The Self-Insurer August 2023

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AUGUST 2023 3



Atthe nexus of obesity and diabetes comes a new genre of blockbuster weight loss medications, which the media characterizes as the “Hollywood diet drugs.” While these medications are designed for people with Type 2 diabetes, they quickly reached stardom when socialites and celebrities began using them to help lose weight -despite some alarming potential side effects.

These red-hot commodities have entered mainstream USA, as people throughout the country aim to arm themselves with a new weapon for losing unwanted pounds.

For employers unfamiliar with the names of these drugs – Ozempic, Wegovy, Mounjaro, Saxenda and potentially more – it’s time for a crash course in obesity and the science behind these formulations.


It’s because of their growing popularity and price tags of as much as $13,600 or as high as $17,000 per patient per year, an amount which could possibly continue for the rest of an individual’s life as indications expand to patients with obesity.

These drugs have skyrocketed in popularity this year. In fact, the demand for Wegovy has prompted its manufacturer Novo Nordisk to pause its advertising campaign and limit its starting doses for new patients as it struggles to meet demand. Telehealth company Ro also reversed aggressive promotional efforts for Wegovy that involved splashy ads in subway stations.

Most recently, it has been reported that some dosages of Eli Lilly’s Mounjaro are also in shortage, the latest in a line of recurring supply issues caused by patients using the diabetes medication as a weight loss treatment.

The latest shortage will result in “intermittent backorders” for three of six doses through July 2023, with the manufacturer attributing this situation to continued dynamic patient demand and prompting the company to expand its manufacturing capacity.

These shortages also spurred many desperate patients to seek specially compounded versions of the drugs which contain semaglutide/GLP1s. Following reports of adverse events, the FDA issued a sharp warning that these compounded products have not been shown to be safe or effective.

In fact, legal teams from one manufacturer have filed lawsuits alleging several medical spas, wellness clinics, and weight loss clinics around the U.S. are illegally selling compounded versions of its medicines.


Approximately 142 million adults nationwide meet the Food and Drug Administration’s prescription criteria, according to the Institute for Clinical and Economic Review, a nonprofit that reviews the costeffectiveness of medical treatments. These individuals either are obese with a body mass index (BMI) of at least 30 or have a BMI of at least 27 and a pre-existing condition, such as diabetes.

According to the Centers for Disease Control, roughly 40% of American adults are obese, and studies estimate that the 2019 annual medical cost of obesity was nearly $173 billion. Per person, medical costs are nearly $1,900 higher per year for obese adults as compared to their non-obese peers.

Coverage for Obesity Drugs

While there is inconsistent insurance plan coverage for these drugs, weight-loss medications are likely to hit drug formularies and pharmacy benefit plans in the next year as health plan sponsors are pressured to cover and grapple with this staggering expense.

Jennifer Perlitch, RPh, assistant vice president, Pharmacy, Spring Group, shares this perspective, “Yes, these drugs have created a lot of buzz among our employer client base. There are various factors for employers to consider when evaluating adding weight loss drug coverage into their plan, as they are not typically covered.”

She says that it is important to note that Ozempic and Mounjaro are not currently approved to treat weight loss, only type 2 diabetes, adding, “Despite the approved indications, Ozempic appears to have high utilization for weight management in people without diabetes, hence the “Hollywood Diet” term, something employers should keep

AUGUST 2023 5
Jennifer Perlitch

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in mind. “These drugs all retail for around $1,300 per month and if not covered, employees can search for copay assistance programs to assist with costs. Lastly, studies suggest that patients may need to stay on the drugs for life, as research shows that most patients gain weight back after stopping medication.”

Perlitch advises employers to think about long-term costs and health outcomes: “On


Peter Weissberg, managing director, head of commercial strategy, Policy Reporter, the industry leading provider of payer coverage policy data to pharmaceutical manufacturers and national payers, says that employers and unions, in collaboration with their health plan administrators, have adopted a variety of utilization management controls designed to ensure appropriate use of treatments for weight-loss:

1. Limited distribution: 1199SEIU Plans require that members obtain Mounjaro exclusively from Accredo Specialty Pharmacy which is owned by its PBM vendor Express Scripts.

2. Step Therapy for OTC and Prescription Drugs: United Healthcare will only approve use of Wegovy or Saxenda after “Failure to lose greater than or equal to 5% of body weight after six months of treatment with OTC orlistat (Alli)” and “Contraindication, intolerance or failure to lose and maintain greater than or equal to 5% body weight following 3 month trial EACH of two of the following medications (document date of trial of each medication and total body weight lost): • Prescription Xenical • Qsymia • Contrave «"

3. Clinical Rationale via Physician Attestation: Blue Cross Blue Shield of North Carolina requires its physicians who want to prescribe Wegovy or Saxenda to document that patients have tried another weight loss medication in the previous 12 months and to provide the clinical rationale for why they believe the patients will be more successful on Mounjaro than the previous treatment.

4. Prior Authorization: Caterpillar in collaboration with MagellanRx requires documentation of a diagnosis of Type 2 Diabetes for members seeking coverage for Ozempic. As Ozempic is not specifically FDA approved for weight loss, it is possible (and highly likely) that any patient who is seeking coverage for Ozempic specifically for weight loss and not for the treatment of diabetes will not be approved.

AUGUST 2023 7
Peter Weissberg
their own, it is unlikely that the short-term costs of these drugs will be a wise investment for employers. However, if they are one part of a comprehensive wellness plan focused on sustainable lifestyle changes, the results could be significant.”
Coverage for Obesity Drugs

5. Quantity Limits: Blue Cross of Michigan limits Mounjaro to “4 pens per 28 days”.

through weight loss, they are have demonstrated a clear willingness to restrict access and


As employers already face the highest medical inflation rate in decades, Jeff Levin-Scherz, M.D., managing director and population health leader at insurance services company Willis Towers Watson (WTW), offers a different opinion, saying, “Among our clients, about

two-thirds of them are covering GLP-1 drugs for obesity, however, what we’re seeing is rapid uptake and costs that are unsustainable. Coverage right now is pretty good, but if these drugs continue to be as expensive as they are now, I don’t know if we could project that they will continue to be covered this way.”

Employers may want to examine their policies given a recent survey which found that 44% of people with obesity would change jobs to gain coverage for treatment. And more than half of workers would stay at a job they didn’t like to retain that coverage, according to the survey from the Obesity Action Coalition.

“While employers and their health plan administrators are acutely aware of the potential health benefits and financial savings which can be achieved
reimbursement for these new weight loss drugs, ” says
Coverage for Obesity Drugs

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Coverage for Obesity Drugs

So how much would people pay out-of-pocket for these drugs?

According to a STATHarris Poll, nearly half of U.S. adults would pay $100 a month for Wegovy, Ozempic or Mounjaro, and one-third say they would pay whatever they can afford indefinitely to get the injectable medicines.

Nearly half the respondents are willing to spend that amount only until they’d reached a goal, while onequarter said they’d pay $250 a month and 17% said they would spend $500 a month.

Still, the majority (84%) believe their insurance should cover the price and there are still a lot of questions on long-term effects.


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Weight loss drugs work by mimicking a hormone called glucagon-like peptide 1 (GLP-1), which regulates blood sugar levels and slows down the rate at which food leaves the stomach, making people fuller for longer. Some people lose 15 percent of their body weight or more after 68 weeks on semaglutide, which is approved in the US for weight loss as Wegovy and for type 2 diabetes under the brand name Ozempic.

Collectively, these drugs sold under the brand names Ozempic, Wegovy and Rybelsus, semaglutide accounted for $10.7 billion in drug spending in 2021, up 90% over the year before, which ranked it fourth among drug expenditures, according to a study published last year in the American Journal of Health-System Pharmacy.

12 THE SELF-INSURER Coverage for Obesity Drugs

Mary Ann Carlisle, executive VP of ELMC Risk Solutions, LLC, offers this perspective, “Injectables referred to as GLP1s, like semaglutide (Ozempic, Wegovy), have been emerging as safe, effective, and generally well-tolerated options for chronic weight management in addition to their initial indication, T2DM.”

