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December 2012

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The Once & Future Law

– Learning from Massachusetts’ Cost Containment Efforts


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December 2012 | Volume 50

December 2012 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

editorial staff

arTICLes 12

Medicare Plus repricing; Not for the Faint of heart by Corte B. Iarossi

20

Captives & Dodd-Frank – hitting the right Target

22

health Coverage and the Private Exchange

26

ART Gallery: Independent fiduciaries a boon to benefit plan sponsors

PuBLIShINg DIrECTOr James A. Kinder MANAgINg EDITOr Erica Massey

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SENIOr EDITOr gretchen grote DESIgN/grAPhICS Indexx Printing

The Once & Future Law – Learning from Massachusetts’ Cost Containment efforts by Adam V. Russo, Esq.

CONTrIBuTINg EDITOr Mike Ferguson

INDusTry LeaDershIp

DIrECTOr OF OPErATIONS Justin Miller DIrECTOr OF ADvErTISINg Shane Byars Editorial and Advertising Office P.O. 1237, Simpsonville, SC 29681 (888) 394-5688 2012 self-Insurers’ Publishing Corp. Officers James A. Kinder, CEO/Chairman Erica M. Massey, President

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16

SIIA Chairman Speaks

Data Mining: Quick Methods to Cast the Widest, effective Net in the sea of subro by Erik Stremke

Lynne Bolduc, Esq. Secretary

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The Self-Insurer | December 2012

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The Once & Future Law

– Learning from Massachusetts’ Cost Containment Efforts by Adam V. Russo, Esq.

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The Self-Insurer

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


T

he election is over. For most of us that means a return to the status quo. We get up in the morning, we go to work, and we look forward to dealing with healthcare reform. Speaking of The Patient Protection and Affordable Care Act (“PPACA”), if you think that you’ve seen a lot of regulation over the past years... well... “you ain’t seen nothin’ yet!” As a proud resident of Massachusetts, I can say that with confidence. While many in our industry have postponed taking substantive action to comply with PPACA, waiting to see if it would stick... the regulators in D.C. have been holding back as well. They have been lying in ambush, awaiting the outcome of the election. Now that we (and they) know who is in charge, and that healthcare reform is indeed the law of the land, the sheer volume of regulation that “will be coming to a plan near you,” is going to reach astronomical levels. Furthermore, if we don’t implement some provider-focused cost containment rules, nothing will be fixed by the current legislation. How do I know these things? I’m a “Bay-Stater” (a lifelong resident of Massachusetts). Folks like me, living here in Massachusetts, are experienced veterans when it comes to healthcare reform. We’ve survived our own mandate and regulations. Most importantly; we already know what works and what doesn’t. Massachusetts was a very popular state in the media these past couple years, not only due to our State based health reform, but also because it’s father – our former governor – Mitt romney (unsuccessfully) made his run for the presidency. President Obama’s healthcare reform was therefore, naturally compared to the Bay State model. After all, how could we allow Mitt to get away with criticizing Obamacare when it was so similar

to his own romneycare? And that, of course, is the crux of my article. regardless of what you may have been told, Obamacare was based on the framework first created in the guise of romneycare. While they are not exactly the same, there are many similarities. I am not an artist (though my wife is), but I have learned how to identify a Picasso painting when I see one! While none are exactly the same, they do share similar characteristics – like the two plans. regarding the Massachusetts healthcare program; there were two main goals involved – achieving universal coverage and controlling the ever-rising cost of care. What the state saw between 2006 and 2010, despite a rise in uninsured individuals nationwide (17% to 18.5%), was a decrease in the proportion of uninsured residents, (10.9% to 6.3%) during the same time. I am proud of the fact that almost of our residents have health insurance; challenge number one was certainly met. But what about challenge number two? Without addressing the actual cost of care and issues involving access, this was just shifting the burden.

By failing to address the source of care being purchased by these newly insured people, we not only failed to deal with the main issue (the high costs), but we made things worse. With an influx of newly insured people, individuals that in the past would have been more conservative in seeking care, had less reason to postpone doctor’s visits. unfortunately, many appointments were made without real cause. This up-tick in unnecessary appointments, which increased once the consumer viewed it as a freebie, resulted in a logjam. Some providers were so fed up with the program, they wouldn’t treat individuals enrolled in one of the plans that comprised it. Others simply couldn’t find enough time in the day to see everyone. As I love to say when I speak to people about this topic “everyone had a Ferrari sitting in their driveway but nobody actually had the keys to drive it.” This resulted, then, in longer waits for everyone (including people needing care), and increased expenditures by providers to keep up with the higher demand. This in turn resulted in... you guessed it... higher prices. Strike 1. Take note; the Massachusetts “connector plan,” aka “romneycare,” aka “Commonwealth Care,” is comprised of private carriers. To participate, each carrier must offer low cost policies that mean standards set by the state. These policies must offer certain mandated benefits, and cannot charge more than a capped

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| December 2012

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premium. In the first year, the essential health benefits were limited in scope, making the program financially viable. Each year, however, lobbyists and special interests groups demanded that their “essential health benefits” be mandated from all participating policies. Carriers thereby found themselves being required to offer more, and thus raising costs. Strike 2. Finally, nothing promoted consumer awareness, price transparency, or forced patients to have some skin in the game. There was no reason to seek the best price, only the most convenient option. Providers thus were incentivized by this new source of revenue to raise their already excessive prices. Strike 3, we’re out! In my humble opinion, this history of the Massachusetts’ health care system should serve as a crystal ball for the nation. More importantly, it should serve as an example. We are only now seeing a second wave of legislation, this

time dealing with the actual cost of care. It took my state six years to figure out that you cannot give access to care to all residents without addressing the cost as well. From 1998 through 2009, Massachusetts had the highest personal health care spending per capita of any state. It wasn’t until in Massachusetts, when everyone became insured, that we realized having insurance doesn’t make healthcare any cheaper. Suddenly, the attention shifted from the payer to the payee. In Massachusetts, as we started spending tax dollars, attention shifted to the actual cost of care. In 2010, the state attorney general documented wide variations in prices for health care services. It was possible that the same procedure at two hospitals (across the street from each other in Boston) could have a substantial variance in price.Yes; this came as a surprise to most.

