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By Bruce Shutan
By Laura Carabello
By Kari Niblack and Anna Quarum By Kunal Fulani
By Kate MacDonald
By Alan Fine, Brian Johnson, Donna Eldridge, Kerrie Riker-Kelly, Michael Teichman, & Rick Eldridge
Written By Bruce Shutan
CON AIR?
AIR AMBULANCE SERVICES FACING
INCREASED SCRUTINY FOR CHARGING SKY-HIGH BILLS, MONOPOLIZING MARKETS AND AVOIDING TRANSPARENCY
InIa medical emergency, or at least a situation that is perceived to be dire and may involve a call to 911, racking up a huge bill may be unavoidable. Such is the case for emergency transport services, especially when an aircraft is in the mix.
“Some air ambulance rates make pharmaceuticals actually look affordable, quips Mike Castleberry, Chief Revenue Officer of Consociate Health. It boggles the mind that an operator could charge as much as $50,000 to fly from Nashville to Memphis, TN, a mere four-hour drive when he says someone could rent a plane and fly around the world for less than that amount.
“The industry would tell you that’s the price because they have to take into account the cost of sitting on a runway somewhere for pilots to fuel up, and there may be a nurse on the flight,” he says. “And then when they do have a need, they recoup their cost for that because they had to be ready 24/7 for that whole process. That business model just doesn’t make sense.”
REGS IN PROGRESS
Under the Consolidated Appropriations Act of 2021, known simply as the CAA, employer-provided health plans are required over the next two years to report information about their use of air ambulance services to the government as part of the No Surprises Act (NSA). Health insurance carriers and air ambulance providers also must comply with this reporting requirement, which has not yet been finalized and is designed to help cap the cost of these services. If employers or health insurers fail to report this information, air ambulance operators could face up to a $10,000 penalty for violations.
There are eight elements to the air ambulance reporting requirements that have been released thus far, one of which is the reimbursement rate, explains Lauren Wells, a Practice Leader for Healthcare Reporting, which will be helping self-insured employers comply with air ambulance reporting once the regs have been finalized. She says service operators can deny claims if someone were injured in, say, a hazardous activity such as rock climbing, which would result in a surprise bill.
There are two types of ambulance providers: public and privately owned and operated, with the latter obviously costing far more than the former. Some city or county government services could be a division of the local fire department whose fees are at least manageable, though the vast majority of those services are private, including hospital-owned vehicles.
Two main charges for “rotarywing” helicopters or “fixed-wing” airplanes include a base rate, which is part of an operational cost that covers the pilot, nurse practitioner or paramedic who’s on board, as well as a mileage rate. While observers say the maximum charge on a ground ambulance ride might be about $3,000 (see sidebar), it can be as high as $120,000 for an air ambulance.
Air ambulance transports are done at the scene of a medical emergency, such as an individual’s home or public park, or involve an inter-facility transfer. All insurers or payers have their own policy for the criteria for inter-facility transfers.
Nearly half of Americans have been transported by an ambulance, a survey conducted in May 2024 revealed, while one health system tracker found that more than half of the estimated three million annual trips that privately insured Americans take to the ER by ground ambulances are considered out of network (OON).
Most air ambulance rides do not constitute an emergency, observers say. Seeing a helicopter landing on the side of the road after a horrible accident to pick up someone who’s badly injured involves a small percentage of those trips. As many as 85% of all ambulance transports have already been scheduled, according to Castleberry.
Mike Castleberry
Lauren Wells
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JACKING UP THE PRICE
Almost all air ambulances are OON – with nearly 60% of them owned by private equity firms, notes Jesse Nguyen, Associate Medical Director of WellRithms. “Their job is to make money, and so they jack up the prices,” he says. “If you look at air ambulance prices over the past 15 to 20 years, the average charges are exponentially greater than other aspects of medicine.”
Another explanation, he says, is a lack of oversight. Until the passage of the NSA, these services have fallen under the Airline Deregulation Act of 1978, which allows market forces to drive down prices. However, the application of that law to this industry has sparked recent legal challenges. With insurance carriers routinely limiting payments on air ambulance charges, health plan members are receiving huge balance bills.
As many as 98% of air ambulance claims trigger an independent dispute resolution (IDR) process to determine a fair price for
these services, Nguyen notes. This guardrail, however, appears to be woefully inadequate. He says IDR favors the provider more than 80% of the time and requires the payer to shell out usually 90% to 95% of billed charges.
While air ambulance operators may argue that they deserve, say, $90,000 for a certain ride, Nguyen notes that the average operational cost is anywhere between $10,000 and $15,000, according to a NASA study and multiple industry executives.
There’s a massive discrepancy between air ambulance billing rates for commercial insurance and Medicare that often leads to balance bills for patients, explains Kevin Gibson, CEO of ClaimsBridge, which offers balance-billing support and uses reference-based pricing (RBP) to help manage the cost of air ambulance services for self-insured employer clients.
“We’ve found that the qualifying payment amount under IDR is falling in between the allowed amount that we’re calculating with RBP to the billing amount from the air ambulance company, but closer toward us,” Gibson reports.
The chief culprit behind egregious air ambulance billing is OON services. A classic example of this involves a ski accident that requires an injured individual to be airlifted off the slopes or rescuing a hiker who fell down a mountainside that’s inaccessible to a ground ambulance.
“You even hear about scenarios where people go for an operation with their in-network doctor, but an out-of-network anesthesiologist shows up to the operating room that you have no control over,” he observes. “You only find out when you get the bill. We’re very aggressive about making our out-of-network fees as low as possible. A lot of the time, out-of-network calculations are automated solutions that cost an excessive amount of money.”
REPRICING EGREGIOUS CLAIMS
Castleberry recalls a self-funded claim in rural Georgia where a health plan member was hospitalized for 25 days following a horrific all-terrain vehicle accident that left him paralyzed with major neck and back issues. His attending physician suggested he be sent to a
Kevin Gibson
Jesse Nguyen
facility in Jacksonville, Fla., for intensive physical therapy to help him regain strength and mobility. A few days later, a 45-minute flight was billed at more than $100,000 when a four-and-a-half-hour van ride easily would have sufficed since there was no need for an IV or other equipment.
“He could have chartered a private plane for $3,000 or $4,000, but it was just so egregious, and the family agreed to take on liability for anything our insurance doesn’t cover,” he says. “Well, we can’t cover things that aren’t medically necessary.”
Consociate Health will pay air ambulance companies a 10% or 15% profit once all their expenses are paid, which Castleberry says is a fair rate that would please most businesses. The due diligence of his service can result in significant savings. For example, a recent $133,000 charge to a client that was repriced at just $6,100 represented a massive swing of $127,000.
His firm works with a company staffed by former pilots, most of whom were in the military, which use their own mathematical formula or methodology to reprice air ambulance claims so that they’re fair and reasonable for all parties. Physicians also review those claims
for medical necessity and whether the care provided was appropriate.
Whatever is being charged, a wide price variation seems unavoidable. The average base cost per member of a one-way air ambulance ride across Healthcare Reporting’s entire book of business, which includes 7,500 self-insured employer groups, was $29,000. That estimate does not include supplies, oxygen, anesthesia or other services, which inflate the tab to $49,000 on average, while some specialty claims such as ectopic pregnancy, cardiac episodes or lumbar spine fractures reached as high as $85,000.
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An interesting question that Gibson poses is the medical necessity for flying someone over numerous cities where there are other hospitals that potentially have the ability to treat a sick or injured person, which would inflate the air ambulance expense.
“In an emergency situation, who’s to say whether there’s an availability of appropriate surgeons in all of those cities in between,” he says. “But in a situation where you’re outof-network, you’re not going to necessarily get the same level of diligence as if you’re in-network in terms of trying to resolve that situation.”
In many states, a major hospital system in the biggest city will have 13 or 14 feeder facilities in a regional area where patients are admitted. If it’s determined that a patient would benefit from being moved to the main facility, which may be just a few hours away through ground transport, Castleberry says there could be pressure to use a hospitalowned helicopter to not only keep care within the system but also generate more revenue.
“Next thing I see is a bill for a $35,000 helicopter ride when I could have driven two hours for a couple thousand dollars!” he exclaims. “We see a lot of that, and those are the most egregious. They never talk about price or explain to the member or family what they’re really getting. When we get these cases, the vast majority of times, the reviewers say that it wasn’t even necessary.”
There’s also a human element to consider. “Even though a healthcare professional might not consider some hospital admissions an emergency, it’s only natural that someone who faces a medical emergency may feel distressed, considering it the worst day of their life,” Wells says.
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Several trade organizations and medical societies have published a set of criteria on what constitutes trauma for the purpose of justifying air transport, Nguyen notes, while hospitals also have their own criteria for inter-facility transfers. One such criterion is whether the patient is hemodynamically unstable. Whenever these operators bill for their services, they’re supposed to submit a medical necessity form. The problem, he laments, is that none of these forms are based on the criteria that were put forth by these organizations.
Another issue, Nguyen says, is that transports of 30 to 40 miles are actually faster by ground transport for a number of reasons. For example, there’s a good 15-minute warm-up period for a helicopter, which also has to factor in time for loading supplies along with the patient.
REMEDIES TO PONDER
In the absence of government oversight, Wells cautions that there has been a wide variation in air ambulance rates – with operators being able to charge whatever they want without fear of repercussions unless plan sponsors challenge their bills.
“I think we’re going to see the cost of an ambulance and utilization continue to rise, especially as inflation rises,” she predicts. In addition,
she believes a significant increase in mental health disorders since the pandemic will spark an uptick in emergency transportation uses for non-emergent situations.
Wells believes the best remedy will be educating health plan members at open enrollment about the number of urgent care centers and hospitals within their vicinity, as well as what constitutes an emergency vs. non-emergency. It could even be something as simplistic as a flyer that is presented to a group of employees with the addresses and phone numbers of those facilities.
CRACKING DOWN ON GROUND AMBULANCE COSTS
Late last year, a federal committee proposed closing a loophole in the No Surprises Act (NSA) to help rein in the cost of ground ambulance services by capping the cost of those rides to a $100 cap. Meanwhile, 14 states have already passed laws protecting consumers from surprise bills in the event that they require a ground ambulance.
“I think capping ground ambulances at a dollar amount across the board is very challenging because the cost of care is different all over the country,” explains Mike Castleberry, Chief Revenue Officer of Consociate Health. “Just look at gas prices as one factor in providing ground ambulances, which swing from $3.50 to $7.50.”
He notes that the powerful ground-ambulance lobby was able to carve out its industry from the NSA, hastening to add that it does require air ambulance services “to fully explain to the member what it means to them when they’re taking that flight.” – Bruce Shutan
She suggests that employers promote the use of data whenever possible, as well as pay close attention to demographics, health risks, and the services available within their communities to tailor employee education. One such strategy involves providing virtual care resources to help determine if a situation could be emergent or non-emergent.
“Having someone like a telehealth provider available 24/7 is so beneficial because emergencies don’t always happen between 9-5,” she says. “They occur when you least expect it.” Another involves encouraging primary care utilization to help prevent emergent situations in the first place.
It’s important for self-insured employers to address the add-on and access to their health plans that are set up for the air ambulance function, Gibson says. The objective is to execute OON network solutions in a way that clearly documents expenses so that appropriate RBP payments are calculated and can be defended.
“There’s a lot of pushback against RBP because of the friction and stress that it may cause the employee,” he observes. “But at the end of the day, if the entity is being compensated fairly, then it usually stands up in a court of law for any kind of legal challenge.”
Given the declining health of many Americans, it’s reasonable to expect that ground and air ambulance rides will increase in the years ahead. Adds Castleberry: “The three and a half trillion dollars we spend on healthcare is too rich for people not to want to get into this business. There’s always going to be someone trying to figure out a way to get a piece of that pie.”
Bruce Shutan is a Portland, Oregon-based freelance writer who has closely covered the employee benefits industry for more than 35 years.
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WHEN ARE THEY INSURANCE FOR FEDERAL INCOME TAX PURPOSES?
