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August 2014

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SELF-INSURANCE on

Steroids


2 July 2014 | The Self-Insurer

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AUGUST 2014 | Volume 70

August 2014 The Self-Insurer (ISSN 10913815) is published monthly by Self-Insurers’ Publishing Corp. (SIPC), Postmaster: Send address changes to The Self-Insurer P.O. Box 1237 Simpsonville, SC 29681

FEATURES

ARTICLES 12 ART Gallery: Enterprise Risk Captive Smells Better Than 831(b)

Editorial Staff

14 From the Bench: Musings on Arbitration

PUBLISHING DIRECTOR Erica Massey

Clauses in Stop Loss Contracts

SENIOR EDITOR Gretchen Grote CONTRIBUTING EDITOR Mike Ferguson DIRECTOR OF OPERATIONS Justin Miller DIRECTOR OF ADVERTISING Shane Byars

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26 PPACA, HIPAA and Federal Health

Self-Insurance on Steroids:

Rosen Hotels & Resorts Gains Greater Control of Costs Through Comprehensive Approach to Onsite Corporate Medical Clinic by Bruce Shutan

EDITORIAL ADVISORS Bruce Shutan Karrie Hyatt

Political Influence at the State Level with the Help of its Members by Dave Kirby

by Cori M. Cook

P.O. 1237, Simpsonville, SC 29681 (888) 394-5688

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James A. Kinder, CEO/Chairman

38 Government Relations: SIIA Projects

44 The ADA and Employee Benefits

Editorial and Advertising Office

2014 Self-Insurers’ Publishing Corp. Officers

Benefit Mandates: HIPAA Security Risk Assessment

Wisconsin Looking to

Open Its Doors to MedMal RRGs by Karrie Hyatt

INDUSTRY LEADERSHIP 4 SIIA Chairman’s Message

Erica M. Massey, President Lynne Bolduc, Esq. Secretary

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Workers’ Compensation

Claims Administration: The Model Drives Outcomes by Glenn Backus

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The Self-Insurer | August 2014 3


SIIA CHAIRMAN’S MESSAGE SIIA National Conference & Expo... A Must-attend Event!

T

he SIIA National Conference & Expo is the world’s largest event focused exclusively on the self-insurance/alternative risk transfer marketplace. It is truly an international event typically attracting more than 1,700 attendees from throughout the United States and from an increasing number of countries around the world. The program features more than 40 educational sessions designed to help employers and their business partners identify and maximize the value of self-insurance solutions. If self-insurance is important to you in any way, this is simply a must-attend event, so join us at the popular JW Marriott Desert Ridge in Phoenix, AZ, October 5-7th, 2014. This year’s keynote session “Maximizing Memory Skills for Greater Business Success” will be presented by Ron White, World Memory Expert and Sales Trainer, and one of the world’s top memory experts. How many times have you forgotten an important name or just could not recall a key piece of information at the worst moment? If you are like most people, this has probably happened more than once. This is bad enough in your daily personal life but such memory lapses can be particularly problematic in the business world.

Ron will share effective techniques on how to train your brain to process information in a way that is sure to help you be more effective in business... and be more organized in your personal life. Our featured speaker has educated and entertained audiences all over the world. He has also made multiple television appearances, including Good Morning America, Fox and Friends, CBS Early Show and the History Channel’s Super Humans.

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Les Boughner

Self-insured group health plans will be thoroughly covered including plan design and cost containment, financial risk transfer, broker involvement and ACA compliance. Additional content has been incorporated this year that will be of specific interest to TPA executives and their key management teams. There will be several panel discussion sessions featuring top thought leaders talking about the future of the self-insurance marketplace. An increasing number of smaller and mid-sized employers have been considering self-insured group health plans, and stop-loss captive programs can help facilitate this transition. SIIA has become the recognized industry leader in this fast-growing captive insurance market niche and the session speakers for this topic area will be many of the industry’s top experts. Also within the Alternative Risk Transfer track, additional sessions will focus on Enterprise Risk Captives, also

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known as 831(b) captives, which have become an increasingly popular selfinsurance solution for many companies. Given the rapidly evolving business and regulatory environment for group workers’ compensation self-insured funds (SIGs), we will have a series of roundtable sessions where SIG leaders from around the country provide a unique opportunity to share perspectives on how their organization should be positioning themselves for future success. These SIG-focused roundtables will be supplemented by additional timely sessions of interest to both groups and individual workers’ compensation self-insurers. Rounding out the program will be sessions addressing key self-insured issues, including ACA compliance requirements for companies with global operations and/or workforces, giving the conference an added international flavor.

This top notch educational program will be supplemented with quality networking events, including an exhibit hall with more than 150 companies showcasing a wide variety of innovative products and services designed specifically for self-insured entities. If you are searching for a selfinsurance business partner, they will be waiting for you at this event. You can get a head start on your networking by participating in the conference golf tournament the morning of Sunday, October 5. This annual fundraising event benefits the Self-Insurance Educational Foundation (SIEF). The SIEF Golf Tournament Fundraiser takes place onsite at the Wildfire Golf Club where its two golf courses have both been voted ‘Best Courses You Can Play’ by Golfweek Magazine, ‘America’s Top Golf Courses’ by Zagat, ‘World’s Best Golf Resorts for Family Trips’ and ‘Best

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Resort Course in the Southwest’ by Travel & Leisure Golf Magazine. The tournament is open to all conference registrants and promises to be an excellent opportunity to network with executive-level industry colleagues and peers. Don’t miss this exclusive opportunity to better your handicap, refine your putting skills and support the foundation dedicated to ensuring the development of tomorrow’s leaders in the selfinsurance/ART industry! And then cap things off with an incredible social event on the closing night (Tuesday, 10/7) so be sure that you make your travel arrangements accordingly! n See you in Phoenix!

The Self-Insurer | August 2014

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SELF-INSURANCE on

Steroids Rosen Hotels & Resorts Gains Greater Control of Costs Through Comprehensive Approach to Onsite Corporate Medical Clinic by Bruce Shutan

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August 2014 | The Self-Insurer

© Self-Insurers’ Publishing Corp. All rights reserved.


H

arris Rosen has long been a captain of industry, but he has a surprising affi nity for the mission behind selfinsuring employee health care costs and the HR fi eld in general for which he has become a thought leader of sorts and delivered eye-popping results.

and free college education for the children of his employees as long as it’s in the state of Florida. Employees who work for him at least five years also have the option of going to college. In addition, Rosen has made philanthropic contributions to his local community. It should come as no surprise that the boutique hotel chain’s turnover rate was about 12% last year, which is significantly lower than the U.S. Bureau of Labor and Statistics’ latest estimated average of 62.6% for the hospitality industry.

His hotel career began as a personnel department file clerk at the famed Waldorf Astoria in New York City before managing some of the larger Hilton hotels and serving as director of hotel planning at the Walt Disney Company. He’s now president and chief operating officer of Rosen Hotels & Resorts in Orlando, Fla., which was founded in 1974. All but one of his seven hotels with 6,323 rooms is located within a few miles of one another. The silver-haired Rosen with a kindly, almost grandfatherly-like demeanor deeply believes that providing health benefits to his 5,300 associates and their families is the right thing to do and his passion for the topic is obvious whenever he’s interviewed. He has even tried to promote this vision in political circles as a much more prudent alternative to the Affordable Care Act. Under the RosenCare concept, every company that employs 150 or fewer people would provide health insurance in exchange for a tax credit from the federal government of up to about $4,000 per individual. A traditional tax deduction would be available for those over the 150-person limit. In a recent meeting with local lawmakers and their number-crunchers, Rosen was told the U.S. could save more than $1 trillion a year if every company replicated his approach. That philosophy – and enthusiasm – spills into other parts of the company benefits package. He provides a profit-sharing plan based on seniority

Building a better onsite clinic A key ingredient to the company’s success in managing its employee health care costs is that it built a unique onsite corporate clinic to help turbo-charge selfinsurance. Just ask Mike La Penna, a principal with the La Penna Group, Inc., who has helped develop workplace health clinics that are considered industry models and wrote the first book on this topic. “We reference Rosen as an important example of how things are done and done well,” he says. “I’ve been to their former site and their new site… I’m not sure there’s anything that Harris Rosen can’t do.” There are several ways the Rosen Medical Center differentiates itself from other onsite clinics, according to La Penna. One is that the company manages the facility itself as opposed to hiring an outside vendor – an approach that also has been taken by Perdue Farms and Quad/Graphics. The clinic also does its own medical claims administration and has an aggressive structure that manages the point of service, including huge cost drivers involving pharmacy benefits. “They try to get out beyond the onsite clinic and determine what’s the best value for hospital care, lab care, imaging care, pharmacy, whatever it is,” whereas primary care physicians typically haven’t a clue as to finding those resources, he explains. “My podiatrist doesn’t care where my best value for a hospital is, but if I’m a Rosen employee, and I need an infectious-disease consult, they already know where the best value is, and they’ll get me right in.” La Penna doesn’t believe that self-insured companies have taken full control over their employee health care costs and that adding an onsite clinic to the mix will elevate their efforts. “Onsite clinics absolutely consolidate information and patient behavior,” he says. “The self-funded employer in a lot of cases has got some power, but they just haven’t exercised it.” He describes this impressive combination as self-insurance “on steroids.”

Humble beginnings Rosen initially tried to fully insure his employees more than 25 years ago, but quickly soured on the experience when rates one year soared 60% more than anticipated. Then he stumbled upon a happy accident: A plan to convert the company’s growing accounting office’s 1,500 square foot space into a daycare facility, which could accommodate only about 30 or 40 children, ended up becoming an onsite primary care clinic that operates under the company’s selfinsured umbrella. “The most amazing thing happened,” Rosen recalls. “Our cost per covered life with the traditional insurance company was about $2,000. After the first year of doing the primary care ourselves, being self-insured, negotiating with specialists and a hospital, our cost per covered life was around $750. We had saved $1,300 per covered life.”