In response to this “outrageous, unfettered pricing,” as the legislative session ended on July 31, 2012, the house and Senate resolved their differences and approved a new law that governor Deval Patrick signed on August 6, 2012. The new law establishes a health policy commission that acts as an independent public entity to oversee cost growth targets and monitors new payment models. It creates a special commission to report on variations in provider prices and the attorney general will have increased authority to investigate potential anticompetitive practices of health care organizations. The law addresses medical malpractice with a 182 day cooling off period before patients can file a lawsuit, and makes providers’ apologies to patients inadmissible in malpractice proceedings. The cooling off period is designed to allow time to negotiate

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settlements, and a healthcare professional can admit an error and offer compensation to a patient without the apology being used in court as an admission of liability. The new law authorizes $60 million over 4 years for wellness and preventive health programs and an annual tax credit up to $10,000 for businesses that create workplace wellness programs. Although we already have a great wellness program in place at my firm, we will now expand it based on this added incentive. I think it’s almost amusing to see that many of these “new” ideas for my state are things the self-insured world has been doing for years. But as they say, better late than never! The attorney general will have increased authority to investigate potential anticompetitive practices of healthcare organizations. The attorney general will realize that the main reason for higher health insurance premiums is not greedy insurers, but providers attempting to take advantage of the current system in place. Massachusetts is one of the first states to create a payer claims database to monitor and report on variations in payments and the volume of services across healthcare organizations. The law creates a Special Commission on Price variation to review variation in prices among providers, recommend steps to reduce provider price variation and recommend the maximum reasonable adjustment to a commercial insurer’s median rate for individual services or groups of services for each acceptable factor, by Jan. 1, 2014. Every day I personally experience the greatest issues with our current healthcare and insurance systems. The biggest driver of rising healthcare costs is that the prices negotiated and paid are due to the market leverage of providers rather than the quality of services offered. The hospitals know whether there are any other options in a particular area and take advantage of that fact. This new law establishes additional tools to scrutinize market behavior, allows us to monitor market activity,

and take necessary actions. Finding new ways to deal with the problems created by dominant providers will be especially challenging for my state and the nation as a whole. In all fairness, it’s a testament to the state’s leaders that any law passed at all. Massachusetts was disadvantaged to take on costs, with health spending that is among the highest in the country, expensive medical practices, and very politically powerful hospitals and doctors. healthcare is also one of the state’s largest employers. The main factor that forced this action was the realization that the broad coverage gains that Massachusetts has made would not be possible without finally controlling healthcare costs. Time will tell whether Massachusetts is ultimately successful at cost control but we will all learn a lot over the next few years, much of which will no doubt be useful to other states.

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The Self-Insurer

msl2162 - 08/12

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So while it is nice to see that my state finally addressed the real issue with healthcare, it’s sad to see that from a national standpoint nothing is being done. While the rest of the nation has watched the Massachusetts model for many years, it seems that the federal government hasn’t learned anything from us. Two things stand out in my mind when it comes to PPACA. First, that the Obama Administration didn’t learn from Massachusetts, and second, that they didn’t put into place any of the cost containment measures that our very Democratic state passed. This is proof-positive that we can’t rely on the government to fix our problems. My sister lives in Barcelona, Spain, where everyone gets free healthcare. Yet, she pays for private coverage as well. I asked her why she has her own private insurance through her employer. She simply responded that she didn’t want to wait months for treatment or wait in long lines at state facilities. When she injured herself this summer, I was amazed at how quickly she was able to see her doctor. She simply called the number on her ID card, spoke to a nurse immediately, and was seen at a private clinic within minutes. I have yet to see that type of care here in the states. In my eyes the more the government gets involved in healthcare, the more opportunities we will all have to secure amazing options for the private sector. In the face of rising costs and PPACA, we are seeing more and more plan sponsors, carriers, and brokers across the country assessing the situation, and looking at self-funding as an option to avoid the status quo. More employers are beginning to see that the net cost to their plans is what needs to be looked at. There is now an increased pressure on benefit plans to control

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premium growth from plan sponsors, brokers, plan participants, the government, and stop-loss carriers. The great news is that more and more individuals in our industry are looking at new and innovative ways to reduce the cost of care for their plans without reducing the benefits given to plan members. The problem is that there are many options out there that are not fully vetted prior to being implemented by plans and TPAs, leading to bad results and horrible precedent being set. If you follow a well-designed game plan, everyone involved in the self-funded arena can win, regardless of when the federal government mimics what Massachusetts did this summer. n Adam V. Russo, Esq. is the Co-Founder and Chief Executive Officer of The Phia Group LLC; an innovative cost containment and consulting leader in the health insurance industry. In addition, Attorney Russo is the founder and managing partner of The Law Offices of Russo & Minchoff, a full-service law firm with offices in Boston and Braintree, MA. He is a frequent speaker and author on health care and employee benefits topics at webinars, conferences and seminars across the country.

