Fla. CFO Warns About Single-Employer Trusts

April 12, 2004

Florida’s Chief Financial Officer Tom Gallagher is alerting employers to use caution when considering setting up a health benefit plan through a Single Employer Trust (SET) document that requires sending financial contributions to an out-of-state bank account.

Florida consumers have reportedly been victimized by such plans, including the Meridian Benefit Plan that is now in federal bankruptcy in New Jersey.

Out-of-state plans and bank accounts can leave employers vulnerable to fraud, and can leave state regulators with very few options for helping with recovery. In the case of Meridian Benefit, marketers also reportedly claimed to have re-insurance or stop loss coverage when they did not.

“A single-employer trust may appear to offer substantial benefits and savings, but they are complex arrangements that can be rife with financial risk,” said Gallagher, who oversees the Department of Financial Services. “With any insurance or financial transaction, it is imperative to verify before you buy. Remember, if it sounds too good to be true, it probably is.”

Since February 2001, more than 200 unauthorized insurance entities, marketers, insurance agents and other individuals have been ordered to stop selling fraudulent, unauthorized insurance in Florida. The Department reportedly recognizes that the single-employer trust concept can be a legitimate option, but regulators suspect that single-employer trusts may be the newest vehicle used in an attempt to scam employers struggling to find affordable coverage for their employees.

An employer approached to buy this type of plan will be told it is an Employee Retirement Income Security Act (ERISA) qualified plan regulated by the U.S. Department of Labor. To implement the trust, the employer is asked to sign a standardized document, then is billed monthly for a financial contribution deposited in an out-of-state custodial bank account. The monthly premiums, or contributions, are paid into a custodial bank account that is supposed to pay medical claims and buy reinsurance or stop-loss insurance to cover costs in excess of the account balance.

Although there may be an accounting of each employer’s contributions, there is a risk that funds that are supposed to be in separate custodial accounts are being co-mingled.

Employers and their employees should consider the following before establishing a single-employer trust plan:

* Is the purported insurance, reinsurance or stop-loss insurance company approved in Florida?
* Even if the insurer is authorized in Florida, is it actually providing the insurance coverage?
* Have legitimate policies actually been issued and are they still in force?
* Is the monthly contribution reflective of the advertised health benefits? Is the offer too good to be true?
* What due diligence has been performed and is this documented? Well-intentioned agents and individuals have been misled by some of these plans.
* What is the track record of the plan administrator? How long has it operated and does it pay claims, both the big and the small, in a timely basis?
* Is the plan administrator willing to provide its certified and audited financial statements?
* Has any state insurance department or the U.S. Department of Labor taken action against the plan administrator, its principals, or the individual that is soliciting you?
* As to other employer plans that the plan administrator is already administering, are required ERISA filings being made with the U.S. Department of Labor and the Internal Revenue Service?

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