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The Self-Insurer | August 2014

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Today, that cost is about $3,000 per covered life among a roughly even split of full-time employees and their dependents. And the Rosen Medical Center is now 12,000 square feet with a staff of 38 primary care physicians, specialists, nurses and administrators. An onsite pharmacy and fitness facility featuring Zumba, Tai Chi and other activities also are provided. Patients receive a free annual checkup to help prevent costly claims, with $15 co-pays for all other doctor visits and referrals to specialists if needed. The company pays barely half of the annual per-employee cost of care relative to fully insured plans (roughly $4,000). “If you have a family of five or six or seven or eight or nine, the most you pay is $2,500, and $2,500 for hospital care,” Rosen says. From a provider perspective, this model allows doctors to focus on their core competencies. “Our docs don’t

have to worry about renting a store front,” he told Fox News. “Our docs don’t have to worry about accounts receivables. Our docs don’t have to worry about malpractice. Our docs don’t have to worry about advertising and marketing for patients.” They can relax with patients and spend up to 25 minutes on a single office visit to devote more time to examining the root cause of their ailments rather than rush them out the door. This measured approach ultimately will save on hospital stays and other major expenses, as well as help increase productivity.

The path to 8:1 ROI RosenCare isn’t just about using an onsite clinic for primary care; it’s also about channeling employees “in the appropriate direction for their disease modality,” La Penna observes. “The question we often ask is, ‘what

if your employee got the correct care at the correct time from one of the more efficient providers located at an efficient hospital?’” The key part of that equation is for primary care physicians to be deployed as part of a mature program that funnels critical information to employees and provides immediate access to the most efficient care. “That’s why Rosen posts the big margins, not always because of the onsite clinic,” he says. “You’re not getting a cheaper medical event when you go to an onsite clinic. It’s not a unitary thing; it’s a systemic thing.” Rosen Hotels & Resorts has saved more than $225 million on employee and dependent health care costs since 1991 relative to the traditional fully insured model with a staggering 8:1 return on investment. “I know that sounds too good to be true, but it’s true,” says Ashley Bacot, the company’s

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risk manager and president of its affiliate insurance agency ProvInsure, adding that about 80% of those savings occurred in the past 15 years. He also notes that any comparisons between the Rosen Medical Center and other onsite clinics ends with the décor: “When you drive by our primary care facility and their primary care facility at 35 miles an hour, it all looks the same, but ours is drastically different. What happens at a lot of onsite clinics is that will be used maybe for workers’ comp injuries and minor illness.” Rosen Medical Center doctors coordinate every aspect of employee and dependent care, which he says results in costs that are “30% to 50% less than an identical demographic would have using the conventional health care model. All that coordination pays huge dividends that are making people well and preventing them from having to ever go to the hospital, catching them in the pre-diabetes state, etc. The effort includes obtaining less expensive prescription drugs from abroad with no employee co-pay and ensuring the right medication is taken in a timely manner under the supervision of a single doctor. About half of everything prescribed is free.

Harris Rosen, chief operating officer of Rosen Hotels & Resorts in Orlando Rosen Hotels & Resorts works directly with a local hospital chain to help better manage costs on the backend of the health care cost equation, and in rare instances, will cover care that requires deeper specialization in another facility. Anywhere from 200 to 250 of the most frequently prescribed medications are kept at the onsite clinic and can be filled immediately so that employees do not have to leave the script to be picked up as they might need to with a retail pharmacy. The clinic also can customize drug tiers to its covered population without the need for a comprehensive pharmacy benefits manager. “Everything about our program is about low barriers to care,” Bacot explains. “So if you have a housekeeper at the hotel who makes $10 or $12 an hour, you don’t want to be on a prescription plan that costs $30 for a co-pay, which is not uncommon these days, because they’re going to say, ‘I’m going to have to work four hours after taxes. That’s a half a day. I’m going to try to weather this thing out and take something over the counter.’”

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Human capital improvements By making health care so accessible and affordable to its employees, the boutique hotel chain is able to leverage its investment in human capital by not only improving health outcomes, but also employee satisfaction, morale and loyalty. Jonni Kimberley, Rosen’s HR director, is bullish about the power of onsite corporate medical clinics and likens her boss’s health care approach to the patient-centered medical home care concept. “We know that there’s a way to save and still provide great care,” she says, “but I think it’s the only way to really have the process live optimally. You’re not going to be able to have a medical center be as successful without it being self-funded and have ownership control of that process.” For smaller employers that cannot afford to develop their own onsite clinic, Kimberley suggests they band together under a co-operative approach to leverage their purchasing power and ensure that the facility is conveniently located to the employee base. Mindful that certain aspects of business cannot be managed unless they’re measured, she admits that “treating people’s health has really a lot to do with what the patient is willing to share with you about their lives and habits.” Says Rosen about his health care dream for the nation: “Our families love it. Our individuals love it. And we keep our health costs down by being very proactive, health and wellness-oriented. It’s a program that we believe not only works for us, but could indeed work for every employer in America.” n Bruce Shutan is a Los Angeles freelance writer who has closely covered the employee benefits industry for 25 years.

The Self-Insurer | August 2014

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ART GALLERY by Dick Goff

Enterprise Risk Captive Smells Better Than 831(b)

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hat’s in a name?” the poet asked, pointing out that by any other name a rose would smell as sweet. But not if we called it a 328, I don’t think. The great product names linger in our minds with positive reference while numeric names are mostly just a product fi ling system. Positive identity is the goal of every name, and that’s why SIIA has put forth the name Enterprise Risk Captive (ERC) as an alternative to such captives being identified principally by their relationship to Internal Revenue Code Section 831(b). SIIA member Jeff Simpson was quoted in the organization’s June announcement that the new name is a first step to reframing the narrative of the 831(b) type of captive so that they are not simply defined by their tax election status. The new name highlights the purpose and function of these types of captives instead of focusing on their tax status. Simpson chairs the SIIA ART Committee’s ERC Working Group. For those who haven’t kept up with this fast-growing captive structure – some say the fastest-growing in the self-insurance universe – the 12

August 2014 | The Self-Insurer

ERC is an ideal structure for owners of small to mid-size businesses. They can pay premiums of up to $1.2 million annually to insure certain business risks with their underwriting profits accruing for the benefit of the enterprise or for purposes of wealth accumulation or estate planning. To be sure, ERCs must pass the same IRS litmus test as all captive insurance companies: they must insure legitimate risks and distribute and receive significant portions of risk to and from third parties. So, you wouldn’t pass muster insuring your Denver factory against tsunami damages and assume all the risk yourself. No, the risks must be genuine. The requirement of third-party risk distribution is often accomplished through pooling structures in which each member holds a portion of all other members’ risks. ERCs require a specific identity because of features that are unique to their type, according to Simpson, who cites SIIA’s list of ERC features: • Manage risks generally not addressed by commercial insurance programs. • Insure risks of low frequency and high severity. • Issue first party, reimbursement types of policies. • Take the 831(b) election. • Frequently owned in a manner that facilitates wealth transfer or estate planning. Even though ERCs must abide by the letter of IRS rules, there has been some grumbling that they abuse the spirit of the law as a simple tax dodge dressed up in accountants’ pinstripes. “ERCs are growing rapidly and there are intense opinions coming from all sides, with a great deal more dialogue about possible abuses than actual instances of abuses,” Simpson says. “An institution needs to step into the void and provide an objective resource on how to form and manage ERCs properly. We think that institutional leadership can be provided by SIIA.” Simpson was instrumental in organizing a SIIA webinar last month to which state insurance regulators were invited to learn about and discuss the ERC concept, and cites that as an early initiative in the organization’s assumption of the industry leadership role. “Our purpose was to help regulators better understand this type of captives and focus on ways they can manage them more efficiently and constructively,” he explained. Two educational sessions on this subject are scheduled for SIIA’s National Conference in October: “Enterprise Risk Captive Case Study Profiles” and “Enterprise Risk Captives Crossfire – Let the Debate Begin.” In establishing the 831(b) election that is so helpful to ERCs, Congress apparently was acknowledging the vast importance of the small-to-middle market of American family-owned businesses. A statistical profile indicates that over 80 percent of U.S. businesses are family firms and that most individual wealth is concentrated in these enterprises. Along the way, family businesses are a main

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driver of the U.S. economy, accounting for approximately 60 percent of the country’s employment and approximately 50 percent of U.S. GDP. It’s not just the self-insurance industry that is talking about ERCs. The American Bar Association within recent years has started a committee on captive insurance and has sponsored webinars on multidisciplinary practices embracing risk management and tax-advantaged wealth management strategies. Simpson, an attorney with Gordon, Fournaris and Mammarella in Wilmington, Delaware, sees SIIA as the ideal institutional voice for ERCs in helping to prevent the kinds of abuse that could potentially lead to adverse changes in the Internal Revenue Code. “We’ve got to help assure

that abusive practices don’t occur by avarice or ignorance,” he says. “Thankfully, my experience is that most participants in this space are careful to build legitimate risk management structures. Successful ERCs have good loss ratios and their professional service providers help them annually react and adjust to experience by either lowering premiums or increasing coverage where appropriate. That kind of annual review and adjustment is exactly what should happen.” Almost every owner of a family business can find significant risk management and financial benefits from looking at these types of captives. And isn’t it so much better now that they’re named Enterprise Risk Captives than just robot-sounding 831(b)s? n

Readers who wish to comment on this column or write their own article are invited to contact Editor Gretchen Grote at ggrote@sipconline.net. Dick Goff is managing member of The Taft Companies LLC, a captive insurance management firm at dick@taftcos.com.

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The Self-Insurer | August 2014

13


Bench From the

by Thomas A. Croft, Esq.

Musings on Arbitration Clauses in Stop Loss Contracts

M

any, but by no means all, carriers subscribe to the conventional wisdom that having a stop loss policy form clause requiring that all disputes between the insured group and the carrier be arbitrated and therefore not litigated in the courts is a distinct and near-universal advantage for the carrier. The thinking is that the playing fi eld is tilted in favor of the carrier by such clauses, that arbitration is a superior and much more cost-effective means of resolving disputes, and that it results in quicker outcomes than the traditional means of dispute resolution in the U.S. court system. Well, maybe yes, maybe no. In my anecdotal experience, there are several reasons why including

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August 2014 | The Self-Insurer

standard stop loss policy arbitration clauses is not necessarily such an unequivocal “no-brainer.”

