Due to the dramatic changes in health insurance coverage for small businesses from enactment of the Affordable Care Act (ACA), employers are looking for alternatives to traditional health insurance programs in an effort to save money. Employers have consistently tried to provide for their employees and there are different methods of providing employee benefit plans.

The most common form of employee benefit plans have been traditional health insurance, which are fully insured programs offered by many health insurance companies such as Blue Cross Blue Shield, UnitedHealth, Humana, Kaiser, etc. These programs offer a wide range of health insurance coverages that cover the broadest spectrum of illnesses and treatments, and are generally in compliance with the ACA. However, these often come at a significant cost to the employer. As a result, many employers are looking for alternatives to those fully insured programs in order to save costs, and many alternative programs either have been developed or are seeing a resurgence. Self-insured programs, level-funded programs, multiple employer trusts (METs) and multiple employer welfare arrangements (MEWAs) are all part of this landscape.

Swiss Re Corporate Solutions has received questions about whether or not our errors and omissions policy would respond to claims when agents work with employers who decide to place their health coverage with these alternative programs. Before we get to the answer, let's look at these terms:

• Fully Insured: An insurance plan that passes all of the risks associated with health care to insurance companies who receive a premium and pay covered claims for insured employees.
• Self-insured: An insurance plan where the employer essentially acts as the insurance company. In most instances, it is backed up by individual and/or aggregate stop-loss or excess insurance above a certain dollar amount. Any claims that exceed the "self-insured" amount are covered by the stop-loss or excess insurance. Many of these plans are administered by third party administrators (TPAs) who are paid by the employers to provide the administrative services to cover the premiums and claims. The TPA may be the insurance company who is providing the stop-loss or excess coverage. The employer can collect premium from their employees but at a much lower cost. These plans might be extremely risky for small employers, because they may not have the funds available to cover the costs of everyday or catastrophic health claims.
   
• Level Funding: This is a hybrid between fully insured and self-insured where the level or steady fee each month is determined by the TPA. Individual stop-loss will apply when an individual covered employee reaches a specified amount. Aggregate stop-loss applies when the claims for the entire pool of covered employees reaches a specified amount.
   
• Multiple Employer Trust (MET) and Multiple Employer Welfare Association (MEWA): These plans were developed due to an IRS code that allowed a minimum number of employers to pool their resources to provide health coverage for their employees outside of traditional health insurance plans. They limit the amount any single employer can contribute and allow all participating employers to share equally in the benefits. For purposes of the plan, all employees of all member employers are treated the same. Both METs and MEWAs are complicated and must follow very strict rules for their formation, funding and payment of benefits. METs and MEWAs that are qualified employee benefit plans are subject not only to ERISA under federal law, but are also subject to state regulation. Many are backed up by stop-loss insurance, but some are not.

Now, the question: Are placements of these types of employee benefits plans an included activity under the Swiss Re Corporate Solutions insurance agents' errors and omissions policy?

Answer: Yes! The Swiss Re Corporate Solutions E&O policy does not exclude insurance placements with self-insured plans, level-funding products, METs or MEWAs. Should any claims be made against an agent for "Wrongful Acts" related to "Professional Services" as defined in the policy under these products, they would be subject to all terms and conditions of the policy. Provided, however, the agent is not involved in the planning or design of the program.

However (and you knew there was a "however"), due to the nature of these products, a potential exposure to the agency would be the insolvency of the underlying programs and claims for that would be subject to the insolvency exclusion. However (yes, there's ANOTHER “however"), the exceptions within the insolvency exclusion would also apply if:

• The entity with whom the coverage is placed is rated B+ or better by A.M. Best;
• The entity is a member of the state guaranty fund in its state of domicile, or;
• The coverage is placed with a county mutual or fraternal organization reinsured by carriers rated B+ or better by A.M. Best (see the policy for complete terms).

The key for the agency is to take appropriate E&O risk management steps to ensure that agency customers are aware of the risks involved with these products and fully document the information provided to customers. These include, but are not limited to:

• Choosing products that are with reputable carriers and third party administrators.
• Explaining the difference between fully funded, self-insured, level-funded, or any other non-traditional type of health care coverage.
• Explaining the effect of conditions and treatments with catastrophic costs and high-risk plan members.  
• Explaining stop-loss insurance.

Whether or not any claim or potential claim is covered under our policy is dependent on the individual facts, circumstances and allegations made by a claimant in each claim situation. We cannot advise whether there will be coverage for a particular claim or potential claim until the claim or potential claim is presented to us. But if you follow these simple risk management steps, as the doctors say, "An ounce of prevention is worth a pound of cure."

This article is intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice. The views expressed in this article do not necessarily represent the views of the Swiss Re Group ("Swiss Re") and/or its subsidiaries and/or management and/or shareholders. 

*Richard F. Lund, JD, is a Vice President and Senior Underwriter of Swiss Re Corporate Solutions, underwriting insurance agents errors and omissions coverage. He has also been an insurance agents E&O claims counsel and has written and presented numerous E&O risk management/ loss control seminars, mock trials and articles nationwide since 1992.

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