ERISA & Pharmacy Benefits: What Employers Need to Know

Understanding the rules and regulations surrounding pharmacy benefits is crucial. For employers, navigating these regulations can be a daunting task. One piece of legislation that plays a significant role in shaping how employers offer pharmacy benefits is the Employee Retirement Income Security Act of 1974 or ERISA, for short. 

But what exactly is ERISA, and how does it impact employers, pharmacy benefits, and Pharmacy benefit managers (PBMs)? In this blog post, we’ll dive into what ERISA is, what employers need to know about ERISA compliance, and the importance of partnering with the right PBM.

What is ERISA?

So what exactly is ERISA anyway? ERISA stands for the Employee Retirement Income Security Act of 1974 and is a federal law designed to protect the interests of employees  who are members of employer-sponsored benefit plans. The law sets standards for the administration and management of these plans, particularly retirement and health benefit plans.

ERISA covers a wide range of employer-sponsored benefit plans, but in terms of pharmacy benefits, it primarily impacts health plans offered by employers. If your company provides health insurance, including pharmacy benefits, to employees, you likely need to comply with ERISA.

Who Qualifies for ERISA Protection

ERISA applies to most private sector employee benefit plans, which includes not only health plans but also retirement plans like 401(k)s and pensions. For pharmacy benefits specifically, ERISA governs private employer health plans that offer prescription drug coverage. Whether you are offering fully-insured or self-funded health plans, ERISA compliance is likely a requirement.

The Core Requirements of ERISA Compliance

ERISA sets forth several core requirements to ensure transparency, fairness, and proper management of employee benefit plans. These requirements are designed to protect the plan participants and help them make informed decisions about their benefits. Here are the key aspects of ERISA compliance that employers need to be aware of:

• Plan Documentation

ERISA mandates that employer plan sponsors provide plan participants with clear and comprehensive plan documents. These documents need to outline how the health plan works, what benefits are offered, and how employees can access those benefits. For pharmacy benefits, the plan document must specify the scope of prescription drug coverage, any exclusions, and the procedures for accessing medications.

• Transparency

Transparency is a cornerstone of ERISA. Employer plan sponsors must ensure that plan participants have access to the information they need to make informed decisions about their benefits. This includes providing summaries of plan benefits, the rights of participants, and any changes to the plan. When it comes to pharmacy benefits, this means clearly communicating how employees can access medications, what their out-of-pocket costs will be, and how to appeal coverage denials.

• Claims Administration

ERISA requires employer plan sponsors to establish clear processes for managing claims. For pharmacy benefits, this involves setting up a process for employees to request prescription coverage, file appeals if coverage is denied, and ensure that claims are processed in a timely and accurate manner.

• Fiduciary Responsibility 

Under ERISA, administrators of health plans are considered fiduciaries of the benefit plans they manage. A plan fiduciary must act in the best interests of the plan and plan participants when managing health and pharmacy benefits. The core fiduciary responsibility is to act in the best interests of the plan participants and ensure that benefits are administered fairly and in compliance with the law.

• Potential for Lawsuits 

ERISA provides plan participants with certain rights to take legal action, including, for example,  where benefits have been mismanaged or unjustly denied or where plan fiduciaries did not act in the best interests of plan participants. Employers who sponsor health plans need to be aware of the legal risks that come with non-compliance and take steps to mitigate these risks through proper fiduciary management and documentation.

ERISA & Pharmacy Benefits: What Employers Need to Do

Now that we’ve covered what ERISA is and the core compliance requirements, let’s dive into what employers need to do to make sure they are compliant, particularly when it comes to pharmacy benefits.

• Review Your Pharmacy Plan Regularly

It’s important  to periodically review your pharmacy benefit offerings to ensure they align with ERISA’s fiduciary, transparency, and documentation requirements. Make sure your pharmacy benefits are clearly outlined in your plan documents, and update them as necessary to reflect any changes in coverage or pricing. Regular reviews will help you spot any potential gaps in compliance before they become a problem. 

• Communicate with Your Employees

Clear communication is key to ensuring ERISA compliance and maintaining employee trust. Make sure your employees understand their pharmacy benefits, including how to access medications, what medications are covered, and what the approval process looks like. Regularly update them on any changes to the plan and provide them with the necessary tools to manage their benefits effectively. For example, SmithRx offers online portals where partners and members can access information regarding their health plans. Check to see if your PBM offers something like that.

• Establish a Claims Process

A well-defined claims process is essential for ERISA compliance. Employees should have a clear understanding of how to file claims for prescription drugs, how to appeal denied claims, and what their rights are in the process. Setting up a simple and efficient claims process can reduce confusion and frustration for employees and reduce the risk of legal challenges down the line.

• Understand and Fulfill Fiduciary Responsibilities

Like we mentioned earlier, managing administrators of benefit plans, including pharmacy benefits plans, are considered fiduciaries under ERISA. This means plan administrators like HR Heads and Benefits Executives have a duty to act in the best interests of plan participants.  For plans that offer pharmacy benefits, this means managing plan assets and working with service providers, including PBMs, whose interests are aligned. Mismanagement or lack of transparency in pharmacy benefits can lead to legal risks, so fulfilling fiduciary duties is critical to ERISA compliance.

SmithRx Can Help You Be ERISA Compliant

ERISA plays a crucial role in ensuring that employer-sponsored benefits, including pharmacy benefits, are managed fairly and transparently. By understanding the core requirements of ERISA compliance and taking the necessary steps to meet them, employers can protect themselves and their employees from legal troubles.

The PBM you partner with can greatly affect your ERISA compliance. By partnering with a modern, transparent PBM like SmithRx, employers can take advantage of our expertise and people-first approach when it comes to managing pharmacy benefits while being ERISA compliant. We work closely with benefit brokers and employers to provide transparent, cost-effective pharmacy benefit solutions that help save on healthcare costs without compromising on quality.

If you’re looking to streamline your pharmacy benefits and ensure ERISA compliance, SmithRx is here to help. Get in touch with us today to learn more about how we can help you level up your pharmacy benefits game!