The Importance of Wrap Documents

Jennifer Agnello

Jennifer Agnello | President

Are you looking to provide even more value for your group clients?

By now most of you are familiar with a Summary Plan Description (SPD) issued for your clients’ medical plan. The SPD is one of the most important documents participants are entitled to automatically receive. This document must be provided and maintained by the plan administrator (typically the employer) and should be distributed automatically to all plan participants no later than 30 days after a written request. It outlines specific details of the health plan, such as a description of the employee benefits that are covered through the plan, participation rules, annual limits, election procedures, eligibility, employer contributions, and the plan year. It also summarizes claim filing procedures and plan sponsorship and administration.

Herein lies the issue. The Employee Retirement Income Security Act (ERISA) requires that the majority of health plans hold a Summary Plan Description. Only three exemptions exist in this ERISA regulation: 1) Indian Tribal Governments, 2) Church Plans, and 3) Governmental Entities subject to the Public Health Service Act. Chances are that the majority of your clients must comply.

Since ERISA not only applies to the medical insurance plan but to surgical, hospital, accident, HRA, FSA, dental, Rx, vision, life and AD&D, disability plans, and many voluntary plans, the health plan SPD does not cover all ERISA requirements for these additional benefits often written through various insurance companies. A written contract of insurance with an insurance company does not normally contain all of the rules required by ERISA and therefore is not a plan document. Estimates from the Department of Labor (who hold authority over employers offering these group benefit plans) show that three out of four plans audited have an ERISA violation. 70 percent of those audits result in monetary fines, many of which are significant, up to $110 per day, per affected individual for failure to comply.

Because most SPDs do not fully comply with ERISA, a wrap SPD is necessary. It is designed to “wrap” around all existing certificates of insurance and benefit plan booklets for each fully insured or self-funded plan and provides the information necessary to comply with ERISA’s reporting and disclosure requirements, HIPAA, and other federal laws. The wrap supplements the SPD with any additional ERISA required documentation, while also combining multiple benefits into a single plan for filing purposes. When a wrap document is used, the insurance policy or contract remains part of the plan document.

Therefore, the wrap and the insurance policy or contract together comprise the complete plan document and consequently meet the requirements of an ERISA plan document.

Various sources are available to prepare these wrap documents with prices ranging from $600 to $1,500. Contact your Cornerstone representative for more information.

If your clients do not currently have a wrap document in place, you have a chance to provide real value by keeping them compliant. Contact us today! Your E & O carrier will appreciate it!

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