She says that while GLP1s are often restricted for use in diabetics, their role will likely continue expanding as further studies are completed and the potential to improve other chronic diseases is quantified.

“Expect tirzepatide (Mounjaro), a novel dual GIP/GLP1 agonist, to experience an increase in utilization if also approved for weight management,” she continues. “Early comparative studies have suggested tirzepatide is at least as effective, and potentially superior to semaglutide, for weight management. At this time, many employers are closely monitoring their use as the number of scripts for these medications have exploded. We recommend finding the right balance for each plan sponsor.”

Another caveat: amid rising demand for these drugs, some obesity experts are concerned about the drugs’ impact on patient health.

One expert cites a large clinical trial for Wegovy that showed that about 40% of the weight participants lost was lean mass. Side effects like nausea, vomiting, and a possible link to rare cases of pancreatitis also still plague this newest class of drugs, which imitate the effects of a hormone called glucagon-like peptide 1 (GLP) that helps people feel full.


More than a third of adults in the United States are now classified as obese, with some ethnic groups approaching a 50% obesity rate, according to the Centers for Disease Control and Prevention. George J. Huntley, CEO, Diabetes Leadership Council stresses that obesity should be on every employer’s radar across the country.

“We are nearing the point where half of the adult population of the US has the disease making it a major but not well recognized driver of health care costs,” says Huntley, citing these facts:

• A person with obesity has on average 50% higher health care costs than a normal weight person.

• Obesity is second only to smoking as a preventable cause of death in the US.

• A person with obesity has an 80-85% risk of developing type 2 diabetes.

• Cancers associated with excess weight contribute to 40% of all cancers.

• Every 5 point increase in BMI results in a 32% increase in heart failure risk.

But he states that employers have been slow to make the connection between obesity and pre-diabetes from a coverage perspective, even though it is well known that losing weight during prediabetes can prevent a patient from ever developing diabetes.

AUGUST 2023 13 Coverage for Obesity Drugs

Coverage for Obesity Drugs

“Most of the medical care is not provided until the diagnosis of diabetes is already there,” he cautions.  “We encourage employers to cover intensive behavioral therapy (IBT), medical nutrition therapy (MNT), antiobesity medications and as a last resort, bariatric surgery.  IBT and MNT are inexpensive and should be covered as broadly as an employer would cover smoking cessation programs.  There should be few barriers or limits and strong encouragement by employers to participate in these therapies.  Medical experts indicate that the anti-obesity medicines are more effective when combined with IBT and MNT.”

He counters media characterization of the medications as Hollywood diet drugs, emphasizing, “They are drugs approved to treat diabetes and obesity.  Note that Mounjaro’s application for obesity coverage was just recently submitted to the FDA.  Calling them “Hollywood Diet” drugs reinforces the unhealthy paradigm that it’s the patient’s fault that they can’t lose weight.  It’s not their fault.”

Huntley affirms that obesity is a chronic disease recognized by the AMA, WHO and other medical boards as such for over a decade, adding, “Obesity is a metabolic condition where the body stores too much energy in the form of fatty tissue and then fights to maintain that level making it difficult and, in many cases, impossible to lose weight despite herculean efforts by many patients.  Well over 90% of dieters regain their lost weight within 3 years.  That is too high a statistic for it to be the patient’s fault.”

These drugs replace a hormone in the gut that is released in response to food intake but a person with obesity doesn’t make the hormone in adequate quantities.

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Coverage for Obesity Drugs

“The medications have been shown to reduce body weight by over 14%,” he adds. “More and more employees will be asking for these medications.  The demand level is just starting as the drugs are relatively new on the market and awareness of their efficacy is growing.”

He recommends that employers cover these drugs for people with a BMI over 27 per the FDA guidelines. “Coverage will improve the health and productivity of the workforce,” he advises.

Perlitch notes that while her company, Spring Group, is not a healthcare provider, they do consult with employer organizations looking to control costs and improve health outcomes for a range of conditions, including diabetes.

She points to this example, “We have assisted in selecting vendors for diabetes management point solutions, which take a targeted approach toward this particular demographic. We also assess strategies like self-funding and medical stop-loss coverage that protect against unprecedented claims costs that can result from a high prevalence of chronic conditions. Further, we advise on and build wellness programs for companies that are comprehensive, accounting not just for chronic conditions and weight loss, but also for behavioral health, smoking cessation, financial wellness and more.”

She says that there is absolutely a proven link between obesity and diabetes, although not all diabetics struggle with obesity.

their own set of challenges.

She also refers to the World Health Organization (WHO) reports that four million people die each year from underlying conditions related to obesity.

“Obesity has been known to increase a person’s risk of developing type 2 diabetes, hypertension, cardiovascular disease, kidney disease, stroke, sleep apnea, osteoarthritis, and certain types of cancer, and can extend beyond the physical realm to negatively impact mental health, as well,” she says. “As employers and the nation work to combat soaring healthcare costs, obesity is a critical piece of the puzzle, especially given that medical costs for the obese tend to be 30%-40% higher than those with a healthy weight.”

says Perlitch. “We are fortunate to have a clinical pharmacist on our team who runs point with our PBMs to ensure their prior authorization policies are in line with what employers need: a comprehensive solution. We also monitor utilization to ensure drug use aligns with the approved indications.”


Perlitch concurs that obesity is and has been a growing concern for employers, citing a statistic from the National Institute of Diabetes and Digestive and Kidney Diseases that reports more than 42% of American adults are obese or severely obese, a rate that has almost doubled since 1980. Not only does the weight itself impact health, it also adds to the risk of developing chronic diseases that come with

Reporting on this issue, MEDSCAPE cites industry experts who explain that for some people, obesity as a disease invalidates the importance of discipline, proper nutrition, and exercise and enables individuals with obesity to escape responsibility.

For others, obesity as a disease is a bridge to additional research, coordination of effective treatment and increased resources for weight loss.

In defining obesity specifically, one of the most comprehensive definitions is provided by the Obesity Medicine Association (OMA) in the Obesity Algorithm which states that obesity is

“Obesity can put diabetics at high risk for disease progression and other conditions that negatively impact overall wellbeing,”

defined as a “chronic, relapsing, multi-factorial, neurobehavioral disease, wherein an increase in body fat promotes adipose tissue dysfunction and abnormal fat mass physical forces, resulting in adverse metabolic, biomechanical, and psychosocial health consequences.”

The OMA advises that individuals with obesity have an increased accumulation of fat not always attributable to eating too many calories or lacking physical activity. Individuals with obesity experience impaired metabolic pathways along with disordered signaling for hunger, satiety (the feeling of fullness), and fullness (the state of fullness).

For many, efforts to lose weight are met with unyielding resistance or disappointing weight regain. Many readers may remember the television show, “The Biggest Loser” which demonstrated that as contestants lose even as much as 230 pounds, their body’s response is a slower and less efficient basal metabolic rate. Experts say this occurs in an effort to return the body to its previous condition of obesity -- a counter-effort by the body that makes weight gain easier and weight loss harder.

Furthermore, the pathology of obesity is vast and varies based on the cause of weight gain since there is not just one type or cause for obesity. Obesity sub-types include congenital, stress-induced, menopause-related, and MC4R-deficient, to name a few.

Obesity is related to genetic, psychological, physical, metabolic, neurological, and hormonal impairments. It is intimately linked to heart disease, sleep apnea, and certain cancers. Obesity is one of the few diseases that can negatively influence social and interpersonal relationships.

Last year, the American Gastroenterology Association recommended coverage of weight loss drugs for those with BMI (body mass index) over 30 or BMI over 27 with complications. Currently, about 42% of

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AUGUST 2023 17
Coverage for Obesity Drugs

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people in the U.S. are obese, or have a BMI of 30 or higher, according to CDC data.