Editor’s
Note: This is Part 1 of a two-part article. Part 2 will appear in the November edition of the Self-Insurer.
Written By Alan Fine, Brian Johnson, Donna Eldridge, Kerrie Riker-Kelly, Michael Teichman, & Rick Eldridge
A CAPTIVE INSURANCE ARRANGEMENTS:
Acaptive insurance company is an arrangement that underwrites insurance risk for a related business, including cases where the business cannot obtain reasonably priced insurance in the commercial market. Captive insurance companies are commonly used to insure property deductibles, liability risks, business interruptions, crop failures, cyber-attacks, wind (i.e., hurricanes), and earthquakes, among other risks. Captives are very common in Fortune 500-sized businesses, but to compete with these large corporations, small and mid-sized businesses are also forming captive insurance companies. In general, a captive insurance company is considered “small” for Federal income tax purposes if it makes an election under Section 831(b) of the Internal Revenue Code. By making an “831(b) election,” a business establishing the captive insurance company may deduct
its annual premiums. The premiums are paid by the business to the captive to cover potential claims that may be made for the risk the captive insures against (as stated above, property deductibles, liability risks, business interruptions, crop failures, cyber-attacks, wind, and/ or earthquakes, just to name a few).
A captive is typically established due to the inability to find reasonably-priced commercial insurance, or any commercial insurance at all, or in cases where a commercial line of insurance includes a number of exclusions to coverage. Thus, a captive insurance company is not, and should not be, formed for tax purposes only. Rather, a captive is formed for insurance and risk management reasons. While captives may ultimately capture a tax benefit, the tax benefit is never realized if there is no insurance purpose or legitimate insurance structure.
And that is the question: When are captive insurance arrangements considered a legitimate insurance structure for Federal income tax purposes? Currently, there are over 1,000 cases before the Tax Court to answer this very question. The Court’s decisions could have wideranging implications on all captives (both large and small) and even unintentionally spill over into the commercial insurance market.
In this two-part article, we examine various Tax Court decisions and IRS Revenue Rulings, and other proclamations to help business owners, their advisors, tax professionals, and policymakers better understand what factors need to be present to effectively show that a captive insurance arrangement has a legitimate insurance purpose and structure. In Part I of our two-part series, we do this by examining the concepts of Exposure Units, Risk Shifting, Risk Distribution, and the Law of Large Numbers.
EXPOSURE UNITS
An Exposure Unit is the way the insurance industry measures the amount of risk facing an entity relative to other entities facing the same risk. Per the American Academy of Actuaries Actuarial Standard of Practice 53, the Exposure Unit is “a basic unit that is used to measure the future cost of risk transfer and risk retention.” Further, “…the actuary should select an exposure base that bears a strong relationship to the cost of risk transfer or risk retention and is practical. Characteristics of a practical exposure base may include that the exposure base is objectively measurable and easily verifiable.”
The underwriting process also involves identifying the type of risk to be insured and the correlating Exposure Units to price the risk. Exposures change frequently, as do the costs associated with
providing insurance for those exposures. For example, materials and rebuilding costs when it comes to property coverage can increase or decrease in any given year as a result of the cost of underlying materials and labor expenses, while jury verdicts and legal judgments for liability coverages also change due to things such as societal attitudes and media impact.
The terms Social Inflation and Nuclear Verdict are recent descriptors created to illustrate the rising costs of claim settlements. Over time, and in some classes of business, Exposure Units have become more finite and, thanks to the use of technology, are reported in real-time to appropriately measure the amount of risk being assumed.
For example, in automobile insurance, there are a significant number of insurance companies that use the number of miles driven as the Exposure Units to determine the risk profile of a particular driver (personal insurance) or class of business (commercial trucking), as opposed to just the number of automobiles scheduled on the policy. Mileage as an Exposure Unit could be a few thousand miles per year for an individual to millions of miles for commercial trucking fleets. Assuming the base rate was identical for each mile, one can easily see how there could be
significant premium differences between personal accounts and commercial accounts.
In the recent Tax Court case Swift v. Commissioner (“Swift”), the Court attempted to examine the Exposure Units in consideration of the Law of Large Numbers. In doing so, the opinion revisited the 2014 RentA-Center, Inc. v. Commissioner (“Rent-A-Center”) and the 1992 Harper v. Commissioner cases; in each of those cases, the captive insurance arrangements in question insured thousands of independent risks.
In Swift, the taxpayers argued that the standard for Exposure
Units as it relates to the Law of Large Numbers should consider the “millions of doctor-patient interactions covered by the medical malpractice tail policies.” The Court, however, ruled that the doctorpatient interactions were the wrong metric to evaluate the risks being distributed, adding that, “Indeed, it strikes us that using the doctor-patient interaction as the appropriate unit of measurement for risk exposure would be tantamount to treating as the correct unit of measurement for risk exposure in the automobile insurance context every time a car is put into gear.”
While that may have been true, looking back 10 years ago, as the insurance industry continues to evolve, the Court’s statement may be less accurate going forward as there are now state-approved rating plans for automobile insurance based on miles driven. Also, many insurance companies are now using technology (known as telematics) that monitors driving habits (i.e., mileage, speed, and braking time), which requires the automobiles to be “put into gear.” Insurance companies then utilize this data when pricing automobile premiums for those insureds. This demonstrates that the commercial insurance marketplace has accepted that having a car “put into gear” is precisely the measurement for risk exposure for automobile insurance.
Looking forward, the number of doctor-patient interactions very well could be the appropriate measurement for determining units of risk, especially in a captive insurance company where the doctors are trying to reduce insurance costs based on accurate exposures. For example, a dermatologist may see 12-16 patients per day, whereas an OBGYN may see 4-8 patients per day. In each situation, a doctor’s risk for misdiagnosis or an inappropriate treatment plan increases based on the number of patient visits, which increases the potential for a malpractice claim in a similar fashion to the number of miles driven by a driver, increasing the odds of an automobile accident.
RISK SHIFTING
IRS Revenue Ruling 2002-89 highlights the essence of what qualifies as insurance for Federal income tax purposes, and this Ruling is one of the few pieces of guidance offered by the IRS on the subject, providing that:
• Risk Shifting occurs if a person facing the possibility of an economic loss transfers some or all of the financial consequences of the potential loss to the insurer, such that a loss by the insured does not affect the insured because the loss is offset by the insurance payment.
The conditions required for a contract to be legally enforceable include an offer, acceptance, and consideration. In an insurance transaction, insurers are offering to accept a given risk based upon the terms of the insurance contract (i.e., premium, deductibles, and coverage descriptions), and the insured parties are willing to accept this offer from the insurer and, in turn, pay premiums for said insurance contract (consideration). Two points worth mentioning here:
• Unlike insurance offered from the commercial market, captives typically (or should) offer much broader coverage (and hence charge different pricing than the commercial market) given the narrow coverage commercial insurers offer.
• The COVID-19 pandemic is a good example where captives paid for insured claims, whereas the commercial market did not due to coverage exclusions.
In an earlier case, Caylor Land & Development, Inc. v. Commissioner, the Tax Court found that the insurer/ captive manager took an inordinate amount of time to issue the insurance contract, which is a breakdown in the basic conditions for a contract/commercial transaction. Imagine the difficulty in settling a claim without knowing how the insurance coverage applies, given there is no coverage description, terms, or conditions. We believe the Court got it right here.
RISK DISTRIBUTION
With respect to Risk Distribution, Revenue Ruling 2002-89 states:
• Risk Distribution incorporates the statistical phenomenon known as the law of large numbers. Distributing risk allows the insurer to reduce the possibility that a single costly claim will exceed the amount taken in as premiums and set aside for the payment of such a claim. By assuming numerous relatively small, independent risks that occur randomly over time, the insurer smooths out losses to match more closely its receipt of premiums.
There is a distinction that needs to be made between Risk Distribution and the Law of Large Numbers, which can be easily glossed over. Risk, as defined by Webster’s dictionary, is “a person or thing that is a specified hazard to an insurer,” while distribution is defined as “the position arrangement or frequency of occurrence over an area or throughout a space or unit of time (i.e., the distribution of the country’s population).”
To put it in the very simplest terms, Risk Distribution is the spread of risk or diversification. Similar to an investment portfolio, one might purchase a diversified portfolio of CDs, bonds, stocks, or currencies. Each asset class has varying degrees of risk (probability for loss or gain). Hence, if one asset class performs poorly in a given year, others may perform at or above the industry average, allowing the whole portfolio to grow over time.
This investment risk is diversified and spread over the total portfolio and calculated by the average rate of return on the portfolio. The same concept applies to insurance companies and similarly applies to the statement in Revenue Ruling 2002-89 that “Distributing risk allows the insurer to reduce the possibility that a single costly claim will exceed the amount taken in as premiums and set aside for the payment of such a claim.” Think of risk distribution as a bump in the road (claim) that gets spread over a larger population. So, the speed bump becomes a speed hump and is not as shocking as the former.
Furthermore, and specific to insurance, risk-based capital formulas promulgated by the National Association of Insurance Commissioners include credits for diversification in underwriting, which means that an insurance company with diverse underwriting is required to maintain less capital with respect to a line of insurance business than it would if it wrote only that line of business. Thus, an insurer (including a captive insurance company) that writes a variety of insurance business lines (e.g., general liability, auto liability, workers’
compensation, and property insurance (even for insureds within a specific industry sector)) benefits from the reduced capital requirements.
From an actuarial point of view, there is no bright line test on Risk Distribution. Risk Distribution begins when a loss impacts one person/entity and is shared with a 2nd and then a 3rd person/ entity. For a single entity with a diversified portfolio of different insured independent risks, Risk Distribution can still be present as premiums are paid for each insured risk and losses are spread out over the various premiums collected. In Securitas v. Commissioner, Dr. Neil Doherty explained in his expert report: “It is the pooling of exposures that brings about the risk distribution—who owns the exposures is not crucial.” The Tax Court memo goes on to state that: “We agree and find that by insuring the various risks of U.S. and non-U.S. subsidiaries, the captive arrangement achieved risk distribution.”
THE LAW OF LARGE NUMBERS
The Law of Large Numbers is different than Risk Distribution, and in simple terms, it is how risk is priced. Technically, the Law of Large Numbers is a statistical term that says the larger the sample size, the more accurate one can measure the mean and the variance thereof, thereby allowing an insurer to price the risk more accurately and
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hopefully less expensively. Said another way, using loss and exposure data, it is the ability to accurately estimate the expected losses relative to the number and type of risks insured. Hence, the larger the pool of data (i.e., sample size), the more accurate the estimates can be relative to accurate exposure data, legal climate, costs, etc.
In Swift and other captive Tax Court cases, the Courts have focused on both the number of insureds and the total number of independent risk exposures, with an emphasis on “the total number of independent risk exposures.” Interestingly, in Revenue Ruling 2002-90, the IRS focused on the significant volume of independent, homogeneous risk, explaining that:
• Professional liability of risks of 12 operating subsidiaries are shifted to S. Further, the premiums of the operating subsidiaries, determined at arms-length, are pooled such that a loss by one operating subsidiary is borne, in substantial part, by the premiums paid by others. The 12 operating subsidiaries and S conduct themselves in all respects as would unrelated parties to a traditional insurance relationship, and S is regulated as an insurance company in each state where it does business. The narrow question presented is whether P’s common ownership of the 12 operating subsidiaries and S affects the conclusion that the arrangements at issue are insurance for Federal income tax purposes. Under the facts presented, we conclude the arrangements between S and each of the 12 operating subsidiaries of S’s parent constitute insurance for federal income tax purposes.
Under this Revenue Ruling, 12 operating subsidiaries with a significant volume of independent, homogeneous risks is enough to constitute insurance for Federal income tax purposes, provided that none
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of the subsidiaries accounted for more than 15%, nor less than 5%, of the total risk.
