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Running a Group Health Plan: Contributions, Providers, and Fees

Adapted from Understanding Your Fiduciary Responsibilities Under A Group Health Plan, published by the U.S. Department of Labor; selected section: How Do These Responsibilities Affect the Operation of the Plan?. The source text is reproduced with headings and formatting adjusted for this guide.

How Do These Responsibilities Affect the Operation of the Plan?

Even if employers hire third-party service providers or use internal administrative committees to manage the plan, certain functions can make an employer a fiduciary.

Employee Contributions

If a plan provides for salary reductions from employees' paychecks for contribution to the plan or participants pay directly, such as the payment of COBRA premiums, then the employer must deposit the contributions in a plan trust in a timely manner. The law requires that participant contributions be deposited in the plan as soon as it is reasonably possible to segregate them from the company's assets, but no later than 90 days from the date when the employer withholds or receives them. If employers can reasonably deposit the contributions sooner, they must do so. For plans with fewer than 100 participants, salary reduction contributions deposited with the plan no later than the 7th business day following withholding by the employer will be considered contributed in compliance with the law.

For participant contributions to cafeteria plans (also referred to as (Internal Revenue Code) Section 125 plans), the Department will not assert a violation solely because participant contributions were not held in trust. Other contributory health plan arrangements may get the same relief if the participant contributions are used to pay insurance premiums within 90 days of receipt.

Medical Loss Ratio (MLR) Rebates

Under the Affordable Care Act, insurance companies must rebate a portion of premiums to policyholders, including health plans, when the insurance company's spending for clinical services and health care quality improving activities, in relation to the premiums charged, is less than established medical loss ratio standards. These rebates may be the health plan's assets.

To determine whether any part of the rebate is a health plan's asset, consider factors such as whether the plan or the employer is the policyholder, the terms of the plan documents, and whether plan participants paid any portion of the premiums. If any part of the medical loss ratio rebate is the plan's asset, the decision on how to apply it is a fiduciary function. In deciding how to allocate the rebate (such as distributing to participants, enhancing plan benefits or reducing future participant premiums), a fiduciary must consider each option's costs and benefits. The plan asset, like employee contributions, must be held in a trust.

Hiring a Service Provider

Hiring a service provider in and of itself is a fiduciary function. When considering prospective service providers, give each of them complete and identical information about the plan and the services you are looking for so you can make a meaningful comparison.

Fiduciaries need to consider additional actions when selecting a service provider including:

  • Getting information from more than one provider;
  • Comparing firms based on the same information, such as services offered, experience, costs, etc.;
  • Obtaining information about the firm itself, including its financial condition and its experience with group health plans of similar size and complexity;
  • Evaluating information about the quality of the firm's services: the identity, experience, and qualifications of professionals who will be handling the plan or providing medical services; any recent litigation or enforcement action taken against the firm; the firm's experience or performance record; ease of access to medical providers and information about the health care provider's operations; the procedures in place to timely consider and resolve patient questions and complaints; the procedures for patient record confidentiality; and enrollee satisfaction statistics; and
  • Ensuring that any required licenses, ratings or accreditations are up to date (insurers, brokers, TPAs, health care service providers).

An employer should document its selection and monitoring process, and, when using an internal administrative committee, should educate committee members on their roles and responsibilities. Read, understand, and keep copies of all contracts.

Fees

Fees are just one of several factors fiduciaries need to consider when deciding on service providers. When the fees for services are paid out of plan assets, fiduciaries need to understand the fees and expenses charged and the services provided. While the law does not specify a permissible level of fees, it does require that fees charged to a plan be "reasonable." After carefully evaluating them when selecting a service provider, the plan's fees and expenses should be monitored to determine whether they are still reasonable.

When comparing estimates from prospective service providers, ask which services the estimated fees cover and which they do not. Some providers offer a number of services for one fee, sometimes referred to as a "bundled" services arrangement. Others charge separately for individual services. Compare all services to be provided with the total cost for each provider. Consider whether the estimate includes services you did not specify or want. Remember, all services have costs.

Some service providers receive additional fees from third parties, such as insurance brokers. Employers should ask prospective providers whether they get any third-party compensation, such as finder's fees, commissions, or revenue sharing.

Who pays the fees? The employer, the plan, or both may pay plan expenses. The plan document should specify how fees are paid, and the fiduciary must ensure that those fees and expenses are reasonable, necessary for the plan's operation, and not excessive for the services provided.

Monitoring a Service Provider

An employer should establish a formal review process and follow it at reasonable intervals to decide if it wants to continue using the current service providers or look for replacements. When monitoring service providers, employers should act to ensure the service providers are performing the agreed upon services including:

  • Reviewing the service providers' performance;
  • Reading any reports they provide;
  • Checking actual fees charged;
  • Asking about policies and practices (such as a third-party administrator's claims processing systems);
  • Ensuring proper maintenance of plan records; and
  • Following up on participant complaints.

Maintaining the Plan's Benefits Claims Procedure

Group health plans must establish and maintain reasonable claims procedures that allow participants and beneficiaries to apply for and receive promised benefits. Fiduciaries must maintain the plan's procedures. Plans (including insured and self-funded plans) must meet the minimum standards for benefit claims determinations set by rules issued by the Department of Labor. While many plans hire benefits professionals or insurance companies to process claims, an employer needs to understand the requirements before selecting a service provider who can comply with the benefit claim standards.

A claim for benefits is a request for a plan benefit made in accordance with the plan's procedures by a claimant (participant or beneficiary) or their authorized representative. Questions about plan benefits, coverage, and eligibility, and casual inquiries generally are not considered claims for benefits.

Fiduciaries must become familiar with the timeframes to decide claims, the contents of benefit denial notices, and the standards for appeals of benefit denials.