In fact, BMI is used extensively in obesity medicine, determining who’s eligible for the new weight loss drugs or for more traditional bariatric surgery, based on research gathered using the metric. According to STAT NEWS, AMA’s new stance says BMI should be used in conjunction with other inputs to help assess fat mass, such as waist circumference and body composition. It’s not simply a measurement for obesity, BMI is used to determine reimbursement for eating disorder treatments.

Intuitively, this makes sense, he continues, “…considering obesity is a risk factor for most chronic disorders and successfully addressing elevated BMI is associated with improvements in everything from depression to heart disease.”

But even the BMI measure is under scrutiny as the AMA has gone on record with its waning confidence that BMI is a valid measure of health. This time-tested metric is so widely accepted and used throughout medicine – from surgical procedures and fertility treatments to new drug approvals and coverage/ reimbursement decisions – it will not be easy to discard.

AUGUST 2023 19
Richard Fleder, CEO ELMC Rx Solutions, observes, “For most chronic conditions, obesity is a leading contributor to pathogenesis and a focal point of many holistic treatment plans. Patients with elevated BMIs incur higher total healthcare costs, on average, when compared to counterparts with normal BMIs.”
Coverage for Obesity Drugs



Obesity is a chronic disease. According to the Centers for Disease Control and Prevention, obesity affects 42.8% of middle-age adults. Obesity is closely related to several other chronic diseases, including heart disease, hypertension, type 2 diabetes, sleep apnea, certain cancers, joint diseases, and more.


Yes. Obesity, with its overwhelming prevalence of 1 in 6 adults in the U.S., is now recognized as a chronic disease by several organizations, including the American Medical Association. The Centers for Disease Control and Prevention (CDC) defines chronic disease as conditions that last one year or more and require ongoing medical attention or limit activities of daily living, or both.

Three leading chronic diseases are heart disease, cancer, type 2 diabetes. Obesity is associated with all three of these chronic diseases. CDC also acknowledges widespread consequences of obesity when compared to normal or healthy weight for many serious health conditions, including all causes of death, hypertension, diabetes mellitus, coronary heart disease, stroke and many cancers. Of the $3.3 trillion spent annually on medical care for chronic conditions, obesity alone is associated with $1.4 trillion.


Numerous studies support a strong link between obesity and mental health. This relationship appears to be bi-directional; while mental health disorders increase the risk for obesity, having obesity also increases the risk of mental health disorders, especially in certain populations.

1) Medications used to treat psychiatric illnesses can cause weight gain and insulin resistance, contributing to obesity;

Mental health disorders can increase the risk for obesity for several reasons:

2) Mental illnesses affect behaviors such as decreased sleep, poor eating behaviors, and reduced physical activity, which can contribute to the development of obesity.

Conversely, having obesity increases the risk for depression. This is likely due to numerous complex factors, including poor self-image and depressed mood in response to weight bias and stigma, decreased activity due to joint and back pain associated with excess weight, and biological disruptions caused by chemicals secreted by fat cells when a person has obesity. The link between obesity and mental health is complex and multi-faceted. It is important that patients with mental health disorders are monitored for weight, and that people with obesity are screened for mental health disorders.

Source: Medscape.


Coverage for Obesity Drugs
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“Everyone wants the same outcomes: a happy and healthy workforce,” says Perlitch. “Obesity can profoundly impact your members, whether it be their mental and/or physical health. The short answer is yes, employers should cover these drugs BUT they need to ensure they have comprehensive prior authorization policies and ongoing monitoring in place.”

She advises that drug coverage approvals need to be robust, including proof of enrollment and commitment to a weight loss program and physical activity plan. There needs to be frequent

check ins and ongoing monitoring to assess continued weight loss, adherence to diet and physical activity, and whether the drug is working as intended.

But having insurance coverage alone doesn’t guarantee that people can afford or would be willing to pay continuously for chronic disease medications like Ozempic, according to a new, largescale study published in JAMA Network Open. For example, people with high copayments, defined as over $50, were about 50% less likely to adhere to drugs such as Ozempic and Trulicity than those with low copayments, defined as less than $10.

Weight-loss drugs may find additional channels for providing health benefits, opening up new avenues for prescription coverage that may be hard to deny. A new small study published in the journal Obesity suggests they may also be useful in fighting cancer.

Prior research has shown that people with obesity have deficiencies in their “natural killer” cells, or NK cells — immune cells that help in combating cancer. Researchers found that after a cohort of 20 people with obesity took semaglutide, the underlying ingredient in the

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Coverage for Obesity Drugs

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Coverage for Obesity Drugs

diabetes drug Ozempic and the weight loss drug Wegovy, they had increased functioning in their NK cells.

A top Eli Lilly executive is quoted in the trade press that the company is aware of and “closely looking into” anecdotes that patients taking GLP-1 drugs seem to have an easier time quitting alcohol or cigarettes—but proving a genuine impact is easier said than done.

Some patients taking GLP-1 agonist meds have had a cessation benefit along with treating diabetes and obesity. Introducing an effective drug for alcohol-use disorder could have a big public-health impact, but more data is needed, and the cost of these drugs may be impractical for broader use.

Healthcare leaders are calling for a consensus on best practices for treating obesity, including the use of anti-obesity medications. Prior to covering the cost of the drugs, employers should seek clinical guidelines that create a body of clinical consensus statements regarding how physicians prescribe medications as well as discouraging providers from prescribing the newest or most expensive medication as first line therapy.

A leading healthcare publication reached out to the Alliance for Community Health Plans and the email response was: “…given some alarming adverse events and the steep price tag, ACHP and our member companies are focused on ensuring prescribing decisions are based on science as well as on providing patients with the best care possible.”

A spokesperson for AHIP echoed this position, saying, “…insurers routinely review treatments for obesity, including lifestyle changes and nutrition counseling. Evidence indicates that the GLP-1 drugs do indeed help people lose weight. However, the evidence is still evolving related to how these medications may impact complications related to obesity such as heart disease and diabetes.”

Law and lobbying firms are now engaged in the fray to try to convince policymakers to allow Medicare to cover anti-obesity medications, an approval which could set the stage for commercial coverage. Currently, Medicare is banned from covering weight loss drugs as part of the Part D program.

But the summer of 2023 may change the landscape altogether:

• An experimental pill from Eli Lilly – which patients may find

more convenient than an injection -- led to 14.7% weight loss on the highest dose in a 36-week trial. Mid-stage results for orforglipron match the estimates of 14-15% weight loss that Lilly reported last year, and full results newly published in the New England Journal of Medicine were presented the American Diabetes Association conference.

• Clinical data results from a massive study from Novo Nordisk will disclose whether its in-demand weight-loss treatment Wegovy can prevent cardiovascular problems after years of use. Analysts expect the trial to succeed and the impact on patients and payers will be palpable -- enough to convince public and private insurers, who have been slow to reimburse for the medicine, to change their policies.

Laura Carabello holds a degree in Journalism from the Newhouse School of Communications at Syracuse University, is a recognized expert in medical travel, and is a widely published writer on healthcare issues. She is a Principal at CPR Strategic Marketing Communications. www.


Sources:,and%20 III)%20and%20in%20Europe.&text=This%20increase%20has%20occurred%20across,%2C%20race%2C%20and%20 smoking%20status. PMC6179496/#:~:text=Obesity%20is%20estimated%20to%20cause,and%20III)%20and%20in%20 Europe.&text=This%20increase%20has%20occurred%20across,%2C%20race%2C%20and%20smoking%20status.,influence%20 social%20and%20interpersonal%20relationships. source=modern-healthcare-alert&utm_medium=email&utm_campaign=20230614&utm_content=idio-headline4 FHfD1K0DmeDYz249jRVUaJOAsdzYo1srMFSul54yA8Jf7xPuHZbh6HJT0QcADELYSOImt2_v4XKCMs2MMluFO0d1A&utm_ content=261585256&utm_source=hs_email medium=email&_hsmi=260790124&_hsenc=p2ANqtz-8DgmSrGNBfRAqEBUABk8YOQ6rhvTDeherQph1ulxJ9DQjfG8jC_4U1dX0 Vlr5_5g7nzQcWHAT0o9jG_afrISZmPuiNfw&utm_content=260790124&utm_source=hs_email

AUGUST 2023 25
Coverage for Obesity Drugs

Coverage for Obesity Drugs will%20soon%20start%20covering%20GLP-1s%20and%20other,has%20the%20potential%20to%20attract%20and%20 retain%20talent.

