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August 2011

Stop Loss Network Discount

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Validation


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SIIA OFFICERS Chairwoman of the Board* Freda Bacon, Administrator Alabama Self-Insured WC Fund Birmingham, AL President* Alex Giordano, Vice President of Marketing Elite Underwriting Services Indianapolis, IN Vice President Operations* John T. Jones, Partner Moulton Bellingham PC Billings, Montana

aUGUSt 2011 | Volume 34

FEATuRES

Vice President Finance James E. Burkholder, President/CEO TPABenefits, Inc. San Antonio, TX

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Executive Vice President Erica Massey Midland, NC Chief Operating Officer Mike Ferguson Simpsonville, SC

SIIA DIRECTORS Les Boughner, Executive VP and Managing Director Willis North American Captive and Consulting Practice Burlington, VT

ARTIClES

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14

Mather’s Grapevine

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New Claim Review Regulations Ease Compliance Burdens For Group Health Plans

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GOVERNMENT Relations: SIIA’s Mid-Year Review

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ART Gallery: Novel approach to benefits captives: stopping some costs before they start

Stop loss and Network Discount Validation by Tom Doran

Ernie A. Clevenger, President CareHere, LLC Brentwood, TN Donald K. Drelich, Chairman & CEO D.W. Van Dyke & Co. Wilton, CT Steven J. Link, Executive Vice President Midwest Employers Casualty Company Chesterfield, MO Robert Repke, President Global Medical Conexions Inc. San Francisco, CA

From the Bench: Supreme Court Re-Thinks Equitable Remedies and the Legal Significance of SPDs

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Workers’ Compensation Fraud Awareness by Robert Bennett

SIIA COMMITTEE CHAIRS

SIIA lEADERSHIp 2 President’s Message 32

Chairwoman’s Report

Chairman, Alternative Risk Transfer Committee Kevin Doherty, Partner Burr Forman Nashville, TN Chairman, Government Relations Committee Jay Ritchie, Senior Vice President HCC Life Insurance Company Kennesaw, GA Chairwoman, Health Care Committee Beata Madey, Senior Vice President, Underwriting HM Insurance Group Pittsburgh, PA Chairwoman, International Committee Liz Mariner, Executive Vice President Re-Solutions Intermediaries, LLC Minneapolis, MN Chairman, Workers’ Compensation Committee Skip Shewmaker, Vice President Safety National Casualty Corporation St. Louis, MO

August 2011 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 The Self-Insurer is the official publication of the Self-Insurance Institute of America, Inc. (SIIA). Annual dues are $1495. Annual subscription price is $195.50 per year (U.S. and Canada) and $225 per year (other country). Members of SIIA subscribe to The Self-Insurer through their dues. Copyright 2010 by Self-Insurers’ Publishing Corp. All rights reserved. Reproduction in whole or part is prohibited without permission. Statements of fact and opinion made are the responsibility of the authors alone and do not imply an opinion of the part of the officers, directors, or members of SIIA or SIPC. Publishing Director - James A. Kinder Managing Editor - Erica Massey Editor - Gretchen Grote Design/Graphics - Indexx Printing Contributing Editor - Tom Mather and Mike Ferguson Director of Advertising - Justin Miller Advertising Sales - Shane Byars Editorial and Advertising Office P.O. 1237, Simpsonville, SC 29681 • (864) 962-2201 Self-Insurers’ Publishing Corp. Officers (2010) James A. Kinder, CEO/Chairman Erica M. Massey, President Lynne Bolduc, Esq. Secretary 2010 Editorial Advisory Committee John Hickman, Attorney, Alston & Bird David Wilson, Esq., Wilson & Berryhill P.C. Randy Hindman, Deloitte & Touche, LLP Jason Davis, Global Excel Management, Inc.

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The Self-Insurer P.O. Box 184, Midland, NC 28107 Tele: (704) 781-5328 • Fax: (704) 781-5329 e-mail: ggrote@sipconline.net. The Self-Insurance Institute of America, Inc. (SIIA) is the world’s largest trade association dedicated exclusively to the advancement of the self-insurance industry. Its goal is to improve the quality and efficiency of self-insurance plans through education and to create a general acceptance in the public and business communities of this viable alternative to conventional insurance. Founded in 1981, SIIA represent the interest of self-funded employers, independent administrators, utilization review companies, managed care companies, underwriting management companies, insurance companies, reinsurers, agents, brokers, CPAs, attorneys, financial institutions, manufacturers, trade associations, retail and service companies, municipalities, and others. SIIA designs and implements programs and services for the benefit of its members, the industry, and the general public to increase the general level of knowledge about self-insurance plans, achieve greater professionalism in the industry, and enhance the general well-being and mutual interests of its membership. SIIA achieves its goals and objectives through several means: • International/national conferences and industry forums which provide educational opportunities, with substantial discounts on the registration fees offered to SIIA members. • Distributed monthly, The Self-Insurer, features useful technical articles as well as updates on topical issues of importance to the self-insurance industry. • The Self-Insurance Educational Foundation (SIEF) conducts statistical research regarding the industry and grants educational scholarships to promising students whose studies focus on the self-insurance industry. SIIA enjoys federal representation in our nation’s capital through counsel and staff on key legislative and regulatory issues. SIIA is the only national voice encompassing the whole self-insurance industry. If your company is involved or interested in self-funding risk for workers’ compensation insurance programs, employee benefit plans, or property and casualty exposures, then it should be a member of the association serving the industry - the Self-Insurance Institute of America, Inc.

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PRESIDENT’S MESSAGE ‘Innovation’ captures the spirit of our industry

W

e really caught the wave of our industry by titling the upcoming National Conference, “Innovation – Shaping the Future of Self-Insurance.” A record early registration pace tells us that the industry believes this conference will be a supremely valuable professional experience. We’re used to a dizzying whirl of innovation in our business – it’s what we have grown to expect. Compared to, say, the publishing industry we experienced the corollary of flashing from Gutenberg to Linotype to digital readers in about 30 years. Our committees and professional staff have done a great job of assembling probably the best educational program in our history, in terms of depth and breadth. It reflects the full spectrum of interests among our four sections: ART, Healthcare, International and Workers’ Compensation. Something for everybody. And each track reflects the effects of our keyword: innovation. Innovation to me means getting out of our comfort zone – heck, we’ve never even had one – to solve the challenges of our competitive environment with brilliant applications of creativity and strategic savvy. Browsing through the handsome conference brochure, it’s hard not to trip over example after example of innovative approaches to our business. Among the sessions providing new applications of Alternative Risk Transfer my eye was caught by Steve Heussner’s session titled “ART Program Provides Innovative Health Care Cost Containment Solution for Self-Insured Employers.” Steve, president of American Construction Benefits Group, will give a case study-style presentation on how an existing alternative risk transfer program works in conjunction with multiple individual self-insured health plans that are pooled together to better control health care costs. According

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to Steve, attendees will learn exactly how this program is structured and its specific results to date. The Healthcare track will, with good reason, focus considerable attention on national health care reform, with sessions devoted to its effects on self-insured employers, TPAs, stop-loss insurers and a wrapup of “The Top 10 Compliance Issues for Self-Insured Plans, Plan Sponsors, Administrators and Other Benefits Professionals” led by Ashley Gillihan, attorney with Alston & Bird, LLP. An innovative plan that applies advanced consumer health care (CDH) strategies will be discussed by Mark Hopkins, senior director of compensation, benefits and HRIS for Mohawk Industries, Inc. Titled “SelfInsured Employer Embraces Innovative CDH Strategies,” Mark’s session will illustrate the tangible results of CDH as measured by a healthy and productive workplace. Specific topics will include wellness programs, on-site medical care and disease management approaches. The International track of sessions contains bi-directional innovations: opportunities for U.S. companies to do business overseas along with sourcing international products and services. An example is the burgeoning field of medical travel that will be discussed by Thomas Showalter of Chenega Corporation in his seminar, “Self-Insured Employer Says Yes to Medical Travel Option.” Other international issues to be covered include implications for U.S. based companies of Solvency II insurance regulations of the European Union, the evolution of multinational benefits pooling networks and international employee benefit management strategies. The Workers’ Compensation track includes a mini-track of seminars led by Dr. Richard Pimentel, senior partner of Milt Wright & Associates, Inc., who has applied his experience as a war veteran to the problems of helping wounded veterans reenter civilian life. Dr. Pimentel

will lead two sessions on workers’ compensation implications of the Americans with Disabilities Act (ADA) of 2008 and his signature session, “Wounded Warriors – Keeping Them Safe Now That They Are Back.” Other Workers’ Comp sessions will run the gamut of issues and concerns for employers and TPAs. “Major University System Innovates to Slash Workers’ Compensation Costs” will be presented by Grace M. Crickette, chief risk officer of the University of California. With more than 170,000 employees, UC has been able to reduce workplace injuries by 47% over the last five years through implementation of its internally developed Be Smart About Safety program.The university system establishes performance targets and rewards top performing campuses. Ms. Crickette will describe how the program operates and how it could be adapted for private sector workers’ comp self-insurers with multiple business unit locations. These examples just skim the surface of the educational sessions we have to choose from in Phoenix. Personally, I can’t wait. That’s it for now,

