This blog piece is one of two to cover changes and updated approaches for Wrangle.
Why would Wrangle go out of its way to discuss indemnity benefits? The reason is simple: we are updating our protocol on how indemnity benefits are reported in the Form 5500 and disclosed in the Summary Annual Report (SAR), and we wanted to keep you abreast of our new approach.
In the past, the indemnity benefit, also referred to as a fee-for-service plan, was seldom reported in the Form 5500 as it was seen to be a redundant term.
Jumping forward to current times, employers wanted to enhance their benefit packages with voluntary options. At the same time, the old school indemnity policies evolved. A criteria was developed in order to meet the excepted benefit model and to have the benefit be considered part of a group employee welfare benefit plan.
Examples are policies for a specified disease or illness such as cancer or a hospital indemnity as noted below.
Key criteria to follow:
To be part of the excepted benefit model, the following criteria needs to be met: [Taken from 29 CFR Part 2590 RIN 1210-AB 75]
- The benefits are provided under a separate policy, certificate, or contract of insurance
- There is no coordination between the provision of the benefits and any exclusion of benefits under any group health plan maintained by the same plan sponsor
- The benefits are paid with respect to an event without regard to whether benefits are provided with respect to the event under any group health plan maintained by the same plan sponsor
- The insurance must pay a fixed dollar amount per day (or per other period) of hospitalization or illness (for example, $100/day), regardless of the amount of expenses incurred
Furthermore, to be part of the ERISA Plan and then subject to reporting in the Form 5500 the benefits are:
- Paid by the employer
- The employee pays on a pre-tax basis OR the employer endorses the plan
- They are found in the ERISA Wrap Plan Document/SPD
What does this mean for Wrangle and the Form 5500?
In the past Wrangle combined these types of benefits under the general heading of medical, or one of the disabilities, depending on the definition provided by the Plan Sponsor.
Going forward, we will:
- Specifically check “indemnity” on the Form 5500 Schedule A (when the carrier does the same on their schedule)
- Call out these benefits in the SAR using the benefit description provided in our intake worksheet or on the carrier schedule A. Note that these should also be the name given in the Plan Document/SPD.
Questions that may be on your mind:
1. Why now?
After careful consideration and consultation from an ERISA attorney, we made the decision to update our reporting approach to be more consistent with the current definitions. From time to time we do change our protocol due to enhanced understanding as well as yielding to evolutions of benefits and ERISA mandates. We would do a disservice to you if we remained stagnate.
2. What is to be done for past Form 5500s or SARs for indemnity benefits?
Nothing. The accuracy of the Form 5500 and SAR is intact. We are enhancing the Form 5500 and SAR to a new standard.
Coming in September’s blog…
In part 2, we will capture all of the changes that we have highlighted in the last few months as well as point one more new one – How Form 5500s are to be handled for self-funded run out claims.
For questions and concerns, feel free to reach out to Ann McAdam, Technical Consultant at firstname.lastname@example.org.