Enforceability As an initial matter, such clauses are simply unenforceable in a significant number of states. One might think that the overriding policy favoring arbitration expressed in the Federal Arbitration Act, 9 U.S.C. § 1, et seq. (“FAA”) would pre-empt or “trump” any state statute restricting the enforceability of agreements to arbitrate, at least insofar as the transaction involves “interstate commerce,” which most every stop loss contractual arrangement would. But not so fast. Several reported

decisions have upheld anti-arbitration acts in the face of challenges under the FAA. The rationale of these cases is that, while the FAA clearly mandates arbitration in most instances and would otherwise pre-empt the state law, the McCarran-Ferguson Act “reverse pre-empts” the FAA in the insurance context. In essence, McCarranFerguson says that no federal law – unless it relates specifically to the business of insurance – can pre-empt a state law that does. These cases hold that the FAA does not specifically relate to the business of insurance (it doesn’t – it applies to arbitration agreements generally in all aspects of interstate commerce), but that the state antiinsurance arbitration statues do, and thus control over the FAA. The bottom

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line for our purposes is that a stop loss policy arbitration clause may not be enforceable in many states.1 I should note that some the state anti-insurance arbitration statutes contain exceptions for “contracts between insurance companies.” See, e.g., Kan. Stat, § 5-401(c). This begs the obvious question in the stop loss context: are self-insured ERISA plans “insurance companies” for purposes of such statutes, such that a stop loss contract is exempt from the state’s anti-arbitration statute? ERISA’s renowned “deemer clause,” 29 U.S.C. § 1144(b)(2)(B), states that “Neither an employee benefit plan... nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer, bank, trust company, or investment company or to be engaged in the business of insurance or banking for purposes of any law of any State purporting to regulate insurance companies, insurance contracts, banks, trust companies, or investment companies.” No cases I have seen have considered whether the deemer clause operates to render a self-insured ERISA plan exempt from an exception under a state anti-insurance arbitration statute for “contracts between insurance companies.” Compare Scott v. Louisville Bedding Co. (Ky. App. 2013, available at http://stoplosslaw.com/cases-andcommentary/scott-v-louisville-beddingco, at pages 13-14 of the Court’s opinion, linked at the end of my write-up, where the court essentially punted on the even more basic issue of whether the stop-loss insured was an insurer at all.)

of the insured’s principal place of business or state of incorporation controls. I suspect that this is a regulatory requirement imposed by the various state DOIs, as it seems odd that a carrier would choose to subject itself to the vagaries of the laws of whatever state its insured happened to reside in voluntarily. The validity of an arbitration clause will, therefore, depend on the law of the jurisdiction in which the policy is issued. Wholly apart from the issue of whether the state involved has an antiinsurance arbitration statute, there is another wolf lurking in the thicket that could threaten the enforceability of the stop loss arbitration clause in many states – including those without any restrictions on arbitration of insurance disputes. A goodly number of states have deceptive trade practice, unfair settlement practice, bad faith or other statutorily based remedies that can be invoked in the insurance context, often providing for double or treble damages in an appropriate case. Cases from the U.S. Supreme Court and several of the federal Courts of Appeal have cast considerable doubt on the enforceability of arbitration agreements that limit an arbitrator’s ability to award other than “compensatory damages” or “contractual damages.”2 Such language very commonly appears in one form or another in many stop loss contract arbitration clauses, and may affect statutory rights, either expressly or by implication. The “hot” issue in these cases seems to be not whether the limitation clause on remedies in the arbitration clause is per se unenforceable, but rather whether the entire arbitration agreement should be voided because it operates to nullify specific statutory rights under the guise of procedure (the arbitration). See, e.g., Paladino v. Avnet Computer Technologies, Inc., 134 F.3d 1054 (11th Cir. 1998)(nullification of rights to damages under Title VII, motion to compel arbitration denied). Similarly, in Pacificare Health Systems, Inc. v. Book, 538 U.S. 401 (2003), the U.S. Supreme Court considered whether arbitration clauses limiting the arbitrators’ ability to award “punitive or exemplary damages” or “extra-contractual damages of any kind” were enforceable where the group of plaintiffs asserted various claims, including claims under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. (“RICO”). The Supreme Court concluded that the matter of the enforceability of the arbitration clause under these circumstances was for the arbitrator in the first instance, and thus ordered the case to arbitration for a decision on the issue of arbitrability itself. See Suskin & Badnya article, below at note 2, for further details on the splits among the federal circuits on these types of issues generally. To return to the “wolf ” in the stop loss context, because many states have statutorily based remedies for a variety of insurer misconduct, even an otherwise valid arbitration clause might well be subject to attack on the grounds that it unconscionably interferes with important state public policy. This kind of assault might be particularly problematic where the state has a separate “bad faith” statute directed at insurers providing for other than contractual damages, as opposed to a simple common law doctrine supporting bad faith damages under certain circumstances.

Wolves in the Thicket In any event, enough esoterica, and back to some more musings. Most every (and I think actually every) stop loss policy form I have seen states somewhere that the law of the state

If you’ve read to this point, the appropriate question is “So What?” If the arbitration clause in the policy form is unenforceable for some reason, then so be it. If we don’t include one at all, we lose the “advantage” of arbitrating (no jury, limitation of remedies, unlevel playing field) for sure. The simple and short

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The Self-Insurer | August 2014

15


answer: the existence of an unenforceable arbitration clause is itself grounds for more complicated and expensive litigation/arbitration. Indeed, an aggressive/creative plaintiff ’s lawyer might file a pre-emptive strike in court for a declaration that a particular arbitration clause is invalid, causing the carrier to litigate (or at least force arbitration of the threshold question of arbitrability) before starting the process of addressing the dispute on the merits. This just adds another lawyer of issues to litigate or arbitrate about.

Concluding Musings And now my closing editorial thoughts, based on my anecdotal and hearsay experience in the stop loss world over the years: • Most arbitrators only rarely seriously consider granting summary judgment/ motions to dismiss thereby obviating the need for a formal arbitration hearing, which may well take days or even weeks. Unlike federal or state court judges, arbitrators get paid by the hour. Their economic incentive is to keep cases on their dockets, ultimately requiring a hearing. State and federal judges have exactly the opposite incentive – getting unmeritorious cases off their dockets as soon as possible. My experience is that most stop loss cases are won or lost at the pretrial motion stage. Moreover, even if the motion is non-dispositive, in the sense that it does not decide all the issues in the case, even limited rulings have an uncanny way of readjusting the parties’ relative assessments of the strength of their cases, and quite often lead to successful mediation or outright direct settlement of the dispute. As noted above, arbitrators are generally not prone to provide such kind of pre-trial guidance to the parties.

Would you go on a hike without a map?

• Judges, especially federal judges, have more sophistication with legal principles than most arbitrators, as well as law clerks to assist with the legal research and analysis necessary to come to a proper decision. • Discovery is severely limited under the rules of most of the major arbitration service providers. It may be limited to an exchange of a narrow class of documents (thus effectively excluding important and relevant evidence from the decision-making process), and depositions, if permitted at all, are limited to a very few key witnesses. The discovery rules of the several states and the Federal Rules of Civil Procedure are premised on the notion that broad discovery leads to the truth. The scope and extent of such discovery can be limited by either party upon motion for cause

As a Stop Loss expert, Berkley Accident and Health can put you on the right path. Our innovative approach to risk management can lead to greater stability, transparency, and control with your self-funded plan. When it comes to risk, let Berkley be your guide.

Stop Loss | Group Captives | Managed Care | Specialty Accident Insurance coverages are underwritten by Berkley Life and Health Insurance Company and/or StarNet Insurance Company, both member companies of W. R. Berkley Corporation and both rated A+ (Superior) by A.M. Best. Coverage and availability may vary by state. ©2014 Berkley Accident and Health, Hamilton Square, NJ 08690. All rights reserved. BAH AD-2014 0118

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www.BerkleyAH.com

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sunlife.com/wakeup 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. In New York, stop-loss insurance policies are underwritten by Sun Life and Health Insurance Company (U.S.) (Windsor, CT) under Policy Form Series 07-NYSL REV 7-12. Product offerings may be subject to state variations. © 2014 Sun Life Assurance Company of Canada, Wellesley Hills, MA 02481. All rights reserved. Sun Life Financial and the globe symbol are registered trademarks of Sun Life Assurance Company of Canada. PRODUCER USE ONLY.

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Company of America and are used with express permission. Guardian Stop Loss Insurance is underwritten by The Guardian Life Insurance Company of America, New York, NY. Products are not The Guardian Life Insurance Company of America, 7 Hanover Square, New York, NY 10004. GUARDIAN® and the GUARDIAN G® logo are registered service marks of The Guardian Life Insurance available in all states. Policy limitations and exclusions apply. Optional riders and/or features may incur additional costs. Financial information concerning The Guardian Life Insurance Company of Company and are Guardian LossBillion; Insurance is underwritten by The Guardian Insurance Company America, NewBillion. York, NY. Products are not AmericaofasAmerica of December 31, used 2013 with on a express statutorypermission. basis: Admitted AssetsStop = $42.1 Liabilities = $37.1 Billion (including $32.7Life Billion of Reserves); and ofSurplus = $5.0 available PolicyForm limitations and exclusions apply. Optional riders and/or features may incur additional costs. Financial information concerning The Guardian Life Insurance Company of Ratingsinasallofstates. 7/14. Policy # GP-1-SL-13. File # 2014-8924 Exp. 7/15. America as of December 31, 2013 on a statutory basis: Admitted Assets = $42.1 Billion; Liabilities = $37.1 Billion (including $32.7 Billion of Reserves); and Surplus = $5.0 Billion. Ratings as of 7/14. Policy Form # GP-1-SL-13. File # 2014-8924 Exp. 7/15.