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Stop Loss Network Discount

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Validation by Tom Doran

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A key component in the determination of specific stop loss premium is the evaluation of network efficiency by deductible by geographic region. Our recent claims analysis confirms the importance of the detailed review of networks specifically focused on large claims and provided explicit feedback on pricing recommendations. Background PPO or network Discounts at high dollar amounts are not reflected accurately via averages that are commonly cited. When brokers or consultants market selffunded employer groups with stop loss typically they only provide the overall average discount for the group. PPO Networks and ASO carriers market their overall average discounts and again the focus is on the total claims. Detailed information may be provided at a case level or network discount guarantees may split out components of In-patient, Out-patient and physician, but even these are average discounts for a given group and may include adjustments or exclusions of large claimants. This discount information is important for complete understanding of the aggregate attachment point calculations, but not really relevant or helpful for specific or large claim evaluation. PPO discounts for high dollar claims after deductible will differ from the averages that are typically provided. The actual discounts are typically lower on shock claims, but the reduction in stop loss liability is higher due to reverse deductible leveraging. Let me walk you through an example. 1. If a billed charge was $100,000 and the network discount was 20% then the allowed would be $80,000. If the Specific (ISL) deductible level is $50,000, then the resulting stop loss liability is $30,000. 2. If the same billed charge of $100,000 and the network discount was 30% then the allowed would be $70,000. If the ISL deductible level is $50,000, then the resulting stop loss liability is $20,000 3. So a 10% improvement in the network discount results in a 33% reduction in stop loss liability. This impact illustrates why careful consideration is needed when pricing specific stop loss premium over various networks. Our specific stop loss pricing process begins with a review of each network by examining the claims information and hospital contract provisions for various deductible levels. This review occurs on an on-going basis as we’re constantly reaching out to get the most up to date information on over 400 networks nationally. This assessment provides significant insight into the discount level realized by network exclusively for large claims. Once this is done there are other key considerations that need to be incorporated into overall network discount. One example of a key consideration is the appropriate evaluation of large claim In-network utilization. Not just the In-network aggregate statistic that is commonly available, but what is the In-network utilization when claims exceed a

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certain dollar threshold, for example $100,000 in billed charges.

Another example of a key consideration is the importance of the key tertiary facilities. If the network has great large claim discounts at all community hospitals but then all tertiary care is out of network then the network discount factor must be adjusted to reflect this utilization pattern. If detailed claim information is not available for various reasons, it is possible to analyze the key facilities contract structure to determine the stop loss implications. Careful review of the facility “Outlier Provisions” designed to protect hospitals from catastrophic claim losses can dramatically shift the liability to the stop loss carrier. Many contracts can contain extensive carve-outs that will turn into stop loss claims.

Methodology Our recent experience analysis set out to evaluate how effective we’ve been at the network assessment. Our methodology was to examine over $1.6 B in Billed Charges for Stop Loss claimants and assess the actual discounts realized by network by deductible vs. expected discounts utilized in pricing. In this analysis we included; both regional and national carriers, over 5 years of claim history, over 300 networks, regional and national networks. From a claim volume perspective we looked at over 13,000 stop loss claimants and combined multiple submissions where appropriate.

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Findings

The Actual % Reduction in Stop Loss Liability was calculated as follows:

∑(Billed Charges – Discount – ISL Deductible) ∑(Billed Charges – ISL Deductible) (I’m also an actuary and couldn’t help but put a formula in). This was done by network on a claimant by claimant basis as realized and aggregated. Individual PPO discounts varied from 10% to 90%. When aggregated by network with millions of dollars in claims these amounts were credible. The Expected Network Discount was calculated by examining the claimant zip code and ISL deductible level that would be utilized in stop loss pricing for the network. This discount can be significant, 90% or more, at the higher deductible levels, for the best networks. This single factor is the most critical element in pricing of specific stop loss. That’s because the stop loss liability remaining as in the earlier example is 1 – expected discount percentage.

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Actual discounts were greater than expected used in pricing and illustrates a degree of conservatism, on the order of 5 to 15%. This built in pricing conservatism varied by network and by the volume of claims included in the network. We also grouped claim results by deductible to examine if there was any bias evident at certain deductible levels. At key deductible levels ($100,000, $250,000 etc.) we observed consistent, stable results for the largest networks that were reviewed. Smaller networks with lesser available data did not allow for this type of review due to credibility concerns. The results were examined over a multi-year period and the results were stable.This emphasizes that consistency in methodology is critical as well as constantly updating the dataset used in the evaluation of large claim discounts. We also examined the variation in ASO carrier vs. national rental networks vs. regional networks. As expected the strongest large claim discounts were evident in the national ASO carriers. An unexpected outcome of the study was that it showed the most pricing conservatism was evident in the regional networks due to penetration assumptions. The methodology described above is an on-going feedback process and will allow for continued refinement and evaluation of this critical pricing element. It incorporates not only the claims analysis supplied by the networks but also an assessment of the critical assumptions that are necessary to accurately price stop loss. n Tom Doran, is an FSA, MAAA and Executive Vice President at Medical Risk Managers and can be reached at (860) 291-3043 or tdoran@mrm-mgu.com. MRM is located in South Windsor CT and is an MGU providing assistance in stop loss primarily to BCBS organizations, ASO, and HMO clients. Services include underwriting, extensive network evaluations, consulting, stop loss claims adjudication, actuarial, and accounting support.

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Mind over risk: The secret weapon of visionaries, leaders and the people who insure them.

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Bench from the

by Michael Friedman and John Eggertsen

Supreme Court Re-Thinks Equitable Remedies and the Legal Significance of SPDs

T

he U.S. Supreme Court, in CIGNA Corp. v. Amara, et al., 563 U.S., 2011 WL 1936077 (May 16, 2011), revisited, and likely expanded, the scope of equitable remedies available under ERISA § 502(a)(3). The Court also rejected Plaintiffs’ effort to sue under the terms of the SPD as opposed to the terms of the actual ERISA plan document. This expansion of ERISA’s equitable remedies could encourage more ERISA lawsuits since they may no longer be relegated to ERISA’s remedy-less “black hole,” but there is debate as to whether the Court even needed to address this issue, and whether lower courts will be bound by this part of the decision. The Court’s decision that suits to enforce the terms of an ERISA plan

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can only be based on the actual plan documents, and not SPDs, may have greater significance for the world of welfare plans where insurance policies or SPDs have always been thought to constitute the “plan” documents. Now, when a dispute arises, the “real” plan document may need to be found (or created).

Factual Background In 1997, CIGNA created a new cash balance pension plan (the “New Plan”) to replace an existing defined benefit pension plan (the “Old Plan”). The Old Plan had provided an annuity-type benefit using a formula based on an employee’s salary at retirement and their years of service. The New Plan, on the other hand, provided a lump sum cash benefit based on amounts contributed each year by CIGNA, and any earnings on those amounts. Under the New Plan, the risk of investment losses was on the employee, not CIGNA. In transitioning to the New Plan, the benefit that participants had accrued under the Old Plan was translated into an initial cash balance in their account under the New Plan. Plaintiffs brought this lawsuit because they alleged that CIGNA had: (i) informed them that their New Plan benefits would not be less than under the Old Plan, but they were; (ii) described the New Plan benefits in the summary plan description (“SPD”) in a way that made them better than those actually provided under the New Plan, and (iii) informed them that it was not saving any money on

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account of this transition to the New Plan, but, in fact, CIGNA had saved approximately $10 million. Plaintiffs filed a class action lawsuit on behalf of some 25,000 participants to recover the benefits they were promised in the SPD, and to remedy the damage caused by CIGNA’s misinformation.

whether the District Court had used the proper legal standard – i.e., the “likely harm” standard – in determining whether CIGNA’s notice violations created injury sufficient to warrant relief. In briefing this issue, CIGNA challenged the District Court’s determination on an even more basic level. CIGNA argued that ERISA § 502(a)(1)(B) did not allow the remedy adopted by the District Court – i.e., reformation of the New Plan to conform with the more generous terms of the SPD. At this point it would be well to remember the cautionary admonition from the ancient fables – Be Careful What You Wish For.

