Module 6 - Administering Benefit Plans

Question 1

Describe the primary activities involved in administering a group benefits plan.

Answer 1

1. Determining an appropriate administrative approach: This includes evaluating existing options and choosing the most effective administrative approach based on plan sponsor size, types of benefits offered, in-house administrative capabilities and financial resources, the availability and cost of third-party administrator (TPA) resources, and legislative requirements.
2. Performing administration activities: This includes enrollment; confirming benefits eligibility; claims processing; communications with plan members, their dependents and government agencies; calculating, reconciling, submitting and receiving premiums; monitoring plan performance; and negotiating/monitoring service provider agreements.
3. Evaluating the overall benefits program and specific benefits: Evaluation assesses the plan against appropriate performance standards, including assessing significant changes in workforce characteristics, plan sponsor organization financial resources, legislative and tax regulation, the competitive environment and amendments to compensation structures. Evaluation also involves periodically reviewing plan design, administration and funding.

Question 2

Identify the three main administration approaches a plan sponsor can use and who the plan administrator is under each approach.

Answer 2

(1) Self-administration, which typically includes insurer and/ or third-party administration of some processes, including all claims processing
Administrator: Plan Sponsor

(2) Insurer administration
Administrator: Insurer

(3) Third-party administration.
Administrator: TPA

Question 3

Explain why full self-administration is not feasible for all benefits.

Answer 3

With some exceptions (e.g., a fully self-administered benefit, such as vision care, a health care spending account or a salary continuance plan), full self-administration is generally not feasible because the Personal Information Protection and Electronic Documents Act (PIPEDA) restricts plan sponsor access to personal plan member information to that which is needed as part of their employment (e.g., address and social insurance number). However, self-administration is typically the term that describes this combination approach.

Question 4

Explain the responsibilities a plan sponsor has in the claims process under an insured plan that is self-administered.

Answer 4

The plan sponsor provides plan member eligibility data to the insurer/TPA for extended health care, dental care and weekly indemnity/short-term disability (WI/STD) claims processing. Plan sponsors submit this eligibility data when individuals first enroll in the plan and then report changes in plan member status (e.g., from single to family for extended health care and dental care coverage) as they occur.

The plan sponsor also certifies claims eligibility for life insurance, accidental death and dismemberment (AD&D) and long-term disability (LTD) benefits, primarily due to the nature of information required to administer the claim.

Question 5

Outline the plan sponsor’s administrative role under an insured self-administered arrangement (5)

Answer 5

Under an insured self-administered arrangement, the plan sponsor:

(a) Maintains all plan member records

(b) Provides plan member eligibility data to the insurer or TPA for extended health care, dental care and WI/STD claims processing on initial plan enrollment and updates it as changes occur

(c) Certifies eligibility for claims for life insurance, AD&D and LTD benefits

(d) Prepares monthly premium/deposit billings for insured plans

(e) Handles all plan member inquiries regarding eligibility.

Question 6

Identify types of plan member data provided by the plan sponsor to the insurer or TPA for health, dental and WI/STD claims (12)

Answer 6

For health, dental and WI/STD claims, the following plan member data is provided to the insurer or TPA:

(a) Name of plan member and dependents

(b) Sex

(c) Family status

(d) Dates of birth for plan member and dependents

(e) Plan member identification number

(f) Language

(g) Date of hire

(h) Province or territory of residence

(i) Division, class, billing group

(j) Benefits the plan member is covered for

(k) Effective date of coverage

(l) Coordination-of-benefits (COB) information if applicable.

Question 7

Describe services offered through online administration under insured self- administered arrangements.

Answer 7

Under this approach, plan sponsors receive access to the insurer’s or TPA’s administration system—either through electronic data exchange or direct online access.

With electronic data exchange, plan member information is transferred from the payroll system or a human resources information system (HRIS) through secure electronic data transfer or manual data entry for smaller plans. Direct online access to the insurer’s administration system allows plan sponsors to complete new enrollments and make changes to plan member data, which is updated in real time or overnight.

Online administration can enable the plan sponsor to:

(a) Transfer member eligibility information to the insurer/TPA

(b) Provide employees with online enrollment sites that link to additional resources, such as decision support tools

(c) Process and update plan member status changes online

(d) Calculate plan member contributions for each benefit as well as taxable benefits, premiums and taxes

(e) Review premium, claims and benefits information

(f) Access forms and resources to assist in day-to-day administration, such as enrolling new employees or changing a beneficiary

(g) View the benefits plan terms and provisions

(h) Communicate with the insurer/TPA.

Question 8

Outline plan member data the plan sponsor is responsible for inputting on a regular basis in an insured, self-administered plan. (7)

Answer 8

(a) New member information

(b) Terminations for departing plan members

(c) New salary information

(d) Changes to benefits levels

(e) Changes to plan members’ status (single, family, new dependents)

(f) Changes to beneficiary designations

(g) Requests for medical evidence of insurability.

Question 9

Describe insurer administration

Answer 9

In this arrangement, the insurer performs part or all of the administration functions. The plan sponsor generally transmits information about new eligibilities, terminations and other plan member status changes electronically to the insurer, either through the payroll/HRIS interface or by accessing the insurer’s administration system through a plan sponsor website. Smaller groups may send paper forms to the insurer to update its records. When the plan sponsor does not report changes in employee eligibility promptly, the insurer makes retroactive adjustments (as necessary) to plan members’ records and premium statements. A plan sponsor can access plan member information at any time through the plan sponsor website, enabling it to review and audit its plan member records.

As with self-administered plans, in an insured nonrefund accounting plan, the administration fee is included in the premium rates charged in the monthly premium statement. For an insured refund accounting plan, the administration charge is part of the retention expenses (i.e., nonclaims costs) detailed in the year-end financial report. For self-insured plans with an administrative-services-only (ASO) arrangement, the insurer bills the plan sponsor monthly for administration fees, which are typically allocated between fees for claims adjudication and general administration charges (e.g., maintaining plan members’ records and other day-to-day administrative functions).

The insurer may provide various reporting services. There is a standard menu of claim, financial and service reports, which vary somewhat based on whether the plan is insured or self-insured and by administration approach.

Question 10

Describe types of services TPAs commonly offer.

Answer 10

(a) Administration services only: The TPA tracks plan members’ eligibility, maintains up-to-date plan member data, handles ASO and insured billing and reporting requirements, prepares consolidated bills for insured and ASO coverages, and addresses plan member inquiries and complaints.

(b) Claims settlement only: The TPA is responsible for all aspects of claims processing for some benefits (e.g., extended health care, dental care and WI/STD) or some aspects of claims processing for all benefits, including certifying plan members’ eligibility under the plan and adjudicating and paying claims.

(c) Administration and claims settlement: This combines the two services above.

Question 11

When the administration of insured benefits is outsourced to a TPA, the insurer and TPA typically enter into an agreement. Describe conditions that may be included in this type of agreement.

Answer 11

(a) The TPA maintains complete records on which claims are based; records used in processing claims are the property of the insurer, which can review them at any time.

(b) The TPA processes and, in some cases, pays claims for specified benefits in accordance with the terms and provisions of the group contract at the time the expense or loss is incurred. This includes verification of coverage and calculation of benefits amounts payable. The insurer may also stipulate that a claim in excess of a specified dollar maximum requires the approval of the plan sponsor and/or the insurer before payment can be issued.

(c) The TPA is responsible for certain costs arising from omissions and clerical errors made in the event of fraud or gross negligence.

Question 12

Explain the purpose of the administration manual provided by insurers to the plan administrator when a plan is not insurer-administered and describe the administrative functions it covers.

Answer 12

The insurer designs the administration manual for use by the plan administrator. The format and level of detail vary among insurers, with more detail when the insurer is not the plan administrator. The manual is customized to the plan sponsor’s specific plan provisions and the general administrative procedures of the plan. It covers both routine and nonroutine administrative functions, including:

(a) New enrollments (includes new individuals, beneficiary designations, evidence of insurability, waiver of benefits coverage and late applications)

(b) Changes in coverage (includes changes in earnings, insurance amounts in excess of nonevidence maximums (NEMs), change of name and/or beneficiary, changes in status, terminations, temporary absences, reinstatements, waiver of benefits coverage, waiver of premium for disabled plan members and conversions to individual coverage)

(c) Premium administration (includes preparation of premium statements if self- administered, remittance of premiums, and submission and processing of updates to plan member coverage records)

(d) Claims administration (limited to provision of claims forms to plan members; claims submission instructions; certification of claims eligibility for life insurance, accidental death and dismemberment (AD&D) and disability benefits; and reporting of date last worked and return-to-work date for disability claims)

(e) Miscellaneous (includes instructions on effective dates of insurance, contact information and ordering of supplies).

Question 13

Outline the types of administration forms that the insurer’s administration manual can include.

Answer 13

Administration forms provided with the administration manual can include:

(a) Forms for completing premium statements (self-administered plans only)

(b) Plan member enrollment forms

(c) Waiver of benefits coverage forms

(d) Changes in plan member coverage forms

(e) Evidence of insurability forms

(f) Applications for optional life insurance, reinstatement of coverage, waiver of premium and conversion

(g) Claims submission forms for each benefit.

Question 14

Describe the types of forms that can be used to enroll plan members in a group benefits plan.

Answer 14

(a) Standard form: This is the insurer’s standard form, which includes group contract numbers and name of insurer providing coverage. Insurers typically require plan sponsors to use this form. If coverage is provided by more than one insurer, the individual may have to complete multiple forms. In this case, they supply only the information pertaining to the specific benefit an insurer is providing on that insurer’s enrollment form.

(b) Customized form: This may be used to streamline the enrollment process where more than one insurer is providing coverage. A customized enrollment form incorporates all benefits and their respective group contract numbers and insurers. All insurers involved must approve the customized form.

(c) A form from a previous insurer: When a group plan moves to a new insurer, the previous insurer’s form may be used for current plan members, if the plan sponsor does not wish to conduct a full enrollment. New plan members complete the new insurer’s form.

Question 15

Explain how positive enrollment facilitates claims processing.

Answer 15

Positive enrollment is the process of collecting detailed dependent information at the time of enrollment in an extended health care or dental plan, including name, date of birth, sex, relationship of each dependent of the plan member, student status of dependent children, and information on a married or common-law spouse’s coverage under other group plans. Positive enrollment is standard practice as a safeguard against ineligible or fraudulent claims and to facilitate coordination of benefits (COB).

The insurer uses this information to create a file for each plan member, which the plan member can update when dependent information changes (e.g., to add or remove a dependent or to change COB information). The insurer checks future claims and treatment plans against this information to verify eligibility for dependent extended health care and dental care claims payments. It declines claims with information that does not match the member’s dependent or COB information, and the claimant must resubmit the claim to the primary insurer after properly updating the information.

Question 16

Describe the requirements an employee must typically satisfy to be eligible for group insurance coverage.

Answer 16

(a) Be permanent and actively at work.

(b) Be included in a covered class

(c) Satisfy a waiting period

(d) Be covered under a government health care plan

Question 17

Describe the usual definition of a dependent under most group contracts.

Answer 17

In most group contracts, a dependent who is eligible for coverage under the plan member’s plan is defined as:

(a) The plan member’s married or common-law spouse (an individual of the same or opposite sex who has cohabited with the plan member for a minimum period, typically 12 consecutive months). Members can only cover one spouse at a time.

(b) Unmarried children of the plan member or spouse under an age the plan contract specifies—typically age 21 or older (e.g., age 25 if they are full-time students and dependent on the plan member for support)

(c) Unmarried disabled dependents past the age limits the contract specifies, provided they become physically or mentally incapacitated before they attained these ages and while covered under the plan and continue to depend solely on the plan member for support.

Question 18

Identify situations when evidence of insurability is typically required at enrollment for coverage under a group contract.

Answer 18

(a) The individual selects optional life insurance coverage.

(b) The individual is considered a late applicant, that is, applies for coverage more than 31 days after original eligibility.

(c) The individual withdraws from the plan while still employed and wants coverage reinstated.

(e) The individual applies for coverage they previously refused.

(f) The individual applies for coverage above the NEM for life or long-term disability (LTD).

(g) The insured group is small (parameters vary by insurer and range from less than ten and up to 50 lives).

Question 19

Identify situations when coverage generally terminates for a covered plan member in a single employer plan.

Answer 19

(a) Plan member retires (except when the plan offers retiree benefits)

(b) Plan member’s service with the plan sponsor terminates

(c) Plan member ceases active work (except for temporary interruption such as illness, injury, maternity or parental leave, layoff or leave of absence)

(d) Plan member ceases to be a member of an eligible class

(e) Premium payments cease.

Question 20

Describe the purpose of a COB provision and to what benefits it applies.

Answer 20

A COB provision applies only to extended health care and dental benefits when an individual has coverage under two or more group plans (usually through a spouse and different plan sponsors). The COB provision limits the total benefit amount payable to an individual to a combined maximum of 100% of the cost of the eligible expense incurred.

Question 21

Explain how renewal premium rate changes to contributory benefits plans should be communicated to plan members.

Answer 21

When premium rates for contributory benefits change on contract renewal, plan members must be notified. In the case of an increase, communications should explain the need for the increase and any initiatives the plan sponsor/plan members can take to control costs. For example, the plan sponsor may offset renewal rate increases by introducing cost-containment features to the plan design (e.g., reducing coinsurance on medical expense, introducing or increasing frequency limitations to dental procedures). Plan members usually view these types of initiatives negatively; good communication is a tool to mitigate this.

Question 22

Identify information that might be communicated to plan members in the event the plan insurer has been changed.

Answer 22

Communication should include pertinent information on the related event, e.g., information on the new insurer, effective date of the plan, eligibility requirements, amount of plan members’ contribution (if applicable) and plan benefits. It should also include information to achieve the objectives of the communication strategy. This may include an explanation of:

(a) Why the insurer was changed

(b) When to submit claims to the previous insurer

(c) Why deductibles and coinsurance are needed

(d) How deductibles and maximums are satisfied under the new benefits plan

(e) How to submit claims to the new insurer

(f) Which benefits are taxable

(g) How to use the plan effectively.

Question 23

Explain the significance of Canadian Life and Health Insurance Association (CLHIA) Guideline G1, “Product Disclosure,” for the information insurers must include in plan member benefits booklets.

Answer 23

CLHIA Guideline G1, “Product Disclosure,” outlines minimum standards of practice for insurers for printed disclosure (i.e., hard copy or electronic) by life and health insurance companies about their products. Its goal is to promote consumers’ ability to make informed decisions about the products they apply for. “Product disclosure” means descriptive information about the product and the insurer offering it. This includes, but is not restricted to, booklets, brochures, application forms and illustrations.

This guideline is not law; however, CLHIA members are expected to adhere to it. All insured members must receive a booklet describing the benefits the plan provides and key provisions of the group contract. The booklet should be easy to read and user-friendly and should avoid technical jargon. It typically includes:

(a) Name of plan sponsor

(b) Name of insurer and group policy number

(c) Schedule of benefits

(d) General provisions, such as plan member and dependent eligibility, effective date of coverage, termination of coverage, continuation of benefits beyond termination and life insurance conversion privilege

(e) Descriptions detailing each benefit’s provisions

(f) The coordination of benefits (COB) provision for extended health care and dental care benefits

(g) Claims provisions, such as how to submit a claim and associated time limits.

Question 24

Outline the roles in premium statement preparation and remittance by plan administration approach

Answer 24

Administrative procedures for premium statement preparation and remittance vary depending on whether a plan is self-administered, insurer-administered or third-party administrator (TPA)-administered. Under all methods of premium administration, the in-house plan administrator collects premiums from plan members and remits them to the insurer with the plan sponsor’s premiums. The key difference is which party assumes responsibility for preparing the statements.

(a) Self-administered: The in-house plan administrator prepares the premium statements and ensures that all data is accurate and plan member information is current.

(b) Insurer-administered: The insurer prepares and issues the premium statements and invoices the plan sponsor for premium amounts due on a monthly basis. The insurer ensures that all data is accurate and plan member information is current.

(c) TPA-administered: The TPA prepares the premium statement and charges the plan sponsor for the premium amount billed plus the expense of administering the plan—The administration charge can be built directly into premiums. The TPA submits the premiums to the insurer on behalf of the plan sponsor and ensures that all data is accurate and plan member information is current.

Question 25

Describe the basic administration procedures for premium statements.

Answer 25

Premium statements are prepared for each premium due date. Due dates are typically the first of each month, so premium statements are typically prepared by the third week (20th day) of the previous month. The plan sponsor should process or provide the insurer with all updates to plan member eligibility data before production of the premium statements.

Monthly premium statements reflect all transactions processed during the month. To simplify the billing process, premiums are payable only for complete months of coverage. Premium charges for new plan members are typically due on the first of the month following the month in which their coverage becomes effective, regardless of when coverage actually began. Premiums are not refunded for the interval between a plan member’s termination date and the end of the billing month.

Question 26

Outline steps an insurer can take if premium payment has not been received by the end of the grace period specified in the group contract.

Answer 26

Most group contracts include a 31-day grace period for premium payment. If the insurer does not receive payment by the end of the grace period, it may suspend claims payments until the plan sponsor brings the account up to date. The insurer can also terminate the group contract for nonpayment of premiums.

Question 27

Explain the purpose of the annual financial report prepared by an insurer.

Answer 27

Plans funded using a refund accounting arrangement participate in the financial results generated during the contract year (i.e., a surplus is paid to the plan sponsor and the plan sponsor is responsible for a deficit unless the plan is terminated). The insurer prepares an annual financial report to reconcile paid premiums against the claims charges and expenses for the contract period. This report is a statement of the plan’s financial performance, that is, how much the plan actually cost the plan sponsor and whether the plan produced a surplus or a deficit.

If the plan produces a deficit, the plan sponsor and/or advisor should review the renewal rating to ensure that renewal premium levels are sufficient to support the experience. They should also review the current plan design to determine whether to implement cost-containment measures. If the plan produces a refundable surplus, the plan sponsor must instruct the insurer as to the disposition of this surplus; it may leave the surplus funds with the insurer in an interest-bearing account or request a refund.

If plan sponsors that self-insure enter into an administrative-services-only (ASO) agreement with a plan administrator (insurer or third-party administrator (TPA)), the plan administrator prepares an annual financial statement to reconcile plan sponsor payments (deposits) to the insurer/TPA to cover claims, expenses and cash flow interest for the reporting period. Billed-in-arrears plans also receive monthly statements.

Question 28

Describe the characteristics of experience reports and how these reports are used in renewal rating.

Answer 28

Experience reports generally include information on premiums and claims (paid or incurred) by benefit for the specified reporting period. Claims relative to premiums received is the “claims loss ratio,” which is an indicator of plan experience: the higher the claims loss ratio, the less favourable the experience. For larger refund accounting plans, the advisor sometimes provides experience reports to the plan sponsor. The advisor uses premium and claims information the insurer provides and may request additional information on the incurred but not reported (IBNR), waiver of premiums and disabled life reserves. The advisor prepares a comprehensive report that includes an analysis of the experience and its impact on projected premium rates.

Question 29

Describe the characteristics of a performance standards agreement (PSA) and provide examples of service standards that might be included in a PSA.

Answer 29

A PSA outlines best practices on behalf of one or more of the parties involved in plan administration. A PSA is usually executed between the insurer and the plan sponsor, or sometimes between the insurer and the TPA administering benefits on behalf of the plan sponsor. The PSA outlines specific, measurable service standards that must be met. Examples are claim payment turnaround time, claim payment accuracy and call centre service statistics. Typically, financial penalties (imposed on the insurer) or rewards (for the plan sponsor) apply to each service standard and are payable annually.