We do not know how the number 12 was derived in Revenue Ruling 2002-90. That said, in statistics, a random sample may be 12, 15, or 20 different opinions of whatever is being tested. In a captive, 12, 15 or 20 different risks with proper actuarial analysis where the pricing of risks can be compared to larger data sets available from sources such as ISO rating classes, the pricing of risk may be fairly accurate even though it is not “large” as the Court defined it in, for example, Rent-A-Center. Thus, an insured with 12 different unique risks can have Risk Distribution, and the application of the Law of Large Numbers can be applied to the pricing of the risks based on individual historical performance and industry rating data for classes of business to be insured.
WHAT’S NEXT?
In Part II of this article, we will address the subjects of Risk Pooling and the unwarranted concerns over the appearance of a circular flow of funds, including the accounting for Risk Pooling.
Editor’s Note: Citations for the Tax Court cases noted in this article, along with any other related information, can be provided to you by contacting the authors.
About the Authors: Alan J. Fine, CPA, JD, Tax Partner at Armanino LLP; Brian Johnson, ACAS, MAAA, ARM, Managing Director of Risk International Actuarial Consulting; Donna Eldridge, CPA, Chief Financial Officer of The Intuitive Companies; Kerrie RikerKeller, Chief Compliance Officer of The Intuitive Companies; Michael W. Teichman, JD, Director at Parkowski, Guerke & Swayze, P.A.; Rick J. Eldridge, President & CEO of The Intuitive Companies
CASH-PAY OPTIONS FOR SELF-INSURED EMPLOYERS
Written By Laura Carabello
TheTtimeworn proverb, “Everything old is new again,” now applies to the cash-pay medical care model. It was how care was paid for before the advent of the modern healthcare system began in the 1920s when hospitals began offering services on a pre-paid basis.
Fast forward to 2024 and how self-insured employers perceive cash-pay, a novel approach to healthcare that bypasses traditional provider networks. With cash-pay care, patients pay a cash fee directly to the healthcare provider for a range of medical services -- from MRIs and blood work to outpatient surgery. Cash-pay care options are also convenient for accessing prompt medical attention when a primary care provider is not available or seeking care from an out-of-network provider and then arguing coverage for the visit.
This concept also applies to those who are traveling or on vacation. People often forget their medication, poisoning and or allergy or get food poisoning, and find themselves in a quandary to locate a virtual or in-person healthcare professional who can help people avoid a battle over an out-of-state emergency room visit.
Consumer Reports advises that this approach could cost patients less—sometimes a lot less. If the patient feels dissatisfied with the care received, the cash-pay model allows them to simply choose to see a different provider, resulting in a model that is more affordable, transparent and personalized.
Cash-pay care is intended to allow people to pay only for the service provided by the physician or provider instead of paying for administrative costs, processing fees and other third-party price mark-ups. The sole focus of the provider is keeping the patient healthy and satisfied.
While it may seem illogical to pay in cash for medical care if there are health benefits in place, it may make more sense for those with highdeductible plans who must pay a large amount of money out-of-pocket before coverage kicks in to cover medical expenses.
Andrew Berry, President, MSL Captives, says his organization is not only aware of these options but is also offering direct pay solutions.
“We believe these solutions offer employers and providers the ability to streamline the administrative process of healthcare payments,” he explains. “This can lead to lower cost of care for employers while removing disputes around repricing. Most importantly, it has the potential to reduce the time physicians spend on administrative processes and payment collection so they can spend more time treating patients. Our anecdotal information is that this can take as much as two-thirds of a physician’s time.”
The direct pay model uses a provider’s self-pay rates, which Berry says aids transparency in matching the cost of care for a provider to the cost of care paid by an employer.
“As the self-pay rate is set by the provider and paid at 100% of that rate, upfront without additional administrative costs to collect payment, it is a more accurate reflection of the true cost of that treatment,” he continues. “Our experience is that self-pay rates
are competitive with leading RBP rates as a percentage of Medicare. As they use rates set by the provider, it also removes the problem of balance billing, and savings can be applied directly to self-funded claims.”
Berry cautions that for decrements in stop-loss premium rates, self-pay arrangements need to be actuarially assessed with credible data, like other network discounts or direct contracts.
As employers recognize the benefits of cash-pay options, a growing number of vendors are entering the market to help employers manage these opportunities.
“While the employees are using providers’ self-pay rates for treatment, you need a payment mechanism to capture the costs and a TPA that can manage the self-funded plan using selfpayments,” advises Berry. “That will allow self-pay or cash payments to be applied to an employer’s health plan and stoploss insurance.”
Donna Childers, Chief Operating Officer, Plan Stewards, echoes this perspective, adding, “We are also actively engaged with vendors who provide innovative solutions such as virtual credit cards and pre-payment models. Our expertise in referencebased pricing, which bypasses traditional networks, allows us to offer customized and costeffective options to our clients.”
Andrew Berry
However, Childers understands the value of continuous improvement and is always open to exploring new opportunities.
“By partnering with vendors who might offer fresh perspectives or more efficient approaches, we can ensure that our clients will receive the best possible service and unlock additional cost-saving
strategies in an ever-evolving marketplace,” she states.
Childers believes that adopting cash-pay options is a significant step towards greater transparency in healthcare for self-insured employers.
“Traditionally, members are only aware of their co-pay amounts, leaving the actual cost of services hidden,” she observes. “Cash-pay changes this dynamic by providing clear, upfront pricing, allowing members to know the total cost of their procedures before they receive care. This transparency empowers members to make informed decisions about their healthcare and often leads to opportunities for negotiation.”
She notes that providers may offer reduced rates compared to what would typically be charged through insurance, further enhancing cost efficiency and financial transparency.
“Implementing cash-pay options can absolutely lead to substantial cost savings for both providers and self-insured employers,” she continues. Providers are often willing to offer discounts for direct payments as it eliminates the need to track down funds and navigate the complexities of insurance claims. This streamlined process not only accelerates payment but also reduces administrative costs for providers, allowing them to pass on those savings to employers.”
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For self-insured employers, these savings translate into more predictable healthcare spending, lower overall costs and a more efficient allocation of resources.
“It’s a smart, strategic approach to managing healthcare expenses,” says Childers.
AN ENTICING OPPORTUNITY
Many stakeholders in the self-insured community are becoming aware of the opportunity to embrace cash-pay models. Todd Archer, President, Concierge Third Party Administrator, says he is not only aware of these options but is also very interested in pursuing them.
“In a business or governance context, transparency refers to being open and honest, and cash-pay is the purest payment methodology (and therefore the most open and honest) of the options available for the payment for medical services,” says Archer. “It strips out all the ‘middlemen’ along with their associated costs, allowing for an unaltered look at the true cost of the service(s) being provided.”
Archer recognizes that stripping the layers out of the current approach, in addition to getting an unaltered look at the true cost of the service(s) being provided, will definitely lower the cost.
“If you just look at the one dynamic of maintaining the PPO network infrastructure prevalent today, it is enormous,” he explains. “You have the access fees that the carriers charge the employer to access their network -ostensibly to maintain the contracts, but you also have a duplicative cost on the provider side to negotiate and maintain the agreements on their side too.”
He says that most plans would not need a separate vendor to process these transactions, provided the plan documents are properly drafted, and the appropriate business rules are in place.
“The use of new technology to communicate effectively with plan participants will also diminish this need,” he concludes.
Nick Soman, CEO, Decent, says that his organization has been watching the emergence of cash-pay rates closely.
“We believe they represent a significant opportunity to reduce the cost of care when used in conjunction with negotiated rates for the self-insured plans we administer,” shares Soman. “We are in the
early stages of figuring out how we can best serve our employer customers and members by incorporating cash rates options in their plans.”
Expanding this discussion, David Adamson, MD, CEO, Arc Fertility, says financial inefficiencies in our healthcare system result in significant waste that is ultimately paid by employers and patients.
“Self-insured employers have the opportunity to innovate new cashpay and direct payment options with vendors that will increase transparency, accountability and cost-effectiveness, resulting in lower costs and, in many situations, higher quality care,” says Dr. Adamson. “Self-insured employers can work directly with vendors to design higher value, flexible products that meet their unique needs and deliver a lower cost, superior experience with better medical outcomes for their employees.”
Cash-pay options for selfinsured employers truly result in cost savings, agrees Michelle Bounce, President of J.P. Farley Corporation.
Todd Archer
Nick Soman, CEO
David Adamson, MD
“The numbers may surprise you,” she shares. “While the idea of paying cash for healthcare services might seem like a straightforward way to save money, the reality is often more complex.”
For example, she invites a close look at one hospital’s MachineReadable Files (MRFs) which
revealed that the average self-pay rate is 186% of Medicare rates, significantly higher than rates negotiated by insurance companies. For instance, United Healthcare’s negotiated rates can be as low as 149% of Medicare for inpatient services, highlighting a stark difference.
Bounce relates a real-life story from a friend that further illustrates this discrepancy.
“When faced with a $12,000 hospital bill, he negotiated a self-pay amount of $6,000,” she continues. “However, after an appeal, his insurance covered the procedure, paying only $2,000, which the hospital accepted as full payment. This scenario demonstrates that even a seemingly significant selfpay discount can still result in paying much more than insurance-negotiated rates – three times more in this case.”
SERVING PART-TIME, UNDERINSURED EMPLOYEES
Cash-pay solutions also serve part-time workers and underinsured employees who face high deductibles and steep out-of-pocket expenses. According to the most recent studies regarding the number
Michelle Bounce
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of underinsured individuals in the U.S., the Commonwealth Fund issued a report in 2023 showing that 43% of working-age adults were inadequately insured, 29% of people with employer coverage and 44 percent of those with coverage purchased through the individual market and marketplaces were underinsured. Their analysis implies that many people who technically have health insurance still incur very high out-of-pocket costs.
Joey Truscelli, founder of the “Virtual Me Care Pass,” points to the need for programs designed to provide employers with an affordable solution for their uninsured or underinsured employees and/or insured employees with a high deductible health plan.
He designed a telehealth solution that provides a cash-pay subscription to nationwide Virtual Urgent Care, Mental Health Counseling and Health Navigator services through a partnership with Sun Life.
“Employers hiring part-time workers can incentivize and retain employees by offering six-month and annual subscriptions to the services we offer, with $0 out-of-pocket expense to their employees,” he explains. “Enrollment is simple and can be purchased individually or in bulk and distributed to employees digitally or in card form.”
CASH-PAY COMPLEMENTS HSAS AND FSAS
For employers that offer Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs), their members can use the taxadvantaged dollars to spend on a wide range of healthcare services. This is usually a good option if an employee is nearing the end of the deductible year and needs to see a doctor – a time when HSA and FSA funds enable people to shop around for a cash-pay appointment.
During open enrollment season for FSAs, the Internal Revenue Service reminds taxpayers that they may be eligible to use these tax-free dollars to pay medical expenses that are not covered by their benefit plan. An employee who chooses to participate in an FSA can contribute up to $3,200 through payroll deductions during the 2024 plan year. Amounts contributed are not subject to federal income tax, Social Security tax or Medicare tax, freeing up cash that can go a long way in paying for healthcare.
If the plan allows, the employer may also contribute to an employee’s FSA. If the employee’s spouse has a plan through their employer, the spouse can also contribute up to $3,200 to that plan. In this situation, the couple could jointly contribute up to $6,400 for their household.
HSA funds can be used to pay for qualified medical expenses in 2024, including deductibles, copays, coinsurance, prescriptions, and more. HSAs can also be used for health-related items, such as sunscreen, contact lenses and first-aid kits.
In 2024, the maximum contribution to an HSA is $4,150 for individuals with self-only coverage under a high deductible health plan (HDHP) and $8,300 for families with HDHP coverage.
OPT-OUT BENEFITS ARRANGEMENTS
Tangential to this dialogue, consultants advise employers attempting to reduce the costs associated with their employee benefits to implement an opt-out arrangement, whereby employees who decline coverage under the employer’s group health plan and/ or its other benefits receive some kind of financial incentive for making this decision. This usually translates into additional taxable compensation, which gives the employee access to more cash and opportunities for cash-pay care.