The loser Court Decisions

The Court was unanimous (8-0, with J. Sotomayor not participating) in reversing the lower courts’ decisions to award plaintiffs the benefits they sought under ERISA § 502(a)(1)(B), i.e., “under the terms of the plan.”. The Court looked at § 502(a)

The District Court found that CIGNA had been misleading in the information it had provided in the various notices and communications, and that the SPD did provide for more generous benefits than were called for under the actual plan document for the New Plan that had been filed with the IRS.To remedy CIGNA’s breach, the District Court held that: (i) plaintiffs had to show that they were harmed, but that the evidence presented had raised a presumption of “likely harm” suffered by all class members, and (ii) that the New Plan should be reformed to provide, pursuant to ERISA § 502(a) (1)(B), Plaintiffs with the greater benefits described in the SPD. The District Court had considered whether Plaintiffs might get equitable relief under ERISA § 502(a)(3), but decided not to pursue that as a basis for its decision because: (i) adequate relief was available under § 502(a)(1)(B), so there was no need to explore remedies under § 502(a)(3), and (ii) it read several recent U.S. Supreme Court opinions (i.e., Sereboff v. Mid-Atlantic Medical Services, Inc. (2006); Great-West Life & Annuity Ins. Co. v. Knudson (2002) and Mertens v. Hewitt Assoc. (1993)) to have significantly curtailed the relief available under § 502(a)(3). CIGNA appealed, and the Second Circuit affirmed.

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(1)(B), and agreed with CIGNA that nothing in that provision (or any other ERISA provision) authorizes a court to amend the terms of a plan document and then enforce the new terms. The Court found that the SPD is not a “plan document” and is simply intended as a summary of the plan document. For the District Court to have granted benefits not provided for in the actual document of the New Plan, simply because they were described in the SPD, was improper. In so holding, the Court rejected the argument of the U.S. government that the SPD was itself a plan document, and that it was, therefore, proper to “enforce the terms” of the SPD. As a consequence of this determination, the Court also was rejecting (though not expressly) a long string of appellate court decisions holding that when the SPD and a plan document conflict, the terms of the SPD control. The Second, Fourth, Fifth,

Sixth, Seventh, Eighth, Ninth, Tenth and Eleventh Circuits all had adopted this view, though differing somewhat in the scope and context in which they applied the rule. The Court was unanimous in reversing the lower courts’ grant of benefits to the plaintiffs under § 502(a) (1)(B), and for the two dissenting Justices (Scalia and Thomas) that is where the case should have ended. The majority (6-2), however, went on to ask the question whether relief was available under § 502(a)(3), and if so, of what sort? The majority pursued the issue of possible relief under § 502(a)(3) because “The District Court strongly implied, but did not directly hold, that it would base its relief upon this subsection” were it not for the reasons discussed above. Because this issue would likely arise on remand, and because the majority felt that the District Court’s assessment of what

the Court would allow as “appropriate equitable relief ” under § 502(a)(3) was “misplaced,” it felt it necessary to address this issue. The majority noted that this case involves a suit by a plan beneficiary against a plan fiduciary, and that such a suit before the merger of law and equity could only have been brought before a court of equity. It also stressed that all remedies available in courts of equity are to be considered equitable remedies. The majority does not reject the law/equity split that had been resurrected in the prior cases of Mertens, Great West and Sereboff, but rather sees a wider range of remedies as having been available in equity than the lower courts had presumed those decisions had authorized. The Court’s prior ERISA jurisprudence had already allowed for injunctive relief, mandamus and restitution as clearly permissible equitable remedies. To these, the Amara

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Court added reformation (i.e., noting that this equitable remedy is available in a proper context, which the Court had held this was not), estoppel, and surcharge. The significance of the equitable remedy of estoppel is that a court could grant a benefit as a result of a fiduciary’s bad acts even if the plan documents did not provide for that benefit. To fiduciaries of, and service providers to, benefit plans (both pension and welfare), the remedy of surcharge may be the most significant expansion of the available equitable remedies under § 502(a)(3) because it allows for monetary compensation. The majority stressed that courts of equity had the power to provide relief in the form of monetary compensation for a “loss resulting from a trustee’s breach of duty, or to prevent the trustee’s unjust enrichment.” This form of relief was known as “surcharge.” Thus, while lower courts, in construing the Court’s prior pronouncements on this issue, had almost uniformly concluded that any form of monetary relief was to be construed as “legal” relief, and, thus, not available under § 502(a)(3), the majority here offers something of a correction by holding that in suits against plan fiduciaries monetary relief may be available as an equitable remedy. Combined with the Court’s prior decision in LaRue v. DeWolff, Boberg & Assoc. (2008), in which the Court allowed relief to the “plan” for a fiduciary breach that had harmed only a single participant, the allowance of a surcharge remedy gives courts much greater flexibility to provide monetary relief under § 502(a)(3). It is this expansion of equitable remedies to include monetary compensation that is likely to be the most significant impact of this decision on future ERISA litigation. Indeed, the Department of Labor (“DOL”) has already filed

two amicus briefs in cases pending in the Fourth and Seventh Circuits seeking reconsideration on the basis that Amara now allows a remedy previously rejected by those Circuits in those cases. Finally, the Court addressed the issue on which it had originally taken the case – i.e., what harm must plaintiffs show in order to be entitled to any equitable relief? Holding that some showing of harm is required, but that ERISA “does not set forth any particular standard for determining harm,” the Court concluded that the general presumption of harm relied on by the District Court was not an appropriate standard, but that detrimental reliance – the traditional standard under an estoppel claim – was also not required with respect to every kind of equitable remedy.

So what harm must plaintiffs show in order to obtain equitable relief under § 502(a)(3)? Unfortunately, the Court here punted and failed to articulate a clear standard of harm. Rather it said that “[W]e conclude that the standard of prejudice must be borrowed from equitable principles, as modified by the obligations and injuries identified by ERISA itself.” So the lower courts are charged with developing the standard for harm with respect to each different kind of equitable claim and remedy based on the facts and circumstances of each case. This kind of indeterminate standard setting has proven to be something of a quagmire in prior ERISA jurisprudence, and there is no reason to think that this will lead to a different result. In short, it will be a number of years, but rest assured, this standard will have to, and will, be revisited by a future Supreme Court.

The Takeaway Many commentators have predicted that Amara will lead to a floodgate of ERISA litigation based on the expansion of available ERISA remedies. While we agree that Amara will have a significant impact on future ERISA litigation, we do not think that Amara will be the causal factor in any projected floodtide. Most ERISA lawsuits are filed because a participant or beneficiary believes he or she has been wronged in some manner, not because one or another remedy might be available. There may well be cases filed that an attorney would have not pursued because unwinnable for a lack of available remedy, that will now be filed, but we don’t

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think that will be the reason for in any significant increase in ERISA litigation. What Amara may affect, however, is the number of cases that successfully avoid dismissal or summary judgment because the court may now be able to craft an appropriate remedy. This kind of speculation, however, assumes that we can answer the following question -- whether Amara’s expansion of equitable remedies can be ignored by the lower courts as dicta (i.e., a part of the decision that is not essential to the holding, and, therefore, not binding on lower courts, or, as the dissent said “[I]t is utterly irrelevant”), or will it be important guidance for the lower courts? While there is likely to be strenuous debate over this issue, the fact that six of the eight justices who heard the case agreed that equitable remedies, including monetary relief, against fiduciaries are available, will make it harder for the lower courts to dismiss this part of the decision as dicta. Justice Breyer clearly saw it as both providing guidance to the lower courts, and as essential to reaching the question that the Court was asked to decide. The majority saw this as part of its holding, and we believe that this will be the predominant view. Finally, the Court’s discussion of the SPD versus plan document issue may have created a clear basis for dismissing suits based on faulty SPDs or other plan communications with respect to pension plans, but when this seemingly bright line rule is applied in the welfare plan context, the picture is a lot less clear. The IRS determination letter process for qualified plans means that there will always be a legally complex document drafted (either as an individually designed plan document or a prototype plan document), which can be summarized in an SPD. But what is the welfare plan document? For insured plans is it the insurance policy? Must the employer draft some additional document which it then will have to summarize in

an SPD format? What about insurance certificates or benefit booklets provided by insurance carriers, which clearly purport not to be the policy, but likely aren’t SPDs either? For self-funded plans what will qualify as the plan document? What role will “wrap” documents play, and will they count as “plan documents?” What welfare plan documents must be produced by a plan administrator to avoid fines under ERISA § 502(c)(1)? Since the plan at issue in Amara was a pension plan, the Court did not address these documentation issues for welfare plans. Like the standard of harm, this will be another issue the lower courts will have to address, and likely with different responses, to be later reconciled by a future Supreme Court.