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August 2014 | The Self-Insurer

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shown. An arbitration without adequate pre-hearing discovery is a “trial by ambush.” And the ambushing party can easily be as often the plaintiff, rather than the defendant carrier. • The rules of evidence generally do not apply. This means all manner of hearsay, otherwise inadmissible “expert” opinion, and other improper evidence can and usually is admitted and considered by the arbitrators. • Arbitration proceedings are typically confidential, not of public record like court proceedings. As a result, the development of the law relating to stop loss and other arbitrated insurance proceedings remains hidden from public view, and there is no foundation to establish precedent for future cases. Thus, arbitration deprives the entire industry and the public

from legal evolution. The very same issues may get re-arbitrated over and over between different parties without good reason. • As a practical matter, THERE IS NO APPEAL from an arbitration award. The grounds for getting a court to set aside an arbitration award are so severely circumscribed, that they can only be invoked in egregious circumstances. While any judicial process can be fairly characterized as a “dice roll,” an arbitration only provides a single throw. In court, errors can be corrected on appeal. There is a second chance for a party where error by the trial court harmfully affected the outcome. I am not opposed to arbitration generally. It is often a superior means of dispute resolution. What I am opposed to is the knee-jerk preference that

many insurance executives (and not necessarily their in-house counsel) have for the inclusion of arbitration clauses in their policies – a preference that seems more informed by myth than fact. n Tom currently consults extensively on medical stop loss claims and related issues, as well as with respect to HMO Excess Reinsurance, Medical Excess of Loss Reinsurance, and Provider Excess Loss Insurance and can be reached at tac@xsloss.com. References For a discussion of this reverse pre-emption issue, see § 5.02[C] of “Arbitration Clauses in Insurance Policies”, pp. 231-233 by E. Kneisel and R. Dolder, available at http:// www.kilpatricktownsend.com/~/media/Files/articles/2012/ CH-5_CLUP_2004.ashx. For an undated list of stateby-state restrictions on arbitration provisions in insurance policies, see www.citizen.org/congress/article_redirect. cfm?ID=6560. The author has not verified the accuracy or completeness of the latter-cited article, and therefore cannot vouch for it.

1

2 See H. Suskin & M. Badyna, “Enforceability of Arbitration Agreements that Restrict Statutorily-Mandated Rights: the Sharpening Split Among the Circuits,” available at http://jenner.com/system/assets/publications/967/

PROVIDING SERVICE TO THE SELF INSURANCE INDUSTRY FOR OVER 36 YEARS IN OVER 30 STATES Audits Tax Preparation, Compliance and Minimization NAIC Annual Statements, assistance and preparation Management Consultation Expert Witness Regulatory Matters

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The Self-Insurer | August 2014

19


Wisconsin

LOOKING to

Open Its Doors to MedMal RRGs

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August 2014 | The Self-Insurer

by Karrie Hyatt

© Self-Insurers’ Publishing Corp. All rights reserved.


S

ince 1990, risk retention groups (RRGs) offering medical professional liability insurance have not been allowed to operate in the state of Wisconsin. A 1989 amendment to the state’s patient compensation fund law barred nonadmitted insurers, including RRGs from offering med mal. The law was challenged in the late 1990s, but for the twenty four years that it has been in effect, RRGs have not been able to offer medical professional insurance in the state. However, during the last state legislature session, an amendment to that law was introduced into the House of Representatives and state Senate.

History In July 1990, amendment Section 655.23 of Wisconsin state law went into effect. (Section 655 is also called the Health Care Liability and Injured Patients and Families Compensation Act.) The amendment was primarily a financial responsibility law that required healthcare providers to purchase medical professional insurance from Wisconsin-licensed insurer and to participate in the state’s Injured Family and Patient Compensation Fund. Patient compensation funds have been adopted by 13 states and originated during the 1970s in reaction to the fast growing premiums in the medical malpractice sector. The funds work as a form of excess insurance and are meant to protect healthcare providers, and their patients, from the whims of the insurance market. Healthcare providers pay an annual fee, usually through their insurer, to underwrite the fund. Patient compensation funds vary from state to state, with some states requiring participation and some states making participation voluntary.

Wisconsin’s Injured Family and Patient Compensation Fund has mandatory participation for healthcare providers. In order to participate in the fund, medical professional carriers must be admitted carriers in the state. So, RRGs and other non-admitted carriers are barred from insuring healthcare providers. There are no RRGs domiciled in that state.

OMIC vs. Wisconsin In 1996, Ophthalmic Mutual Insurance Company (A RRG) (OMIC) challenged the state’s fiscal responsibility law by filing a lawsuit in the U.S. District Court for the Western District of Wisconsin against then-Wisconsin Insurance Commissioner Josephine Musser and the patient compensation fund. OMIC, a Vermont-domiciled risk retention group that began operations in 1987, is sponsored by the American Academy of Ophthalmology to provide medical professional liability, and other coverages, to the association’s members. The lawsuit sought to establish pre-emption of Section 655.23 by the Liability Risk Retention Act (LRRA). As a federal law, the LRRA preempts state insurance department regulation of RRGs, allowing them to operate across state lines. However, according to Section 3905(d) of the Act, “nothing in this chapter shall be construed to preempt the authority of a State to specify acceptable means of demonstrating financial responsibility where the State has required a demonstration of financial responsibility as a condition for obtaining a license or permit to undertake specified activities.” Which, according to documents filed by Wisconsin at the time, gave the state authority “to regulate how health

© Self-Insurers’ Publishing Corp. All rights reserved.

care providers can prove financial responsibility... A non-domestic RRG’s right to sell insurance in Wisconsin arises from a federal preemption of state law. Wisconsin’s right to define what ‘financial responsibility’ means for its health care providers arises from an explicit congressional decision to NOT preempt state law.” Both the District Court and later the U.S. Court of Appeals for the Seventh Circuit decided in favor of Wisconsin.

Current Efforts to Change the Law While very new when Wisconsin’s law was passed, in the intervening 24 years risk retention groups have proven themselves to be a valid and valued form of insurance mechanism for tens of thousands of insureds. With well over 200 companies, many of those having been in business for ten or more years, RRGs have come a long way in both reputation and reach. Currently, Wisconsin is the only state that does not allow RRGs to cover medical professional liability, but efforts are underway to change that. “Twenty-five years ago, Wisconsin closed the door to RRGs by preventing medical malpractice policies sold to physicians by RRGs from meeting the Wisconsin Injured Patients Compensation Fund ‘proof of insurance’ requirement. Wisconsin is the only state in the nation with such a restriction,” said Wisconsin State Representative John Nygren, who introduced legislation during the last session to amend Section 655.23 to allow RRGs to operate in the state. “Assembly Bill 808 and Senate Bill 609 were proposed to modernize Wisconsin’s statutory framework by authorizing an insurance policy sold by an RRG to suffice as the “proof of insurance” required for participation in The Self-Insurer | August 2014

21


the Fund, without requiring the RRG to be licensed in Wisconsin, consistent with the federal Liability Risk Retention Act.” In 1998, after OMIC lost their legal case against Wisconsin, the company decided to pursue a more diplomatic approach to doing business in the state

other captive insurance organizations that would be interested in this legislative/collaborative strategy rather than an adversarial approach.”

and has often been in contact with the Wisconsin Office of Commissioner of Insurance (OCI) seeking ways to find a mutually agreeable solution. According

The New Legislation

to Paul Weber, vice president of Risk Management and Legal for OMIC, “Prior to

Assembly Bill 808 and Senate Bill 609 both aim to amend Section 655.23 of the Wisconsin statute to allow for risk retention groups to operate as any other admitted carrier providing medical malpractice. While med mal RRGs would still be nonadmitted carriers, the bill would allow for them to be treated as admitted carriers as long as they have registered with the insurance department and been approved to operate. Once the RRG has been approved to do business in Wisconsin, Assembly Bill 808 states that, “any such risk retention group is subject to all the requirements under the health care

2012, we most recently had meetings with the OCI in 2007. At that time, they were unwilling to compromise on making any change.” Still, OMIC continued to look for a reasonable solution, rather than bringing further litigation, that would allow them and other med mal RRGs to operate in the state. Then, “In 2012, OMIC was contacted by the leadership of the Wisconsin Academy of Ophthalmology and was asked to approach the Wisconsin Office of Commissioner of Insurance and seek legislation to change the law so they could be insured by OMIC,” continued Weber. “OMIC is sponsored by the American Academy of Ophthalmology to provide MPL insurance to its members. Wisconsin is the only state that OMIC cannot provide MPL to Academy members. They are being denied the same right that their colleagues in every other state have.” OMIC then partnered with Preferred Physicians Medical Risk Retention Group (PPMRRG) to pursue a legislative correction. “At this time, these avenues – ongoing discussions with OCI and legislation – seem like the best uses of our resources [rather] than trying to re-open litigation,” said Tim Padovese, CEO of OMIC. “In that regard, we are continuing to reach out to other MPL RRGs... and

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August 2014 | The Self-Insurer

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100%

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It’s all in the numbers When evaluating stop loss coverage, competitive rates only tell part of the story. Compare these numbers and see why groups across the nation trust us to help protect their self-funded health care plan. From a best-in-class policy that mirrors the plan document to timely, accurate claim payments; when you choose Symetra, you know your stop loss plan is in the hands of an experienced, knowledgeable team. We know this business and can help protect yours. To learn more, visit www.symetra.com or www.symetra.com/ny.

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Symetra Life Insurance Company and First Symetra National Life Insurance Company of New York (collectively, ‘Symetra’) are subsidiaries of Symetra Financial Corporation. Each company is responsible for its own financial obligations. Symetra Life Insurance Company and Symetra Financial Corporation do not solicit business in the state of New York and are not authorized to do so. Stop loss, filed as the Group Excess Loss policy, is insured by Symetra Life Insurance Company, 777 108th Avenue NE, Suite 1200, Bellevue, WA 98004 and is not available in any U.S. territory. In New York, stop loss, filed as the Group Excess Loss policy, is insured by First Symetra National Life Insurance Company of New York, New York, NY. Mailing address: P.O. Box 34690, Seattle, WA 98124. Coverage may be subject to exclusions, limitations, reductions and termination of benefit provisions. 1 Nine years for First Symetra National Life Insurance Company of New York. Symetra® is a registered service mark of Symetra Life Insurance Company. SLM-6221/SIPC

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5/14

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23


Excess Employer’s Liability For Single Entities, Groups & Public Entities Provided by an A.M. Best “A” (Excellent) XIV Rated Carrier Excess Capacity: $5M Minimum Retention • $100,000 • Lower retentions may be considered Self-Insured Groups Prefer stable & established (4 or more years), homogenous groups with common effective date. Claims and/or Underwriting Audit may be required.