The employer cost of weight loss drugs Ozempic and Wegovy | EBA | Employee Benefit News medium=email&_hsmi=262719759&_hsenc=p2ANqtz--8vL8SdfiXVfPHlzKwO0zhI39r_U3LYu16sdLNhsq6kLechQrOeiF1AFMJoC BDt2qub2uqZK7X6iJi-6TcJaPufMO7TQ&utm_content=262719759&utm_source=hs_email


A Matter of MATURITY


Asthe number of captive insurance programs swell and buyers become more sophisticated, the alternative risk transfer market continues to evolve. Self-insured employers that seek this added layer of protection in both the medical stop loss and P&C spaces are learning what different types of captive structures mean to various risk profiles and how they operate.

There are numerous captive classifications that include pure, group, association, industrial, branch, rental, protected cell and 831(b) electing captives, as well as risk-retention groups. While captive insurance companies date back more than a century, there has been significant growth in captives during the past 30 years with more than 7,000 such vehicles globally compared to about 1,000 in 1980.


When Medical Captive Underwriters

President Don McCully wrote his first plan in 2010, there was about $150 million of stop-loss captive premium nationwide as part of a $12 billion stoploss market. “Our stop loss is now $20 billion and stop-loss captive premium somewhere between $1.5 billion and $2 billion,” he says.

And the market is expected to swell much further in the coming years. The captives insurance space will grow more than 25%, says Kari L. Niblack, Esq., president of Blackwell Captive Solutions (BCS), based on her own analytics and a Millman projection. She also sees significant maturation of medical stop-loss captives that serve as shock absorbers for increasingly sophisticated buyers to pool claims.

There are plenty of reasons why this is happening. Ward Humphreys, SVP for Risk Strategies, sees captives as a solution to the growing limits and exclusions traditional insurers are imposing on the group medical side. A classic example is gene therapy which is seeing $2.5 million to $3 million in claims with another $1 million in increases tacked on involving hemophilia or other genetic conditions.

“Thus far, we haven’t seen the frequency of claims, but they are coming,” he cautions, noting how that proverbial elephant in the room will make an appearance on a fourth renewal cycle. “We’re going to see the response from reinsurers and stoploss underwriters where there might be limitations or exclusions that apply. A captive is the perfect place to start building up reserves to anticipate those claims.”


With captive solutions pouring into the middle market, McCully is bullish about its future. One major reason is to better manage specialty pharmacy, which he says is even more of a concern than what hospitals are charging.

“There’s no greater tapeworm on health insurance today,” he observes. “As we gain more control, you’ll start to see programs exert

themselves and say, ‘hey, let’s actually abide by the Consolidated Appropriation Act and transparency-in-coverage rule, and actually get some of these things in where when ERISA was passed in the ’70s, it said the employer owns their data.”

There’s no secret sauce to what a captive does, explains Phillip Holowka, chief operating officer with Complete Captive Management Services. “The magic is the expense load that the captive can bring to an end user,” he says, noting that startup captives have traditionally incurred higher loads from fixed and sunk costs within a newly formed group captive that erode profits.

Innovation is expected to mushroom as the captive space grows deeper roots and continues to mature. Helping employers become motivated to be more effective risk mitigators is the goal of a single-parent captive risk pool that Holowka describes as a “first-in-first-out” solution. When self-insured employers pay premiums into their captive, they are obviously the first payer of reimbursements out of that arrangement. “Only when your captive can’t reimburse you any further is the risk shifting and sharing sent out to the other captive members,” he explains.

Mindful that the group captive is effectively shifting all of its insurance company operations to the carrier, Holowka says the

AUGUST 2023 29
Ward Humphreys
Matter of Maturity
Don McCully

Matter of Maturity

question then becomes, what is the duty of a group captive when it is offloading its responsibilities to the fronting carrier?

At a recent industry event, he gave a presentation on another noteworthy trend: the directwriter captive structure, which he says “absorbs the insurance company operations because it is issuing a policy whose language and is controlled by the captive, albeit approved by the cabinet domicile.

“The policy language is written to benefit the insured,” he continues. “A reinsurance group captive’s policy language is written to benefit the carrier’s distinctive districts, so the direct-

writer captive issues the policy, collects the premium, administers the claims, issues the reimbursements, assembles the financial statements. These are all the things that the group captive offloads to an insurance company fronted carrier.”

There’s more required of the captive manager in a direct writer, Holowka says, and therefore, the level of service presumably will be deeper.


With a maturing market will also come more customized captive solutions. BCS, for example, offers a middle-risk layer to better serve clients, insuring the $250,000 floating layer above their medical plan’s specific deductible. “Anytime you spread that risk, there’s more predictability and stability, and it lowers premium costs for employers who may not otherwise be able to self-fund,” Niblack explains.

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Matter of Maturity

Captives do not have to be complicated, or require a multi-year commitment, she notes. “I believe we should have the ability to work with any consultant as part of a three-pronged approach that is best for that client vs. awarding exclusive territories and broker dividends to try and shut out competition,” she adds. “That to me is the secret sauce.”

McCully’s company is among a handful that is also offering a floating vs. fixed risk layer – the latter, he believes, being bad for employers because raising the specific limit compresses the percentage of premium that makes it into the captive.

“We take a floating risk above that,” he reports. “Everybody pools their risk below $1 million and then they buy reinsurance, so it doesn’t matter where the employer buys their specific limit. So each of those programs is a different nuance. We’re not even getting into the expenses for running the program, or who owns the captive. We’re just talking about how you transfer and assume risk.”


The captive insurance market is essentially bifurcated into two buckets, observes Dale Sagen, VP and business development leader for QBE North America. There are branded products he calls “uppercase-C” group captive programs that can dive much deeper into cost-containment and are akin to 401(k)s or IRAs being actively managed on a daily basis.

“You could have a certain condition that is a pain point for the majority of employers,” Sagen says of these targeted point solutions, which could involve anything from negotiating more favorable terms in pharmacy benefit manager contracts and treating musculoskeletal disorders to dealing with a shortage of primary care physicians and building a telehealth offering.

However, these formalized arrangements are just the tip of a growing iceberg. There are more than 7,000 “lowercase-c” captives in the market today, he says, adding that most aren’t marketed and are for single-parent captive use to reduce costs alongside gaining more control and transparency in a regulated manner.

A turning point in the adoption of these programs came about 20 years ago when cell captives became popular, reducing the price point and barrier of entry for many organizations, according to Sagen. “You don’t necessarily need as much capital or infusion of assets” with cells whose risk is walled off, he says.

Most medical stop-loss captives are single-parent vehicles that are either heterogeneous with employers from across different industries or homogeneous within a certain industry, Niblack observes. Her firm is working on quoting hospital systems for 2024 with the ultimate goal of creating a hospital cell. “They have different needs than other types of employers,” she explains, noting a more complicated revenue structure, as well as E&O and professional liability concerns.

Niblack predicts tremendous growth in medical stop-loss coverage in single-parent captives wherein the employer pulls risk but still has all the necessary reinsurance protection. It also removes any barriers to entry for that solution in the middle market.

“If I were an employer with 200 lives on the fence about whether I could afford to be self-funded, and if I’m pulling risk with 10 other employers around that same size, that becomes an automatic yes and eliminates the uncertainty,” she says. A tertiary benefit, she adds, is

Kari L. Niblack, Esq.

the meaningful dialogue that occurs when like-minded captive participants share solutions.


As medical stop-loss captives continue to mature, Niblack predicts that more best practices will be identified. Noting there are key legal and tax benefits to joining a captive that are universal, she says there’s an opportunity to synthesize stoploss policy quotes into a one-page pro forma that highlights the enrollment and gross premium, as well as netting out vendor expenses to the penny on an annual basis.