Ninth Circuit Expands Who May Be Sued for ERISA Benefits In Cyr v. Reliance Standard Life Insurance Co., 2011 WL 2464440 (9th

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Cir.), the Ninth Circuit, sitting en banc, overruled its previous decisions that only an employee benefit plan itself, or the plan administrator, can be sued for benefits under ERISA § 502(a)(1) (B), and held that, in the appropriate circumstances, a third-party entity could be a proper defendant. At issue here was the amount of Cyr’s LTD benefits. Cyr had been terminated from her position as a vice-president of CTI and had filed a claim for LTD benefits under a Reliance Standard LTD insurance policy. Reliance granted her benefits based on her salary of $85,000. Cyr then filed a civil suit against CTI alleging gender discrimination, which was settled. Under the settlement, CTI agreed to pay Cyr a salary of $155,000, retroactively. When contacted by Cyr’s lawyer, Reliance said it would begin to pay benefits based on this higher salary, but it never did. Cyr then sued Reliance for the increased benefits. Reliance was granted summary judgment based on Ninth Circuit case law holding that only the plan or the plan administrator could be sued for benefits under ERISA, and a third party insurer was not, therefore, a proper defendant for such claims. The District Court later changed its mind and decided in favor of Cyr, concluding that prior case law allowed suits against insurers “so long as they are functioning as the plan administrator,” a description the District Court said applied to Reliance. Moreover, since Reliance had lost Cyr’s entire administrative record, it was deemed to have waived most of its defenses and most of the evidence it sought to introduce would not be considered. The District Court also awarded Cyr attorneys fees of $384,052, costs and prejudgment interest. Reliance appealed.

An unusual wrinkle in this case was that Cyr, the plaintiff/appellee, petitioned for an initial hearing before the en banc court (i.e., before all the judges in the circuit sitting together), without first having had the case heard by a three judge panel. The federal rules allow for this, but it is done only rarely. Normally, a claimant petitions for an en banc hearing after the decision of a three-judge panel. The Ninth Circuit rejected Cyr’s petition, and the case was heard by a three-judge panel. But before the panel had issued its ruling, the Ninth Circuit reversed itself and decided to hear the case en banc. This decision was issued by the en banc Court. The Ninth Circuit held that ERISA § 502(a)(1)(B) very clearly sets forth who may sue and for what purposes, but does not limit who may be a proper defendant. Indeed, the Court found that “There are no limits stated anywhere in § 1132(a) about who can be sued.” The Supreme Court in Harris Trust & Savings Bank v. Salomon Smith Barney (2000) held that a non fiduciary could be sued under ERISA § 502(a)(3), and in doing so, had rejected any suggestion that there were any limitations on who could be a defendant under § 502(a) (3). The Ninth Circuit adopted this “no limitations on defendants” rule as being applicable under § 502(a)(1)(B) as well. In addition, the Ninth Circuit looked to ERISA § 502(d)(2) which says that money judgments are only enforceable against a benefit plan “and shall not be enforceable against any other person unless liability against such person is established in his individual capacity under this subchapter (emphasis added).” The Court said the “unless” clause indicates that parties other than plans can be sued for money damages so

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long as that party’s individual liability is established. While Reliance here was not the plan administrator, it was the claims administrator, and a fiduciary for that purpose. Reliance had denied Cyr’s benefits and it was the party responsible for paying them. Thus, the Court saw Reliant as a logical defendant. While some commentators have assessed this decision as somehow opening the door wide to suits against a wide range of potential defendants, the Court’s holding here is far more focused. The practical impact here is simply to do away with a black letter rule that impermissibly narrowed the field of potential defendants. In its place, the Ninth Circuit introduced a more useful rule that other parties may also be ERISA defendants, depending on their roles under the plan and the extent of their liability. Finding Reliance to be a proper defendant here was something of a no-brainer – Reliance was a claims fiduciary, it had denied benefits it had already said were properly payable, and it had lost Cyr’s entire administrative record. Indeed, for most insured plans, if the insurer responsible for claims adjudication and paying benefits is not a proper defendant in a suit for plan benefits, then who is? Rather than throwing the doors wide open to a range of third-party defendants in benefit cases, the Ninth Circuit seems to have undertaken a modest effort to tidy up some loose ends that were threatening to undo a certain sense of fairness with respect to ERISA remedies as a result of its overbroad, not well tailored, black letter rule. Though the issues are different, the Ninth Circuit here, and the Supreme Court in Amara, appear to be giving expression to a similar impulse. n

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MATHER’S GRAPEVINE by Tom Mather

S

ome personal events of the last several weeks have highlighted an evergrowing problem coming down the line in this country. It is magnified by observations and the spoken thoughts of friends and relatives with whom we have had occasion to spend some time with in recent days. It just keeps popping up. About a week ago we had dinner out on the deck with our next door neighbors who are longtime friends. Some barbequed ribs, fries and some pretty good wine led us into a lengthy conversation that they began, with them asking what I thought was going to happen to the Medicare system in this country. One of them had just gone through extensive testing at our local hospital and they were astounded by both the charges their insurance provider was presented with by the facility, and even more surprised with the fractional payments made by Medicare.The talk went on for over an hour and of course, as you might suspect, we came to no conclusions.

Several days ago I was visiting a close friend who had just undergone major surgery for a cancer problem. He is a now-retired businessman of considerable intelligence who asked me what the heck we were going to do with the nearly bankrupt Medicare system that he and his wife were so reliant upon, and that we all paid into for so long a time. We have had recent and separate conversations with our two sons, both of whom are in their early 50’s and are absolutely convinced that Medicare will cease to exist before they reach retirement. And then we have my two sisters, both residents of senior citizen housing, who are looking desperately for assurances that the money won’t run out before it is time for them to leave this world. We have a confused and disturbed society in our country and I suspect that from what I have studied, it is going to get worse before it gets better. The front line of the Baby Boomer generation is coming out onto the playing field.

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House Budget Director Paul Ryan, R-WI has come forward with a proposal to develop a program for Seniors, similar to the Federal Employees Health Benefits Program already in place for Federal workers and elected members of the government, that would replace Medicare as we know it by the year 2022.This of course immediately led to the “Throw Gramma over the Cliff” advertisements and a near rant by Vice President Joe Biden against such actions. Even a small group of Republicans seem to be distancing themselves from his proposed reforms down the line. In the meantime, President Obama has come forward with a proposal to cut costs by using an Independent Advisory Board, a collection of fifteen Bureaucrats, to decide which treatments Gramma will be able to receive.This, by any other name, is rationing, and I suspect it will be driven far more by cost factors rather than medical necessity. The medical delivery system has not yet been stricken with panic over these evolving issues but I suspect that those folks in this land of ours who run our thousands of emergency rooms are quietly trying to figure out what the waiting time for treatments will be and who’s going to pay for it when it is delivered. Of course all of this has to do with issues that are both down the line and peripherally associated with the SelfInsurance and Risk Transfer industry as a whole. But when you crawl out of bed tomorrow morning, try remembering what you were doing ten years ago and how it seems like it was only yesterday. Then get involved, because this mess isn’t going to go away. n

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PPACA, HIPAA AND FEDERAL HEALTH BENEFIT MANDATES:

Practical

by Carolyn Smith, Esq. and John Hickman, Esq., Alston & Bird, LLP

The Patent Protection and Affordable Care Act (PPACA), 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 PPACA, HIPAA and other federal benefit mandates. Attorneys John R. Hickman, Ashley Gillihan, Johann Lee, and Carolyn Smith 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 E-MAIL to Mr. Hickman at john.hickman@alston.com.

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The Self-Insurer

Q&A

New Claim Review Regulations Ease Compliance Burdens For Group Health plans

O

n June 24, 2011, the U.S. Departments of Treasury, Labor (DOL) and Health and Human Services (HHS) (collectively, the “Agencies”) jointly issued new interim final regulations (“Final Regulations”) and related guidance regarding the internal appeals and external claim review procedures (“Claims Review Rules”) for fully insured and self-funded group health plans and insurance policies issued in the individual market. These new requirements were added by the Affordable Care Act (ACA). The Claims Review Rules apply only to non-grandfathered group health plans otherwise subject to the health insurance reforms added by ACA. As discussed below, the Final Regulations provide significant relief from a number of the requirements that were originally included in the Claims Review Rules.

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Requirements Relating to Internal Claims and Appeals Up to 72 hours now allowed for benefit determinations relating to urgent care The Final Regulations generally return to the pre-ACA rule in the ERISA claims regulations that determinations relating to urgent care must be made within 72 hours. However, the plan or insurer must defer to the provider’s determination as to whether a claim involves urgent care. In the preamble to the revised regulations, the Agencies emphasize that 72 hours is an outside limit and that medical exigencies may require a more rapid determination.

