Kill Inefficiencies, Find Hidden Value in the Service Provider Arrangements
for Your Company’s ERISA Plans
Andrew Douglass and Eric Krieg
Polsinelli PC
Polsinelli is an Am Law 100 firm with more than 800 attorneys in 19 offices, serving corporations, institutions, and entrepreneurs nationally. Ranked in the top five percent of law firms for client service, the firm has risen more than 100 spots in Am Law's annual firm ranking over the past six years.
Polsinelli attorneys provide practical legal counsel infused with business insight, and focus on health care, financial services, real estate, intellectual property, mid-market corporate, and business litigation.
Polsinelli attorneys have depth of experience in 100 service areas and 70 industries.
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Risk International Benefits Advisors
Complete Independence From The Insurance Industry
Risk International is an independent, outsourced risk management and benefits services provider for Fortune 500 and mid-market enterprises with complex risk management and benefits challenges.
We are distinctly aligned with our clients in navigating the insurance landscape, with a no commission, fee-for-service model that ensures objective advice.
We balance world class expertise, creative thinking and a fearless approach to helping businesses convert risk to opportunity.
Our clients gain critical advantage through a reduced total cost of risk, increased profitability and the peace of mind that comes with a more stable and predictable risk management model.
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Andrew Douglass
20+ years of experience in the employee benefits arena.
Chair of the Employee Benefits and Executive Compensation practice group at Polsinelli.
Prior background as an actuarial consultant in the employee benefits practice of a large public accounting firm.
Multi-faceted approach to helping employers address the legal, financial, and administrative issues that affect their benefit plans.
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Eric Krieg – The Insider
Previous Assignments:–30+ years behind the lines–Vendor/Insurance company relations–Advisory Boards–Set and manage budgets–Broker–Consultant
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Today’s Agenda
Opportunities created by independent reviews of the service provider arrangements for your company’s ERISA plans
Recommended frequency of reviews and best practices for compliance with ERISA’s fiduciary duties
Strategies for identifying cost savings and other value opportunities
Negotiating more favorable contract provisions Monitoring performance of your service providers through
ongoing independent reviews– Conflicts and realities– Roadmap to conducting an independent review – What can you expect?
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ERISA Fiduciary Basics
Key ERISA fiduciary obligations to keep in mind for today’s presentation:– Act solely in the best interests of plan participants
and their beneficiaries with the exclusive purpose of providing benefits
– Duty to act with prudence, both procedurally and substantively
– Follow written terms of all plan documents unless they violate ERISA
– Pay only reasonable expenses from plan assets
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ERISA Fiduciary Considerations Relating to Plan Service Providers
Selection and monitoring of plan service providers involves discretionary authority or control over the management and administration of the plan – These actions are therefore subject to ERISA’s fiduciary standards– DOL recommends a “regular review” of all service providers to a
company’s ERISA plans (best practice is generally every 3 to 5 years) Compensation paid to providers must be reasonable in
amount for the services actually received Must be cognizant of potential conflicts of interest, as well as
“self-dealing” situations and other prohibited transactions involving service providers
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Key Items to Review in ERISA Service Provider Agreements
Scope of provider’s services Reasonableness of fees, expenses, rebates, discounts, and
other pricing features Performance guarantees and SLAs Provider’s acknowledgment of ERISA fiduciary status
(if appropriate) Caps on provider’s indemnification and liability obligations Subcontracting, outsourcing, and use of affiliates by provider Potential conflicts of interest Audit rights Ownership of plan data and records Termination provisions and other remedial rights
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Considerations for Companies
Periodic Benchmarking of Services and Pricing “At-Risk” compensation approaches Market Check and Most-Favored-Nation pricing
features Audit of provider’s services and pricing Monitor industry reputation of providers and
potential conflicts of interest relating to services Competitive RFP
BE SURE TO DOCUMENT REVIEW PROCESS!10
SERVICE PROVIDER REVIEW ROADMAP
Can You Really Do Better?
Common Deal Myths: My size will guarantee the best arrangement My top-tier broker/consultant gets me the best
deal My procurement team will ensure that the
arrangements are the best deal for my company Our internal team has a ton of experience and is
effectively managing all of our vendor arrangements
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Do Bigger Companies Get Better Deals?
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Conflict of Interest
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Perspectives and Motivations
Employer HR/Benefits LeaderInsurance Companies
Healthcare Providers Other Benefits Suppliers Brokers/Consultants
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Employees
Good Deal vs. Great Deal
“Good is the enemy of great. And that is one of the
key reasons why we have so little that becomes great.