Joey Truscelli
Industry observers regard optout arrangements as a powerful tool to enhance the workforce’s benefits portfolio while optimizing costs. Employers see these arrangements as an opportunity to reduce insurance costs, drive financial efficiency and allow employees to select providers that best suit their needs. It is also a signal to employees that there is a commitment to advancing individual healthcare choices, fostering a culture of empowerment and flexibility within the workforce while allowing compliance with ACA regulations.
for employers to optimize costs and enhance employee satisfaction by empowering individual healthcare decision-making. By navigating this strategy carefully, employers can foster a workplace culture that prioritizes financial prudence and employee well-being.”
There are key considerations. Notably, the need for regulatory compliance and adhering to Affordable Care Act (ACA) guidelines to ensure that opt-out arrangements comply with federal and state healthcare regulations. Under the ACA, employers with more than 50 full-time employees can offer opt-out arrangements to allow employees more personalized healthcare options.
According to the IRS, if an employer offers additional compensation to employees who decline coverage under the employer’s health plan, then the amount of the opt-out payment generally is added to the employee’s required premium contribution when determining whether the plan meets the ACA’s affordability standards, regardless of whether the employee actually declines coverage and receives the opt-out payment.
Employers will need to access professional counseling on these issues as Christine Cooper, CEO, aequum LLC, provides some legal guidance: “State laws governing waiver of insurance may still apply. While ERISA preempts certain state laws, it does not preempt all of them.”
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For example, she points out that in New York, an employee cannot opt out of his or her employer-sponsored group health plan if the coverage is paid in full by the employer with no contribution to the premiums by the employee.
“The states in which the health plan is issued would also need to be evaluated prior to permitting an employee to waive coverage,” advises Cooper.
CAN EMPLOYERS TAP INTO CASH-PAY MARKETPLACES?
The simple answer is “YES,” but currently, there are only a handful of marketplaces. Here’s a sampling of innovators:
Cash Healthcare.com is passionate about providing the most comprehensive database of healthcare providers that prefer to run their practice and/or a percentage of their practice for cash-paying consumers.
LaaSy is a comprehensive direct-pay marketplace that allows consumers, employers and individuals to shop and access healthcare directly from medical providers at a steep discount. www.laasyhealth.com/about-us/
M.D. Save provides predictable, all-inclusive healthcare pricing, enabling employers and patients to take the guesswork out of the healthcare spend. They provide access to a network of local providers offering procedures with upfront prices and exclusive savings. No middlemen. No surprise bills. www.MDSave.com
ClearPrice™, launched by Solv Health, aims to arm Americans with information about what they’ll have to pay for care—before they book an appointment. www.solvhealth.com/clearprice
Virtual Me Care Pass is a telehealth solution that provides a cashpay subscription to nationwide Virtual Urgent Care, Mental Health Counseling and Health Navigator services through its partnership with Sun Life.
Clear Health Costs researches healthcare prices and allows consumers to compare costs for specific procedures at different
Christine Cooper, CEO
providers around the U.S. A tool gets data on insurance-negotiated prices, Medicare rates, and cash prices directly from healthcare providers, as well as from patient crowdsourcing.
www.clearhealthcosts.com/
Sesame Care has a mission to eliminate the pain of high health insurance deductibles (or not having health insurance at all) by building a first-of-its-kind, super simple healthcare system. The Sesame Marketplace makes halfpriced, high-quality healthcare accessible to hundreds of millions of Americans: No surprise fees or bills. No waiting to see a doctor. And no insurance is needed. www.sesamecare.com/about
Sedera offers cash-pay patients direct relationships with their providers and provides Member Advisors and Needs Coordinators to help them find high-quality medical providers. www.cashpaymarketplace.com/
Childers recommends that employers seek the help of vendors to help them manage these opportunities.
“Properly managing cashpay opportunities, particularly with systems like virtual credit cards and pre-payment models, demands the expertise of reliable vendors,” she advises. “These partners play a crucial role in providing the infrastructure needed for seamless payment transactions. Moreover, they offer services such as managing service codes, procedure codes,
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and diagnosis codes, which are vital for accurate payment processing.”
She says that vendors can also efficiently handle the distribution of payments, ensuring that checks are sent out promptly and correctly.
“By partnering with the right vendors, we can ensure that these cash-pay options are streamlined, maximizing both efficiency and savings,” she states.
CASH-PAY ADVANCES HEALTHCARE TRANSPARENCY
While federal price transparency rules went into effect for payers and hospitals nearly three years ago, compliance has been slow – although some progress is underway. The rules require public disclosure of all commercial payer-provider negotiated rates to improve price transparency in an effort to serve consumers and purchasers with accurate information prior to accessing healthcare services.
McKinsey advises that the existence of price dispersion in U.S. healthcare is not explained by differences in quality of care, and while price transparency rules address some market inefficiencies driving this price dispersion, others are left unresolved. They project that patients—if given proper incentives and information— would be interested in shopping for care that amounts to 20 to 25 percent of U.S. healthcare claims spend, potentially unlocking
greater affordability. Price transparency rules and other innovations can empower patients to shop for care, a trend that could help growth in healthcare costs.
Joel Tompkins, CEO, LaaSy Health, observes, “Unfortunately, insurance companies, PBM’s and hospital systems have entered the word transparency as part of the new healthcare lexicon. It’s as though a patient or caregiver were given the best set of new lenses to see what they are doing when, in fact, they are issuing mosaic-stained glass. It looks great on the outside, but one cannot see through it to the inside.”
He says that is where direct pay for healthcare is an outstanding way to eliminate the ruse and get straight to the best care at the best price.
“But we must become healthcare consumers,” he cautions. “It is our money. We must be responsible for how to spend it, and we must start taking accountability for our own health.”
Why is direct pay coming back into fashion? Tompkins sets the stage:
In the 1920s, the first Blue Cross plan started in Texas when Baylor University Hospital agreed to create coverage for schoolteachers at $6 per person per year. Then came the incentives of wartime wage controls so that while Americans were not earning more wages, they were offered benefits. Years later, in 1960, healthcare expenditures hit
Expect More
5% of GDP. In 2022, the U.S. had 2.5% GDP growth, and healthcare represented a whopping 17.3% of GDP.
“Recently, a CMS report came out that healthcare spending will top $7 trillion by 2031, representing about 20% of US GDP,” he continues. “This is a 36% increase in just 7 years. These numbers are completely unsustainable. Something must change.”
As companies started seeing ways to layer in administrative fees, costs have ballooned for both healthcare payors and providers. The burden doesn’t stop there, with the advent of high deductibles. Most employer-sponsored plans also have coinsurance up to an out-ofpocket maximum, so the employee continues to pay a portion of the bill up to the out-of-pocket maximum.
“As I became passionate about the growing weight Americans have had and are facing today with getting care, the idea of direct pay emerged as a way to change the broken system to favor the consumer,” he adds. “The idea of direct pay for care is not new. It was how care was paid for before the first Blue Cross plan in Texas. The drawback is that our country lacks education about the simplest ideas of what basic healthcare is and how we as consumers should buy our care -- and where.”
Tompkins founded LaaSy to address these issues and enable consumers to know if they are going to the right facility or doctor and gain confidence to be their own advocates.
“For a provider to take an insurance card, they must bake into their negotiations with the insurance company the administrative resource cost and the time it takes to receive payment -- if there is not a denial,” he points out. “If they accept cash, they can take it to the bank that day, not wait 30-90 days. It doesn’t take long to reflect that we are being forced to think about how else we can make care, even the basics of care, affordable. A direct-pay method and getting a discount is a tried-and-true method that, truly, never gets old.”
CASH-PAY CAVEATS
James Vallee, FSA, MAAA, Consulting Actuary and Director, A&H Actuarial Consulting Services, points out, “Health insurance premiums are the fastest growing expenses many businesses face, leading to an increase in the use of cash-pay options. But these options have two main hurdles:
The first is regulatory, as most states require that any health plan offered by an employer meets the Minimal Essential Coverage guidelines of the Affordable Care Act.
The second is the significant financial risk, which has led to a sharp
increase in the demand for medical stop-loss insurance.”
He explains that clients need assistance to verify that health coverage meets MER regulatory requirements, as well as actuarial analyses showing the cost savings clients may have by making better use of federal programs. When guiding members in their cash-pay decision-making, employers can provide some direction. The benefit design of each plan will determine the employer’s policies regarding these arrangements:
1. Monies spent typically won’t count toward the deductible. As a result, those dollars will be worthless if medical care is needed that requires the employee to use their deductible.
2. Cash spent may not be counted toward the outof-pocket maximum, which caps the total amount members owe for deductibles, co-pays, and coinsurance. Typically,
James Vallee
after the member reaches the out-of-pocket max, and depending upon the benefits structure, the payer picks up 100 percent of the costs.
3. While health insurance is critical for major risks like accidents, hospitalizations, and major diseases, cash-pay medical care solutions can help save money for a broad range of outpatient services, even compared to employer-negotiated prices.
4. Healthcare prices vary widely, even within the same local area and especially by provider. Members should be advised to shop around.
IMPACT ON PROVIDERS
Bill Kampine, Co-founder and Senior Vice President of Analytics at Healthcare Bluebook, which uses insurance claim databases to estimate prices for medical care, says, “Healthcare providers
are finding that by charging people who pay cash less than the insurer-negotiated rate for some health services, they can come out ahead financially too. Healthcare providers make up for charging lower prices in other ways.”
He believes that cutting out the insurer as the middleman can significantly reduce the provider’s administrative and billing costs, adding, “Healthcare providers who get cash upfront don’t have to chase down the money
later, either from a patient or the insurance company. It’s a much easier transaction in a cash-pay environment.”
Industry observers consider that the cash-pay care model promotes a stronger doctorpatient relationship, creating a personalized care experience that incentivizes better outcomes. They regard this approach as an opportunity for providers to be in better control of their schedules and prices and, with some arrangements, to set their own appointment availability. Some models even enable
providers to offer virtual care, which facilitates lower costs for patients.
ONE-SIZE HEALTHCARE DOESN’T FIT ALL
Employers have learned that affordable healthcare is not a one-size-fits-all phrase, with alternative models like cash-pay healthcare gaining traction.
This option is particularly relevant to outpatient care, where prices vary widely and can be negotiated. According to Statista, in 2022, about 537 million outpatient visits took place in hospitals across the United States. During that year, with an estimated 519 million visits, most outpatient visits took place in general medical and surgical hospitals.
Michelle Bounce advises self-insured employers to explore alternative structures, such as direct contracting with providers or using a third party to negotiate on their behalf. These approaches
can provide more transparency and potentially greater savings than cash-pay options, which may not always deliver the cost benefits they promise.
In the quest to balance quality and cost and meet employee expectations for healthcare benefits, employers recognize the need to understand their options. Offering cash-pay programs may serve as a path to affordability.
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.
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FIDUCIARY BEST PRACTICES PART I: ESTABLISH A FIDUCIARY COMMITTEE TO GET YOUR PLAN IN ITS BEST FIDUCIARY FORM
By Alston & Bird LLP Health Benefits Practice
LLawsuits aimed at welfare plan fiduciaries are on the rise, with two filed against large, self-insured plans in the last six months related to the high cost of prescription drugs. The complaints in these lawsuits make several allegations against plan fiduciaries, including breach of the duties of prudence and loyalty that led to the alleged mismanagement of prescription drug benefits, as well as accusations of prohibited transactions for paying unreasonable fees to pharmacy benefit managers (PBMs).
The outcome of these lawsuits is uncertain, and the plan fiduciaries have a number of defenses, but as these lawsuits progress, the actions of those exercising discretion and management over the prescription drug benefits will be scrutinized, and plan fiduciaries could be deposed.
Do you know who the named fiduciaries are for your company’s welfare plan? If your plan documents simply designate the “plan sponsor” or “plan administrator” as the named fiduciary without further formal designation or delegation, it is possible that your board of directors could be named in a lawsuit, and any one of them could end up being questioned over how you negotiated the arrangement with your PBM.