Diagnosis and treatment codes now only required upon request The Final Regulations eliminate the requirement that notices of adverse benefit determinations (ABDs) automatically include diagnosis and treatment codes and their meanings. Instead, plans and insurers must provide such codes and their meanings as soon as practicable following a request from a plan participant or beneficiary. The notice of an ABD must inform participants and beneficiaries of their right to obtain such codes.

Claims Savings

the CLA requirements apply is replaced under which, once a claimant by a single standard based on the requested a notice in an applicable county to which the notice is sent. The non-English language, all subsequent We assist health insurance claims and their threshold is that payors at least 10of percent notices had to be in that language. clients with their financial case management efforts. of the population in the claimant’s This requirement was challenging for county are literate only in a particular many current systems. In lieu of this Claim Negotiations Visit us on non-English requirement, Final Regulations thelanguage. Web at Under the Final MedicaltheBill Review (Audit) www.hhcgroup.com Regulations, Plans are not responsible require that the English versions of Medical Peer Review for making this determination; rather, all notices include a prominently Case Management the list of counties to which the CLA displayed statement in any applicable Utilization Review requirements apply and the relevant non-English language describing DRG Validation languages are to be published by the how to access the language services Agencies. The preamble to the Final provided by the plan. Targeted notices Disease Management Regulations contains a current list areData not required, i.e., the Scrubbing statements Mining/Claim of relevant counties and languages. may be included in all notices. The Pharmacy Consulting • Repricing There are 255 counties (78 of which Agencies have published model 3 Star Preferred Provider Network (PPN) are in Puerto Rico) that meet the notices that contain sample statements Transplant Networks • URAC Accredited threshold. In the vast majority of cases, in each of the relevant languages. Review Organization (IRO) Spanish is the relevant non-English Independent The plan or issuer must provide oral language; however, Chinese, Tagalog, and language services (such as a telephone Navajo are present in a few counties customer assistance hotline) in any affecting just five states, Alaska, Arizona, applicable non-English language and, Phone 301.963.0762 • Fax 301.963.9431 California, New Mexico, and Utah. upon request, must provide a written translation of any notice in any The Final Regulations also eliminate applicable non-English language. the “tagging and tracking” requirement

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Requirement that notices be provided in a culturally and linguistically appropriate manner (“CLA requirements”) In one of the most significant changes to the original Claims Review Rules, the CLA requirements (e.g., to provide notices in non-English languages) are completely replaced by a far simpler approach. The original plan by plan determination of whether

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Claim Negotiations Medical Bill Review (Audit) Medical Peer Review Case Management Utilization Review DRG Validation Disease Management Data Mining/Claim Scrubbing Pharmacy Consulting • Repricing 3 Star Preferred Provider Network (PPN) Transplant Networks • URAC Accredited Independent Review Organization (IRO)

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The Final Regulations constrict the “strict adherence” standard for exhaustion of remedies The original Claims Review Rules allow claimants to by-pass the internal appeals process if all of the procedural requirements are not strictly adhered to. The Final Regulations provide an exception to this strict adherence requirement for errors that are minor and meet certain other requirements. In particular, claimants may be required to exhaust internal administrative remedies despite a failure of a plan or insurer to strictly comply with the applicable rules if the failure was: de minimis; non-prejudicial to the claimant; attributable to good cause or matters beyond the control of the plan or insurer; in the context of an ongoing good-faith exchange of information; and not reflective of a pattern or practice of noncompliance.

Effective date of changes These changes to the internal claims process will take effect for plan years beginning on or after January 1, 2012.

Requirements Relating to External Reviews – In General Plans and issuers must follow either a federal external review process or a state external review process. Ultimately, both the federal and state processes are to include, at a minimum the consumer protection provisions of the Uniform Health Carrier External Review Model Act promulgated by the National Association of Insurance Commissioners (the “NAIC Model Act”).The process that applies depends on whether the plan is fully insured or self-insured.

Requirements Relating to External Reviews – Self-Insured Plans Subject to ERISA or the Code Self-insured plans subject to ERISA and/or the Code are generally required to comply with a federal external review process that uses independent reviewing organizations or IROs (the “private IRO process). DOL Technical Release 2010-01 sets forth a safe harbor process for complying with the federal external review requirements. The Final Regulations make several key changes with respect to the federal external review process.

Scope of the federal external review process The breadth of claims with respect to which the federal external review processes applied was the subject of great concern to many employers. Under the Claims

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The Self-Insurer

6/28/11 12:26:43 PM

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Review Rules, all benefit denials, other than questions of eligibility. In contrast, the NAIC Model Act is limited to claims relating to medical necessity, appropriateness, health care setting, level of care or effectiveness of a covered benefit.

denied, this involves a determination of medical judgment and would be subject to external review. On the other hand, if there is just a flat limit, with no exception, the denial of the 31st visit would not involve medical judgment and would not be subject to external review.

The Final Regulations move the scope of the federal review closer to the NAIC Model Act, although it is not identical. Under the Final Regulations, the scope of the federal review includes matters that involve “medical judgment”. Medical judgment includes, but is not limited to, those factors listed in the NAIC Model Act.The actual extent of the difference as a practical matter may depend on how each plan implements its own review program.The regulations provide a couple of examples. For example, suppose a plan normally covers 30 visits to a particular specialist, but will cover more in the event of an approved treatment plan. If a claim for the 31st is

The preamble lists a number of other examples of situations that involve medical judgment, including (to list a few) whether a participant is entitled to a reasonable alternative standard for a reward under a wellness program; the frequency, method, treatment or setting for a required preventive service where none is specified in the recommendations; and whether a plan is complying with the nonquantitative treatment limitations under the Mental Health Parity Act.The external review process continues to apply to rescissions. The narrowing of the scope of the federal external review is temporary, and will be revisited by the Agencies by

January 1, 2014, when the remainder of the health reforms become effective. If the Agencies revert to a broader scope of review, they will provide some time for plans and issuers to adjust. Effective date of change: The change in the scope of the federal external review is effective with respect to claims for external review initiated on or after September 20, 2011.

IRO assignment process The original DOL safe harbor guidance on the external review process provided that, to be eligible for the safe harbor, the plan (or the plan’s TPA) must contract with at least three IROs. The purpose of this requirement was to ensure an independent and impartial review process. In subsequent Frequently Asked Questions, the Agencies clarified that failure to contract with at least three IROs would not be a per se violation of the Claims

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Review Rules and that, instead, the plan could demonstrate other steps taken to ensure that its external review process was independent and without bias. Under revised DOL guidance, a plan must contract with at least two IROs by January 1, 2012 and rotate assignments among them. As this is a safe harbor, a plan may use an alternative process to demonstrate that reviews are independent and unbiased. However, DOL and the Treasury Department will “look closely” at any alternative means. At a minimum, these agencies expect plans to document how any alternative process constitutes random assignment, as well as how it ensures that the process is not subject to undue influence by the plan and without bias.

Requirements Relating to External Reviews – Fully Insured plans In general, in the case of a fully insured plan, the issuer is responsible for complying with the external review requirements. If the state has a compliant external review process, then the issuer must comply with that process. If the state does not have a compliant process, then a federal external review process applies. The original regulations provided a transition period to allow states to bring their laws into compliance with the NAIC Model Act. The Final Regulations end the transition rule for existing state processes on December 31, 2011, regardless of the plan year. A further transition period is provided until January 1, 2014 for state processes that are similar to the NAIC Model Act process. Beginning January 1, 2014 state processes must comply with the NAIC Model Act. In states without a qualifying state process, the insurer may elect either to follow an HHS process administered through the federal Office of Personnel Management or the IRO process that applies to self-funded plans. n

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Siia new Members REGULAR MEMBERS Voting Representative/ Company Name Jon Aubrey, Sr. Vice President, AmeriBen, Sandy, UT Paul Binsfeld, CEO, Company Nurse, Scottsdale, AZ Bob Madden, Vice President, First Niagara Benefits Consulting, Buffalo, NY Lawrence Prudhomme, Sr. Manager, GPW Actuarial Services, Inc., Phoenix, AZ David Rains, Managing Director, Guy Carpenter & Co. LLC, Philadelphia, PA Judith Boyle Chun, CEO, HWMG, Honolulu, HI Roxane Kimble, Director of Account Management, The Crowne Group, Ocoee, FL Jon Fujiwara, Sales & Marketing Admin Rep, TRISTAR Insurance Group/TRISTAR Benefit Admtrs., Santa Ana, CA Robert Melillo, Vice President, Alternate Funding Strategies, USI Insurance Services, Meriden, CT Steven Donnelly, Sr. Vice President Accident & Health, XL Re America Inc., Stamford, CT

EMPLOYER CORPORATE MEMBER Voting Representative/ Company Name John Friesen, Owens Healthcare, Redding, CA Tina Wheeler, Manager -ASO Product Development, Providence Health, Portland, OR

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Workers’ Compensation

FraUd awareness by Robert Bennett

Robert Bennett has served as Chief Executive Officer for Third Party Claim Administrator, Alternative Service Concepts since 2002. During his career, Mr. Bennett has served as a multi-line field adjuster, a claims supervisor, and a major accounts adjuster. Mr. Bennett worked for 15 years at Willis Administrative Services when he earned his Licensed Tennessee Agent designation, Senior Claim Law Associate (SCLA) designation, and CPCU Chartered Property Casualty Underwriter designation. He is a graduate of the University of North Carolina at Chapel Hill.