Once a plan receives a claim, the timeframe for a plan to make a determination and provide notice of the claim determination varies based on the type of claim filed:

  • Urgent care, as soon as possible, and no later than 72 hours after receiving the claim;
  • Pre-service claims, within a reasonable time period, and no later than 15 days after receiving the claim;
  • Post-service claims, within a reasonable time period, and no later than 30 days after receiving the claim; and
  • Disability claims, within a reasonable time period, and no later than 45 days after receiving the claim.

Fifteen-day extensions may be available for pre- and post-service claims. Up to 30-day extensions may be available for disability claims.

The timeframe for a plan to review appeals also varies based on the type of claim –

  • Urgent care claims, as soon as possible, taking into account the patient's medical needs, and no later than 72 hours after receiving the request to review a denied claim;
  • Pre-service claims, within a reasonable time period appropriate to the medical circumstances, and no later than 30 days after receiving the request to review a denied claim;
  • Post-service claims, within a reasonable time period, and no later than 60 days after receiving the request to review a denied claim; and
  • Disability claims, within a reasonable time period, and no later than 45 days after receiving the request to review a denied claim.

The plan cannot extend the deadline without the claimant's consent.

If a plan denies a claim, it must send a denial notice to the claimant, either in writing or electronically. The notice must include:

  • Specific reasons for denial (for example, not medically necessary, not covered by the plan, or reached maximum amount of treatment permitted under the plan);
  • A reference to the specific plan provisions relied upon for the denial;
  • If denied for a lack of information, a description of any additional material needed and an explanation of why it's necessary;
  • A description of the plan's review procedures (for example, how appeals work and/or how to initiate an appeal);
  • If denied based on rules, guidelines, or protocols, either a description of rules, guidelines, or protocols relied upon in denying the claim, or a statement that a copy of such items will be provided upon request;
  • If denied based on medical necessity or experimental treatment or similar exclusion or limit, an explanation of the scientific or clinical judgment for the denial, applying the terms of the plan to the claimant's medical circumstances, or a statement that an explanation will be provided for free upon request; and
  • A description of the claimant's right to go to court to recover benefits due under the plan.

The notice of a claim denial on appeal must include the same information as noted above (except the description of the plan's appeal process) as well as:

  • An explanation of the claimant's right to receive documents relevant to the benefit claim (documents and records upon which the decision is based and other documents prepared or used during the process), free of charge;
  • A description of any voluntary processes the plan offers to resolve claims disputes; and
  • A description of the claimant's rights to seek judicial review of the plan's decision.

The plan's claims procedure must provide for a full and fair review of a benefit claim if a claimant files an appeal of the denial. The minimum standards for appeals are:

  • Plans must give claimants at least 180 days to file an appeal;
  • Appeals must be reviewed by someone new. The reviewer cannot be the same person who made the initial decision or that person's subordinate, and the reviewer must give no consideration to the initial decision;
  • The reviewer must consult with a qualified health professional (and others as needed) when the denial is based on a determination of whether a particular treatment, drug or other item is experimental, investigational, or not "medically necessary";
  • Plans can require no more than two levels of review; and
  • Mandatory binding arbitration of claims is generally prohibited. However, non-binding arbitration is permissible if done within the required timelines.

For more information on disability claims and appeals, request copies of the publication An Employer's Guide to Health and Disability Benefit Claims. See "Resources" in the back of this booklet for information on obtaining copies.

Plans not grandfathered under the Affordable Care Act (those established, or that have made certain significant changes, after March 23, 2010) must comply with additional internal claims procedure requirements. The claims and appeal process must cover rescissions (retroactive cancellations) of coverage, as well as other denials of benefits. They, or their insurers, also must:

  • Provide claimants with new or additional evidence or rationale, and a reasonable opportunity to respond to it, before making a final decision on the claim;
  • Ensure that claims and appeals are adjudicated in an independent and impartial manner;
  • Provide detail in all claims denial notices on the claim involved, the reason for denial (including the denial code and meaning), any available internal and external appeals processes, and consumer assistance information;
  • Provide, on request, diagnosis and treatment codes (and their meanings) for any denied claim;
  • Provide notices in a culturally and linguistically appropriate manner;
  • Allow claimants to begin the external review process if the plan fails to follow the internal claims requirements (unless the plan's violation is minimal); and
  • Allow claimants to resubmit a claim through the internal claims process if a request for immediate external review is rejected by the external reviewer under specific circumstances.

In addition, plans not grandfathered under the Affordable Care Act must provide for external review of claim denials by an independent party. Plans that are grandfathered must also provide external review if the claims are within the protections of the No Surprises Act (discussed below). The external review process used by the plan depends on whether the plan is self-funded or provides benefits through an insurance company.

Self-funded plans generally must comply with the procedures set by the Department of Labor. A plan may choose to refer requests for external review to an accredited Independent Review Organization, or may voluntarily comply with a state external review process if the state allows access. For more information, visit the Department of Labor's web page on internal claims and appeals and external review.

Insured plans and insurance companies generally must comply with their state's external review process, if the state process includes minimum consumer standards set by the Department of Health and Human Services (HHS). If the state process does not meet these standards, group health plans and insurers may use either the accredited Independent Review Organization process or an HHS-administered Federal external review process. For the status of your state's external process, see HHS's website.

This guide concerns U.S. workplace benefits and the federal rules described by the Department of Labor. The type of plan, its governing documents, and the facts of a claim matter. Government, church, and other excluded plans may follow different rules.

Source and scope

Understanding Your Fiduciary Responsibilities Under A Group Health Plan — U.S. Department of Labor. Accessed October 28, 2026. This public domain federal guidance is an educational reference; use the source publication and the applicable plan or employment documents for the full context and later updates. Fynoptic is independent and is not endorsed by the Department of Labor.

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