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The Self-Insurer

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Medicare plus repricing; Not for the Faint of heart by Corte B. Iarossi

T

here’s an old saying, purported to be an ancient Chinese curse; May you live in interesting times. Though there is some question as to the origin of this saying, there is NO question we live in interesting times! Considering the state of the health insurance market, I think some would suggest that we are in fact, cursed. As we all scramble to understand the potential impact of Obamacare, we must also continue to find new solutions to manage ever increasing healthcare costs. And one option in particular has generated significant interest; Medicare Plus repricing. Though this idea has been floating around the market for some time, it only now appears to be gaining more

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The Self-Insurer

mainstream attention. In general, the concept of Medicare Plus repricing is to use Medicare allowable PLuS some factor to pay providers for services rendered in lieu of a primary PPO network, or as an alternative for repricing out-of-network medical bills.

The upside of Medicare plus repricing Significant savings. The government has already done the hard work for us by creating a pricing scheme that drives down the cost of care for the majority of eligible services. And most providers have accepted this reimbursement model as the price for treating Medicare patients, which as we know, is a growing segment of our population. Today, PPOs are the standard for

generating discounts for health plans. unfortunately, we also know that the savings achieved through PPOs can vary greatly. Additionally, just because the PPO has a significant discount off billed charges, does not mean that the discounted fee is reasonable. We have all seen provider charges increase over time to offset the discounts being provided. The value of Medicare Plus is that it focuses on a price, rather than a discount percentage. This makes it a question of whether the cost is reasonable and acceptable, without focusing on the discount percentage. What some employers have done is replace the primary PPO using a multiple of the Medicare Allowable (for example, 150% of Medicare) as the payment for services. The thought

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is that the savings will be materially greater than that of the typical PPO, but the payment will be higher than what Medicare pays the provider; a Win-Win for everyone, right? And when there is no Medicare allowable for covered services (e.g. OB services, pediatric care, certain injectable medications, etc.), then another pricing solution will be used, including but not limited to, rBrvS or a percentage of uCr. So, if this is the answer to our health plan cost woes, why isn’t everyone jumping on board?

It’s not for the Faint of heart In other words, as an employer, to make this program successful you will need to stand firm against push back from providers, and weather concerns from employees. Listed below are several key considerations in determining if Medicare Plus repricing is a good alternative to primary PPOs for your group (or your Clients). 1. Plan Documents. One of the CrITICAL issues is insuring that your Plan documents effectively support the application of the Medicare Plus repricing. In all likelihood, you will need to have the documents rewritten. We recommend using a firm that has experience and success in crafting the right language so that the Plan is protected against provider push back. As part of the process, we recommend you place supporting language on the ID cards so that providers are notified in advance that some application of Medicare fees will occur. 2. Employee Education. Just as critical as having the correct Plan documents, is insuring that the employees understand the program, including providing them with responses to providers who

may try to put the patient in the middle of the reimbursement discussion. This may include threats to balance bill or even start the collection process. If the employee/patient doesn’t understand the objective of the program AND/Or does not have guidance on how to respond to the providers, including directing them to a designee to address the issues, you will quickly lose the support of the employees and your leverage in managing the payments to the providers. 3. Prospective Provider Interaction. Another tactic that may smooth the transition to Medicare Plus repricing is to proactively contact providers. The objective is to make them aware of the program, and to create incentives for them to accept the payment. This could include soft steerage, advance or prompt payment, and/or elimination of deductibles and coinsurance, just to name a few. This approach can typically be more effective when the employee population is centrally located, giving you an opportunity to identify highly utilized providers. For populations that are geographically dispersed with no significant penetration in the provider market, this may be more challenging. 4. EOB Supporting Language. It may seem intuitive, but it is worth mentioning that the EOB language accompanying the payment should reflect similar language used on the ID card to explain the program. The objective is to present to the provider a consistent message in as thorough a way as possible. 5. Patient Support & Advocacy. Providing the employee/patient information to help respond to the provider’s inquiry is only part of the equation. You may also want to provide a service that engages the providers directly when they appear unwilling to accept the payment, or have specific questions or issues that can’t be or shouldn’t be addressed by the employee/patient. By providing this service you can help keep the employee from being placed in an adversarial position with the provider, and likely have more success in resolving the provider’s reimbursement issues favorably. 6. Legal Intervention. Though the majority of provider inquiries will typically be addressed through open communication, there is the chance that a disgruntled provider may take a more aggressive position, potentially requiring legal support. The program should include a provision for legal intervention on behalf of the employee, since the Plan language should effectively limit any action against the Plan. however, please note that should the provider and/ or patient take legal action against the Plan, the vendor will be required to disengage with the patient and support the Plan. 7. Determining the Medicare Payment Factor. In part this may be a function of the market. If there are other Medicare Plus plans in place, this may assist in determining the factor of Medicare that providers have been willing to accept. If there is no such experience, and there is a strong BCBS or carrier presence, you may be able to gain anecdotal information on how their fees compare to Medicare. We have seen Plans set their reimbursement ranging from 125% to 200% of Medicare. This will be an important consideration in making the program palatable to providers. 8. repricing Non-Medicare Covered Services. unfortunately, not all Plan covered services will be included under Medicare. Therefore, you will need to make sure you have a methodology to reprice covered non-Medicare services, and which is also supported by the Plan language. having a program to address these costs is just as important as repricing Medicare covered services for the success of the program.