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The Self-Insurer

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D

uring economic downturns, the risk of fraudulent or malingering claims increases making fraud awareness training a must for all claim adjusters. To prevent such risk, start with good business practices and become more aware of “red flags.” The first step in fraud awareness is to know where claims are reported within your organization. You will find that the best database of claims information begins with a solid reporting method combined with dynamic supervision. A great start would be a clear and unambiguous reporting method which all employees are oriented to use upon being hired. This information can be used to track employees who report multiple incidents and groups of employees who report similar incidents. Additionally, having newly hired employees sign-off on an understanding of how and to whom they must report a claim is good evidence. This mutual agreement curtails claims being reported by an attorney and/or a physician’s office or even reported late without justifiable reason. To be sure this reporting process is flowing correctly; you will need a supervisory staff that is incentivized to report all incidents immediately without making judgments regarding severity. Profit sharing arrangements, if not properly structured, can lead to late reporting as managers strive to “earn” a bonus by under reporting.

Anti-Fraud Training Fraud awareness training should be a part of every claim adjuster’s annual training program. Today, many states and companies that hire and license claim adjusters require them to take a series of refresher courses on fraud awareness. As a risk manager, you may also want to consider training other personnel in these techniques. When

you train other personnel who are responsible for reporting initial claims, their fraud training can alert the claim adjuster of suspicious circumstances and preserve evidence. Fraud training does not have to be for the claim adjuster only. It is often said the most important date in a claim is the day the claim is reported. When evidence is gathered immediately from witnesses and co-workers, this increases the chance of identifying fraudulent behavior. Time is of the essence, and evidence such as video surveillance camera footage of areas where alleged injuries supposedly occurred should be collected as soon as possible. The longer you take with recognizing “red flags,” the greater you lessen your chances for identifying fraudulent behavior. Examples of missed opportunities may include: erased surveillance video and witnesses and/or co-workers who may have left the vicinity making them difficult to track down for testimony. Overall, evidence gathered immediately is spontaneous and is not dependent on someone’s recollection. Other red flags in addition to the ones above are: 1. Filing a benefit claim for a similar complaint 2. The immediate hiring of an attorney 3. Doctor shopping 4. Immediate belligerence and non-cooperation with return to work programs or suggestions of medical care. 5. Family members who are currently on some form of disability 6. No justifiable reason for late reporting 7. Complaints of pain which are out of proportion with the alleged injury 8. Poor employment history characterized by absenteeism, counseling and other disciplinary steps 9. New employees who report subjective injuries. 10. On-line postings by the injured worker bragging or exhibiting physical abilities beyond a physician’s restrictions. Company personnel who know an injured worker usually have a sense about whether the worker is honest and straight forward; however, they may be reluctant to get involved by expressing their concerns. It is up to corporate leadership to develop a culture where employees feel that claims they consider unjustified, are not only hurting the company they work for, but are also hurting them.

Fraud Helpers Another area where “red flags” may be present is within the physician practice. It’s always a good idea to verify the credentials of all physicians who may be seeing your injured workers. If you are using a PPO or other licensed network, do not depend only on the network to choose physicians. You will want to see the physician’s credentials and insist that doctors who are not properly credentialed (including those who have a history of operating first and asking questions later, or who overprescribe narcotics) be removed from your panel. If you have any doubts,

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request that a trusted physician review a peer’s credentials, and have your PBM do a narcotics report to see if there is a pattern which would hinder the use of evidence based medicine criteria. Although out and out fraud can sometimes be detected, most cases are based on opportunity. The opportunity may be to take advantage of a particular circumstance or to avoid an unpleasant work environment. Sometimes the opportunity is simply the attention that comes from being injured. Physician’s can react to this employment “cheating” in a variety of ways. The physician may encourage compliance with return-to-work protocols, or they may react by giving into employees and encouraging their subjective complaints through excessive tests, prescribing more medication, or referring to pain clinics. In fact, physicians sometimes grow weary of a constant barrage of subjective complaints that they give up and refer injured workers to pain management clinics simply to get them out of their office. One more area where “red flags” are present includes lawyer practices. Lawyers who use runners to recruit clients may be affiliated with physicians who write similar reports for different alleged injuries. Just as physicians have credentials, lawyers have reputations which are known in the local community. It is important to become aware of these reputations, and be on the lookout for canned medical reports which are the same for different injured workers.

Finally, the prospect of identifying and successfully prosecuting a case of fraud is rare. It is more likely that the act of malingering will cost employers more than the fraud itself. Below is a checklist of data items that an employer can use.This data will alert the adjuster that other conditions or circumstances may play a role in recovery and that a more regimented aggressive approach is required starting on the day of injury: Unwitnessed accident or accident reported just before/after weekend/holiday No specific accident described Neck / back injuries Head injuries / loss of consciousness Multiple body parts reported injured Questionable / generic diagnosis (“pain”) Physical findings / subjective complaints do not correlate with the mechanism of injury Severity / magnitude of the industrial injury does not correlate with the treatment plan Subjective complaints outweigh or inappropriate to the injury and/or objective findings Patient taken off work Opioids prescribed on initial visit Testing, surgery, injections, pain management, etc requested / done Carpal tunnel syndrome diagnosis on FIRST REPORT Disc herniation/rupture diagnosis on FIRST REPORT “Compensatory (over-use syndrome)” diagnosis on FIRST REPORT Fractures diagnosed or questioned

Pre-existing/non-industrial conditions identified on FIRST REpORT Diabetes Hypertension BMI > 25 Known previous medication use. Psychological issues identified on FIRST REPORT Prior surgeries identified on FIRST REPORT Other disease process

Conclusion The lesson for all employers is to begin by first thinking about what a successful workers’ compensation program would look like. This program may start with training before the injury, and work its way through the date of injury and return-to-work objective. A clear picture of a program that eliminates ambiguities assures honest employees that they are receiving the best treatment, and it removes the temptation to take advantage of the system. A successful program also reminds employees that their condition is being monitored, and that their feedback is an important element in improving the process and eliminating abuse. n

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VOLUNTARY BENEFITS. DELIVERED with EASE. These days, more and more businesses are using voluntary options to maximize their employee benefit dollars. With Principal Voluntary Benefits EdgeSM, we make it easy to offer the benefits employees want and need, at a price they can afford. Our flexible products can be tailored to your business. Plus, we offer personalized, one-on-one employee education and online enrollment to help take the load off you and your staff. Which means, when it comes to voluntary benefits, we deliver every time.

VISIT principal.com or CALL 800-654-4278, ext. 44116, FOR MORE INFORMATION. ©2011 Insurance products from the Principal Financial Group® are issued by Principal National Life Insurance Company (except in New York) and Principal Life Insurance Company. Securities offered through Princor Financial Services Corporation, 800/247-1737, member SIPC. Principal National, Principal Life, and Princor® are members of the Principal Financial Group, Des Moines, IA 50392. AD2023 | GP59709 02/2011

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Bring in something NEW, ARMSRx Pharmacy Benefit Consultants ARMSRx is a pharmacy benefit consulting firm (not a pharmacy benefit manager) that has been helping employer groups, brokers and consultants save money and understands the complex intricacies of their pharmacy spend 24-7. The fast moving ever changing pharmacy benefit landscape takes 100% dedication and expertise. ARMSRx Pharmacy Benefit Consultants works with you to give you the information to make educated decisions for yourself and your clients at a fraction of the cost of many national consulting firms. Most prescription benefit programs are based on financial arrangements that are complex, hidden and highly profitable to the Pharmacy Benefit Managers (PBMs). Using real numbers and real facts take the guessing game out of your pharmacy expenditures with real answers. ARMSRx Pharmacy Benefit Consultants wants to serve you by making you the pharmacy benefit expert! 800.578.9714 or www.ARMSRx.com PHARMACYCONSULTANTS

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GOVERNMENT RELATIONS by Jay Fahrer

SIIA’s Mid-Year Review

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o date, 2011 has already become arguably the busiest and most active year for SIIA’s government relations operations. Our Washington DC office has increased significantly in both size and scope, and we are succeeding in making an impact at levels like never before. Much of this can be attributed to you; the invaluable member who supports our Government Relations Staff in so many ways; whether it’s visiting with your elected-officials to reinforce SIIA’s message, making donations to our growing PAC, or lending time and expertise to help us defend and promote our industry on Capitol Hill. I would not have half the number of items to report without the vast resources provided by our membership. This article explains the success of our tireless efforts and all the work that’s been done. I can relay firsthand that this year has been the most fast-paced of my 10 years in Washington. As a result, our Government Relations Staff not only been be aggressively proactive, but also has been forced to be attentively reactive on literally a moment’s notice to the rapidly changing tides on Capitol Hill.

