As a third-party benefits administrator, you serve as the compliance backbone for client plans. Navigating ever-changing regulations, managing COBRA efficiently, safeguarding sensitive information, and administering benefit funds requires vigilance and expertise. A single oversight can result in substantial penalties and damage to your reputation.
Here are some of the most common compliance challenges facing TPAs today, with actionable strategies to protect your business and better serve your clients.
Changing Regulatory Requirements
Managing employer benefit plans demands comprehensive knowledge of complex regulatory frameworks. At the federal level, the Internal Revenue Service, Department of Labor, Health and Human Services, and other agencies enforce numerous rules and guidelines. Additionally, many states impose their own regulations regarding taxes and benefit plan requirements. These rules undergo frequent updates, directly impacting plan administration.
Failure to comply can result in substantial fines and other legal complications, damaged credibility with clients, and potential loss of business. Strategic solutions include:
- Utilize Free or Low-Cost Resources: Subscribe to industry newsletters, follow relevant podcasts, and participate in compliance webinars. Some examples: Employee Benefit News (EBN) offers several free resources, while the Society for Human Resource Management (SHRM) provides subscription-based newsletters with in-depth analysis.
- Become Active in Professional Associations: Organizations such as the Employers Council on Flexible Compensation (ECFC) and the Society of Professional Benefit Administrators (SPBA) offer many compliance resources, ranging from on-demand information and training courses to webinars and conferences.
- Invest in Professional Expertise: Engage legal or compliance consultants who can provide regular updates, document reviews, and personalized guidance tailored to your specific client portfolio.
HIPAA and Data Security Requirements
Properly securing participant healthcare data is non-negotiable. A HIPAA breach exposing protected health information can lead to identity theft, fraud, and discrimination against affected individuals.
Potential consequences of a HIPAA breach include civil penalties (ranging from $145 to over $2.1 million per violation), as well as criminal penalties in severe cases. It could also result in substantial legal fees, the potential for additional lawsuits, and irreparable reputational damage.
Strategic solutions to help protect against a HIPAA breach include:
- Implement a Multi-Layered Protection Strategy: Develop clear policies and procedures for handling sensitive information.
- Provide Ongoing Staff Education: Conduct regular training on HIPAA compliance best practices and emerging security threats.
- Enhance Security Measures: Limit PHI access, require strong passwords and multi-factor authentication, use encrypted digital storage, maintain secure physical storage, and perform regular security audits.
Plan Documentation and Disclosures
Summary Plan Descriptions (SPDs) are fundamental to employer-sponsored benefits plans. These documents provide employees with clear information about plan offerings and operations while offering legal protection to employers in case of disputes.
Potential consequences for failure to provide complete, accurate, and timely SPDs include fines of up to $110 per day for plan sponsors and up to $190 per day for plan administrators from the Department of Labor. Strategic solutions to avoid incurring these fines include:
- Maintain a Comprehensive Compliance Calendar: Track key deadlines for all documentation requirements.
- Automate Document Distribution: Implement systems that automatically generate and distribute required documents.
- Conduct Regular Audits: Periodically verify that all required documents have been delivered on schedule.
COBRA Compliance
COBRA continuation coverage provides crucial protection for workers and their families, allowing them to maintain healthcare coverage after job loss or other qualifying events. Managing this benefit requires meticulous attention to detail.
The consequences of COBRA compliance missteps can be substantial. You can be subject to fines of up to $110 per day per participant for errors in notifications, premium collections, or participant tracking.
TPAs offering COBRA services should pursue the following strategic solutions, at minimum, to help protect against compliance penalties:
- Leverage Automation: Implement a COBRA administration platform that automates notifications and tracking.
- Educate Employer Clients: Ensure clients understand their obligations under both federal and applicable state COBRA regulations.
FSA, HSA, and HRA Reimbursements
Tax-advantaged accounts like Flexible Spending Accounts (FSAs), Health Savings Accounts (HSAs), and Health Reimbursement Arrangements (HRAs) are popular benefit account options that come with strict IRS regulations regarding eligible expenses and reimbursement protocols.
Failure to follow these regulations to the letter can result in penalties for employers and employees and potential loss of tax-advantaged status for the accounts involved. TPAs can suffer reputational damage and lose client relationships.
To help ensure compliance with FSA, HSA, and HRA regulations, TPAs must:
- Educate Participants: Provide clear guidance on eligible expenses, contribution limits, and documentation requirements.
- Implement Rigorous Documentation Standards: Require and verify appropriate documentation for all reimbursement requests.
- Utilize Compliance Technology: Deploy solutions that automate compliance checks and provide real-time reporting capabilities.
NACHA Compliance and Payment Processing
The National Automated Clearing House Association (Nacha) governs the ACH Network, which facilitates direct deposits and direct payments across all U.S. financial institutions. All network participants must adhere to Nacha operating rules. Failure to do so can lead to fines up to $500,000, potential suspension from the ACH Network, and disruption to payment processing capabilities.
Actionable strategies to help avoid Nacha penalties include:
- Provide Comprehensive Employee Training: Ensure all staff understand NACHA rules and proper operational procedures.
- Maintain Detailed Transaction Records: Document all transactions with thorough and accessible records.
- Implement Robust Monitoring and Testing: Regularly test systems and monitor transactions for compliance issues.
- Practice Strong Customer Due Diligence: Understand your customers to minimize unauthorized payment risks.
NOTE: Third-party benefit administrators may be classified by Nacha as “Nested Third-Party Senders” (Nested TPS). For more information on rules applying specifically to Nested TPS organizations, see our recent detailed blog.
Staying Ahead of Compliance Challenges
As trusted benefit partners, TPAs shoulder significant responsibility for their business clients. The complexity of benefits administration, from regulatory compliance to sensitive data handling to timely document delivery, may seem overwhelming. However, with the right approach, you can transform potential compliance headaches into competitive advantages.
Focus on these key areas to strengthen your compliance position:
- Invest in continuous education and training for your workforce
- Seek specialized expert assistance when needed
- Adopt cutting-edge technology systems designed with compliance in mind
Ready to strengthen your compliance capabilities? Contact DataPath today to explore how our compliance-friendly CDH and COBRA administration platform can help protect your business and enhance your client service.
