Identify Service Providers
Group health plans typically rely on a number of different third-party service providers to perform important administrative functions. Employers should identify the vendors who assist with the administration of their group health plans and specifically identify critical vendors, i.e., those vendors who, if unable to maintain current service delivery levels, would have a significant impact on plan participants and/or create potential liability for the employer, as well as those vendors who need to be prepared for a larger than normal demand for their services.
This list should include vendors who provide claims administration services, plan enrollment systems and call center services, Consolidated Omnibus Budget Reconciliation Act administration and leave administration services as well as providers of employee assistance programs, telehealth services, onsite clinics and short-term disability benefits.
Identify Services Provided
Employers should act quickly and diligently to determine what essential plan functions their benefit plan providers have assumed and consider the potential legal ramifications associated with the failure to fulfill certain functions. As an illustration, a COBRA administrator has presumably assumed responsibility to administer a plan’s COBRA obligations, including responsibility for meeting the deadlines associated with COBRA compliance.
For example, a plan must provide a COBRA-qualified beneficiary with an election notice within 14 days of receiving notice of a qualifying event. IRS penalties include fines of $100 a day, per beneficiary, for noncompliance. If the COBRA administrator has slowed or ceased operations as a result of COVID-19, how will the plan ensure that it complies with that deadline?
There are a number of other legally imposed deadlines related to group health plans, including but not limited to benefit enrollments, claims and appeals, and responses to requests for plan documentation/information. Employers need to carefully evaluate these requirements and work with service providers to determine how to maintain compliance with these deadlines.
In addition to confirming that service providers are prepared to maintain current service levels, employers should confirm that they are prepared to address higher than normal volumes of activity for those service providers where this is likely to be the case. For example, doctors’ offices may begin turning away patients due to increased demand for health care services. As a result, use of the plan’s telehealth services may increase. We may also see an increased reliance on telehealth services and/or employee assistance program services as employees and their dependents deal with increased stress levels in connection with COVID-19.
Force Majeure Provisions
Much has already been written regarding force majeure clauses in service provider contracts in light of the COVID-19 pandemic. Ultimately, a force majeure clause may excuse a health plan vendor from performance under a contract. The scope and application of the clause will depend on the specific terms of the contract.
Regardless of whether performance may be excused under the contract, the immediate task at hand is to (1) assess each vendor’s preparedness to continue and/or ramp up delivery of services and (2) begin to plan for alternative ways of delivering those services in the event such service providers are not prepared or cease to be able to provide those services at a later date. Employers should focus on the continued successful and compliant operation of their health and welfare benefit plans, irrespective of a vendor’s potential legal excuse for non-performance.
It is worth noting that many health plan service provider contracts tie pricing, rebates and/or credits to performance guarantees. While some performance guarantees and the amount of fees placed at risk for failing to meet certain performance levels are small, in some cases they have a meaningful impact on the overall projected and budgeted cost of the benefit plan.
Employers should review their contracts’ performance guarantees to determine how COVID-19 and its repercussions may impact those service level commitments and the financial penalties/credits associated with them. For example, if a pharmacy benefit manager contract conditions payment of 50% of its fees on a 20% reduction in claims cost, but such guarantee and resulting penalties/credits are overridden or nullified in the event of a force majeure, the employer may need to make adjustments to its initial cost projections and/or be prepared for costs in excess of what has been budgeted.
The extent to which a vendor has assumed fiduciary obligations under the Employee Retirement Income Security Act of 1974 will be governed by the contract. A vendor may assume no fiduciary obligation under ERISA or may assume only a limited-scope fiduciary obligation. For example, a third-party claims administrator may be delegated the fiduciary authority to determine claims for benefits under the plan but may not be a fiduciary with respect to other aspects of the plan’s administration.
Fiduciary obligations not explicitly delegated to and accepted by a third party remain with the plan administrator, which is typically the employer sponsoring the plan. Even if a vendor has assumed certain fiduciary responsibilities, the plan administrator retains the fiduciary duty to monitor plan service providers and to secure alternative resources that may be needed to ensure the benefit plan is operated in compliance with its terms and ERISA.
Employers must take immediate action (if they haven’t done so already) to ensure ongoing compliance with respect to their health and welfare benefit plans, which requires ensuring that critical service providers are prepared to deliver current and/or increased levels of services. Employers should proactively contact vendors and discuss their emergency and disaster recovery plans and what they are doing to ensure their ability to maintain operations.
For vendors that are likely to experience an increase in demand for their services, employers should also discuss the provider’s capability to ramp up operations. Employers should identify any potential gaps in essential plan services and formulate a plan of action for the worst-case scenario involving vendor(s) who are not able to perform essential functions or handle an increase in volume.
During this unprecedented global health crisis, it is critical that health plans are operating efficiently to adequately address the needs of covered employees and dependents. When the dust settles, employers will need to evaluate and/or reevaluate contractual provisions including force majeure provisions and performance guarantees.
Laura Ryan is a partner and Erin Shick is an associate at Thompson Hine LLP.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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