If these lawsuits signal the start of a trend of more to come, then plan sponsors will need to make sure their plan has a BFF—best fiduciary form. In this month’s article, we discuss the first steps to get your plan in its best fiduciary form by establishing a fiduciary committee that reports to your organization’s top benefits leadership, as well as the establishment of a prudent review process to monitor your current plan service providers. Next month, we will follow up with best practices for selecting a service provider and analyzing the reasonableness of fees. But first, what exactly are these fiduciary duties, and who is performing fiduciary functions for your plan?
This litigation trend is coupled with increased scrutiny by the Department of Labor (DOL). Ten years ago, DOL investigations were almost exclusively limited to retirement plans. Now, DOL officials relate that almost half of their investigations are group health plans and may become more than half in the coming years. Those investigations often focus on Mental Health Parity and Addiction Equity Act (MHPAEA) compliance and also added obligations under the Consolidated Appropriations Act of 2021 (CAA).
WHAT ARE THE CORE ERISA FIDUCIARY DUTIES?
The Employee Retirement Income Security Act of 1974 (ERISA) imposes a duty of prudence and a duty of loyalty on fiduciaries, as well as an implied duty to monitor service providers to whom fiduciary responsibilities have been delegated. The duty of prudence requires a fiduciary to act “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent [person] acting in a like capacity and familiar with such matters would use in the conduct of an enterprise with a like character and with like aims.”
Notice that the focus here is on the process, not on the outcome. The duty of loyalty requires fiduciaries to act solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to them. Fiduciaries can delegate some of their responsibilities to service providers, but fiduciaries have an ongoing duty to monitor those service providers and to replace the ones that are no longer serving the best interests of the plan or its participants.
Note: Settlor functions and fiduciary functions are distinct. Plan sponsors have no ERISA fiduciary liability for carrying out settlor functions. Examples of settlor functions include establishing a plan, plan design (e.g., eligibility, benefits, and employee contribution amounts), how to fund a plan, plan amendments, and terminating the plan. The distinction is not always clear. For example, if a group health plan document is amended to formally name a provider network, is that designation a settlor function? DOL’s likely position would be that network selection remains a fiduciary function even if “hardwired” into the plan document.
WHO IS AN ERISA FIDUCIARY?
An ERISA fiduciary is someone who exercises discretionary authority or control over the plan, whether that be over the management of the plan, the disposition of plan assets, or investment advice (e.g., for VEBAs that have an investment component). This is true whether the person was named or designated as an ERISA fiduciary or whether the person just functions as an ERISA fiduciary by virtue of the person’s level of control over the plan or its assets or by virtue of position. The plan administrator, for example, is always an ERISA fiduciary, according to the Department of Labor (DOL). However, if the plan administrator isn’t defined in the plan documents, the plan sponsor (i.e., the company in most instances) is the default plan administrator.
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A FIDUCIARY COMMITTEE FOR THE HEALTH & WELFARE PLAN
ERISA fiduciaries have personal liability for breaches of their fiduciary duties. But even before any liability is imposed, a lawsuit filed for a breach of fiduciary duty will expose the plan fiduciaries to scrutiny, including depositions about the details of plan administration, reasonableness determinations for service provider fees, and how the plan monitors those service providers. If your plan is like many other selfinsured ERISA welfare plans, the plan document likely names the plan sponsor or the employer as plan administrator without much more.
The board of directors, managers, or partners could end up as the default plan sponsor/employer for corporations, limited liability companies, and partnerships (respectively), and few, if any of them, are likely to have much detailed knowledge about how the plan is administered or managed. Plans can avoid these scenarios by properly establishing a fiduciary committee to serve as plan administrator, thereby limiting (though perhaps not eliminating entirely) the exposure of the organization’s top leadership to litigation. Proper committee establishment will require diligent planning and a clear intent.
• Document formal establishment. Given the gravity of ERISA fiduciary status, plan sponsors will need to clearly document the establishment of the committee, starting with the corporate/entity formalities for similar actions (e.g., a Board vote, a resolution signed by corporate officers, etc.)
• Identify and delegate. The plan sponsor will need to identify the members of the committee, either by position, job title, name, or some other method of identification. Identification by position or job title may reduce the frequency of updating the governing instruments so long as successors to the position are fully trained in their fiduciary duties. You will want the members of the committee to acknowledge their fiduciary status in writing. This is especially important when there is a designation by job title and turnover in that job title. It is important that the committee members have substantive knowledge of at least some aspects of welfare plans.
• Consider a committee charter. A committee charter can provide even more clarification of the responsibilities delegated to the committee and specify any limitations on committee authority. The charter can also describe how the committee will delegate authority, what procedures it will follow for selecting and monitoring service providers, and to whom the committee reports. If the committee performs any settlor functions (such as amending the plan), it is important to detail those functions in the charter and make clear that they are settlor functions and not fiduciary functions.
• Hire Experts. While next month’s article will discuss the selection of service providers, it may be necessary to hire experts to monitor existing service providers where the committee lacks expertise. For example, committee members likely do not have the expertise to compare the competitiveness of pricing for a plan’s prescription drug formulary (one of the subjects of current litigation) or the depth of a plan’s network of mental health and substance use disorder providers (the subject of DOL investigations).
• Schedule routine meetings. Like any other committee with oversight functions, routine meetings, preferably that include key advisors like in-house or outside counsel and benefit consultants, can keep ongoing duties (like monitoring service providers) on the front burner and keep committee members up-to-date on any recent changes to the compliance landscape Keep minutes of committee meetings.
• Maintain a compliance calendar. Health and welfare plans have numerous deadlines throughout the year. Creating a compliance calendar will keep the committee on track and avoid unnecessary (and expensive) failures.
• Train fiduciaries. Train fiduciaries on key responsibilities related to their fiduciary duties, such as selecting and monitoring a service provider, reviewing fees, and ensuring that service contracts comply with applicable law. Fiduciaries should also be able to identify when an arrangement with a service provider could raise prohibited transaction red flags.
BEST PRACTICES: COMMITTEE BASICS
Newly formed fiduciary committees—and even existing committees that have been dormant with respect to anything other than day-to-day responsibilities—should conduct a general fiduciary compliance review to level-set and identify risks that need to be addressed. This is easier said than done and will take some time. Key topics to include on the punch list include (there are certainly several other topics we could include here):
• Plan document hygiene. Obtain and review all the current plan documents for compliance, updates, and amendments—e.g., wrap plan document and summary plan description, cafeteria plan document, HIPAA policies and procedures, COBRA documents, summaries of benefits and coverage. Are your plan documents current for MHPAEA and CAA (including the No Surprises Act)? Are you updating your SPD timely, or are the summaries of material modifications stacking up?
• Testing and other Analyses—Have you performed MHPAEA quantitative treatment limitations testing? Do you have an MHPAEA nonquantitative treatment limitations comparative analysis? Have you done Internal Revenue Code (Code) non-discrimination testing on your self-insured medical plan? What about non-discrimination testing on your cafeteria plan, where there are typically nine different non-discrimination tests when you have health and dependent care flexible spending accounts?
• Disclosures. Make sure your annual disclosures are compliant and timely (e.g., CHIPRA, HIPAA, Medicare creditable coverage, COBRA, posting machine-readable files, prescription drug reporting, and gag clause attestation). Also, check your distribution methods for electronic disclosure of SPDs, HIPAA notices of privacy practices, and other documents subject to electronic disclosure rules. Are you getting consent for electronic delivery from employees who do not access a computer as part of their routine job duties?
• Service Providers. Obtain all plan service providers agreements and check for market standard provisions, fees, and proper delegation of fiduciary responsibility. Are you reviewing agreements for gag clauses, fee disclosure language, early termination penalties, and other compliance issues? The CAA has specific fee disclosure requirements for brokers and consultants and puts the burden on plan fiduciaries to review those disclosures as well as take action if they have not been received. Have you received those disclosures and reviewed them?
• HIPAA/Cybersecurity. Review your HIPAA policies and procedures and make sure they are upto-date. Have you updated your HIPAA policies and procedures yet for the recent reproductive healthcare final rule (required by December 23, 2024)? Check with your IT department on your cybersecurity protocols.
In addition to these basics, the trend in litigation necessitates that committees focus on developing a prudent process for selecting and monitoring your service providers. This month, we address best practices for monitoring your existing providers; next month, we will address best practices for selecting a new service provider.
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THE SERVICE PROVIDER
One of the allegations in a recently filed lawsuit against a health & welfare plan involves failure to have a prudent process for monitoring PBMs with respect to drug pricing. Whether this allegation holds up through the early stages of litigation remains to be seen, but for now, plan fiduciaries should be examining their formal review process of service providers. Conduct and document reviews at routine (or at least reasonable) intervals, including the reasoning behind deciding to keep or replace a current provider. Keep in mind that these reviews may be used to defend fiduciaries against allegations of whether they failed to monitor service providers, so
include any follow-up action, such as whether the service provider remedied a shortcoming or adjusted fees.
When monitoring service providers, fiduciaries should take action to ensure the providers are performing the agreed-upon services. Fiduciaries should, at the very least, consider:
• Reviewing the service providers’ performance. Is the service provider actually doing all that they agreed to and meeting your expectations? Are their employees properly trained and qualified for the responsibilities you have delegated to them? Did the service agreement include performance guarantees? How close does the provider come to meeting them?
• Reading any reports the service provider prepares for the plan. It isn’t enough to file the report for recordkeeping purposes. Review reports provided by the service provider and seek advice or counsel if you don’t understand something or have any concerns. Make sure you understand the report and whether any changes need to be made to the plan or to its administration. Also, what kind of reports does the service provider generate for you as part of the agreement, and which reports require an extra fee? Are you receiving all the reports that you expected to receive? Do you have claim or other audit rights? If so, when was the last time you performed such an audit?
• Checking actual fees charged. Review and analyze the types of fees/compensation in an agreement and compare to what the plan has been charged—for example, PEPM, % of savings, % of recovery, payments from third parties (rebates, service fees, etc.), and payments to third parties (subcontractor fees). Ask questions if something doesn’t add up.
• Asking about policies and practices. For example, ask your TPA about their claims processing systems, ask to see templates of claims review letters, ask about the use of artificial intelligence, and ask about provider payment rules.
• Ensuring proper maintenance of plan records. A recordkeeping system should, for example, track contribution and benefit payments, maintain participant and beneficiary information, and accurately prepare reporting information.
• Following up on participant complaints. If participants complain about a particular service provider, fiduciaries should document the complaint and follow up.
Another important consideration when monitoring service providers is whether the committee has delegated any discretionary authority to the provider itself. Plan fiduciaries can delegate fiduciary responsibilities but can never delegate fiduciary liability. If the service provider is carrying out the functions of a fiduciary, consider these additional precautions:
• Use prudence when selecting the provider. The delegating fiduciary must act prudently in TPA/ claim fiduciary selection and monitor TPA’s performance. We will discuss best practices for selecting service providers in next month’s article.
• Delegate in writing. Clearly delegate claim fiduciary responsibility to a TPA in writing. Even if this is not required by the plan, it’s an important practice to clearly identify which providers have fiduciary status. Make sure that “Firestone language” (i.e., providing discretionary authority to decide claims) is tied to any TPA or other vendor that is making claims decisions, and that language appears in both your plan document and SPD.
• Treat the service provider’s breach as if it were your breach. If the committee, as the delegating fiduciary, becomes aware that a service provider has breached its fiduciary responsibilities, the committee will be liable for that breach unless the committee takes steps to remedy the breach or ensures that the service provider cures the breach.
FIDUCIARY LIABILITY INSURANCE
Even the most diligent fiduciaries could be the target of lawsuits. Some plan sponsors overlook fiduciary liability insurance for health & welfare plans—make sure you aren’t one of them. Even though ERISA prohibits a plan or sponsor from indemnifying plan fiduciaries, fiduciary liability insurance is permitted. This coverage usually includes coverage for breach of fiduciary duty, management negligence, specific IRS and DOL penalties, and voluntary compliance sanctions, but it may also include coverage for pre-claim defense costs and challenges to settlor functions.