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9. hold your ground. One of the biggest challenges for the employer will be to stand firm when the provider threatens collections for the patient, or even legal action. But if you’ve done your homework, generated the supporting Plan language, educated your employees, and have a vendor that can intervene and even negotiate with the provider, you should be in a good position to manage the results. The first time that you don’t maintain your stance with a provider, you endanger the effectiveness of the whole program. Once it can be shown that you have conceded (not to be confused with a negotiating with the provider), then your ability to maintain other price determinations can be impacted. 10. Avoid Discrimination. Again, this may seem intuitive, but it is important that if the Plan applies Medicare Plus pricing, it needs to do so for all services covered under Medicare. In other words, if the Plan applies Medicare on select services (e.g. dialysis), but not for other services covered under Medicare, it could be argued that the process is discriminatory. This would be a nightmare for the Plan. An alternative is to carve out the select services and treat them as a separate benefit. 11. Addressing Severity/Complexity of Care. There have been recent court cases that suggest that applying a fee schedule (uCr or even Medicare) without taking into consideration extenuating circumstances (severity, complications, etc.) may facilitate legal action against the Plan by the provider. It is important that your vendor has the ability to adjust the payment based on variations in complexity or severity. 12. vendor Fee Structure. Since this type of program is so new, the fees vendors charge for Medicare Plus repricing and support services can vary significantly. It can range from a percentage of savings to a flat per claim fee, to a PEPM rate. The fee will typically be a function of the Client’s expectation of service. If all you request is an application of the Medicare or alternative fees without patient or Plan support, a PEPM or per claim fee may be adequate. however, if the repricing entity is providing the full range of services to include patient advocacy, provider communication and legal intervention, a percentage of savings will likely be the pricing methodology used. Because the entity is taking on the potential legal fees associated with managing and defending the repricing, the costs can be extremely variable. A PEPM or per claim fee will typically not provide enough funding for this service.

Make an Informed Decision There appears to be a number of organizations offering a Medicare Plus repricing solution. Some appear to suggest that this is a simple and easy program to implement. unfortunately, as you have seen from the information above, it is a solution that needs to be discussed carefully to determine if it makes sense for your organization or Clients. At this time, we don’t believe it is for every employer, nor every market. We do feel it can have a very significant impact on health plan costs if implemented thoughtfully, and with the right support mechanisms in place. n Corte Iarossi is the VP, Sales & Marketing for United Claim Solutions (UCS). He has over 20 years success in the health insurance, managed care and PPO markets. UCS is a Claims Flow Management and Medical Cost Reduction company located in Phoenix, AZ. Corte can be reached at ciarossi@ unitedclaim.com. Special Thanks to Ron E. Peck of The Phia Group

Medicare plus as an Option for OON Claims As you might expect, the challenges to using Medicare Plus to reprice claims that fall outside of the primary PPO are fewer. The Plan language still needs to support this type of payment application, but the employer’s responsibility for protecting the patient may be less an issue. Employee education is still critical. As long as the employees understand that if they choose to seek care from a provider not within the primary PPO network (this will typically exclude urgent or emergent care), they are responsible for any balance billing by the provider. That is not to say the employer can’t still engage a service to intervene with the provider on behalf of the employee/patient, but that can also undermine the value of having a primary PPO. It will depend on the objectives of each employer in managing the Plan.

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The Self-Insurer

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Data Mining:

Quick methods

to Cast the Widest, Effective Net in the Sea of Subro by Erik Stremke


D

ata mining has come a long way in its depth and ease of use in the last decade. In many organizations, a data mining dashboard is on most Claim and risk Managers’ desktops. Many brokers and Captive Managers can offer a data mining evaluations for their clients. With all of this data available, using it to identify areas to increase recovery dollars and decrease the loss ratio further is the hard part. Many Self-insureds, Captives and rrgs have struggled with increasing loss ratios/loss payments in the past few years, and investment income isn’t what it used to be. Cutting unallocated Loss Expenses and Allocated Loss Adjustment Expenses is ever present, but it is still not enough. Subrogation has been getting much more attention in the last decade, but rarely is it maximized. When subrogation/recovery is maximized, it can often exceed investment income in the current environment. There still is a lot of money left on the table. In various studies, only 5-10% of claim departments maximize recovery. Subrogation/recovery is a specialized area of claims. To harvest the most of this sea of dollars, a plaintiff paradigm is necessary, which is the opposite of the rest of the claims world. Staff cuts and hiring freezes significantly impact this. Data mining can help. Self-Insureds, Captives, and RRGs, all benefit. Identifying claims with recovery indicators is the starting point. use a broad set of indicators first. Fish are easier to throw out of the net, once in, than catch in the first place. This can be done on a daily basis, weekly basis, or monthly depending on volume and turnaround time. The claims with the least indicators can be quickly reviewed and confirmed for further recovery activity, or removed from the net.

Once the initial culling is done, all of the claims are promptly handled by the assigned adjusters. This all can be done in-house, outsourced, or as a hybrid. These claims are then added to the subrogation pending. With staffing limitations, and rising pending counts, outsourcing all or part of these claims get the dollars in more quickly. To ensure none of the fish can be thrown out of the net without confirming they are not suitable for keeping, the ability to ‘close’ the file on a system can be limited. Limiting the closing process to a specific manual action, that requires affirmative notes in the system by the ‘closer’, removes ‘Pay and close’, or other automated closing options. Claims with recovery potential can still be closed in error. This will reduce those, and the claims found closed in error with the continued data mining and review above, can be used for training. Data mining can then track what ultimately are the most important aspects – cycle time, dollars recovered, and ‘ net back’ (if outsourcing, the actual total dollars back after contingency fees. This is not a direct result of the fee itself, but the effectiveness of the outsourcing party. A low fee does not guarantee generally top results. The important value measure is the total dollars the organization has after the fees. ). Time is money, cycle time, reduction from payment to recovery, should be a constant metric measured, as of course the ‘net back’ dollars recovered. The faster more dollars are recovered, the sooner they impact the loss experience. using industry benchmarks compared with the mix of business for the specific risk types, each organization can measure results and trends monthly, quarterly and annually. A clear difference should be able to be seen in one quarter on Auto and