“All of that should be very fluid,” she suggests, “yet also easy to understand and have all the appropriate safeguards in place no different than we would ensure with the data itself.”

Lower-hanging fruit that can be effectively benchmarked will invariably involve medical management, says Humphreys, noting that drug costs and hospitalization rates lend themselves very well to benchmarking in terms of a captive. How it is structured becomes harder. “If you’re looking at an employer with 1,000 employees vs. a 20,000 employer group, and you don’t know about the population, risk tolerance and capital availability,” he explains, “those factors become a little bit harder to benchmark consistently.”

The prospect of devising best practices for captive insurance programs is complicated by the fact that, as Sagen says, “if you’ve seen one captive, you’ve seen one captive.” The uniqueness of each arrangement enables self-insured employers to customize the layer as they see fit.

“You can build out a quota share in which your risk partner is taking a portion of that captive layer,” he explains, “and ultimately, it could be a baby step into a solution for a larger group of employers.” Other

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ways it can be structured include employers owning the captive, bringing on a fronting partner or finding a risk partner to cap exposures for direct writing policies.

Whatever the arrangement that’s in place, Sagen is a fan of strength in numbers. “There’s something

employers in the same industry that decide,

necessarily think I can do this

he says, noting how solutions may be built around tackling the high costs of therapeutic drugs, hospital PPO negotiations or other areas.

He has seen captive programs start with a close-knit group of just three homogeneous employers that expands over time and, on occasion, becomes a heterogeneous group after years of success.

However, benchmarking in an increasingly mature captives market is tricky, McCully cautions. For example, some customers have

assessments while others do not, and the definition of assessment will differ from one program to the next. Also, no one is publishing their loss ratio inside the captive.

“It’s not possible to determine the total medical spend in a captive with a $1 billion worth of total premium frankly without some sort of way to kind of validate it from a third-party perspective,” he explains. “A.M. Best isn’t looking at this stuff because we’re all using fronting carriers, and if the captive programs losing money for the employers, even the fronting carrier doesn’t want that to get out for fear they’ll leave their program.”

The outcomes of any captive solution ultimately will depend on both the source of coverage and claims history. “There is an arbitrage play, if you will, by stop loss from a reinsurer vs. a

35 AUGUST 2023 Matter of Maturity
to be said for a group of
‘I don’t
on my own,’”
Dale Sagen

stop-loss carrier, which is much more pool-oriented,” Humphreys says. “So if you have a 10,000life employer that’s had good experience, they’re going to get a lot more credit from a reinsure than they are from the stop-loss underwriter.” The opposite is true for a group with poor experience that will receive better terms from the employer stop-loss arena than reinsurance, he adds.

Looking ahead, Niblack anticipates the continuation of narrow subspecialty captives that are highly innovative. Reference-

based pricing clients, for instance, are taking on the risk of balance bills. “We are seeing captive solutions with small niche industries that previously have struggled to obtain any type of health insurance,” she reports, noting how a group of skydivers formed their own captive.

Other examples include parlaying the six- or seven-figure cost of biopharmaceuticals, other specialty drugs or kidney dialysis treatment into either a second or third active risk solution. With subspecialties in the overall solution, “I

Bruce Shutan is a Portland, Oregon-based freelance writer who has closely covered the employee benefits industry for more than 30 years.

37 AUGUST 2023 Matter of Maturiy
think that’s limitless as far as design and the healthcare industry problem that we’re trying to solve for everybody,” she says.



TheAffordable Care Act (ACA), the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and other federal health benefit mandates (e.g., the Mental Health Parity Act, the Newborns and Mothers Health Protection Act, and the Women’s Health and Cancer Rights Act) dramatically impact the administration of self-insured health plans. This monthly column provides practical answers to administration questions and current guidance on ACA, HIPAA and other federal benefit mandates.

Attorneys John R. Hickman, Ashley Gillihan, Steven Mindy, Carolyn Smith, Ken Johnson, Amy Heppner, and Laurie Kirkwood provide the answers in this column. John is partner in charge of the Health Benefits Practice with Alston & Bird, LLP, an Atlanta, New York, Los Angeles, Charlotte, Dallas and Washington, D.C. law firm. Ashley and Steven are partners in the practice, and Carolyn, Ken, Amy, and Laurie are senior members in the Health Benefits Practice. Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner’s situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation. Readers are encouraged to send questions by E-MAIL to John at



Notwithstanding numerous IRS rulings in this area (and some criminal enforcement activity) reported in our previous articles, double dip tax arrangements have continued to proliferate.

A June 2023 Chief Counsel Memorandum (CCA) addresses the most current flavor of the double dip (again couched in terms of a “wellness plan”), and the result is not surprising. Although the details of such schemes may vary, they all have one fatal flaw: the promised, purported tax benefits are illusory.


The classic “double dip”

What is commonly referred to as the classic “double dip” first appeared in the early 2000s. This arrangement consists of two basic steps.

First, employees pay for their portion of the cost of employer health plan through pre-tax salary reduction. This cost is normally otherwise excluded.

Second, employees receive back a portion of their salary reduction contribution to bring their take-home pay back up to the pre-salary reduction level. This reimbursement is purportedly untaxed and would not be considered additional income.

This is the “double dip” – both the initial payment and the subsequent monies returned avoid the appropriate taxes and the employee purportedly has no cost.

In the original scheme, the payments were characterized by the promoter as “reimbursements” for the cost of the health plan. The promoter pocketed a fee from employers and employees from the purported tax savings. The problem was, and continues to be, that the purported tax-free payments are in fact taxable wages subject to income and employment taxes and withholding, which the IRS made clear in Revenue Ruling 2002-3.

Variations on a theme – so called “wellness” plans

Following the 2002 revenue ruling, promoters modified their approaches, but with the same core problem – the promised taxfree payments are illusory.

In a memorandum released December 12, 2016, the IRS addressed an abusive tax arrangement marketed primarily to small employers that utilized a so-called “wellness program” coupled with a self-funded indemnity plan that purported to provide significant tax benefits for both employers and employees.

Under the program, disproportionally large benefits – which often corresponded to the amount of wages sought to be sheltered from tax – could be triggered by nontraditional medical events.

While most health indemnity policies are fully insured and triggered solely by an accident or sickness, as required by tax law, benefits under the selffunded health indemnity plan lacked economic substance. Payments could be made for merely completing a health risk assessment or calling a health coach.

While there are legitimate wellness programs, the IRS had little trouble revealing the fatal tax defects of these arrangements under review.

AUGUST 2023 39

The most recent IRS memo

The latest IRS memo addressing double dip tax schemes was released in June 2023. The focus of the memo is the involvement of an insured fixed indemnity wellness policy. In this scenario, employees pay monthly premiums of $1,200 for the policy through pre-tax salary reductions.

The policy provides for certain “wellness benefits”. In addition, employees could separately purchase a traditional fixed indemnity benefit for each day the employee was hospitalized. It is significant to note that the memo addresses the wellness benefit only.

The memo describes the scenario as:

• An employer provides comprehensive health coverage for employees through a group health

insurance policy. In addition, the employer offers all employees, regardless of their enrollment in the comprehensive health coverage, the opportunity to enroll in a fixed indemnity health insurance policy.

• Employees pay a monthly premium of $1,200 for the fixed indemnity policy through a pre-tax salary reduction.

• The policy pays a monthly benefit of $1,000 triggered by certain health or wellness activities, including preventive care that is paid for by the comprehensive health coverage. The wellness benefit also offers full coverage of several triggering events, including wellness counseling, nutrition counseling, and telehealth benefits, at no additional cost.

• The wellness benefits are paid from the insurance company to the employer, which then pays the benefits to the employee through the employer’s payroll system.

Using similar analysis to the prior memos, the IRS found that the $1,000 wellness payments are taxable income subject to employment taxes (e.g., FICA, FUTA), because the payments are made without regard to whether the employee incurred any unreimbursed medical expenses; more specifically, either there are no medical expenses, or they are completely reimbursed by the policy and/or the employer’s comprehensive health plan.