Generally, this kind of insurance will not cover criminal acts, which fall under the ERISA fidelity bond. (Note that fiduciary liability insurance is not the same as ERISA bonding insurance.) It also won’t cover intentional violations of ERISA (but may include defense costs) or third-party fiduciaries. The size of your plan, the scope of the coverage you choose, and even the plan’s choice of service providers can all affect the pricing of fiduciary liability insurance. Having the safeguards and processes in place, like the ones we discuss here, may also be relevant. If your company tells you that it already has fiduciary liability insurance, ask to see the policy to make sure that the health & welfare plan’s fiduciary committee is on the policy.
WHAT’S NEXT?
You’ve established a fiduciary committee and have monitored your service providers, but you found some of them to be lacking. What are some best practices for selecting a new service provider? How can a fiduciary show that it uses a prudent process for determining whether fees are reasonable? We will pick up those BFF issues in next month’s article. In the meantime, make sure your plan and the leadership of your organization are protected by taking steps to:
• Identify the plan’s fiduciaries
• Properly establish a fiduciary committee
• Conduct a fiduciary review to identify risks or compliance failures
• Obtain fiduciary liability insurance
• Monitor service providers and document the review process
Attorneys John Hickman, Ashley Gillihan, Steven Mindy, 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 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 john. hickman@alston.com.
SUMMER OLYMPICS SHOWCASED ADVANCES IN MENTAL HEALTH SERVICES
LESSONS FOR SELF-INSURED HEALTH PLAN SPONSORS
Written By Kate MacDonald
ForFthe third time in history, the eyes of the world turned to Paris, France, this summer to watch the Olympic Games. The City of Lights played host to the games in 1900 and 1924, and with the 2024 version, it became a showcase for something of increasing importance to many elite athletes: mental health.
Whether participating athletes and their coaching staffs were experiencing their highest highs or lowest lows, they were able to do so in a safer environment, thanks to yet another notable “first.” The IOC dedicated itself to making sure that the Paris Games were focused on providing all Olympic athletes with mental health services to ensure that they were of sound mind before, during, and after the games.
The need to prioritize participants’ minds came into the spotlight during the postponed 2020 Tokyo Olympics in 2021, when American gymnast Simone Biles pulled out of the team medal event, citing her mental health struggles. While she was met with both criticism and support online and in the media, it prompted other athletes from various nations to speak
out about their psychological experiences while competing. This opened up several important conversations and prompted individual nations’ Olympic committees and the IOC alike to work to improve the situation.
WHAT STARTED THE CONVERSATION?
Largely regarded as the “Greatest of All Time” and, as of the Paris Games, the all-time most decorated female gymnast, Biles was a shoo-in for a gold medal going into the 2020 Tokyo All-Around event. But first, the entire U.S. team had to compete in the team finals, and she, herself, was up on the vault, a personal best event. It quickly became clear that something was wrong as she not only did not complete all of her planned rotations, but she stumbled upon landing.
Former gold medalist Nastia Liukin said that it looked like Biles got lost; soon, the world learned the term “the twisties” when Biles formally announced that she was excusing herself from the competition. This occurs when a performing gymnast, such as Biles, experiences a mind/body disconnect and loses a sense of where they are in the air, exposing him- or herself to potentially dangerous falls. Biles was not physically hurt, but she was mentally unwell. Several sources relate it to “the yips” experienced by other athletes.
While Biles’ Olympics (save one individual event) were done -- in fact, she would take a two-year break from the sport altogether -- she sparked a global discussion about athletes’ emotional wellbeing.
OTHER ATHLETES ADMIT THEIR STRUGGLES
Unfortunately, criticism immediately came flooding in, with some individuals asking why Biles did not persevere for the sake of her teammates. However, they were quickly overshadowed by supporters, particularly fellow Olympic athletes.
One staunch supporter was Michael Phelps, the most decorated Olympian of all time.
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The now-retired swimmer was quick to speak out about his own struggles, even revealing that he had suicidal thoughts during the height of his career, particularly after a second drunk driving charge (which led to a stay in a rehabilitation facility). He also noted that he has dealt with attention deficit hyperactivity disorder (ADHD), depression, and anxiety. He now prioritizes mental health.
After Phelps shared his experiences, Japanese-American tennis phenom Naomi Osaka told the media that she felt “very heard” after hearing what Biles and Phelps went through. She later pulled out of the French Open, citing depression and anxiety, before bowing out of the Australian Open this year.
Three-time shot-put gold medalist Ryan Crouser (who recently topped the podium again in Paris) explained why he thinks he and other Olympians have trouble when they compete at the highest level of their careers. He speculated that it all comes down to neurology, saying that winning athletes’ brains are flooded with dopamine when they compete and make it to the podium, particularly those who are awarded gold medals. However, when the Olympics are over, they go through a huge withdrawal, but those around them still want to celebrate. He explained that -- based on his experience – it feels like you let yourself down if you are not quite as jovial due to the dopamine withdrawal and physical exhaustion, and you feel like you let those around you down, which can lead to depression.
Meanwhile, 2020 weightlifting silver medalist Kate Nye related to being overwhelmed at the games at times, revealing that she lives with bipolar disorder and ADHD, and commended Biles for putting herself first.
CHANGING THE ATMOSPHERE
In Tokyo, U.S. Olympic and Paralympic Committee Psychologist and Director of Mental Health Services Jessica Bartley said that her team received around 10 phone calls every day to support athletes’ mental health. She said they could come from anyone (the athletes
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themselves, teammates, family members, staff members, etc.) who needed help, whether it was struggling with quarantining, dealing with disheartening news back home, or coping with performance setbacks. She also indicated that several calls were related to significant issues and required Bartley and her team to speak to the athlete directly, ensuring that they were in touch with their personal team, who could provide further mental health resources.
With athletes from various sports and nations calling for something to change, it became clear that the next Olympic Games had to adjust. The IOC began shifting the environment from reactionary to proactive. This year, all athletes in Paris had more opportunities to take advantage of mental health resources if they needed them. Below are some of the offerings presented by the IOC for the 2024 Games:
• The IOC extended access to a 24/7 hotline staffed by counselors who collectively speak more than 70 languages, with the hope that all who need aid could access it. Moreover, this help is offered to Olympians and Paralympians for up to four years after the games end.
• More than 170 athlete welfare officers from more than 90 countries have been given extra credentials to attend the games. There are more of these registered mental health professionals or safeguarding experts than there were at the Beijing Winter Games two years ago.
• Throughout the Olympics and Paralympics, the IOC deployed artificial intelligence to help check participants’ social media accounts for instances of cyberbullying. Abusive comments were then sent to human monitors, who were permitted to remove them (before the athlete could see them), and any criminal content was directed to the proper authorities.
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This example is illustrative only and not indicative of actual past or future results. Stop Loss is underwritten by Berkley Life and Health Insurance Company, a member company of W. R. Berkley Corporation and rated A+ (Superior) by A.M. Best, and involves the formation of a group captive insurance program that involves other employers and requires other legal entities. Berkley and its affiliates do not provide tax, legal, or regulatory advice concerning EmCap. You should seek appropriate tax, legal, regulatory, or other counsel regarding the EmCap program, including, but not limited to, counsel in the areas of ERISA, multiple employer welfare arrangements (MEWAs), taxation, and captives. EmCap is not available to all employers or in all states.
• IOC representatives also noted that a mental health focus group took athlete ambassadors’ recommendations into account before the Paris Games. This resulted in several wellness updates with an eye toward mental health, such as providing athletes with 2,000 licenses for the Calm app for guided meditation and mindfulness, as well as a “mentally fit” zone, meant to be a spot to do yoga, take advantage of low lighting and comfortable seating, and otherwise decompress within the Olympic Village.
And the IOC has an eye toward the future. They laid out an action plan for 2026, when the Winter Games will be held in Milan and Cortina d’Ampezzo that includes incorporating under-researched groups and embracing cultural differences, reducing the mental health stigma, further improving care, as well as increasing online resources available to athletes.
MENTAL HEALTH COVERAGE: NOT JUST AN OLYMPIC CONCERN
It is not just Olympic athletes who go through mental health struggles when all eyes are on them during competitions. When high school or college sporting events occur, any player can experience mental health issues, and that is when self-insured plans (and the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA)) are going to be critical.
The MHPAEA mandates that health insurers provide mental health and substance use disorder benefits with cost savings and benefit limitations equal to those for mental and surgical benefits. While this law does not require large group health plans or health insurance issuers to cover mental health and substance use disorder benefits, if those benefits are included in a self-funded health plan, they must be covered in parity with medical and surgical benefits.
It is more important than ever to ensure parity between mental health/substance use disorder benefits and those that relate to medical/surgical services. In recent years, the federal government has taken a special interest in ensuring that applicable self-funded plans are abiding by the MHPAEA. In 2023, the Department of Labor, the Department of Health and Human Services, and the Department of the Treasury submitted an annual report to Congress on non-quantitative treatment limitations (NQTLs), which are non-numerical requirements that can limit the scope or duration of benefits. Within this report, the Departments explained that NQTLs can present parity and compliance issues and identified them as a priority going forward. They also shared other enforcement concerns, including:
- Impermissible exclusions
- Prior authorization requirements
- Concurrent care review
- Adequacy standards for mental health and substance use disorders.
The report also contained sweeping suggestions for MHPAEA compliance, including multi-step NQTL testing, reports on common deficiencies found in healthcare plans, and suggestions for how to best take corrective action on plans that do not meet parity standards.
However, the question remains: since mental health is such a focus area right now for the government, industry, athletes, and the public in general, how can this benefit the average plan participant? While, again, it is not just Olympians or Paralympians who experience these issues, we can look to them for both warning signs and gold-medal-worthy solutions. Bartley noted that approximately half of all American athletes in the past two Olympiads had at least one of the following issues: anxiety, depression, sleep
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problems, an eating disorder, and/or a substance use disorder. And how can these concerns be addressed by health plans?
Professional athletes appear to overwhelmingly seek therapy, and others check into inpatient facilities as necessary, seek out sports psychologists specifically, and make appointments with nutritionists to jumpstart their systems, among other strategies (and combinations of these approaches). These are benefits that are often available on plans that cover mental health and substance use disorder benefits.
So, if employees and covered dependents are participating in professional athletic pursuits (that
have not been excluded – note that many professional sports are often excluded in plan documents, so it is exceedingly important to check what is and is not covered), they may be covered if they experience associated anxiety, depression, or even “the twisties.” It is in a plan administrator’s best interest to review their plans to ensure that they comply with the MHPAEA by offering coverage for such benefits as necessary and remain up to date on the latest NQTL information, as it is an ever-changing landscape. With some industry research and knowledge, a plan administrator can build a robust document that can meet regulations and take care of participants’ bodies and minds alike.
As a Health Benefits Consultant for The Phia Group, LLC, Kate MacDonald drafts, edits, and analyzes self-insured health plans to ensure compliance with industry standards. She is a regular contributor to the company’s newsletter. She previously wrote for The Cape Cod Times.
David Ostrowsky, Manager of Corporate Communications for The Phia Group, contributed to this report.
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CAPTIVE PROGRAMS HELP TO STEM THE RISING TIDE OF HIGH-COST MEDICAL CLAIMS
Written By Kari Niblack and Anna Quarum
TheTalarming prevalence of high-cost medical claims emerges as a significant threat to the financial stability of self-insured health plans, as industry observers characterize the menace as a “silent killer” to the fiscal well-being of payors. These costly claims, often associated with complex and chronic conditions like cancer, cardiovascular diseases and neonatal care, can quickly escalate into millions of dollars.
The percentage of self-insured employers incurring claims over $1 million ranges from 20% to 31%, based on various surveys over the past five years. This significant increase in high-cost claims poses a substantial threat to the sustainability of self-insured health plans.
As the frequency and severity of these claims continue to rise, self-insured employers are increasingly turning to innovative risk management strategies to mitigate this growing financial burden. Recent data highlights the severity of the issue: Million-dollar-plus claims per million covered employees rose 8% in 2023 and are up by 50% over the past four years.