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Property, two to three quarters to see the difference in Workers Comp. One aspect in Workers Comp that has been measured, is that Med Only claims and other low severity claims $5000 or less are the most often overlooked recovery. Because of the frequency, the overlooking of these claims leave significant dollars unrecovered with no or little attempt at recovery. Measuring results should be done with total paid and total recovered for accident or calendar year in the specific product line (Auto, Property, Workers Comp) as opposed to payments identified for recovery.The total paid dollars and total recovered dollars are objective numbers. Payments identified for recovery are subjective. Industry benchmarks studies use Total Paid and Total recovered. Because loss control in the ArT market is superior to the insurance market place, ArT market recoverable dollars are greater as a percentage of total paid losses. Targets for Commercial Auto in the ArT market are 27-29% of total physical damage, comprehensive, and cargo payments should be recovered. Property and Workers Comp vary depending upon property and employee exposure to third party negligence, however, that can be determined by each organization in comparison to industry benchmarks, such as those available from NASP (National Association of Subrogation Professionals). The general ranges for Property are 8-13% of total dollars paid should be recovered. For Workers Comp the range is 5-9% that should be recovered. Workers Comp varies the most. Data mining here can help tremendously to really measure the degree to which employees are exposed to potential outside negligent parties. The primary areas here will be Auto Liability (drivers, delivery, repair,

The Self-Insurer

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servicing employees, at home nurses, etc.), Premises Liability, Products Liability, and vendors or other outside parties general Liability when on your premises. Maximized subrogation/recovery can reduce the overall loss ratio by 3-5 points or equal 5-10 % of Total dollars paid in all lines. That is real money directly to your bottom line. As an added bonus, to fully maximize recovery, a Closed File review can be done. This involves going backward in time to claims closed within the last 3-6 years, depending upon relevant statute of limitations for the specific line and states. This is a windfall of 3-5% of total dollars paid in the specific lines over the specific time period. This is a project that produces significant results within 1-2 quarters. Depending on the mix of business, that can be equal to another 2-3 point reduction in the overall calendar year loss ratio/experience. n Erik Stremke has been in the Risk Transfer industry for 25 years. He has worked for large carriers along with Self-Insureds, Insurers, Captives and TPAs as a service provider and consultant. He has worked with ART programs and related claims for over a decade. Erik has been previously published in the NASP Subrogator Magazine, Rough Notes, and Captive Review. He has the CSRP designation, and has been responsible for claims management, staff management, data mining claims information, subrogation, and budget management from both the insurer side and the vendor side.

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Captives & Dodd-Frank – hitting the right Target Editor’s Note: The following story was recently published on the Self-Insurance World Blog, where SIIA Chief Operating Officer Mike Ferguson offers original reporting and commentary on legislative/regulatory issues affecting companies involved in the selfinsurance/alternative risk transfer marketplace. The blog can be accessed on-line at http://self-insuranceworld.blogspot.com

T

he recent announcement of an industry coalition to push for federal legislation clarifying that the Nonadmitted and reinsurance reform Act (NrrA), included as part of the Dodd-Frank law, does not apply to captive insurance companies certainly sounds like a positive initiative. But despite good intentions, this blog is skeptical that it will acheive the desired result. We have actually been tracking this issue for some time and is aware of discussions that have taken place with key congressional sources regarding the viability of a possible legislative fix (two conversations as recent as yesterday). The consensus is that it could be done technically, but DC politics dictate that such an effort would be a heavy lift. The political reality is that neither Democrats nor republicans have the appetite to open up the Dodd-Frank Law for any changes at this point. Truth be told, congressional republicans don’t want to do anything to help the law actually work, as this was a highly partisan piece of legislation, much like the

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Patient Protection and Affordable Care Act. The only way republicans would be motivated to even consider amending the legislation is if such action would substantively lessen the administrative burdens on the banking industry and provide certainty to the business community, especially small business. Democrats, for their part, will be resistant to “technical amendment” legislation even if they support it in principle for fear that it would become a legislative vehicle where additional amendments would be grafted on with the intent of watering down the law. And neither party wants to come back under fire from the powerful financial services industry lobby, which would surely happen if Dodd-Frank is opened back up – even for so-called technical fixes.

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But just for the sake of argument, let’s assume that legislation is introduced and some co-sponsors are lined up. Does that mean success is any more likely? Probably not. To understand this assessment, we need to talk about the relative political power of interest groups in DC. While many of the larger lobbying organizations active in DC have the ability to block and/or shape legislation, there are far fewer who have enough political juice to get their own special interest legislation passed through Congress, no matter how limited. To be blunt, the captive insurance industry simply does not fit into this latter, more exclusive group. Finally, the country’s biggest captive domiciles simply do not have powerful congressional delegations with regard to insurance-related issues, which could potentially offset the deficiencies and complications described above. That is not to say these members of Congress would not be forceful advocates, they simply are not positioned to move legislation envisioned by proponents of this approach. So does all this mean that there will never be clarity relative to whether the NrrA applies to captives? Well, it may not to come from Congress for the reasons we just explained, but it may come from federal regulators as part of the Dodd-Frank rule-making process.

In Memory Laurence ‘Larry’ Day October 15, 1947 - October 23, 2012

I

t is with deep sadness that we announce the passing of Larry Day, beloved husband of Sharon Day, father to Aaron, Coby and reagan, and grandfather to Ari, Samarah, Aidan, Tristan and Maci.

