Business of Well-being

The Reality of Health & Welfare Plan Audits

If you are like me, an HR Director, my email in box gets filled on a daily basis with newsletters and legal alerts notifying me of all the mandates, clarifications of the mandates and changes to the mandates, coming from Washington on the Affordable Care Act (ACA).

My head can spin as confusion sets in and I await the legal interpretations from our attorneys. These questions go through my mind as I go about my day handling my HR tasks including processing new hires, coordinating hourly staffing, processing leaves of absences and conducting benefit enrollments:

  • What do I need to do?
  • When do I need to do it?
  • What will my consequence be if I do not do it or if it is not done right?

The "what" and the "when" of what I need to do can get figured out. The consequences, however, are continuously on my mind and that of my colleagues because in our job we know that within the provisions of not only ACA, but the Employee Retirement Income Security Act of 1974 (ERISA), there are significant penalties for non-compliance and audits of health and welfare plans are on the rise to seek out these areas of non-compliance.

The Employee Benefits Security Administration (EBSA) has the authority over the nation's health plans. Covering over 2.4 million health plans, EBSA is making good on the 2012 direction of the Office of Inspector General to step up its exercising its audit authority. Estimating that about 3 out of every 4 health and welfare plans are out of compliance, through the Department of Labor (DOL) over 1,000 auditors have been added to the budget.

Why is Compliance of Health and Welfare Plans Such a Concern for EBSA?

It goes back to its history and a Studebaker car. Studebaker Automobile Company started in the automotive business in 1902. In 1963, the last car rolled off the assembly line. When it closed, its finances, including its pension plan, were in disarray.

Thousands of workers received lump sum payments worth a fraction of the pension benefits they'd earned over their careers. Thousands more received no pensions at all. The misfortunes of Studebaker's employees drew national attention to the importance of pension reform.

The government declared that without protection for pensions, workers risked losing the retirement benefits they'd earned through years of hard work. The solution was the enactment of ERISA.Throughout the years, ERISA has been amended to include not only the retirement needs but also the health care needs of employees and their families.

In general most health, dental, vision, death and disability plans are governed by ERISA. Even plans that you may not think of can be subject to ERISA, plans such as vacation, severance, holiday, scholarship funds, and prepaid legal services. In recent years, laws such as COBRA, HIPPA, Women's Health Care, GINA and others have been added to ERISA and the most recent ACA.

The Department of Labor (DOL) has the authority under EBSA to police or audit the health and welfare plans. They have the primary responsibility for reporting, disclosure and fiduciary responsibility. The IRS also has governing responsibility, but the DOL can even intervene in their matters if they materially affect the rights of participants.

The DOL takes their responsibility very seriously. Growing out of policing bad business practices that have gone on since the days of Studebaker, during economic downtowns that employers try to stay afloat and wanting to ensure that the working person and family is protected, the DOL pursues compliance audits through complaints being filed and during the natural course of their daily business practices.

Most recently, The Health Benefits Security Project (HBSP), ESBA's comprehensive national health enforcement project combines EBSA's established health plan enforcement initiatives with the new protections afforded by the Patient Protection and Affordable Care Act of 2010.

The HBSP involves a broad range of health care investigations, including examinations for compliance with ERISA Part 7 and ACA, civil and criminal investigations of multiple employer welfare arrangements (MEWAs), investigations of insurance companies and claim administrators to ensure that promised benefits are actually provided, and criminal investigations of fraudulent medical providers.

A typical DOL audit requests a wide variety of plan-related documents and examines compliance with a broad range of issues with a focus on those above mentioned sections of Part 7 of ERISA including Health Insurance Portability and Accountability Act (HIPAA) the Newborns' and Mothers' Health Protection Act, the Women's Health and Cancer Rights Act, the Mental Health Parity and Addiction Equity Act, and the Genetic Information Nondiscrimination Act. The HBSP investigations examine compliance with applicable provisions of the ACA, which includes:

  • Market reforms, patient protections, extension of dependent coverage, internal claims and appeals and external reviews and grandfathered health plans
  • The plan document may contain ERISA and ACA compliant language and procedures but operationally, the promised health benefits are not provided at all or not within the requirements of the law or the plan document
  • HBSP also focuses on plans' and claims administrators' failure to provide promised health benefits through a lack of disclosure or through the misapplication in substance or in procedure of the plan's terms

For the DOL, they have justified their non-compliance predictions. In FYs 2013-14, they closed over 7,600 investigations with 5,200 (69%) resulting in non-compliance monetary results for plans or other corrective action. From all non-compliance related activities, in FYs 2013-14 the DOL amassed over $2.5 billion in employer penalties.

Employers need to be mindful that no health and welfare plan is immune from the audit eyes of the Department of Labor. An employer should not assume that their insurance carrier, third-party administrators and other vendors that are supplying the documents, are supplying compliant documents.

Employers must be taking measures to be proactive in ensuring that not only do they have the required documents such as plan documents, summary plan descriptions, employee notices, but that these documents have the required components.

Additionally, they need to be ensured that claims are being paid in accordance with the plan documents. They should review if the policies and practices of the organization support the health and welfare laws including COBRA, HIPAA, FMLA and others. Their trusted benefits advisor can be there to support these activities and guide their company to compliance completeness.

Recommendations for Proactive Compliance

First, do not assume the documents that the administrators prepare meet the requirements. I recommend performing an audit to determine if any gaps exist in the documentation. Secondly, I suggest conducting an internal audit to verify that the plan is being administered according to the plan document.

Spot check claim payments, timely distribution of plan documents and required notices. Thirdly, consider conducting a mock DOL audit to determine, if the DOL is actually auditing your plans would they successfully pass the scrutiny of the auditor.If you are unable to perform the tasks yourself, seek out a qualified advisor to perform the services for you; seek advisors that have gone through an audit.

As the person responsible for the HR activities, you have the responsibility to proactively alert your company where the risks and exposures exist and what, if any financial penalties may come from it as well as make the necessary recommendations to limit the liability.

About the Author

Bobbi Kloss is the Human Resources Director for the Benefit Advisors Network (BAN), the premiere national network of independent benefit advisory and consulting firms. For more information or to contact the author, email or visit:

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