Unlike fully insured plans, where the insurance carrier absorbs the cost of large claims, self-insured employers bear the financial responsibility directly. This exposure to potentially catastrophic expenses underscores the need for robust risk management strategies to protect the financial health of the plan.
THE IMPACT OF REGULATORY CHANGES
The landscape of high-cost claims and the strategies used to manage them are also influenced by evolving regulatory frameworks. The Affordable Care Act (ACA) introduced significant changes that have affected how employers manage their health plans. One of the most notable changes was the elimination of lifetime benefit maximums, which has contributed to the rise in high-cost claims.
Before the ACA, many health plans had lifetime limits on benefits, which helped cap the financial exposure of employers. With the removal of these limits, employers are now potentially liable for much larger claims, making the need for effective risk management strategies even more critical.
Another regulatory consideration is the ongoing debate around surprise billing, which has led to the implementation of the No Surprises Act. This legislation, which took effect in 2022, protects patients from unexpected medical bills for out-of-network services in certain emergency and non-emergency situations. While this law is a step forward in protecting consumers, it also places additional responsibilities on employers and insurers to manage the costs associated with these out-of-network claims.
THE NATURE OF HIGH-COST CLAIMS
High-cost claims are medical expenses that exceed a significant financial threshold, which varies by employer but typically begins between $100,000 and $500,000. These claims are typically driven by conditions that require prolonged hospital stays, advanced surgical procedures or expensive medications.
According to the National Alliance of Healthcare Purchaser Coalitions, the majority of healthcare spending for high-cost claims is split between chronic conditions (53%) and acute conditions (47%). A report by Sun Life further delineates the top conditions contributing to high-cost claims, including malignant neoplasm, cardiovascular
diseases, orthopedic conditions and newborn and infant care. The report notes that the incidence of million-dollar claims has risen significantly, with claims exceeding $3 million, nearly doubling over the past four years.
In addition to the significant financial burden, high-cost claims can also create unpredictability in health plan budgeting. The wide variance in potential claim amounts makes it difficult for employers to accurately forecast health plan costs, leading to challenges in financial planning and risk management.
MANAGING RISK THROUGH CAPTIVES
To mitigate these risks, selfinsured employers increasingly adopt stop-loss captive insurance arrangements. These are singlesource, turn-key health benefits solutions for self-insured businesses seeking innovative risk management tools for their employee healthcare programs.
The flexibility of these captives is particularly important in the current healthcare landscape, where costs are rising rapidly, and traditional insurance models often fail to provide adequate control or savings. The Kaiser Family Foundation Employer Health Benefits Survey indicates that much of the increase in captive use is driven by employers with fewer than 500 employees, who are increasingly opting for self-funding to better manage their healthcare costs.
This explosion in stop-loss captive growth is part of a seismic shift in the healthcare industry brought on by clients demanding greater transparency and looking to take greater control of their health plan costs. Stop-loss captives provide both affordability and flexibility, giving clients the control they seek. This approach allows employers to pool their risk with other similar organizations, creating a shared layer of protection that can help stabilize costs and reduce volatility. This opportunity is particularly attractive to small and mid-sized employers who may not have the financial resources to absorb large claims on their own.
Risk pooling is a proven actuarial strategy that spreads the risk of loss across a group of individuals or entities. Spreading risk across a captive layer achieves efficiency of scale, allowing clients to pay only for what they use while collectively sharing in Experience Rated Refunds (ERR) annually based upon plan performance. As a result, premiums are more affordable, more transparent and less volatile year-over-year, providing long-term premium stabilization for self-insured employers. Financial performance and overall risk management can be easily tracked or adjusted via sophisticated financial reporting and claims analytics.
Ideally, a stop-loss captive provides tailored risk management programs to self-insured businesses across diverse industries. There is a nexus -- a natural win-win -- in stemming the rising tide of high-cost medical claims. It revolutionizes the methodologies used to review and adjudicate out-of-network and catastrophic claims, accounting for a captive’s overall success that is attributed to its capabilities to insure a layer of risk based upon plan performance.
Ensuring the accuracy and integrity of medical bills before actual payment to a provider has a direct and positive impact on a client’s medical loss ratio, another factor that directly influences the performance of a stop-loss captive.
Employers are invited to imagine the impact on their own plans if they engage in a systematic review of every single claim that is incurred. This is also an opportunity to envision the power of completely eliminating any out-of-network balance bills or tail liability with a legally defensible repricing methodology backed by an indemnity captive to protect payors and patients from balance billing or collection attempts.
This dynamic pairing potentially reduces overall claims spend substantially and positions the stop-loss captive brilliantly as the tailend risk is entirely eliminated.
Any next-generation captive management expenses should be completely transparent in nature. Old-fashioned barriers to captive entry or handcuffs that prohibit exit and severely limit a client’s mobility should no longer exist in the captive or self-insurance space.
Free market considerations should reign supreme in accordance with federal and state transparency regulations affecting everything from pharmacy benefit management selection to the RFP review and selection process as a whole. Red flags should signal the wariness of hardline exclusives that explicitly prohibit or limit any consultant’s ability to provide stewardship of their clients’ best interests.
Advocacy in Action
THE ROLE OF BILL REVIEW IN COST CONTAINMENT
Think of stop-loss captives in their role of protecting employers against high-cost claims as analogous to protecting one’s home from the ravages of storms, fires and intruders with alarm systems, reinforced windows, safety locks and other safeguards against destruction or home invasion.
One critical component of this captive protection is the effective use of bill review processes. Medical billing is notoriously abusive and fraught with egregious billing practices, errors and inflated charges. For this reason, stop-loss captives may partner with bill review services to carefully scrutinize medical bills to ensure accuracy, eliminate overcharges and reduce the overall cost of claims.
The entire bill review process is increasingly automated using AI and machine learning algorithms, which allow for a thorough and rapid review of every claim. This is particularly important as the first step in a layered approach to cost containment. Red-flagged claims are then subjected to a detailed review by physicians and surgeons with firsthand expertise in the medicine behind medical billing.
It’s important to emphasize that this review must focus on the itemized bill, not just the Uniform Bill (UB-04). By understanding the nuances of medical treatment and coding, physician review experts can identify errors or
unjustified charges that might otherwise go unnoticed. Bill review services should involve a detailed analysis of each line item on a medical bill, comparing charges against standard pricing and reimbursement guidelines. This process often results in significant reductions in the amount paid by the health plan.
Estimates of the pervasiveness of billing errors indicate the magnitude of overbilling. In 2013, the American Medical Association estimated that 7.1% of paid claims contained an error, while a NerdWallet analysis of 2013 hospital compliance audits by Medicare and the Office of Inspector General found that 49% of the medical claims audited contained billing errors. More recently, the Medical Billing Advocates of America determined that 80% of hospital bills contain billing errors.
Unlike traditional reference-based pricing (RBP) models, some organizations employ a unique cost-based repricing strategy that is not reliant on Medicare rates, which are often seen as an inadequate guide for fair pricing. This approach positions these strategies as alternatives to conventional RBP methods. The effectiveness of this cost-based repricing strategy has been increasingly recognized as providing substantial savings while ensuring fair and defensible payments to providers.
The strategy emphasizes legal defensibility, reducing the likelihood of disputes or litigation and fosters better provider relations by prioritizing fair and transparent payment practices. This approach not only minimizes friction but also promotes accuracy and trust across all stakeholders.
CASE EXAMPLES OF REAL-WORLD SUCCESS
These examples demonstrate the tangible benefits of combining stop-loss captives with rigorous bill review processes. By leveraging these tools, self-insured employers can reduce their immediate costs and create a more stable and sustainable health plan over the long term.
• Slashing Overpriced Bills for Newborn Care: When an underweight newborn was placed in the Level II Neonatal Special Care Nursery for five days, the hospital issued an invoice totaling $119,245. Upon review, the bill was found to be highly inflated. By considering the facility’s average contractual discount (ACD) and scrutinizing each charge, the bill was repriced to $14,810—just 12.5% of the original charges.
• Containing Costs for Common Surgical Procedures
• A podiatrist’s assistant surgeon in New York City billed $169,410 after performing two common procedures on a patient. Following a thorough clinical bill review, this charge was reduced to $632.
• Correcting Overcharges in Oncology Surgery
• In another instance, a surgeon billed $99,380 for three mastectomies performed on a 47-year-old cancer patient. After an external review, the bill was reduced to $3,072.
Bill review processes alone do not prevent balance billing, which is a common issue where providers charge patients far more than what the payor covers. To fully address balance billing, a comprehensive approach is often necessary.
This approach typically involves three key steps: rigorous bill review, followed by cost-based repricing, and finally, indemnifying down to the single claim level. Such a strategy helps ensure that payors and patients are protected from balance billing and collection attempts, significantly reducing out-of-pocket expenses and dissatisfaction with the health plan.
PROACTIVE RISK MANAGEMENT: THE PATH FORWARD
The rising tide of high-cost medical claims presents a serious challenge for self-insured employers, but it is not insurmountable. By adopting proactive risk management strategies, such as participating in a stop-loss captive insurance arrangement and utilizing thorough bill review, defensible repricing and claim indemnification processes, employers can protect their health plans from high-cost claims that drive higher premiums for stop-loss coverage.
For self-insured employers, the key to success lies in a comprehensive approach that integrates multiple risk management strategies. Stop-loss captives provide the foundation by pooling risk and stabilizing costs, while bill review and repricing services ensure that every claim is scrutinized for accuracy and fairness. Together, these tools offer a powerful solution to the growing challenge of high-cost medical claims, enabling employers to maintain control over their healthcare costs, bring added protection to their employees and protect the financial health of their plans.
Kari Niblack, Esq., is President of Blackwell Captive Solutions. Anna Quarum is President and Co-founder of WellRithms.
GETTING AHEAD OF THE CANCER CARE COST CURVE WITH NEW TESTING TECHNOLOGY
Written By Kunal Fulani
SSelf-insured
employers are staring down the biggest rise in healthcare costs in a decade due to a perfect storm of factors. This has further encouraged employers to look for more innovative ways to manage costs while ensuring plan participants receive timely and high-quality care.
In this article, we will focus on the impact that cancer has on healthcare costs and the four ways that offering a multi-cancer early detection (MCED) test has the possibility of helping.
In 2022, cancer overtook musculoskeletal conditions as the top driver of employers’ healthcare costs—and cancer-related costs continue to rise astronomically.
And now, more than 2 million Americans are projected to be diagnosed with cancer in 2024, a number that includes an increasing number of adults in their prime working years. National cancer care costs, which have already increased to $208.9 billion in 2020 from $190.2 billion in 2015, are projected to soar as the pace of innovation and the discovery of expensive new treatments increases.
Furthermore, roughly one in five employers have already seen an increase in late-stage cancer diagnoses due to pandemic-delayed screenings, and another 41% expect to see an increase. This trend will continue to drive up costs and mortality, as many cancers have a better chance for cure when diagnosed in early stages but are less likely to be curable once the cancer has metastasized.
When it comes to other chronic conditions such as diabetes and heart disease, employers have clear tactics that can help prevent and mitigate the disease before it becomes necessary to treat, including removing processed foods and soda from vending machines and sponsoring at-work support programs to promote exercise and healthy eating. But for cancer, the overwhelming focus is on treatment—a reactive approach that fails to leverage the major cost-saving benefits of early detection.
Consider that less than half of cancers are preventable by healthy lifestyles. Though cancer screening tests can lead to lifesaving treatments, only four types of tests are recommended by the U.S. Preventive Task Force to screen for breast, colon, cervical and, in high-risk adults, lung cancers. Only 14% of diagnosed cancers in the U.S. are detected by these recommended screening tests. Cancer is a top health fear, and research shows that most people will want to know if they have the disease as soon as possible.
THE PROMISE OF MULTI-CANCER EARLY DETECTION SCREENING
Now, thanks to breakthroughs in sequencing technology, artificial intelligence, and machine learning, selfinsured employers can offer a simple test that detects a signal shared by more than 50 types of cancer before symptoms arise. Even better, it takes only a single, routine blood draw.