Larry lost his fight against a series of illnesses in the last several months and through it all he showed his loved ones and his friends what he means to show true courage and strength. Larry and Sharon built the business together, “Stop Loss International” (SLI), an insurance and re-insurance firm in Indiana. The firm grew from three employees to 156. Individuals in the self-funded business knew Larry as someone that led that industry to new heights and in new directions. People that knew Larry used words like “genius and innovator” when they described his knowledge, keen insights and leadership in this complex field. Larry and Sharon were true partners in life. Larry was the Political Science Major and the individual that loved politics and through his passion he made it Sharon’s passion in her path to become the republican National Committee Co-Chair. It was Larry’s encouragement and support that were a major influence in Sharon’s success and that helped make it possible. They were politically active to the extent they supported Republican candidates financially, but working 60 to 80 hours a week left no time to do anything more. Those that love Larry want all to know that he was funny, passionate, opinionated, stubborn, quick but short tempered, smart, and generous beyond belief. Most of all we want all to know that Larry was someone that loved deeply and was deeply loved. n Courtesy of MyHealthGuide

In fact, this avenue is now being actively explored by self-insurance industry lobbyists. This strategy can best be described as a “surgical strike,” as opposed to an expensive and pro-longed “land war,” which the congressional route would surely become. We’ll see if the political operatives now engaged with the regulators can hit the target. But at least an arguably clearer path has been identified. n

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PPAcA, HIPAA and Federal Health benefit mandates:

Practical

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.

Q&A

health Coverage and the private exchange

B

eginning in 2014, individuals will be able to select from a variety of coverage options made available through the State (or federal) based exchanges required under the Affordable Care Act.1 Many employers are also considering various ways to make multiple coverage options available to employees, in some cases utilizing the State exchanges, and in other cases making coverage available through so-called “private exchanges”. This article discusses issues that may arise where a defined contribution approach (with or without a health reimbursement arrangement or hrA) is used to make coverage available through a public or private exchange arrangement.

What is a health Coverage exchange Simply stated, a health coverage exchange is a marketplace established to provide a selection of health coverage options. The “public exchange” generally refers to the individual coverage made available to individuals through the American Health Benefit Exchange or the group coverage made available to employers through the Small Business health Options Program (ShOP).2 A private “exchange”, however, has no set definition, and is generically used to refer to arrangements under which employers make a variety of coverage options available to employees through a pre-selected menu.

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


In some cases, an employer may offer multiple insured or self-funded benefit options (e.g., high deductible, hMO, PPO, etc) to employees and assign different subsidy levels toward the cost of coverage. historically, this type of “private exchange” arrangement has been common among larger employers. What is new, however, is the down-streaming of multiple benefit option arrangements enabling smaller employers to make different coverage options (perhaps with different carriers) available to employees.

Use of Defined Contribution approach to Minimize Financial exposure

private exchanges and health Care reform Considerations Many employers have considered making available a defined contribution approach that offers employees a choice of health (and possibly other) coverage options through individual insurance policies. Prior to 2014, great uncertainty exists because such “defined contribution” arrangements raise a number of compliance concerns under hIPAA’s nondiscrimination rules and practical coverage availability issues due to the impact of individual policy underwriting practices on employees with health concerns. Beginning in 2014 (unless implementation is delayed), the Affordable Care Act requires that individual health coverage in the private market (both in and out of the public exchange) must be made available without regard to pre-existing conditions or health status. Some employers may see this as an opportunity to consider a defined contribution model (sometimes called a “pure defined contribution model”) under which employer subsidies may be made available strictly for individual health coverage options offered through a public or private exchange. This approach raises several compliance issues under the Affordable Care Act such as: i) If the employer is an applicable employer (i.e., 50 or more FTE employees), will the employer’s subsidy for individual coverage options be considered to be adequate to satisfy the employer’s availability and affordability requirements under the “play or pay” requirement?3 In other words, will the defined contribution approach be considered to fulfill the minimum essential coverage, affordability, and minimum value requirements through an employer sponsored plan since the employer credits can only be used for qualifying

A defined contribution approach generally enables employers to fix their financial contribution obligation yet enables employees to use the fixed contribution to select from a variety of benefit options. The defined contribution element provides funding for the purchase of coverage through the exchange “marketplace.” Employees can use allotted funds to select more or less comprehensive coverage to suit their individual preferences.

Integrating medical and business solutions for your organization

Not Every Defined Contribution arrangement is an hra The hallmark of an hrA is that unused amounts carry forward into future coverage periods. Although many health plan service providers refer to their defined contribution “exchange” approach as an hrA, this is somewhat of a misnomer. Not every defined contribution approach incorporates a carryover feature for unused employer contributions. In many cases, the employer subsidy is made available solely to offset coverage in the current year with no carryover.

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health coverage (and not otherwise unreimbursed medical expenses)? It would seem that if the exchange includes at least one coverage option that satisfies the minimum essential coverage requirement,4 and the employer’s subsidy is high enough to satisfy the affordability requirement (i.e., employee’s out of pocket cost does not exceed 9.5% of W-2 compensation)5 that these requirements may be satisfied. But there is no clear guidance on this issue. ii)Can employees pay for any excess cost of coverage through a pre-tax salary reduction? If the coverage is individual coverage offered through the government exchange, the answer would be no.6 iii)Will the availability of employer subsidized coverage that is affordable and provides minimum value be considered to be group health plan coverage that will cause the employee to be considered ineligible for federal subsidies through the federal exchange?7 iv)Will the employer’s defined contribution arrangement be considered a separate group health plan for purposes of the comparative effectiveness research (CEr) fee and the reinsurance fee? As these issues are addressed, the defined contribution/individual policy exchange approach may prove to be a valuable tool for both employers and employees. n

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. Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 1311(b)(1) (2010) (PPACA). If a State fails to make an exchange available a federally run exchange may be implemented. PPACA § 1321.