Some promoters are increasingly aggressive in marketing variations on the double dip abusive tax shelters, promising the same “win-win”


– tax benefits for both the employer and employees, with no reduction in employee take-home pay.

Regardless of how they are cloaked, e.g., as part of a self-funded or fully-insured “wellness plan,” they all have the same fatal flaw – the promised tax benefits are not real. What do the faulty schemes look like? Let’s take a look.

Typical promoter claims

Promotional materials vary, but the promises of tax benefits are similar. Statements that promoters may use to describe the benefits of the arrangement include:

• Employees increase their insurance benefits without changing their paychecks.

• Employees can purchase supplemental insurance without reducing their take-home pay.

• FICA tax savings for the employer and employees; employees get the same take-home pay.

• Tax savings pay for additional benefits.

Promoters may also claim that the plan or materials are proprietary and may ask the employer to sign a nondisclosure agreement.

Core features of the arrangements

Regardless of the terms used to describe these arrangements, they appear to have the same essential core features. To avoid being exactly like the classic double dip, the current “wellness plan” schemes add an additional trigger, often referred to as wellness plan compliance, as the basis for bringing the employee’s pay back to the pre-salary reduction level.

Step 1: The employee makes a salary reduction election.

• If the promised tax benefits are realized, the salary reduction election reduces employee and employer FICA and FUTA payroll taxes and employee income taxes.

• The pre-tax salary reduction election reduces the employee’s paycheck.

Step 2: Bring the employee’s paycheck back up to the presalary reduction level.

• The employee receives purportedly tax-free payments (“wellness payments”) equal to most of the employee’s salary reduction amount. The amount of salary reduction returned to the employee is generally reduced by a promoter’s fee. Part of the

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monies returned, which aren’t paid directly to the employee, may be used to pay for a traditional fixed indemnity plan.

• To receive the benefit payment, the employee is required to take certain actions, also referred to as “benefit triggers.” Examples of typical triggers include:

⋅ Using preventive care services that are paid for by another health plan.

⋅ Participating in certain activities that are generally related to health but do not involve a medical expense that is not already fully covered by the policy.

⋅ Calling a toll-free telephone number or checking a website that provides general health information.

⋅ Attending a seminar or webinar that involves general health information.

⋅ Talking to or checking in with a health coach.

What’s the problem?

The payments in Step 2 are taxable, which reduces the employee’s take-home pay. For the payments in Step 2 to be tax-free, the payments must be reimbursements for an incurred medical expense. The benefit triggers, while perhaps health related, do not involve unreimbursed medical expenses as defined under federal tax rules. Thus, the purported tax savings evaporate.


Using a cafeteria plan to pay for health benefits on a pretax basis.

It’s straightforward to take advantage of a cafeteria plan so that employees can pay for qualified benefits on a tax-free basis through employee salary reduction.

Employee salary reduction amounts may be used to pay for their share of the employer’s major medical plan, dental, or vision coverage, as well as pay premiums for supplemental insurance policies, such as specified disease, hospital or other fixed indemnity health policies on a pretax basis.

Tax benefits of such pretax arrangements are straightforward and distinguishable from the tax gimmick marketed under the “wellness plans.”

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The tax treatment of benefits paid under fixed indemnity health polices is well established and depends on whether the premium was paid on a pretax or after-tax basis.

• If the premiums are paid on a pretax basis through employer contributions or employee pretax salary reduction through a cafeteria plan, determining if those benefits are taxable depends on the individual’s unreimbursed medical expenses. If the amount paid under the policy does not exceed the individual’s related unreimbursed medical expenses for the triggering event, then the amount received is not includible in the employee’s income. In other words, if a benefit is paid that is equal to or less than a medical expense for the triggering event, it doesn’t count as income and would not be taxable. However, if the amount received under the fixed indemnity policy is more than the individual’s related unreimbursed medical expenses, then the excess benefit or amount that exceeds the unreimbursed amount, is taxable.

• If the premiums for the policy are paid by the individual on an after-tax basis, then the benefits received are not subject to tax.

IRS Revenue Ruling 69-154 sets forth the excess benefit rule and includes some detailed examples. Under Revenue Ruling 69-154, determining the amount, if any, of taxable benefits under a fixed indemnity health policy paid for with pretax dollars involves a variety of factors which are known only to the employee, not the employer nor the insurer.

These factors include what other coverage the individual has, the total amount of medical expenses they incur, and the amount of reimbursed medical expenses they receive. If the employee has more than one fixed indemnity policy, such as a policy paid with post-tax dollars, the calculation

45 AUGUST 2023

may be more involved, as the employee may need to allocate expenses between the various policies. The employee will make this determination with their tax advisor when filing their personal income taxes for the year in question.

It should be noted that the December 2016 memo inadvertently used overly broad language that caused confusion around the long-standing “excess benefit rule”. The April 24, 2017 IRS memo clarified and reconfirmed the continued validity of the “excess benefit” rule set forth in Rev. Rul. 69-154 – i.e., that only “excess benefits” under fixed indemnity health policies are taxable.

The April 2017 memo also has a helpful example of a traditional fixed indemnity health plan that pays fixed amounts on the occurrence of health events, such as a medical office visit or a hospital stay where the premiums for the policy are paid on a pretax basis through a cafeteria plan. The plan pays $200 for a medical office visit. If the covered individual’s unreimbursed medical cost as a result of the visit is $30, then $30 is excluded from the employee’s income and the excess amount of $170 is taxable.


Unfortunately, tax avoidance benefit schemes continue to exist. While federal agencies work to stop them, it is equally important for employers to know what to

look for and how to avoid these schemes. To take advantage of the legitimate tax benefits for employer health plans, employers should employ the straightforward salary reduction arrangement under IRS Tax Code Section 125. While it does result in a reduction in takehome pay, it also offers real tax savings on the premiums compared to paying on a post-tax basis and benefits the employee in the form of desired insurance coverage.

The information in this article is provided for general informational purposes and is not provided as tax or legal advice for any person or for any specific situation. Employers and employees and other individuals should consult their own tax or legal advisers about their situation.



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InApril of this year, the Internal Revenue Service (IRS) and the U.S. Department of the Treasury announced proposed new regulations to more closely govern captives that elect under Internal Revenue Code § 831(b) – and which would severely limit access to captive insurance programs for small- and medium-sized businesses in the United States.

The proposed new regulations would make certain small captives under IRC § 831(b) a “listed transaction” – requiring separate reporting to the IRS – or as “transactions of interest,” which trigger further IRS scrutiny.

IRS Proposed Rule 109309–22 seeks to overregulate certain § 831(b)-electing captives by creating untenable loss ratio requirements (65 percent), loan back limitations, and 10-year retroactive provisions, while imposing arbitrary and capricious standards.


These actions not only propose to legislate through regulatory action, contrary to congressional intent, but would prevent middle market American companies from mitigating against critical and evolving legitimate business risk.

It is especially onerous that the IRS is seeking to create a 10-year retroactive period in changes to law and regulatory authority, which is unprecedented in scope and creates a capricious burden on U.S. business.

None of the four criteria identified by the IRS in the proposed regulation, either separately or in their own right, are abusive. As such, they should not be used under the proposed criteria to label a transaction as a listed transaction or transaction of interest unless they are always tax avoidance.

Interested parties were given a 60-day period to comment, ending June 12 with 174 comments published, including those from the Self Insurance Institute of America (SIIA), and a number of captive owners, managers, state captive associations and other organizations. The IRS also held a hearing July 19 in Washington, D.C. to listen to additional oral testimony on the proposed regulations.

SIIA stated that it strongly believes the IRS should create criteria that track existing law and authority, not circumvent that law, or ignore congressional intent in an arbitrary and capricious retroactive manner. Importantly, § 831(b) has and continues to be a valid tax election available to insurance companies that qualify and make the election.

Beginning in 2014, SIIA has maintained ongoing advocacy for a balanced approach with the IRS that enforces against abusive behavior, while also allowing appropriate access to captive insurance as the statute provides. Since that time, Congress has clarified § 831(b) access twice, while the IRS has failed to issue needed guidance.