SIIA’s Government Relations Staff was highly-influential in having repealed a number of PPACA provisions that would have been harmful for the self-insurance industry. First was having the “Free Choice” Vouchers repealed, which would have

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had significant negative consequences by incentivizing young, low-risk beneficiaries to flee their plans. Next was the repeal of the 1099 reporting expansion provision.This would have added numerous administrative burdens (i.e. costs) for all plans.

Once again, we were successful in introducing our Liability Risk Retention Modernization Act; legislation that would allow Risk Retention Groups to write commercial property insurance and that provides a mechanism to seek Federal binding decisions on questions of impermissible, non-domiciliary State regulation. SIIA’s Government Relations Staff was a key source in drafting the legislative language, founded a coalition of other associations supportive of the bill and serves as the chief lobbying entity for the coalition. SIIA once again flexed our “leading-experts-of-the-industry” muscles by being asked to serve as the primary resource for the newly formed Congressional Wellness Caucus. SIIA staff helped the Caucus draft their Mission Statement and provided preliminary information. SIIA, through our independent educational entity, SIEF, sponsored the Caucus’ inaugural event where SIIA members in the prevention and wellness field briefed and educated Congressional staffers. SIIA continues to serve as a leading member of the Coalition, which we were a founding member of, aimed at reducing Medicare Secondary Payer reporting requirements that are harmful to self-insured workers’ compensation plans. We have served as a primary lobbyist for legislation that would significantly reduce the burdens of these obligations. We have also successfully blocked two other pieces of legislation that would have negative consequences for our workers’ compensation members. We also actively advocated against what would be a devastating blow to the stop-loss industry. Earlier this year, the IRS issued a Notice that questioned whether

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stop-loss insurance should be Federally defined as health insurance. Doing so would allow for the application of State health insurance regulations; so harmful would that be, that almost all carriers would limit, or cease to offer this product all together.Through follow-up with our Agency Officials contacts, we are cautiously optimistic that they are convinced that this reclassification of stop-loss insurance is entirely wrong on both a legal and practical level. I am proud to report that we have raised more for our PAC in the first half of this year than we had in the previous two. As a former senior Hill staffer, I can’t emphasize enough how important political involvement is. Like it or not, in DC, “money does talk”. As you know, at this year’s Legislative Conference, we raffled off a luxurious weeks stay in the British Virgin Islands. Many attendees enthusiastically participated in the hopes of winning this great prize. At our TPA/ MGU conference, we raffled off an impossible to get iPad 2 –so impossible

to get that we went to the store over a dozen times before we miraculously happened to be there as a delivery truck pulled in. Due to the growth of the PAC, we have been able to significantly increase our political presence. We hosted fundraisers for the Chairman of the Committee of jurisdiction over ERISA as well as the Sponsor of our LRRA bill. We also attended fundraisers for many other influential policy-makers as well as a number of strong allies of our industry. As earlier reported, our year-long efforts to influence the mandated studies on self-insurance paid off in dividends. We had numerous meetings with the Agencies responsible for the drafting – including meetings with two Under Secretaries – and were asked on a number of occasions to provide background research. In no small part from our efforts, the reports were written in a light very favorable to our industry and contained none of the biases we are used to encountering.

Many of our members have already signed up to participate in our newly-initiated “Grassroots and Political Action Network” – a program designed to promote engagement in our government relations efforts and to compliment the efforts of Government Relations Staff. Activities include meetings with elected-officials both in Washington and in hometown districts, serving as fundraising hosts and the recruitment of additional members to SIIA. We are already off to a great start and looking forward to a strong showing by the membership going forward. As I stated in the onset of this article, your staff has been extremely active on our industry’s behalf and I am proud to have so many wide-ranging victories to report. I can assure you that there will be no let-up during the second half and we will have just as, or even more, success stories. Stay tuned for updates on our future actions. n

PROVIDING SERVICE TO THE SELF INSURANCE INDUSTRY FOR OVER 33 YEARS IN OVER 30 STATES Audits Tax Preparation, Compliance and Minimization NAIC Annual Statements, assistance and preparation Management Consultation Expert Witness Regulatory Matters

Contact: William L. Shores, CPA 17 S. Magnolia Ave. Orlando, Florida 32801 (407) 872-0744 Ext. 214 Lshores@shorescpa.com

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ART GALLERY Novel approach to benefits captives: stopping some costs before they start

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mployer-sponsored self-insured health benefit plans are a major component of ART – actually one of the first broad applications of alternative risk transfer as such plans have flourished under ERISA for the last 35 years or so and now serve a majority of U.S. employees and dependents who are covered by employer plans. More recently ART has increased its participation in employee health benefit programs as captive insurance companies have gained ground in covering excess losses – think stop-loss insurance – or even to provide first dollar coverage by plans that gain Department of Labor exemptions. In my view ART will increase its share of the employee benefits business if one major challenge can be solved – the matter of uncontrolled constant cost increases. Federal health reform has muddled the coverage side of health care and hasn’t contributed a nickel’s worth of value to cost control.

One approach to controlling costs is found in the current prevalence of wellness programs. The principle is that by helping people to stay well they will need less and less costly medical care in the future. That’s a nice idea but in reality wellness programs are mainly broad educational campaigns and don’t provide any hard-edged control of costs or predictability of future costs. Switch over for a moment to the P&C side of the industry and you’ll see what I’m talking about. In covering workers’ compensation – really just another form of health care – the P&C companies have developed terrific safety programs that can provide steady, predictable cost control in any industry. By keeping workers from having accidents, everybody benefits and costs remain under control.

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by Dick Goff

A California company offers a method to provide this kind of cost control to group healthcare programs. It takes the well-known concept of disease management to another level. Of course, traditional disease management programs help optimize treatment and patient counseling to reduce the severity and costs of diseases such as hypertension, diabetes and many others. But imagine for a moment that a program could identify the risk of disease before symptoms are presented. Its developer identifies the process as Pre-Disease Management, a concept that’s currently being recognized by our industry. “The key is being able to predict who will become ill from what expensive disease,” says Bruce Halvax of Strategic Planning Group in Dana Point, California. His company applies a technology-based method comprised of millions of data points to the job of predicting which individuals among a group are likely to get sick in the next 12 to 24 months, and then provides a system to “preempt the healthcare cost curve,” according to Halvax. The company uses a model based on CPT and ICDS codes along with a group’s lab tests and physician diagnoses. Halvax says the objective is “to accurately predict who is

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likely to suffer from debilitating and expensive diseases and to provide counsel and choices that will allow employees to become ‘health-smart’ and get involved in their own health choices. Specific structured incentives motivate employees to become better healthcare consumers. This logical solution to the current healthcare dilemma measures the effectiveness of both the covered employees as well as the providers’ ability to prevent or reduce the effects of disease.” All of a sudden, you have shifted from a theoretical educational approach that badgers group members with appeals to live healthier lifestyles to specific guidance: “Mr. Smith, you are in danger of contracting (fill in the blank). Here’s what we can do about it, and here are your additional incentives to follow this care plan.”

Consumer research indicates this approach is more appealing than setting up the normal “take-away” meetings with negative penalties for unhealthy behaviors. This kind of program provides powerful incentives to members to improve their lifestyles and behaviors while also measuring their results. The frightening statistic I’ve seen is that as much as 80 percent of all medical treatment costs can be traced to factors of obesity, smoking and physical inactivity. By just beginning to get associated diseases under control, savings will begin to chew into that $2 trillion annual and rising U.S. healthcare expense.

By getting a jump on potential diseases among a given employee population, you can remove most of the uncertainty from setting up a captive to finance health benefit programs. n Dick Goff is managing member of The Taft Companies LLC, a captive insurance management firm and Bermuda broker at dick@taftcos.com.

Health benefits captive managers who shop for these kinds of services can usually find providers who will put their own money on the line and base their fees on a percentage of program savings.