1

Affordable Insurance Exchanges: Choices, Competition and Clout for States, Mar. 2012, available at http:// www.healthcare.gov/news/factsheets/2011/07/ exchanges07112011a.html (as visited June 11, 2012). A summary of guidance and information regarding Exchanges is available on the National Conference of State Legislatures website – see American health Benefit Exchanges, available at http://www.ncsl.org/ issuesresearch/health/american-health-benefit-exchanges. aspx.

2

Code Section 4980h

3

Code Section 5000A and 4980h.

4

See discussion in health Insurance Premium Tax Credit, 26 CFr Parts 1 and 602,77 Fed. reg. 30377 (May 23, 2012)

5

Code Section 125(f)(3)

6

Code Section 36B and Treas. reg. § 1.36B-2(c)(3)(iii)(A).

7

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arT gALLErY by Dick Goff

Independent fiduciaries a boon to benefit plan sponsors

I

tend to pay attention when Tess Ferrera speaks. A partner in the D.C. office of Schiff hardin, she is among the leading legal experts on ErISA plans and can make even a subject such as “new rules on prohibited transactions” interesting, as her seminar audience learned at this fall’s SIIA conference. I learned about Ms. Ferrera’s candor a couple of years ago at a Washington conference on national health care reform. She opened her remarks by admitting that “nobody really knows how it will play out,” then added, “the only guarantee is that it’s going to be very messy to implement with three federal agencies writing new regulations that don’t necessarily preempt state insurance laws.” When we spoke recently, Tess’s great concern was the lack of awareness among employee healthcare plan sponsors about the need to have independent fiduciaries keep an eye on their operations. In her typically pithy style, she said, “Trying to operate one of these plans without an outside fiduciary is like flying a plane through heavy clouds without instruments.” However, she is quick to note that the need for an independent fiduciary in the health care context typically is more critical in the smaller or Multiple Employer Welfare Arrangement (MEWA) world where relationships between related entities can create inadvertent problems with ErISA’s technical rules on prohibited transactions between plans and persons or entities with close relationships to the plans. I have to admit I hadn’t thought a lot about the role of independent fiduciaries in benefit plans. If I had considered plan governance at all, I suppose I would have believed that the usual professional service providers would have all the details covered, and in many instances they do. But this apparently can lead to big mistakes and big problems for plan sponsors who serve as their own fiduciaries – meaning the people who are responsible for financial accuracy and legality. I sought an experienced independent fiduciary to learn more about the field and was guided to William Kropkof, head of the ERISA Advisory Group of henderson, Nevada. his track record includes several years with the Department of Labor (DOL) as investigator for the Employee Benefit Security Administration (EBSA). “Sponsors of employee health plans – either self-insured under ErISA or fully-insured -- all have their own businesses to run and can’t be expected to stay on top of the rapidly changing legal requirements,” Mr. Kropkof told me. “This is especially true in those circumstances where the government-regulated benefits landscape is drastically different now than it was even six months ago. Operating an employee plan is not a ‘set it and forget it’ matter, although I have found that this is the attitude of many plan sponsors.” I asked Mr. Kropkof for some examples of how sponsors of employee health plans can find themselves in need of independent fiduciary services, and he provided me with a few case studies that I have summarized: • A fully-insured plan serving small business owners came under investigation by the DOL. Its Office of the Solicitor sought the appointment of an

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independent fiduciary to oversee operations and to continue with annual reviews, much to the relief of the sponsoring organization and its TPA. • An ErISA plan was under investigation by the DOL. An independent fiduciary was appointed for a year as part of the settlement with the DOL to review all transactions involving the plan and to review ongoing operations to ensure that ErISA’s technical prohibited transaction rules were followed. • A MEWA retained the services of an independent fiduciary to review its vendor contracts and to do a comparison of the administrative fees that the MEWA pays vendors to ensure that the contracts met the reasonable compensation requirement of ErISA for vendors. • The DOL filed a criminal action against the owner/operator of a MEWA, alleging a number of ErISA violations. The court appointed an independent fiduciary to wind down the MEWA and marshal its assets to pay outstanding claims. • A trade association that sponsors a MEWA retained the services of an independent fiduciary to review its service provider contracts. Service was expanded to include oversight of all trust operations and to review documents with respect to possibly setting up a captive insurance company. Independent fiduciary services are typically provided in two stages: first, to

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


provide fiduciary audits and compliance reviews and then, if needed, to redesign the relationships or transactions to correct inadvertent violations of the highly technical ErISA prohibited transaction rules. It’s my view that employee health plan sponsors would be well served to work with an independent fiduciary before they attract government attention. The earlier a problem can be solved, the cheaper will be the solution. That’s an epitaph that could be carved on the gravestones of just about every failed benefit plan. n Dick Goff is managing member of The Taft Companies LLC, a captive insurance management firm and Bermuda broker at dick@taftcos.com. Tess Ferrera a partner with Schiff Hardin LLP at tferrera@ schiffhardin.com. William Kropkof is managing member of The ERISA Advisory Group at bill@indfid.com.

