DOL Says Certain Stop-Loss Insurance Policies Are Not Plan Assets

The DOL, in Advisory Opinion 2015-02A, has determined that a stop-loss insurance policy purchased by an employer for its self-insured health plan is not a plan asset, even though part of the plan's costs are paid through employee contributions.

Background.  Under a stop-loss insurance policy, the employer remains responsible for paying plan benefits, and the insurance reimburses the employer for claim payments above certain stated thresholds (i.e., attachment points).  Employers with self-insured health plans frequently purchase stop-loss insurance to guard against the risk of large, catastrophic benefit claims.

The DOL had previously ruled in Advisory Opinion 1992-02A that a stop-loss insurance policy purchased by an employer for its noncontributory (i.e., no employee contributions required) self-insured health plan was not a plan asset.  DOL made this determination based on the following:

  1. The insurance proceeds were only payable to the   employer who was the named insured under the policy;
  2. The employer had all rights of ownership under the policy, and the policy was subject to the claims of the employer's creditors;
  3. Neither the plan nor any participant or beneficiary had a preferential claim against the policy or beneficial interest in the policy;
  4. The policy was not used to provide plan benefits or as security for payments of benefits; and
  5. Plan benefits were not limited or governed by the amount of insurance proceeds received by the employer.

Advisory Opinion 2015-02A.  The DOL has now said that a stop-loss policy purchased by an employer for its self-insured contributory health plan (i.e., employee contributions required) was not a plan asset, despite the fact that part of the plan's costs would be paid with mandatory employee contributions, when:       

  1. The stop-loss policy satisfies the criteria identified  in Advisory Opinion 1992-02A, except for the required employee contributions.
  2. The employer uses an accounting system for the plan that prevented employee contributions from being used to pay stop-loss policy premiums.
  3. The arrangement requires the plan, not the stop-loss insurer, to pay participants' benefit claims.
  4. The stop-loss policy provides for the employer to be reimbursed only if it paid participants' benefit claims from its general assets so that the employer never received reimbursement from the insurer for claim amounts paid with participant contributions.

Takeaway for Employers.  It is not clear from Advisory Opinion 2015-02A whether DOL requires all of the factors outlined above to be present for a stop-loss policy to avoid plan-asset status.  Therefore, employers that sponsor self-insured contributory health plans should consult with qualified employee benefit professionals to determine whether its stop-loss insurance arrangement is a plan asset.

Advisory Opinion 2015-02A is available at: http://www.dol.gov/ebsa/pdf/AO2015-02A.pdf.