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liability provisions of the statutes that apply to other insurers that provide health care liability insurance coverage under the health care liability provisions of the statutes, including policy approval by the commissioner, assessments for the peer review council, mandated payment of specified costs in the settlement or defense of claims, and reporting requirements related to claims paid.” The proposed legislation does not make it clear whether or not RRGs would participate in Wisconsin’s Injured Family and Patient Compensation Fund. However, it would likely be a requirement. The bipartisan legislation was sponsored by twelve Representatives and three Senators. According to Representative Nygren, the leading author of Bill 808, “While the legislation did not pass before the legislature adjourned in April, it did receive a public hearing in both the Senate Health Committee and the Assembly Insurance Committee, and it was recommended for passage by the Senate Committee.”

As OMIC already offers medical malpractice to its members in 49 states and the District of Columbia, Weber believes it would be a huge benefit to Wisconsin members of the American Academy of Ophthalmology. If the legislation gets signed into law, “It would open up a market to over 150 ophthalmologists that are very interested in buying our insurance.” A survey of Wisconsin Academy of Ophthalmology members conducted in 2012 found that 77% supported amendments to the state law that would allow OMIC to operate so that they would have the option of purchasing insurance from the RRG. Commenting on the survey, Weber said that “More than 80% [of responders] felt that OMIC’s efforts to help maintain or improve patient safety in their practices was particularly important in considering.”

The Legislative Future Despite the support the legislation is receiving in the Wisconsin legislature, the future of both bills is unclear. “The bill will likely resurface during the 2015 legislative session and its chances of it becoming law are uncertain at this point,” commented Representative Nygren. However, OMIC is more positive about the outlook of the legislation, “We think the legislation is strategically well positioned to gain traction in the 2015 legislative session,” said Padovese. “Our lobbyist and legislative sponsors... are continuing to reach out to the OCI working on mutually agreeable statutory language change.” n Karrie Hyatt is a freelance writer who has been involved in the captive industry for nearly ten years. More information about her work can be found at: www.karriehyatt.com.

Opening Up the MedMal Market Representative Nygren is in full support of what the proposed legislation could do for the medical professional liability market in the state. “AB808/SB609 would lead to increased competition in the highly concentrated medical malpractice insurance marketplace and lower costs. By allowing RRG’s to do business in Wisconsin, physicians would have more options and greater access to medical malpractice insurance products,” said the Representative. “RRG’s have a solid track record of offering affordable coverage to physicians, and they are able to offer more specialized products which can lead to better patient safety and outcomes, and fewer claims.”

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25


PPACA, HIPAA and Federal Health Benefit Mandates:

Practical

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

Q&A

HIPAA Security Risk Assessment

I

n light of the recent increase in HIPAA audit/investigation activity, and recent large scale data breaches, employer plan sponsors should redouble their efforts for selffunded health plan (the “Plan”) HIPAA security compliance. The HIPAA security rule requires that each covered entity (i.e ,the Plan) and its business associates (i.e., TPAs and other service providers) conduct a thorough and accurate risk assessment of the potential risks and vulnerabilities to the confidentiality, integrity and availability of electronic protected health information (ePHI) held by the Plan or business associate.1

Completion of the risk assessment will likely require input from a number of business functions within the employer plan sponsor or TPA, including Benefits, HR, IT security, HR information systems, Payroll and Legal. The Privacy Officer and the Security Officer (if someone other than the Privacy Officer) are responsible for ensuring that the risk assessment is performed and documented. However, elements of the assessment will likely need to be completed by other groups outside the Plan/TPA’s normal workforce.

General Security Risk Assessment Requirements There are numerous methods for performing a risk analysis and there is no single method or best practice that guarantees compliance with the HIPAA Security Rule. However, there are several elements that a risk analysis must incorporate, regardless of the method employed.

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August 2014 | The Self-Insurer

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1

SCOPE OF THE ANALYSIS The Plan or TPA must perform a thorough risk assessment to determine the potential risks and vulnerabilities to ePHI held by the Plan/TPA. For this purpose, risk as defi ned as the net mission impact considering (1) the probability that a particular threat will exercise a particular vulnerability and (2) the resulting impact if this should occur. Risk may arise from legal liability or negative impact on the business. Responsible Party: Privacy and Security Offi cer(s)

2 3

DATA COLLECTION The Plan/TPA must identify where the ePHI is stored, received, maintained or transmitted. Possible Responsible Party: Privacy/Security Offi cer, Benefi ts Department and IT/HRIS Department

7

DETERMINE THE LEVEL OF RISK The Plan/TPA must assign risk levels for all threat and vulnerability combinations identifi ed during the risk analysis. The output on the report for this part should be documentation of the assigned risk levels and a list of corrective actions to be performed to mitigate each risk level. Possible Responsible Party: Privacy/Security Offi cer, Legal Department and IT/HRIS Department

IDENTIFY AND DOCUMENT POTENTIAL THREATS & VULNERABILITIES The Plan/TPA must identify and document reasonably anticipated threats to ePHI and system vulnerabilities. For this purpose, threats and vulnerabilities are defi ned as:

8

• Vulnerability – a flaw or weakness in system security procedures, design, implementation or internal controls that could be exercised (accidentally triggered or intentionally exploited) and result in a security breach or a violation of the system’s security policy. • Threat – the potential for a person or thing to exercise (accidentally trigger or intentionally exploit) a specific vulnerability.Threats include things like natural disasters (e.g., floods, earthquakes, tornadoes), human threats (e.g., malicious software, hackers) and environmental threats (e.g., power failures, pollution, liquid leakage). Possible Responsible Party: Privacy/Security Officer and IT/HRIS Department

9

4 5

ACCESS CURRENT SECURITY MEASURES The Plan/TPA should assess and document the security measures it uses to safeguard ePHI. Possible Responsible Party: Privacy/Security Offi cer and IT/HRIS Department

DETERMINE THE LIKELIHOOD OF THREAT OCCURRENCE The results of the risk assessment, combined with the initial list of threats, will infl uence the determination of which threats the Security Rule requires protection against because they are reasonably anticipated. The output in the report for this element should be documentation of all threat and vulnerability combinations with associated likelihood estimates that may impact the confi dentiality, availability and integrity of ePHI. Possible Responsible Party: Privacy/Security Offi cer and IT/HRIS Department

6

DETERMINE THE POTENTIAL IMPACT OF THREAT OCCURRENCE The Plan/TPA must assess the magnitude of the potential impact resulting from a threat triggering or exploiting a specifi c vulnerability. The plan can use a qualitative or quantitative method or a combination of the two to measure the impact on the plan. Possible Responsible Party: Privacy/Security Offi cer and Legal Department

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FINALIZE DOCUMENTATION The Plan/TPA must document the risk analysis, but HIPAA does not require a specifi c format. Possible Responsible Party: Privacy/Security Offi cer and Legal Department PERIODIC REVIEW AND UPDATE TO THE RISK ANALYSIS The Plan/TPA must continue to monitor its risk analysis in light of new developments. HIPAA does not specify the frequency with which such updates must occur. Updates should be driven by circumstances and changes to the environment that could impact ePHI. Possible Responsible Party: Privacy/Security Offi cer, IT/HRIS Departments, Benefi ts Department and Legal Department.

HHS Online Security Risk Assessment Tool One available method for conducting the security risk assessment is to use the Security Risk Assessment Tool (“SRA Tool”) offered by the Department of Health and Human Services (HHS). The SRA Tool can be found at www.healthit.gov/providersprofessionals/security-risk-assessmenttool. The SRA Tool is a software The Self-Insurer | August 2014

27


application that is one resource (among other tools and processes) that a Plan/TPA may use to assist in reviewing implementation of the HIPAA Security Rule. Although the SRA Tool was designed for small and medium sized medical practices, the questions are generally applicable to any type of covered entity. The SRA Tool is comprised of 154 questions covering 12 different compliance categories, as follows: • Maintaining your security program; • Identifying your assets; • Managing access to your assets; • Managing the integrity of your ePHI; • Managing your media; • Managing your facilities; • Managing your workforce; • Educating your workforce; • Managing your vendors; • Continuing operations when emergencies occur; • Auditing your operations; and • Managing Incidents. The SRA Tool produces a report after all the questions are completed that can be used to form part of the documentation for a Plan/TPA’s risk assessment. However, HHS has made clear that completion of the SRA Tool does not guarantee compliance with the HIPAA Security Rule. n

Attorneys John R. Hickman, Ashley Gillihan, Johann Lee, Carolyn Smith and Dan Taylor provide the answers in this column. Mr. Hickman is partner in charge of the Health Benefits Practice with Alston & Bird, LLP, an Atlanta, New York, Los Angeles, Charlotte and Washington, D.C. law firm. Ashley Gillihan, Carolyn Smith and Johann Lee are members of 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 email to Mr. Hickman at john.hickman@alston.com. References 45 CFR § 164.308(a)(1)(ii)(A)

1

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866-762-4455 www.UnitedClaimSolutions.com © Self-Insurers’ Publishing Corp. All rights reserved.


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29


Workers’ Compensation Claims Administration:

The Model

Drives

Outcomes by Glenn Backus

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August 2014 | The Self-Insurer

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T

he free transaction of goods and services is the primary driver of our capitalistic society. Companies are in the business of providing a product or service, which hopefully appeals to consumers who then pay a fee to consume said products or services. For example, when you fl y, you purchase an airline ticket, and then proceed to consume that service. When you’re hungry, you may purchase a hamburger at a restaurant, and hopefully consume every morsel. In essence you pay a fee, you consume. In the world of Workers’ Compensation Claims Administration, the pricing model and service model have evolved to the point where the industry has lost focus on why it existed in the first place: to create an environment where the adjuster has the time, knowledge and freedom to care for the injured employee, develop and communicate comprehensive strategies for the claim, and consult frequently with the injured employee, employer, and appropriate medical personnel until the employee is back to work and the claim is closed. The purpose of this article is to explore the challenges facing workers’ compensation claim administration today from the aspect of a pricing model and service model. I’ll then present a case study where an employer has taken workers’ compensation back to the future, generating some impressive outcomes.