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SIIA ChAIrMAN SPEAKS Alex Giordano

Reflecting on 2012 Achievements

A

ll too soon, it’s over. My tenure in SIIA volunteer leadership positions will conclude at the end of this month as a new leadership team takes the field for 2013. I have mixed emotions at this conclusion of a very satisfying chapter of my career. My most powerful feelings are those of pride in SIIA’s accomplishments over recent years, especially during these last two years while serving as your President and then Chairman of the Board of Directors. Of course, in an organization as complex as SIIA, no individual can take much credit for the achievements of a dedicated volunteer leadership corps and a talented and effective staff, so I am reflecting here on the collective work of many participants. And I also have hopes for SIIA’s further progress to even greater achievements in future years. But I begin with my points of pride for this year as 2012 nears its conclusion:

raising the Game That was our rallying cry and theme for the Annual Conference this fall but it was also the strategic objective for the entire year. Everyone who attended the conference was blown away by the dramatic, fast-paced video with news-style sound bites reflecting SIIA’s reach into federal and state governmental actions this year.

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We sued the state of Michigan in federal court over what we believe to be an illegal tax on federally-preempted self-insured employee health plans under ErISA – that suit is now in the appeal process after our initial setback. And we threatened in a California legislative hearing to take that state to court if it passed a bill that would inhibit employers’ ability to make meaningful use of stop-loss insurance for ErISA health plans. That bill was withdrawn from current consideration.

is outspent by larger committees who support conflicting views on important issues. “We’re feisty and we fight,” Jay told our members. “When we get in front of legislators our arguments usually sell them.”

SIIA also participated in creating the knowledge base that federal agencies will use in regulating healthcare reform. We continually lobby key senators and members of the house of representatives on vital issues affecting SIIA members.

As a charitable organization, as compared to a lobbying organization, SIEF is able to stage “lunch and learn” sessions for members of Congress and their staff for education on vital issues being addressed by current legislation. A good number of these sessions have been held to illuminate self-insurance principles and practices.

We didn’t just raise the game; we created a whole new game on a much more level playing field.

The self-Insurance educational Foundation SIEF has grown in the last two years into a broad-based educational effort directed to the u.S. Congress and other policy-makers.

The Grassroots Connection Larger company members SIIA membership grew in 2012, especially among the larger companies that bring increased economic leverage and political clout to our efforts. SIIA is now recognized as the place to be for business and for defending our industry.

Our political action Committee SIIA’s PAC continues to grow in numbers and dollars. At the fall conference, 2012 PAC chairman Jay ritchie listed the support that has been provided to SIIA’s friends in Congress. And he didn’t back away from the reality that our PAC still

This is one of my favorites – a formalized program to encourage and manage contact by SIIA members with their senators and representatives on Capitol hill or in their home districts. So far, the results are encouraging. Policy-makers who didn’t “get” selfinsurance are hearing from their constituents how important it is for businesses and jobs in their districts. This program is open to all SIIA members, and it is managed by SIIA’s Washington staff that sets up meetings, provides policy briefing materials and attends the meetings if needed. That’s just skimming the surface. I’m also proud of the ever-increasing quality and content of our meetings

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


and conferences, along with the advocacy and educational efforts of our committees. I can’t think of any SIIA function that hasn’t shown meaningful improvement in these recent years, and the pace of change continues to accelerate. As to my hopes for SIIA’s future, I’m looking forward to increased achievements among all of those factors listed above. More money, more members, more advocacy and more defense and promotion of selfinsurance and alternative risk transfer. As we say in SIIA, we don’t really change leaders each year; we just add new ones to a corps that continues to give their time and talent to our cause. So I won’t be saying goodbye but certainly good luck to our new leaders taking us into 2013. n For now, www.wspactuaries.com | Email: info@wspactuaries.com

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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

2012 Board of Directors ChAIRmAn of ThE BoARD* Alex giordano, vice President of Marketing Elite underwriting Services Indianapolis, IN PRESIDEnT* John T. Jones, Partner Moulton Bellingham PC Billings, MT VICE PRESIDEnT oPERATIonS* Les Boughner, Executive vP & Managing Director Willis North American Captive + Consulting Practice Burlington, vT VICE PRESIDEnT fInAnCE/ChIEf fInAnCIAl offICER/ CoRPoRATE SECRETARy* James E. Burkholder, President/CEO health Portal Solutions San Antonio, TX

Committee Chairs ChAIRmAn, AlTERnATIVE RISk TRAnSfER Andrew Cavenagh, President Pareto Captive Services, LLC Conshohocken, PA ChAIRmAn, GoVERnmEnT RElATIonS Horace Garfield, vice President Transamerica Employee Benefits Louisville, KY

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SIIA New Members regular Members Company Name/ Voting representative

Martin Eveleigh, Chairman, Atlas Insurance Management, Charlotte, NC

ChAIRwomAn, hEAlTh CARE Elizabeth Midtlien, Senior vice President, Sales StarLine uSA, LLC Minneapolis, MN ChAIRmAn, InTERnATIonAl greg Arms, Global Head, Employee Benefits Practice Marsh, Inc. New York, NY

Allen McLean, vice President, Carlisle Medical, Mobile, AL

Thomas Klages, Executive Director, Cooperative Managed Care Services, LLC, Indianapolis, IN

ChAIRmAn, woRkERS’ ComPEnSATIon Skip Shewmaker, vice President Safety National St. Louis, MO

Michael Edwards, President, Matrix Group Benefits, LLC, Falmouth, ME

Directors Ernie A. Clevenger, President Carehere, LLC Brentwood, TN ronald K. Dewsnup, President & general Manager Allegiance Benefit Plan Management, Inc. Missoula, MT Donald K. Drelich, Chairman & CEO D.W. van Dyke & Co. Wilton, CT

Paula Beersdorf, President, Sun risk Management, Inc., St. Petersburg, FL

employer Members

Steven J. Link, Executive vice President Midwest Employers Casualty Company Chesterfield, MO

greg roadifer, President, Associated Employers group, Billings, MT

Elizabeth D. Mariner, Executive vice President re-Solutions, LLC Wellington, FL

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