The Purchase of Stop-Loss From a Reinsurer Will Not Void ERISA Status
On September 25, 2007, a Federal District Court in New Jersey held in Mulholland v. UFCW Local 1776 Participating Employers Health and Welfare Fund, 2007 WL 2814648 (DNJ) that the purchase of stop loss insurance does not preclude self-funded ERISA status. The court went on to say that because self-funded plans can come close to becoming a fully insured plan, the question is not whether a self-funded plan has reinsurance, but rather, how high is their specific deductible. In other words, does the self-funded plan retain considerable risk of loss, or, does the Plan purchase an excessive amount of stop-loss insurance?
In Bill Gray Enterprises, Inc. Employee Health and Welfare Plan v. Gourley, 248 F.3d 206 (3d Cir.2001), the district court noted that “a self-funded ERISA plan may purchase such a large amount of stop-loss insurance that it appears as if the plan is no longer operating as a self-funded employee benefit plan.” The problem for the Plan in Mulholland was not the presence of stop loss insurance, but rather their plan administration. In that case, the reinsurer would issue stop loss payments as the provider bills came to the Plan. The Plan retained little risk in the process, and it seemed almost as if the reinsurer was paying the providers directly. It is important to always treat reinsurance as financial insurance for the Plan, not health insurance for the plan beneficiary. Reinsurance must not pay providers, nor may the reinsurance carrier make initial coverage decisions. It is only after the Plan pays claims that the Plan should seek reimbursement from their stop-loss carrier as the Plan must bear the initial risk of potential denial by the reinsurance carrier. As such, it will be protected by ERISA.
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