– James C. Collins, Good to Great
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A Good Value is the Enemy of the Best Value
What’s between you and the best value? Conflict of interest Not seeing all the
options A slanted view of options
presented Is the extra effort worth
the end result It’s only $100,000 or so… Relationship vs. results
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Typical Client Arrangements
15 vendors, 22 different benefits/services (11 fully-insured, 4 self-funded and 7 fee/commission-based)
Benefit/Service Vendor Cost-Sharing Funding MechanismMedical Aetna Shared Self-FundedMedical MVP Shared Full-InsuredMedical Kaiser Shared Full-InsuredMedical HMSA Shared Full-InsuredPrescription Drug Express Scripts Shared Self-FundedStop-Loss Sun Life 100% Company-Paid Fully-InsuredHSA (administration) PayFlex 100% Company-Paid Fee-BasedDental MetLife Shared Self-FundedVision EyeMed Voluntary (100% Employee-Paid) Fully-InsuredBasic Life MetLife 100% Company-Paid Fully-InsuredAD&D Prudential Voluntary (100% Employee-Paid) Fully-InsuredShort-Term Disability Prudential 100% Company-Paid Self-FundedShort-Term Disability (Statutory) Prudential 100% Company-Paid Fully-InsuredLong-Term Disability Prudential Voluntary (100% Employee-Paid) Fully-InsuredBenefits Admin. System Aon Hewitt Voluntary (100% Employee-Paid) Fee-BasedBusiness Travel Accident Prudential Voluntary (100% Employee-Paid) Fully-InsuredTelemedicine Teladoc 100% Company-Paid Fee-BasedEmployee Advocacy Health Advocate 100% Company-Paid Fee-BasedSupplemental Life Prudential Voluntary (100% Employee-Paid) Fully-InsuredFSA (administration) PayFlex 100% Company-Paid Fee-BasedEAP Beacon Health Options 100% Company-Paid Fee-BasedGroup Legal ARAG Voluntary (100% Employee-Paid) Fee-Based
Manage Benefits Risk
Who’s responsibility is it to manage vendor arrangements? Do your plans reflect what you purchased? Would any of your contract elements surprise you? Are there steps you should follow every year? How to enhance plan performance Do you know your rights? Extract all the value from
your arrangements
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Down to Brass Tacks
Where to start? Plan maintenance vs. plan management What is a contract review? Vendor management– Contract management
Provisions– Data ownership– Performance Guarantees– Audit provisions– Termination provisions
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Employee Pay All Plans
Managed with the same scrutiny as employer funded arrangements?
Distribution of employer vs. employee premiums
ERISA Plans Compensation Loss ratios
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Recommended Process
Inventory Roadmap Execution Evaluation Adjustment
• Service provider contracts
• Plan documents
• Summary Plan Descriptions (SPD)
• Plan performance
• Value equation
• Key contract provisions
• Service improvement
• Prioritize
• Create game plan
• Establish roles/ responsibilities
• Create operational plan
• Maximize internal and external resources
• Accountability
• Establishment of key metrics
• Contract terms vs. performance
• Contract terms vs. market
• Adapting to change Market
circumstances Economy Business
conditions Demographic
changes Regulatory
• Revise game plan
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In Data We Trust
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Comprehensive Summary Report
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Case Study: Midwest Employer3,500 employees
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Take Action
Understand the scope and impact of the opportunity– What if you could reduce cost by 20%– What if you could increase
value of your arrangements? Reward outweighs effort Pick a starting point You don’t have to go at this alone
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Contact Us
Andrew Douglass | PolsinelliChair, Employee Benefits and Executive [email protected] N. Clark Street, Suite 4200Chicago, IL 60601
Eric Krieg | Managing Directorriskinternational | RIBA4055 Embassy Parkway, Suite 100 | Fairlawn, OH 44333-1781o: 216.255.3435 | c: [email protected] | my_linkedinriskinternational.com | theinsider.riskinternational.com
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Questions
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Polsinelli provides this material for informational purposes only. The material provided herein is general and is not intended to be legal advice. Nothing herein should be relied upon or used without consulting a lawyer to consider your specific circumstances, possible changes to applicable laws, rules and regulations and other legal issues. Receipt of this material does not establish an attorney-client relationship.
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