According to Ryan Work, senior vice president of government affairs, SIIA continues to assert that the IRS should create appropriate criteria – based on the thousands of captives that have complied with data requests – that also tracks existing law and authority. He stated, “Treating § 831(b)-electing captives differently than other larger captives or commercial insurance companies is harmful and overbearing.”

SIIA also stated: The IRS proposed rule 109309-22 seeks to overregulate certain § 831(b)-electing captives by creating untenable loss ratio requirements (65 percent), loan-back limitations, and 10year retroactive provisions. For these reasons, SIIA continues to recommend that the IRS engage with the captive insurance industry

and business owners to more appropriately craft regulations that curb abuse, while further understanding the intent, need, and appropriateness of risk mitigation.

Chaz Lavelle, partner at Dentons Bingham Greenebaum LLP, in Louisville, Kentucky, said of the proposed regs: “If you have a company that makes the § 831(b) election, and if at least one 20 percent owner of the captive is either an owner, the insured or a relative, and if the captive had a loan-back of $1 of premium within the last five years, or more than five years but you haven’t paid it off, you are a listed transaction.”

He added, “You can also be in this category if you have a less than 65 percent loss ratio. That applies if you have been in existence for 10 years. If less than 10 years, you are a transaction of interest.” The purpose of this, he said, is to determine if the captive is truly engaged in insurance.


A “micro-captive” is one that seeks the § 831(b) tax election, meaning that the captive is only taxed on investment income, and not on underwriting profit.

These small captive structures were created by Congress in 1986, when it passed regulations designed to help small companies remain competitive. This allowed small and medium sized American companies to set aside reserves, much like their larger

49 AUGUST 2023

counterparts, to mitigate against future risks.

Since enactment, § 831(b) has served a critical policy purpose to help small- and medium-sized businesses mitigate risks not available, or too expensive, in the commercial insurance market.

Since that time, Congress has clearly intended for § 831(b) to streamline and assist businesses in mitigating against risk that includes farmers, auto dealers, community banks, manufacturers, trucking, construction, professional services firms, and many others.


David Guerino, senior vice president, managing director of captive insurance at KeyState Captive Management LLC in Burlington, Vermont, explained that in 2015, Congress passed the PATH Act, increasing the annual limit of premiums for § 831(b) captives to $2.2 million from $1.2 million, and increasing the threshold according to inflation.

To qualify as a small captive under § 831(b) captives must write premium at a current maximum threshold of $2.65 million in annual premium, which SIIA successfully advocated to increase as part of the 2015 PATH Act which was passed by Congress and benchmarked to inflation.

“This was a clear indication of Congress’ intent to allow small and mid-size businesses to avail themselves of the § 831(b) captive structure as a risk management tool, while curbing certain abusive practices in the industry, particularly surrounding estate planning” Guerino said.

Under the newly proposed regulations, a small captive which, during its past five taxable years, returned premiums to the insured, or an affiliate in a non-taxable transaction, would be considered a “listed transaction” – a transaction that the IRS has determined to be for tax avoidance.

An § 831(b) captive recording a loss ratio less than 65 percent during the past 10 taxable years would also be considered a “listed transaction.”

Brian Johnson, managing director, risk at International Actuarial Consulting in Charleston, South Carolina, concluded, “Currently we’re in a waiting game, but I feel confident that if this goes through as proposed, the IRS will end up having a court decision that doesn’t go their way, because somebody will be willing to spend the money.”

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At the heart of the issue is whether IRS authority preempts state authority to govern captive insurers of any size. The McCarran-Ferguson Act, enacted in 1945, established state regulation of insurance companies.

According to GovInfo:

• The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business.

• No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance.

A submission to the IRS by Glen Mulready, Oklahoma’s insurance commissioner, proposed that any decisions made be based on this principle. He suggested forming a task force including regulators, the IRS, and the industry to work out a solution.

In his comments, Mulready said, “It is a sincere invitation. Instead of litigation, let’s have conversations and identify each other’s issues and work things out.”

Steve Kinion, captive insurance director with the Oklahoma Department of Insurance, noted, “The Oklahoma Department of Insurance and Commissioner Mulraney feel strongly about the infringement on the state’s authority to regulate insurance. We did not recognize anywhere in the proposed regulation that any kind of congressional authority had been given to the IRS to promulgate the proposed regulation.”

The proposal, he said, “establishes standards that for some kinds of insurance will be impossible to meet.” As an example, he cited the April 19, 1995, Oklahoma City bombing, “The largest and most significant event of domestic terrorism in the United States to date.”

The issue, Kinion said, is that if a business decided to form a captive to insure it from terrorism risks, “and over a period, say nine years, never had a claim; under the IRS proposed regulation, that captive insurer would be a ‘transaction of interest.’” The possibility of preparing for a terrorism event, he believes, is something that was not considered.

“We’ve had a lot of litigation, that is not the best path to regulation,” Kinion said. “Conversation, discussion, and negotiation leads to better long-term public policies. Otherwise, it can get expensive, and the wheels of justice move slowly.”

51 AUGUST 2023



Source: Steve Stucky, Past President. Chairman, Self-Insurance Institute of America (SIIA), 6/30/2023

James William Duff (Jim), of Palm Desert, CA and Grosse Pointe, MI, 84 years old with his wife and best friend Caroline (Mehen), at his bedside after a 25-year battle with Addison’s Disease passed from this world to better place on June 24, 2023.


James was born February 25, 1939, to Lucinda Anderson Duff and Charles Henry Duff, younger brother to Charles Franklin Duff. He had to overcome numerous ailments as a youth including hip surgery which required a six-month recovery in a full body cast.

During this time James’ appetite for knowledge was fed by reading any dog-eared paperback he could find, especially the works of Louis L’Amour, a passion that would stay with him all his life. After graduation from Bishop Noll HS James with his brother’s direction, enrolled at Xavier University in Cincinnati. James excelled in his studies and was rewarded with one of only 10 internships at General Motors.


JD from Detroit College of Law in 1967

Owner and CEO of Creative Risk Management Corporation (CRMC), a third-party administrator

President and Chairman, Self-Insurance Institute of America

President and CEO of CoreSource

Chairman, Board of Detroit Riverview, later Board Member of St. John’s and Ascension Health

Establishment of The James W Duff Health Care Center

Leadership and Contribution to Self-Insurance Industry

Jim Kinder, Self-Insurance Institute of America (SIIA) founder & CEO (1981-2008) said, “Jim Duff provided strong leadership during the early days of SIIA and during a pivotal growth period of the organization. Jim was the driving force to expand SIIA beyond educational programs and membership networking by becoming an active force in the political arena at the federal, state, and regulatory level to protect the interest of self-insurance and alternative risk financing.

“Jim created strategies and effective legal action, advanced by SIIA to protect the ability of risk-takers to use alternative risk funding (self-insurance) in addition to insurance stop-loss. Under Jim’s leadership, he also created strategies to protect self-insurance interest and rights of business to engage in alternative risk financing by advancing SIIA sponsored litigation.

“Jim always gave his time, talent and money unselfishly to advance SIIA and the industry, ” Kinder added. “He and I developed a great working relationship and strong friendship over the years. Thanks for the memories, my friend.”
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SIIA Diamond, Gold, and Silver member companies are leaders in the self-insurance/captive insurance marketplace. Provided below are news highlights from these upgraded members. News items should be submitted to

All submissions are subject to editing for brevity. Information about upgraded memberships can be accessed online at

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55 AUGUST 2023
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PHILADELPHIA -- Independence Blue Cross (Independence) and Sun Life U.S. announced a new collaboration to exclusively provide Stop Loss insurance for Independence’s self-funded group customers.

Independence offers a comprehensive approach to self-funded customers’ health plans, helping clients balance and optimize health care costs while enhancing their employees’ health care experience and overall wellbeing. The collaboration with Sun Life is a further demonstration of Independence’s commitment to its customers.

“We selected Sun Life after a strategic search where we evaluated their capabilities and partnership approach against other national carriers,” said Mike Sullivan, executive vice president and president of diversified markets at Independence Blue Cross. “In the end, it was a shared vision on how to best meet the needs of our customers that made this the right fit for Independence. With Sun Life, we can add even more value to our employer groups plans.”

The Independence collaboration with Sun Life for Stop Loss

insurance will have:

• customizable solutions with competitive pricing and reduced fees for Independence Blue Cross groups;

• reporting with actionable insights to make it easier for employers to make decisions about their Independence selffunded plans;

• cash flow solutions with an advance funding program to pay claims at the time they are received, rather than waiting for a reimbursement check after they are paid; and

• other new program features to be introduced in the future as Independence establishes Sun Life as the company’s exclusive Stop Loss partner.

“We are excited to partner with Independence Blue Cross on a risk-share agreement,” said Jen Collier, president, Health and Risk Solutions, Sun Life U.S. “Sun Life’s Stop Loss coverage helps employers manage the high costs of care while continuing to offer comprehensive health coverage for their employees. Working with Independence Blue Cross will give self-funded employers in southeastern Pennsylvania a Stop Loss insurance option that helps drive both excellent care and efficient cost outcomes.”

The Independence and Sun Life collaboration and all features will be effective January 1, 2024. Select benefits will be available now through the end of 2023 for new Independence self-funded employer groups who choose Sun Life for Stop Loss insurance.

About Independence Blue Cross

Independence Blue Cross is the leading health insurance organization in southeastern Pennsylvania. For 85 years, we have been enhancing the health and well-being of the people and communities we serve. We deliver innovative and competitively priced health care products and services; pioneer new ways to reward doctors, hospitals, and other health care professionals for coordinated, quality care; and support programs and events that promote wellness. To learn more, visit ibx. com. Connect with us on Facebook, Twitter, LinkedIn, and Instagram. Independence Blue Cross is an independent licensee of the Blue Cross and Blue Shield Association. Visit

About Sun Life

Sun Life is a leading international financial services organization providing asset management, wealth, insurance, and health solutions to individual and institutional Clients. Sun Life has operations in a

Strong relationships. More solutions. Partner with Nationwide® to simplify Medical Stop Loss for you and your clients. Save time and e ort with easy access to experienced underwriters who o er a broad range of solutions. Our flexible plans are tailored to fit your clients’ needs and reduce future risk. Plus, claims are backed by a carrier with A+ financial ratings.* O er coverage from a brand clients can trust. Nationwide has been in the health business for 80 years and in Medical Stop Loss for nearly 20 years. To learn why top Medical Stop Loss producers and underwriters choose Nationwide, call 1-888-674-0385 or email *A+ ranking from AM Best received 10/17/02, a rmed 12/1/22, and A+ ranking from Standard & Poor’s received 12/22/08, a rmed 4/19/22. Plans are underwritten by Nationwide Life Insurance Company, Columbus, Ohio 43215. Nationwide, the Nationwide N and Eagle, and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company. © 2023 Nationwide NSV-0113AO (01/23)

number of markets worldwide, including Canada, the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China, Australia, Singapore, Vietnam, Malaysia, and Bermuda. As of March 31, 2022, Sun Life had total assets under management of C$1.36 trillion. For more information, please visit Sun Life Financial Inc. trades on the Toronto (TSX), New York (NYSE) and Philippine (PSE) stock exchanges under the ticker symbol SLF. Visit

Sun Life U.S. is one of the largest providers of employee and government benefits, helping more than 50 million Americans access the healthcare and coverage they need. Through employers, industry partners and government programs, Sun Life offers a portfolio of benefits and services, including dental, vision, disability, absence management, life, supplemental health, medical stop-loss insurance, and healthcare navigation. Sun Life U.S. and affiliated companies in asset management employ approximately 8,000 people in the U.S. Group insurance policies

are issued by Sun Life Assurance Company of Canada (Wellesley Hills, Mass.), except in New York, where policies are issued by Sun Life and Health Insurance Company (U.S.) (Lansing, Mich.). For more information visit our website and newsroom. Visit

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Elizabeth Midtlien

Vice President, Emerging Markets

AmeriHealth Administrators, Inc.

Bloomington, MN


John Capasso

President & CEO

Captive Planning Associates, LLC

Marlton, NJ


Stacy Borans

Founder/Chief Medical Officer

Advanced Medical Strategies

Lynnfield, MA


Matt Kirk President

The Benecon Group

Lititz, PA


Mark Combs


Self-Insured Reporting

Greenville, SC


Shaun L. Peterson

VP, Stop Loss

Voya Financial

Minneapolis, MN


Amy Gasbarro

Chief Operating Officer


Phoenix, AZ


Adam Russo CEO

The Phia Group, LLC


Deborah Hodges President & CEO Health Plans, Inc.

Westborough, MA


Captive Insurance Committee

Jeffrey Fitzgerald

Vice President

Innovative Captive Strategies

Waukee, IA

Future Leaders Committee

Erin Duffy

Director of Business Development


Wayne, PA

Price Transparency Committee

Christine Cooper CEO aequum, LLC

Cleveland, OH

Captive Insurance Advocacy Task Force

Jeffrey K. Simpson


Womble Bond Dickinson (US) LLP

Wilmington, DE

Workers’ Compensation Committee

Shelly Brotzge

Regional Underwriter, Group Self Insurance

Midwest Employers Casualty

Chesterfield, MO



Nigel Wallbank


Leadenhall, LLC

Ocala, FL


Daniél C. Kimlinger, Ph.D.


MINES and Associates

Littleton, CO


Freda Bacon


AL Self-Insured Workers' Comp Fund

Birmingham, AL

Les Boughner


Advantage Insurance Management (USA) LLC

Charleston, SC

Alex Giordano

Chief Executive Officer

Hudson Atlantic Benefits

Bellmore, NY

Virginia Johnson

Strategic Account Director

Verisk/ISO Claims Partners

Charlotte, NC

* Also serves as Director

AUGUST 2023 61



Sue Boclair President and COO

Adaptive Processing Solutions

Berwyn, PA

Marisa Burns

Events & Associations Specialist

NSM Healthcare Solutions

Conshohocken, PA


Bill Richmond CEO

CareGuide Advocates

Dallas, TX

Corey Biscoglia

Senior Vice President, Sales & Marketing

BeneCard PBF

Mechanicsburg, PA

Michael LaVance Director, Business Development TELUS Health

Atlanta, GA

Phillip Holowka COO

Complete Captive Management Services

Pittsburgh, PA

Deborah Hankins


HealthEdge Administrators

Bakersfield, CA

Tim Reddout CFO

Variety Care

Oklahoma City, OK

Robert Shelley


Leaf Health

Leander, TX

Dutch Rojas

SVP, Head Provider Management

Nomi Health

Orem, UT

Connect with Zelis today at 888.311.3505 or visit to get started.

Catastrophic claims can arise unexpectedly. If the plan has the right Stop Loss protection in place, focus can remain on achieving business goals and welcoming Amy back when it’s time. When you work with the experts at HM Insurance Group, you can have confidence that the claims will be paid. Find more on

Amy didn’t think she’d spend her maternity leave with her baby in the NICU. Neither did her self-funded employer. MTG-3438 (5/22) *Cost estimate based on HM Insurance Group historical Stop Loss data and additional industry observations, May 2022. In all states except New York, coverage may be underwritten by HM Life Insurance Company, Pittsburgh, PA, or Highmark Casualty Insurance Company, Pittsburgh, PA. In New York, coverage is underwritten by HM Life Insurance Company of New York, New York, NY. The coverage or service requested may not be available in all states and is subject to individual state approval. SECURE FINANCIAL PROTECTION WITH OUR INSURANCE AND REINSURANCE OPTIONS: Employer Stop Loss: Traditional Protection • Small Group Solutions • Coverage Over Reference-Based Pricing Managed Care Reinsurance: Provider Excess Loss • Health Plan Reinsurance Life Is
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An infant with a 60-day NICU stay could exceed $1
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