EthiCare Advisors, Inc. Medical Claims Settlement Specialists

Paying The Claim Correctly Is The Focus Cost Containment Is The Result T EthiCare Advisors L Helps You Focus On The Results

Call: 888-838-4422 www.ethicareadvisors.com info@ethicareadvisors.com

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INSIDER INFORMATION pHX Announces partnership with WlT Software Bedminster, NJ – Premier Healthcare Exchange, Inc. (PHX), a leading provider of healthcare cost management solutions, announced the reaffirmation of its relationship with and commitment to the customers of WLT Software as an active member of the WLT certified business partner program. “With healthcare cost continuing to rise, WLT clients are faced with even more complex cost management issues. Now, however, they can take advantage of our seamless cost management approach to insure that they are maximizing claim mitigation and delivering lower benefit costs to their customers,” stated Todd Roberti, the CEO of PHX. About PHX Premier Healthcare Exchange (‘PHX”) was incorporated in 2001. The company provides advanced cost management solutions for health plans that combine claim processing automation with professional services to deliver a timely, centralized approach to healthcare cost management. PHX portfolio of services include: data analytics, benchmarking, predictive modeling, PPO network management, clinical bill review and audit, out-ofnetwork negotiations and claims editing. For more information, please visit www.phx-online.com. About WLT For over a quarter of a century, WLT Software has been an international leader in providing claims administration software, and professional services solutions. WLT specializes in the development and servicing of fully integrated systems and data for

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insurance claims administrators. WLT provides systems and data for the administration of employee benefit plans, workers’ compensation, managed care, flexible benefits, claims editing/ unbundling, bill review, premium billing, 24-hour coverage, long- and short-term disability, HIPAA, and COBRA.Visit www. wltsoftware.com for more information. Sedgwick CMS Completes Acquisition of Nationwide Better Health productivity Solutions MEMPHIS, TN – Sedgwick Claims Management Services, Inc. (Sedgwick CMS) announced it has completed its purchase of Nationwide Better Health’s Productivity Solutions division. “The addition of Nationwide Better Health’s Productivity Solutions to Sedgwick CMS strengthens our position as a market leader in the delivery of disability and absence management services,” said David A. North, Sedgwick CMS president and CEO. “Today’s closing has been months in the making, and we are excited to welcome the employees of Nationwide Better Health’s Productivity Solutions as our new colleagues. They bring to our organization unique expertise in absence management that will help our clients minimize losses and improve productivity.”

solutions aimed at improving the health and productivity of America’s workforce. For more information, visit www.nationwide.com. About Sedgwick CMS Sedgwick Claims Management Services, Inc. is the leading North American provider of innovative claims and productivity management solutions. Sedgwick CMS and its affiliated companies deliver cost-effective claims administration, medical management, risk consulting and related services to clients through the expertise of approximately 9,400 colleagues in more than 190 offices in the U.S. and Canada. The company specializes in workers’ compensation; disability, FMLA and other employee absence; general, automobile and professional liability; alternative market; and warranty and credit card claims services as well as Medicare compliance solutions. Sedgwick CMS and its affiliates design and implement customized programs based on proven practices that meet client needs.To learn more, visit www.sedgwickcms.com. Aon Expands Construction leadership in the Southeast

About Nationwide

ATLANTA, GA – Aon Risk Solutions, the global risk management business of Aon Corporation (NYSE: AON), announced the addition of Senior Vice President David Langman to Aon Risk Solutions’ Construction Services Group.

Nationwide, headquartered in Columbus, Ohio, is one of the largest and strongest diversified insurance and financial services organizations in the U.S. and is rated A+ by A.M. Best. Its subsidiary Nationwide Better Health is a leading provider of health and productivity management

Langman will lead strategic efforts in the Southeast region including the implementation of the Aon Client Promise®, a four-step methodology for delivering the industry’s best content, capabilities and personalized service to clients around the world. He will be responsible for targeted

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new client development and retention throughout the Southeast as well as the advancement of Aon’s public-private partnership abilities throughout the U.S. Prior to joining Aon, Langman was managing director and construction practice leader at Marsh. He previously served as principal and chairman of Johnson & Higgins’ Construction Group. Langman earned a bachelor’s degree in business administration from the University of Georgia. About Aon Aon Corporation (NYSE:AON) is the leading global provider of risk management services, insurance and reinsurance brokerage, and human resources solutions and outsourcing. Through its more than 59,000 colleagues worldwide, Aon unites to deliver distinctive client value via innovative and effective risk management and workforce productivity solutions. Aon’s industryleading global resources and technical expertise are delivered locally in over 120 countries Visit http://www.aon. com for more information. Mutual Health Services Utilizing Benefit Informatics’ Data Integration, Analysis and Reporting Technology Web-based software provides health cost transparency to employers TULSA, OK /AKRON, OH – Mutual Health Services, a wholly owned subsidiary of Medical Mutual of Ohio, serves self-funded employers across the nation by providing comprehensive employee health benefits while helping control costs. Mutual Health Services recently implemented Web-based Data Integration, Analysis and Reporting

technology from Benefit Informatics to consolidate multiple data sources into one data warehouse and enhance client reporting. Utilizing Benefit Informatics’ Software as a Service (SaaS) technology, Mutual Health Services can streamline analysis of health plan utilization, identify cost drivers and automate reporting. About Benefit Informatics Benefit Informatics Inc., a Benefitfocus company, enables the efficient planning, management and analysis of employee benefit plans through the delivery of online proprietary applications and services to employers, insurance companies, third party administrators and brokers. For additional information, call 888.802.4636 or visit www.benefitinformatics.com.

The agreement centers on renewal rights for AUL stop-loss policies representing approximately $120 million in premium. Symetra’s medical stop-loss premiums for the 12 months ended March 31, 2011 totaled $386 million. To minimize customer disruption, employees at REM will continue to run current stop-loss operations through Jan. 31, 2012 at Symetra’s direction under a transition services arrangement. Symetra expects to extend employment offers to select REM employees during this period. On Feb.1, 2012, Symetra employees will assume responsibility for administering AUL stop-loss policies that have not yet reached their renewal date. About OneAmerica

About Mutual Health Services Mutual Health Services is a member of the Medical Mutual of Ohio family of companies. Founded in 1934, Medical Mutual of Ohio, a mutual health insurer, is the oldest and largest health insurance company based in Ohio. For more information, visit the company’s award-winning website at www.mutualhealthservices.com. Symetra to Acquire Renewal Rights for American united life Medical Stop-loss policies BELLEVUE, WA – Symetra Life Insurance Company announced a definitive agreement to acquire the renewal rights for medical stop-loss insurance policies issued by American United Life Insurance Company (AUL) through its R.E. Moulton, Inc. (REM) underwriting affiliate. The cash deal, valued at $26 million, closed on July 1, 2011 and be accretive to 2011 adjusted operating income by approximately $0.01 per share.

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OneAmerica Financial Partners, Inc., is headquartered in Indianapolis, IN. The companies of OneAmerica can trace their solid foundations back more than 130 years in the insurance and financial services marketplace. Focusing on retirement services, life insurance and employee benefit plan products, we deliver on our promises when customers need us most. For more, visit www.oneamerica.com. About Symetra Symetra Life Insurance Company is a subsidiary of Symetra Financial Corporation (NYSE: SYA), a diversified financial services company based in Bellevue, Wash. In business since 1957, Symetra provides employee benefits, annuities and life insurance through a national network of benefit consultants, financial institutions, and independent agents and advisors. For more information, visit www.symetra.com.

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CHAIRWOMAN’S REPORT Freda Bacon

“unless commitment is made, there are only promises and hopes, but no plans.”

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his quote is from Peter F. Drucker, one of the best known and widely influential thinkers and writers on the subject of management theory and practice.

We all have to plan in our daily lives, whether it is our work, family or future goals. And while planning gives us some sense of accomplishment, the commitment to the plan and ultimate execution leads to the satisfaction of the end result. Your SIIA elected Board and voluntary leadership met in July to evaluate the progress of each committee in SIIA, and to set in place plans for the organizations’ future. Each committee begins the year with a formalized mission statement and strategic steps are taken to execute the goals of the committee. Conference programs and speakers are secured, legislative priorities are set, publications are prepared and presented, and constant open discussions are held within the committees to better serve the SIIA membership. And planning is an ongoing agenda. The commitment of the volunteers within SIIA’s organization is what makes us an association with a strong voice on the self-funding and alternative risk transfer industry. The resources made available to the SIIA membership comes not only from educational conferences and industry involvement, but by the hard work of those committed to promoting the self-funding vehicle. I am proud to be part of the process that makes such an impact on our industry and thank all of those members of SIIA who take the initiative to make a difference. Until next time,

Freda Bacon, Chairwoman

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