This MCED technology represents a first-of-its-kind tool in the war on cancer. By detecting tiny fragments of abnormal DNA shed by cancerous cells into the bloodstream and then predicting the tissue or organ the cancer signal is coming from with ~90% accuracy, MCED tests are paired with recommended screenings to find deadly cancers early. Cancer is, on average, 3X less expensive to treat when diagnosed in the early-stage vs the late stage.
FOUR BENEFITS OF OFFERING AN MCED TEST
1. Simple, proactive screening for many of the most aggressive cancers: Because an MCED can screen for so many cancers, including dozens that have no recommended screening available, offering an MCED test to employees can help them take a more proactive approach to their healthcare.
2. Dependability: Currently available MCED tests have an estimated Negative Predictive Value of 99.4%—which means that when there is a No Cancer Signal Detected result, there’s a 99.4% chance an employee doesn’t have cancer.
3. Easy integration into existing plans: Streamlined procurement and eligibility set-up processes mean that employers and health plan administrators can offer MCED testing with minimal friction, and employees can easily take advantage of the test. Because MCED testing qualifies as a screening benefit, plans can pay first-dollar coverage for their members, similar to a colonoscopy or mammography, and health plan administrators can leverage their scale to negotiate lower rates, potentially lowering the cost of the benefit. Administrators can also reward employers who utilize MCED testing, such as by offering premium discounts or HRA/HSA incentive dollars in exchange for the commitment to more proactive screening.
4. Opportunity for better patient experiences and outcomes: When employers and health plan administrators introduce MCED into their healthcare offerings, they create the opportunity for eligible workers to take advantage of case management and other available resources before their diagnostic journey even begins— allowing for plan offerings to be optimally utilized and giving employees the chance to receive a better, proactive, care experience.
MCED technology available today offers 1:1 advocacy support for patients who receive Cancer Signal Detected results. Patient Advocates can help connect impacted workers to relevant health benefits that may improve their treatment experience while managing costs—such as access to centers of excellence and case managers.
By supporting the promise of MCED tests, modeled data shows that employers and administrators can potentially see fewer deaths from cancer and lower spend on cancer treatments.
Kunal Fulani is Employer Ecosystem Partnership Lead at GRAIL. He can be reached at kfulani@grailbio.com.
OCTOBER MEMBER NEWS
SIIA boasts a very active and dynamic membership. Here are some of the latest developments from the companies powering the self-insurance industry. News items should be submitted to membernews@siia.org. All submissions are subject to editing for brevity.
Benchmarking
RIVA DUMENY ASSUMES
LEADERSHIP OF AMWINS GROUP BENEFITS DIVISION
Amwins today announced the appointment of Riva Dumeny as President of the firm’s Group Benefits Division. Dumeny, previously Chief Operating Officer for Amwins Group Benefits Division, begins her new role immediately. She succeeds Sam Fleet, who will take on a senior advisory role with Amwins.
“While we make this announcement today, the succession plan for our Group Benefits division has been developed and was executed over several years – it’s representative of the strategic way we operate according to our 150-year vision,” said Scott Purviance, Chief Executive Officer, Amwins.
“Throughout her tenure, Riva has demonstrated an unparalleled ability to develop business and operational strategies and lead
and motivate team members. With her at the helm of Group Benefits, we see a continuity of approach that will enable the division to grow and to continue executing at the highest level on behalf of clients.”
“I look forward to leading our Group Benefits team and continuing to collaborate with Amwins senior leadership to ensure the division’s continued dedication to the success of our brokers and carriers,” said Dumeny. “
VĀLENZ GROWTH RECOGNIZED AGAIN BY INC. MAGAZINE
Inc. announced that Vālenz® Health ranks as one of the fastestgrowing private companies in America: No. 2155 on the 2024 Inc. 5000 list and No. 155 among health services companies. This marks the fourth time in the past five years that Vālenz® Health has appeared as an Inc. 5000 honoree.
“We’re thrilled to be recognized again this year among America’s fastest-growing private companies, confirming the success of our unique approach to delivering innovative and transformative models in simplifying healthcare,” said Rob Gelb, Chief Executive Officer of Vālenz® Health. “As our company continues to expand, we’re driving tremendous momentum toward unlocking new strategic growth opportunities for our customers while facilitating high-value care for everyone we serve.”
The Inc. 5000 class of 2024 represents companies that have driven rapid revenue growth while navigating significant economic disruption over the past three years. Among this year’s top 500 companies, the average median three-year revenue growth rate is 1,637 percent. In all, this year’s Inc. 5000 companies have added 874,458 jobs to the economy over the past three years.
MEDWATCH PROMOTES CARYN RASNICK
MedWatch, LLC, has announced the promotion of Caryn Rasnick from Vice President of Client Success to Chief Client Relations Officer (CCRO). In her new role, Caryn will be instrumental in driving the company’s client-centric strategy, ensuring the highest level of
Chief Client Relations Officer
Riva Dumeny
Caryn Rasnick
MedWatch
IF YOUR STRESS BALL HAS ITS OWN STRESS
We know what it’s like to feel FOMA, or Fear Of Missing Anything. So wherever you’re lacking the high-quality claims data you need to write group plans, Curv® fills in the blanks with the industry’s most predictive and trusted risk score, making it easier than ever to identify stop-loss risks and opportunities.
client satisfaction, and fostering long-term partnerships that align with MedWatch’s growth objectives.
As Chief Client Relations Officer, Caryn will oversee the company’s client engagement strategy, focusing on building and maintaining strong, long-term relationships with key clients.
Sally-Ann Polson, President & CEO, commented on Caryn’s promotion: “Caryn has been an invaluable member of our leadership team, consistently going above and beyond to ensure our clients are not only satisfied but truly delighted with our services. Her promotion to Chief Client Relations Officer reflects our confidence in her ability to lead our client relations efforts at the highest level, and we are excited to see the positive impact she will continue to make on our business.”
JIM PHIFER JOINS S&S HEALTH
S&S Health, a leading provider of administration and technology solutions for health plans for small and midsized businesses, announced that Jim Phifer has joined the company as Vice President of Sales.
Jim is a tenured sales and marketing executive with more than 25 years of experience in the group benefits industry. In his new role, he will build upon S&S Health’s market position to bring profitable new business growth to the company.
“What a fantastic team that shares my passion for providing TPAs with innovative programs to reduce client medical expenses,” said Phifer. “I’m looking forward to the challenges ahead and what we can achieve together.” Jim is based out of Nashville, TN, where he resides with his wife and two children.
ROUNDSTONE RECOGNIZED AGAIN BY INC. AS FAST-GROWING COMPANY
Roundstone, a leading health benefits captive providing self-funded insurance solutions to small and mid-sized businesses, has been included in the Inc. 5000 list of fastest-growing companies for the 7th consecutive year. Over the past three years, Roundstone experienced a 135% increase in revenue and expanded its workforce
by 105%. The company attributes this remarkable trajectory of growth to its steadfast focus on transparency, integrity, and prioritizing the best interests of its clients and partners.
“Our growth is a clear indication that employers and their advisors are increasingly recognizing and adopting the value of our solution,” said Mike Schroeder, Founder and President of Roundstone. We’re proud that the market has embraced our approach, but even more so, we’re proud of our Roundstone team for consistently delivering the outcomes that employers are striving to achieve. It’s a powerful combination that fuels our accelerated and sustainable growth.”
KIM KILNE TAKES LARGER ROLE AT MEDWATCH
MedWatch, LLC, a leader in medical management services, has announced the promotion of Kim Kline to Vice President of Strategic Initiatives and Sales. In her new role, Kim will oversee the development and execution of key strategic initiatives and lead the company’s sales efforts, further driving the growth and success of MedWatch in the healthcare industry.
“Kim’s promotion is a testament to her unwavering dedication and the outstanding results she has achieved during her tenure at MedWatch,” said Sally-Ann
Jim Phifer
Depend on Sun Life to help you manage risk and help your employees live healthier lives
By supporting people in the moments that matter, we can improve health outcomes and help employers manage costs.
For over 40 years, self-funded employers have trusted Sun Life to help them manage financial risk. But we know that behind every claim is a person facing a health challenge and we are ready to do more to help people navigate complicated healthcare decisions and achieve better health outcomes. Sun Life now offers care navigation and health advocacy services through Health Navigator, to help your employees and their families get the right care at the right time – and help you save money. Let us support you with innovative health and risk solutions for your business. It is time to rethink what you expect from your stop-loss partner.
Ask your Sun Life Stop-Loss Specialist about what is new at Sun Life.
For current financial ratings of underwriting companies by independent rating agencies, visit our corporate website at www.sunlife.com. For more information about Sun Life products, visit www.sunlife.com/us. Group stop-loss insurance policies are underwritten by Sun Life Assurance Company of Canada (Wellesley Hills, MA) in all states, except New York, under Policy Form Series 07-SL REV 7-12 and 22-SL. In New York, Group stop-loss insurance policies are underwritten by Sun Life and Health Insurance Company (U.S.) (Lansing, MI) under Policy Form Series 07-NYSL REV 7-12 and 22-NYSL. Policy offerings may not be available in all states and may vary due to state laws and regulations. Not approved for use in New Mexico.
Polson, President & CEO of MedWatch, LLC. “Her strategic vision and ability to cultivate strong relationships will be invaluable as we continue to expand our services and deliver innovative solutions to our clients.”
In her new capacity as Vice President of Strategic Initiatives and Sales, Kim will be responsible for identifying new business opportunities and fostering strategic partnerships to drive revenue growth. She will also play a key role in shaping the company’s long-term strategic direction, ensuring that MedWatch remains at the forefront of the industry.
Kim Kilne
2024 SELF-INSURANCE
INSTITUTE OF AMERICA
BOARD OF DIRECTORS
CHAIRMAN OF THE BOARD*
John Capasso
President & CEO
Captive Planning Associates, LLC
CHAIRMAN ELECT*
Matt Kirk
President
The Benecon Group
TREASURER AND CORPORATE SECRETARY*
Amy Gasbarro
DIRECTOR
Stacy Borans
Founder/Chief Medical Officer
Advanced Medical Strategies
DIRECTOR
Mark Combs CEO/President
Self Insured Reporting
DIRECTOR
Orlo “Spike” Dietrich Operating Partner
Ansley Capital Group
DIRECTOR
Deborah Hodges President & CEO Health Plans, Inc.
DIRECTOR
Mark Lawrence President
HM Insurance Group
DIRECTOR
Adam Russo CEO
The Phia Group, LLC
DIRECTOR
Beth Turbitt
Managing Director
Aon Re, Inc.
VOLUNTEER COMMITTEE
CHAIRS
Captive Insurance Committee
Jeffrey Fitzgerald
Managing Director, SRS Benefit Partners
Strategic Risk Solutions, Inc.
Future Leaders Committee
Erin Duffy
Director of Business Development
Imagine360
Price Transparency Committee
Christine Cooper
CEO
aequum LLC
Cell and Gene Task Force
Shaun Peterson
VP Head of Worksite Solution
Pricing & Stop Loss Product
Voya Financial
* Also serves as Director
SIIA NEW MEMBERS
OCTOBER
2024
NEW CORPORATE MEMBERS
Mayur Yermaneni EVP of Strategy, Innovation, and Growth AssureCare Cincinnati, OH
Simon Kilpatrick President Captivedge LLC Charleston, SC
Gregory Smith CEO Coral LLC Oklahoma City, OK
Dan Conway Head of Marketing Curai Health Portola Valley, CA
Bernie Saks Founder and CEO ful.Health Dubuque, IA
David Nixon Executive Chairman InformedDNA St. Petersburg, FL
Shaun O’Neil President and COO
Lucid Diagnostics New York, NY
Hannah Drake VP of Marketing PharmaForce Jupiter, FL
Scott Long Co-CEO, Founding Partner SOTA Benefits, LLC Houston TX
Scott Fillenworth Chief Revenue Officer Reclaim Health Cambridge, MA
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