly to how Medical Loss Ratio (MLR) rebates are administered. In other words, in our opinion employers should share those rebates proportionally based on the ratio of premiums paid by the employer and employees. Our suggestion is based on the following considerations:
ERISA Plan Assets
Sponsors of ERISA health and welfare benefit plans need to take care to ensure that they do not inadvertently create plan assets that trigger a trust obligation. Participant contributions become plan assets as soon as the funds can be segregated from the employer’s general assets. However, there is limited relief from the trust requirement if funds withheld from employee paychecks are salary reduced on a pre-tax basis under the employer’s cafeteria plan and are used to pay premiums within 90 days of the date they are withheld from employees’ paychecks. Plan assets are created whenever this does not occur.
Once the determination has been made as to what should be done for active employees, there is still the question of COBRA participants to address. Under federal COBRA continuation rules (and mirroring continuation rules under the Public Health Services Act for public employers), plan sponsors may only charge COBRA qualified beneficiaries up to 102% of the billed premium for COBRA continuation coverage. If the premiums are reduced for certain months of the COBRA rate determination period, the plan administrator should also reduce the COBRA rate for the corresponding coverage months, to avoid over-charging COBRA qualified beneficiaries for their continuation coverage.
For active employees, if there is premium cost sharing between the employer and active employees, we feel that the best practice is to share in the savings with current participants based on their contribution strategy unless the plan sponsor has language in their plan documents and SPDs stipulating that they will retain any premium refunds or rebates. The credit could be shared with participants in the form of a premium holiday, additional pay or reduced payroll deductions – each of which will affect participants’ taxable earnings. If employers are adjusting payroll deductions, those maintaining Section 125 plans should ensure that their plan documents permit the employer to automatically adjust employees’ pre-tax elections when there is a premium change. Alternately, the funds might be used to enhance future non-taxable dental or vision benefits. If the plan is fully funded with employee contributions, because of this concern employers should pass through the savings in its entirety, while plan sponsors who have paid 100% of the premiums may retain any such credits.
In terms of COBRA participants, qualified beneficiaries should be informed of the temporary change in rates, and should receive the benefit of the reduced premium for the duration of the carrier credit.
Plan sponsors should consult with their legal advisors for specific recommendations on how to address these issues.
Please be advised that any and all information, comments, analysis, and/or recommendations set forth above relative to the possible impact of COVID-19 on potential insurance coverage or other policy implications are intended solely for informational purposes and should not be relied upon as legal or medical advice. As an insurance broker, we have no authority to make coverage decisions as that ability rests solely with the issuing carrier. Therefore, all claims should be submitted to the carrier for evaluation. The positions expressed herein are opinions only and are not to be construed as any form of guarantee or warranty. Finally, given the extremely dynamic and rapidly evolving COVID-19 situation, comments above do not take into account any applicable pending or future legislation introduced with the intent to override, alter or amend current policy language.
Interested in learning more? Connect with us today: