What Do You Need To Know About A Self Insured Plan?

By | April 15, 2022

Self-insured group healthcare plans are those in which the employer takes on the financial risk of providing health benefits to employees. Self-insured employers pay out of pocket for every claim, instead of paying a premium to an insurer.

Two primary sources of legal conformity are available for self-insured plans: the Internal Revenue Code of 1986, IRS, and the Employee Retirement Income Safety Act of 1974, ERISA.

ERISA mandates that self-insured documents for health and welfare plans are necessary to make sure employees are aware of their rights and obligations. The sponsor of the plan must officially adopt and execute the plan document.

erisa wrap plan document

Nondiscrimination rules are necessary for self-insured plans. These plans are eligible for favorable tax treatment under Code SS105(h). 

What happens if a self-insured health plan is discriminatory?

Corrections after the plan year's end cannot satisfy the self-insured healthcare plan nondiscrimination test. The tests should be monitored throughout the year to ensure that adjustments can be made before year-end.

Highly Compensated Individuals (HCIs) who participate in the plan may be subject to tax if the plan is discriminatory. They will have to pay taxes on certain amounts that would otherwise be exempted from income under Code SS105 (b). 

These discriminatory amounts must be included in HCI's gross income. This results in a restatement and all the consequences (such as interest and penalties).