Pricing Model What happens when a consumer pays a company a fee for a service that the consumer is ultimately hoping to reduce or eliminate (i.e. workers’ compensation claims)? As the seller, the business charges a fee for a service that they hope to continue (or even increase) over time. As the consumer,

the employer is hoping to reduce or altogether avoid paying the fee. Therein lies the quandary in the world of workers’ compensation: employers are motivated to reduce or eliminate workers’ compensation claims while a TPA’s motivation lies on the opposite end of the spectrum. Higher frequency and severity result in higher fees for TPAs. In essence, today’s self-insured claims administration pricing model operates in a Zero Sum Game. The pressures of competition and the employer’s drive to lower costs has created an environment where most TPAs are unable to generate enough revenue off of the claim fees to make a profit. This downward pressure on fees has led TPAs to pursue other sources of revenue and vertically integrate, buying the ancillary services that are used to administer workers’ compensation claims including bill review, nurse case management, utilization review, etc. This vertical integration has increased the expense ratio on files to twenty percent or more and has led employers to hire claims managers to oversee the job of the TPA, further driving up costs.

Service Model Have you flown across the country in coach lately? If so, you can imagine how a sardine must feel. The airline is working to maximize revenue and reduce costs on every trip, resulting in maximum profit. Unfortunately, it comes down to a matter of inches when balancing comfort versus revenue. Often times it can seem that revenue wins at the expense of service. TPAs operate in a similar capacity: the more claims they can assign to an adjuster, the more revenue they can earn per full-time employee. While industry and competitive pressures work to limit caseloads, TPA’s are constantly struggling to balance service

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verses revenue. But in this case we’re not talking about putting up with discomfort for a two hour trip on an airline; we’re talking about taking care of an employer’s most important asset – their employee. We’re talking about working with an injured/ill employee to make sure we take care of their injuries/illness and get them back to work as quickly as possible. This is a very complex transaction that must be handled with great care and expertise. Service is crucial! But aren’t advances in technology helping TPAs become more productive while improving service? Advances in technology have helped claim operations a great deal by wringing out administrative tasks that can consume an inordinate amount of time in an adjuster’s day. Advances in predictive modeling, data analytics and algorithms embedded in nurse triage systems work to get the claim into the right hands as quickly as possible, ensuring that the injured employee will get access to the right care at the most critical moment. These tools, used to assist the adjuster in doing his or her job and enabling the right care at the right moment work towards a successful claim resolution and a well employee that can get back to the quality of life he/ she once enjoyed, pre-injury. The ability of systems to sequence claims for submission to the State and/or Federal reporting agency also helps the adjuster a great deal by reducing error rates and eliminating administrative time. Workflow advances limit the time an adjuster spends trying to get to the right information. Paperless systems ensure that the adjuster has all the documentation at his or her fingertips needed to make timely and accurate decisions. Fully integrating disparate systems such as payroll, claim, medical bill review, etc., also helps the adjuster by eliminating redundancy and ensuring accurate information. The Self-Insurer | August 2014

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With all the advances in technology that we’ve seen over the last ten years, adjusters jobs should be much easier – a piece of cake, right? Not necessarily. In theory, everything works well and the time an adjuster spends on administrative tasks is greatly reduced, freeing up more of their time to take care of the injured employee. In practice it doesn’t always happen this way. Unfortunately, these advances in technology come with a price tag – sometimes a hefty price tag. If productivity doesn’t keep up, the claims operation has to assign ever-increasing caseloads to the adjuster to pay for the cost of the new technology and still make a profit. Therein lies the quandary. Claim operations must still evolve to take full advantage of the advances in technology to increase productivity. How can we do that? First and foremost, even though the industry is often all abuzz about the latest technological tools, and systems companies are pushing the latest and greatest gadgets, unless/until we fully and successfully integrate the disparate systems we will never realize the full potential. Insureds, Insurance Carriers, Third Party Administrators, Managed Care Organizations, etc., all use different systems. We must do a better job of integrating these systems seamlessly. Secondly, management must better align staff to take advantage of this new technology. Working in teams of adjusters from the least experienced medical only adjuster to the rock star senior lost-time adjuster, along with appropriate levels of support and supervision should allow the right adjusters to focus on the right claims to achieve the best possible outcomes. Easy, right? Maybe not. Risk Mitigation 3 Adjusters must be allowed to work in an environment and given the tools that will allow him/her to be successful. Good adjusters appreciate taking a consultative

approach with their client, using their knowledge, expertise and skill as an adjuster to bring a claim to resolution. If adjusters are not afforded the environment to be successful, they are often reduced to processors with little or no time to develop a comprehensive strategy on each claim. Today’s adjusters are often left in an environment where they cannot possibly succeed, despite all the technological advances. Therein lies the problem and the solution.

Case in Point: SSCRMP SSCRMP is a WC pool consisting of four school districts with 16 high schools and 6 alternate schools totaling 6,500+ employees and 30,000+ students located in the Chicago, IL suburbs. Four years ago SSCRMP found themselves at a plateau. Even though the pool was well-run and had an excellent e-mod along with an outstanding adjuster, the members

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often wondered if there was a better approach to workers’ compensation claims administration. The pool decided that only a paradigm-shift would allow them to achieve an even greater level of success. They needed a different model. Let’s take a step back for convenience purposes and describe the traditional TPA model as: teams of designated, specialist adjusters (complex/litigated lost time adjusters, lost time adjusters, medical-only adjusters), working out of a large claims office, administering claims for multiple clients, and multiple jurisdictions at caseloads generally from 175 to well over 200. Is there anything wrong with the traditional model? Not necessarily. TPAs have honed this model into a complex processing machine where a claim can flow through a maze of managed care and specialist adjusters, each assigned a specific task designed to maximize revenue and eventually return employees to work. However, when specialists are utilized to focus on very specific tasks, they tend to lose the expertise, creativity and bigpicture perspective it often takes to bring claims to a quick resolution. For example, it would be very difficult for a running back to make changes to a defense, at half-time, geared to shut down the opposing team’s offense. It takes a head coach. Now, back to our case in point: SSCRMP was utilizing the traditional model to administer their WC program. They loved their adjuster and were somewhat satisfied with the level of service and outcomes they were getting. It was good; but not great. They were also purchasing loss control services by the hour from their TPA. Again, it was good; but not great. What SSCRMP wanted was a dedicated adjuster, dedicated 100% to SSCRMP. They wanted to know their

adjuster but more importantly wanted an adjuster that knew everything about them and their program. They wanted an adjuster that shared their risk management and claims philosophy. They wanted an adjuster that knew their employees and the work they do, knew their return-to-work/modified/light-duty program, knew and worked closely with their defense counsel, knew their supervisors that reported the claims, knew and worked closely with the nurses in their campuses, knew and worked with the physicians that treated their employees. SSCRMP needed an adjuster that was fully integrated into their Risk Management program and developed an intimate knowledge that only a dedicated adjuster could know.

SSCRMP also wanted a dedicated Safety Coordinator, dedicated 100% to SSCRMP. In addition to the Coordinator’s daily responsibilities, they wanted the Coordinator to work closely with the adjuster to create a safety culture that would drive down frequency, and work with each campus to proactively identify problem areas before the claims started occurring. SSCRMP needed a Safety Coordinator that was fully integrated into their Risk Management program and developed an intimate knowledge that only a dedicated Safety Coordinator could know. Sound familiar? SSCRMP was prepared to pay more for a higher level of service from dedicated staff, viewing the added expense as an investment in their workers’ compensation program and their employees. SSCRMP issued an RFP and selected a firm that shared their philosophy, staffing the dedicated Safety Coordinator and Adjuster at one of their campuses. SSCRMP helped interview and select a Safety Coordinator and Adjuster that fit into their culture and welcomed the challenge to work in a unique setting that allowed them the freedom to use their creativity, expertise and put on consultative hats to really make a difference in the schools. SSCRMP saw improvement almost immediately with a noticeable drop in frequency right off the bat. Employees took note that management was serious about adopting a culture of safety and they had better start paying attention. The Safety Coordinator noticed problem areas early on and addressed them immediately. The Safety Coordinator established safety groups to meet on a regular basis to discuss claims and loss prevention. The Safety Coordinator personally investigated accidents, along with the adjuster, to come up with ideas to create a safer environment.

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The Self-Insurer | August 2014

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The adjuster’s caseload dropped from well over 175 claims at their previous TPA to fewer than 100. The lower caseload (along with one client, one jurisdiction) gave the adjuster ample time to effectively work each claim. The Adjuster also helped develop a return-to-work program, helped re-write job descriptions, and developed a network of preferred physicians. In addition to the service model, SSCRMP chose a pricing model that eliminated the transactional fees. SSCRMP’s cost-plus pricing model eliminated the conflict found in traditional fee-per-claim pricing models allowing both the TPA and SSCRMP to work together to reduce frequency and severity. The TPA also made a commitment to keep the expense ratio in check, closely monitoring the use of ancillary services. The TPA didn’t have to worry about dropping revenue due to their success, creating a win/win situation! SSCRMP just completed its third year with the new model and produced a study comparing outcomes from the last three years of the traditional model to the first three years of the new model. The results are impressive to say the least! • Medical Costs Reduced 17% (42% Inflation Adjusted) • Indemnity Costs Reduced 42% • Expense Costs Reduced 17% • Legal Costs Reduced 46% • Total Costs Reduced 27% ($1,645,853 Reduction) • Life Span of Claim Exceeded Reduced 93% • Lost Time Days Reduced 28% SSCRMP returned roughly $3.65 for every dollar they invested in this model, a success by anyone’s definition. More importantly, employees aren’t getting injured at the same frequency as before and when they are getting injured, they’re getting the care and attention they deserve allowing them to get back to work much more quickly than before. In summary, the dedicated model has worked by: • Integrating claims and safety into the school’s risk management program • Eliminating silos by creating an environment of open and frequent communication • Creating a safety-first culture • Lowering caseloads to give the adjuster more time to effectively work the claims • Dedicating a Safety Coordinator and Adjuster that will allow them to develop an intimate understanding of the schools and employees they serve • Creating a pricing model that eliminated the transaction and incented both the TPA and SSCRMP to work together to reduce frequency and severity A dedicated model isn’t for everyone but for those entities with a local or regional workforce consisting of 1,500 or more employees, it works very well. In fact, your employees deserve dedicated! n Glenn Backus, ARM, ARM-P is the president of third party administrator Alternative Service Concepts and formerly worked for Marsh. Mr. Backus holds a Bachelor of Business Administration degree in Management from West Texas State University and an MBA in Financial Services from The University of Dallas.

Do you aspire to be a published author? Do you have any stories or opinions on the self-insurance and alternative risk transfer industry that you would like to share with your peers? We would like to invite you to share your insight and submit an article to The Self-Insurer! SIIA’s official magazine is distributed in a digital and print format to reach over 10,000 readers around the world. The SelfInsurer has been delivering information to the selfinsurance/alternative risk transfer community since 1984 to self-funded employers, TPAs, MGUs, reinsurers, stop-loss carriers, PBMs and other service providers.

Articles or guideline inquiries can be submitted to Editor Gretchen Grote at ggrote@sipconline.net.

The Self-Insurer also has advertising opportunities available.

Please contact Shane Byars at sbyars@sipconline.net for advertising information.

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Government

Relations

UPDATE SIIA Projects Political Influence at the State Level with the Help of its Members by Dave Kirby

D

uring a season of legislative discontent, SIIA’s government relations team and a growing corps of activist members have nimbly defended, state by state, against the kind of threatened laws that could harm the self-insurance industry.

Issues of tax assessments on self-insured health plans, limitations on stop-loss insurance and tightening down on self-insured workers’ compensation groups are viewed as previews of possible coming attractions in many additional states. “State-level legislative issues have become as important for SIIA to address as those at the federal level,” said Horace Garfield, vice president of Transamerica Employee Benefits and chairman of SIIA’s Government Relations Committee. “This is because stop-loss insurance and other factors affecting self-insurance are regulated by the states. Under the ACA, states are looking for ways to protect their healthcare insurance exchanges and they appear not to like anything that’s better for employees than joining an exchange.” Front-burner legislative issues in six states and the District of Columbia have kept SIIA members busy with legislative testimony, visits to capitals for highlevel lobbying and grassroots contact with legislators in their home offices, all coordinated by SIIA’s government relations office in Washington, DC. Following is a tour of state legislative battlegrounds focusing on grassroots advocacy by SIIA members:

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Connecticut This was the most vigorously contested session resulting in a major victory for self-insurers as two bills failed to gain traction. One measure would have created the highest stoploss attachment points in the nation (SB 479) and another (SB 21) sought to levy a tax on self-insured plans. SIIA members rallying to oppose the Connecticut measures included Brooks Goodison and Dave Follansbee of TPA Diversified Group. Also spreading the word to clients and others in the self-insurance industry were SIIA members Charlie Barger of Pequot Health Service, Mike Kemp of IHC Risk Solutions and Robert Melillo of Guardian Life Insurance Company.

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Diversified was instrumental in directly lobbying the Connecticut legislature, including direct testimony and contact with individual members. Goodison, President of Diversified, was encouraged by reactions of several key senators who appeared to lean away from supporting the tax assessment bill. Goodison said, “We are no longer afraid to engage our customers and their brokers as well as other stakeholders to make sure that our message is heard by the legislature. Mike Ferguson and Adam Brackemyre of SIIA help us with context to tell the story at the grassroots level.” The taxation bill was opposed in testimony to the Appropriations Committee hearing by SIIA director of state government relations Adam Brackemyre who said, “We believe that the drafters of the legislation have not fully considered that the provisions, if enacted, would likely be preempted by the federal Employee Retirement Income Security Act (ERISA). Under ERISA, self-funded plans are federal, not state, entities. Therefore, they cannot be considered to be Connecticut entities of ‘domestic’ insurance carriers.” Mike Kemp, president of IHC Risk Solutions, sought to rally support for SIIA’s legislative positions from IHC clients and the broker community. “We sent out blast emails to all the employers and TPAs we work with, suggesting they reach out to their representatives on these issues,” he said. “I think legislators hope to keep these kinds of issues under the radar, so our clients need to be part of the process rather than just letting laws pass and then paying the bill.”

New York A “good news” bill in New York (S. 6917) would protect the ability of organizations with 51-100 employees to purchase stop-loss insurance beginning in 2016 when the definition of “small

groups” changes to 2-100 employees under the ACA. Current NY law restricts the sale of stop-loss insurance to employers in the small group market. This bill provides a legislative fix and SIIA has worked with many stakeholders to advance the legislation. The bill, described as protecting into the future the current stop-loss market among smaller businesses, was passed by the New York Senate but the companion bill A.9980 was not approved by the lower house Insurance Committee prior to adjournment. With the bill essentially in a “halftime” pause before the Assembly resumes next year, SIIA continues to seek support for the law among SIIA members and New York employers. SIIA held a special mid-July briefing for New York members to underline the importance of grassroots support when the stop-loss bill is revived. The meeting in New York City was sponsored by Guardian Life Insurance Company, East Coast Underwriters, D.W. Van Dyke & Co., Meritain Health, AmWins, Berkley Accident & Health, Relph Benefit Advisors, HCC Life Insurance Company, Pareto Captive Services, LLC, IHC Risk Solutions, Gerber Life Insurance and Sun Life Financial. Concerted grassroots action by SIIA members was spurred by a comment repeatedly attributed to Assembly members to the effect that they weren’t hearing enough support for the legislation from their constituents. Also, it was reported that the Department of Financial Services wanted to give the bills further study – which could mean assessing whether the bill could damage prospects of the state’s health care exchange. Bob Relph, CEO of Relph Benefit Advisors in Fairport, NY, believes that the employer groups most likely to be affected will express their support for the bills. “After many years of being community-rated under New

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York regulations, groups know the value and self-determination that selfinsurance brings,” he said. “We have communicated the importance of this issue to employer groups and they have been very responsive in their support. “However,” he cautioned, “the affected group is not a huge portion of the state’s employers so we’ll continue to carry the ball to help the Assembly members and the governor know that this is good for the state and a large population of employees.” Mike Hirsch, vice president-sales of East Coast Underwriters, also believes that sufficient grassroots support for the stop-loss preservation bill can be elicited. “Absolutely, we have reached out to our brokers and, through them, to employers using the template letter that SIIA provided. And now we have time to make another push on this.” He points out that supporters of the bill have a new opportunity to convince legislators of its merits during the runup to the next Assembly session. SIIA member Lawley Benefits Group of Buffalo, NY, with offices throughout in New York and New Jersey, was an early activist in the cause of S. 6917. Bob Madden, benefit producer in charge of Lawley’s medical captive program, said, “A lot of employers are trying to keep their businesses afloat while health care reform and restrictions on stop-loss insurance are raising their concerns about being able to take good care of their employees. A law like this would help us provide employers with good options into the future.” Lawley has been contacting its clients asking them to contact their New York Assembly representatives with messages of support for the bills that would preserve their ability to buy stop-loss insurance.

District of Columbia A bill (B20-0797) that would effectively prohibit the sale of stop-loss policies to groups of 50 and under and The Self-Insurer | August 2014

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require high individual and aggregate attachment points is now under consideration. Representatives of SIIA and members Aetna and Guardian Life testified against the bill’s stop-loss provisions during a recent hearing. Committee chair Vincent Orange appeared to be drawn to SIIA’s arguments against the stop-loss provisions when he read portions of its written testimony. Chairman Orange asked DISB leaders present at the meeting, who support the bill, to consider points of testimony that include predictions that the stop-loss provisions would make self-funding more expensive for smaller employers and that the number of uninsured people in DC would likely rise if the bill were passed. Joseph P. DeCresce of Guardian Life wrote to committee chair Orange, stressing that “Self-funding allows an employer to pay directly for the costs of employees’ health services. With stop-loss coverage, businesses can avoid catastrophic financial losses... A ban on stop-loss insurance will chill the business climate in the District, creating an incentive for employers to relocate outside of the District.” The issue is now on hold during the Council’s twomonth recess. Earlier, the DC Council approved a broad insurance tax assessment bill to support the District’s health insurance exchange, but it is not yet clear whether the assessment will include medical stop-loss insurance. SIIA has indications that some government figures do not favor including stop-loss, and consultation continues among industry and regulatory parties. SIIA CEO Mike Ferguson’s letter to DC Health Benefit Exchange Authority Executive Director Mila Kofman expressed concern about the possibility of stop-loss insurers being included for assessment. “As you know, stop-loss insurance is neither sold on or off the

health exchange, nor considered to be a qualified health plan under DC law so assessing such carriers would be contrary to the existing statutory framework.”

Oregon Two bills were enacted, one bringing good news to stop-loss insurance buyers and one with not such good news for self-insured workers’ compensation groups (SIGs). HB 4050 repealed the prohibition of stop-loss purchase by small employers. Oregon was one of the few states prohibiting stop-loss availability to certain businesses in the small group market. SIIA supported this bill by providing information to legislators and briefing the chairs of the House and Senate committees. The other bill (SB 1558) could have a longstanding effect on SIGs. It requires employer members to vote whether to maintain the group’s certification or be merged into the Oregon Workers Benefit Fund. Under the measure, SIGs must conduct a one-time vote to decide whether to continue operating, with a simple majority prevailing. Perhaps more important, the law gives the Oregon Department of Consumer and Business Services the ability to increase pool solvency standards and reserve requirements.

Illinois Apparently cleaning out “leftovers” from the 2013 session, the Illinois legislature included SB 1873 on the docket this year. The bill proposed to increase regulatory standards on self-funded workers compensation groups (SIG) but its support among legislators appeared less than robust and it quietly succumbed in committee. Tom Hebson, vice president of product development and government relations for Safety National, provider of excess workers’ compensation coverage, said the bill’s origins were unclear. “There has been some concern in the state after the failure of several underfunded groups about 10 years ago but SIGs have performed well recently and haven’t been anyone’s hot button issue,” he said. SIIA members were on full alert to oppose the bill and a group of SIGs organized a lobbying effort, but the measure never received a hearing during this session.

Minnesota The Senate introduced SB 2483 that would have affected stop-loss insurance attachment points and prohibit underwriting using individual health applications. The intent of the bill was not clear, especially because the individual minimum attachment point named was only $6,500. With input from SIIA leaders including Horace Garfield of Transamerica, Jay Ritchie of HCC and Karin James of SunLife, SIIA staff initiated conversations with other insurance industry lobbyists. It’s difficult to determine a “cause and effect” process; however, the result was that the legislation was pulled but the industry was left in doubt about future avenues such legislature could take.

Kentucky Legislators apparently looking for a tinkering project introduced SB 236 which would have transformed the current high risk pool assessment into a new clinical trials fund. On principle SIIA was poised to oppose the measure but the Kentucky House won that honor by failing to introduce a companion bill. n David Kirby provides strategic communications counsel to SIIA.

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The Self-Insurer | August 2014

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The ADA and Employee Benefits by Cori M. Cook, J.D., CMC Consulting, LLC

A

s we get mired down in implementing newly enacted regulations sometimes we forget about those that have been around for some time, and how their application and interpretation over more than a couple decades may impact our day-today operations. The Americans with Disabilities Act of 1990 (ADA) is a civil rights law that prohibits disability-based discrimination in employment, transportation, public accommodations, telecommunications and governmental activities. It is important that Third Party Administrators and employers understand the thorny issues that exist when dealing with the interplay between

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the ADA and employee benefits. Most employers typically think of “reasonable accommodation” issues when they think of the ADA. However, the regulations are much broader than that, and they are inextricably intertwined with the world of benefits. It is not ostensibly apparent that the ADA applies to employee benefits but that is in fact the case. Title I of the ADA prohibits covered employers from discriminating against qualified disabled individuals with regard to job application procedures, hiring, advancement, discharge, compensation, job training, and “other terms, conditions, and privileges of employment” which includes “[f]ringe benefits available by virtue of employment, whether or not administered by the [employer].” 29

C.F.R. 1630.4(f). Employee benefits, including group health plans provided by an employer, are fringe benefits available by virtue of employment. The Department of Labor (DOL), along with four other federal agencies, enforces the ADA. The Department of Justice (DOJ), the Federal Communications Commission (FCC), the Department of Transportation (DOT) and the Equal Employment Opportunity Commission (EEOC). The EEOC enforces Title I employment provisions of the ADA and has created a framework for analyzing ADA claims under Section 501(c), and in 1993 published Interim Enforcement Guidance on the application of the ADA to disability-based distinctions in employer provided health insurance.

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The Self-Insurer | August 2014

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© 2013 Helmsman Management Services LLC.

WE CAN HELP YOU LOWER YOUR COSTS, EVEN FOR YOUR MOST COMPLEX CLAIMS.

Thankfully, catastrophic and complex claims don’t happen often. But when they do, they can result in significant losses for your business and significant injury to your valued employees. A compassionate claim professional with the right resources and experience can make all the difference in bringing about a positive outcome for you and your injured worker. To learn more, ask your broker or visit helmsmantpa.com.

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August 2014 | The Self-Insurer

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It is important to remember that to be protected by the ADA an individual must meet the definition of “disability.” For the purposes of the ADA, a disability is a physical or mental impairment that substantially limits one or more major life activities; a record of such impairment exists; or an individual is regarded as having an impairment. In some instances, the same diagnosis may be considered a disability for one individual but may not be considered a disability for another. In determining if an employee benefit health-related term or provision violates the ADA, the first issue to analyze is whether the challenged plan term or provision is a “disability-based distinction.” According to the EEOC a plan term or provision will be considered disability-based if it singles out a particular disability, a discrete group of disabilities, disability in general (all conditions that substantially limit a major life activity), or a treatment or procedure used exclusively or nearly exclusively to treat a particular disability. If it is determined that the challenged plan term or provision is a disability-based distinction then we need to consider whether the distinction is within the protective ambit of Section 501(c) of the ADA. To fall within the protective ambit of Section 501(c), a determination must be made as to whether the plan meets Section 501(c)’s two prong test: 1) the plan is either a bona fide insured health plan that is not inconsistent with state law or is a bona fide self-insured health plan; and 2) the disability-based distinction is not a subterfuge. If these two prongs can be met, it will be determined that the challenged disability-based distinction is within the protective ambit of Section 501(c) and does not violate the ADA. (Section 501(c) is only available to health plans with disabilitybased distinctions that do not totally exclude coverage to a category or categories of disabled individuals.) To satisfy the first prong the plan is only required to prove that the plan pays benefits, and that its terms have been accurately communicated to covered employees. To satisfy the second prong the plan is required to prove that the plan is not using the provision as a subterfuge to evade the purpose of the ADA. A subterfuge exists when the provision is not justified by the risks or costs. There are several ways to prove this, including looking at similar conditions, actuarial data, actual or reasonably anticipated experience, legitimate risk assessments, underwriting, traditional insurance classification and administration practices. Disability-based limitations or exclusions will not be considered a subterfuge and therefore do not violate the ADA if: • They are based on legitimate actuarial data, or actual or reasonably anticipated experience, and apply equally to conditions with comparable actuarial data and/or experience; or • They are necessary because no alternative to a disability-based distinction is available to prevent an “unacceptable” change such as: -- A drastic increase in premiums, co-payments or deductibles; -- A drastic alteration in the scope of coverage or level of benefits; or -- Other changes that would make the plan unavailable to a significant number of other employees, or so unattractive that the employer could not compete in recruiting and maintaining qualified workers due to the superiority of benefits offered by other employers in the community, or so unattractive as to result in significant adverse selection. Disability-based distinctions involving dependents are protected under the ADA as well. However, the ADA does not require that the coverage accorded dependents be the same in scope as the coverage accorded the employee; the ADA does not require that dependents be accorded the same level of benefit as

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accorded the employee; and the ADA does not require equal coverage for every type of disability. As we know, TPAs, employers, and group health plans are always at risk for being challenged by an employee or dependent that is unhappy. Employers simply need to weigh the risks and make sure they are aware of any potential exposure. This is yet another great opportunity for TPAs to assist in educating their clients and ensuring that their benefits are drafted in such a way that they are protected or at least aware of potential challenges, and in doing so, it is always prudent to encourage employers to review and consider any other governing documents that might exist that would impact their decision, including but not limited to Human Resource policies and/or procedures, Employee Handbooks, and any Collective Bargaining Agreements. n This article is intended for general informational purposes only. It is not intended as professional counsel and should not be used as such. This article is a high-level overview of regulations applicable to certain health plans. Please seek appropriate legal and/or professional counsel to obtain specific advice with respect to the subject matter contained herein. Cori M. Cook, J.D., is the founder of CMC Consulting, LLC, a boutique consulting and legal practice focused on providing specialized advisory and legal services to TPAs, employers, carriers, brokers, attorneys, associations and providers, specializing in healthcare, PPACA, HIPAA, ERISA, employment and regulatory matters. Cori may be reached at (406) 647-3715, via email at cori@corimcook.com, or at www.corimcook.com. The Self-Insurer | August 2014

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SIIA would like to recognize our leadership and welcome new members Full SIIA Committee listings can be found at www.siia.org

2014 Board of Directors

Directors

CHAIRMAN OF THE BOARD* Les Boughner Executive VP & Managing Director Willis North American Captive and Consulting Practice Burlington, VT

Jerry Castelloe Vice President CoreSource, Inc. Charlotte, NC

PRESIDENT* Mike Ferguson SIIA Simpsonville, SC VICE PRESIDENT OPERATIONS* Donald K. Drelich Chairman & CEO D.W. Van Dyke & Co. Wilton, CT VICE PRESIDENT FINANCE/CFO* Steven J. Link Executive Vice President Midwest Employers Casualty Co. Chesterfi eld, MO

New Members Regular Members Company Name/ Voting Representative Abigail Ruby Access Imaging Glendale, CA Mark John, Director Beacon Technologies Group Inc. Indianapolis, IN Rob McCloskey, President Bob McCloskey Insurance Matawan, NJ Joni Fahey D2E Director of Product Dignity Health Corona, CA John Thomas, President Horizons Research Merrillville, IN

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August 2014 | The Self-Insurer

Ronald K. Dewsnup President & General Manager Allegiance Benefi t Plan Management, Inc. Missoula, MT

Jay Ritchie Senior Vice President HCC Life Insurance Co. Kennesaw, GA

CHAIRMAN, ALTERNATIVE RISK TRANSFER COMMITTEE Andrew Cavenagh, President Pareto Captive Services, LLC Conshohocken, PA CHAIRMAN, GOVERNMENT RELATIONS COMMITTEE Horace Garfi eld, Vice President Transamerica Employee Benefi ts Louisville, KY

Robert A. Clemente CEO Specialty Care Management LLC Bridgewater, NJ

Elizabeth D. Mariner Executive Vice President Re-Solutions, LLC Wellington, FL

Committee Chairs

CHAIRMAN, HEALTH CARE COMMITTEE Robert J. Melillo 2nd VP & Head of Stop Loss Guardian Life Insurance Company Meriden, CT CHAIRMAN, INTERNATIONAL COMMITTEE Greg Arms, Chief Operating Offi cer Accident & Health Division Chubb Group of Insurance Companies Warren, NJ CHAIRMAN, WORKERS’ COMPENSATION COMMITTEE Duke Niedringhaus, Vice President J.W. Terrill, Inc. St Louis, MO

Stuart Hines Business Development InterRemedy San Francisco, CA

Silver Member

Clinton Borm VP Business Development Laser Spine Institute Tampa, FL

Gold Member

Karen Cox, CEO ProviDrs Care Wichita, KS

Employer Members

Mary Beth Donalson VP of Operations Taylor Benefi t Resource Thomasville, GA

Ben Morris UMB Bank Kansas City, MO John Brophy, President DialysisPPO King of Prussia, PA Mark Tullis, Administrator LCI Workers’ Comp Mandeville, LA Michael Morris, CEO/Administrator Louisiana HomeBuilders Association SIF Baton Rouge, LA

Terry White, President Trinity Healthcare Solutions Mequon, WI

Philip Montooth, CFO Midwestern Pet Foods Inc. Evansville, IN

Jennifer Hawkins Assistant VP USA Risk Group Barre, VT

Christy Williams, COO National Assoc. Management Group LLC Kennesaw, GA

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