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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


Volume 88


Editorial Staff PUBLISHING DIRECTOR Erica Massey

February 2016




INside the Beltway SIIA Formally Opposed ACA’s Cadillac Tax; Congress Agreed to Delay 40% Levy to 2020


OUTside the Beltway Federal PACE Act Defining Small Groups at 50 Reduces Impact of Maryland Stop-Loss Study


Legislation to Amend the LRRA Splits Industry Opinion

of a

Reference Based PRICER Jason Davis


Editorial and Advertising Office P.O. 1237, Simpsonville, SC 29681 (888) 394-5688


2016 Self-Insurers’ Publishing Corp. Officers James A. Kinder, CEO/Chairman Erica M. Massey, President

Reining in

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

Lynne Bolduc, Esq. Secretary

Bruce Shutan



PPACA, HIPAA and Federal Health Benefit Mandates Staying on the Compliance Track: The 2015 Health Benefits Year in Review


SIIA Endeavors The Crescent City to Host the First Executive Forum of 2016


Februar y 2016 | The Self-Insurer




The Status Quo Reigns but…

Though RBP as a PPO replacement is a popular topic, the actual market percentage involved in such a full PPO replacement plan is quite literally decimal dust. That said, we would be well served to remember the words of Bill Gates,

“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled 2 into inaction.”

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Perhaps for this reason, we are now seeing very large groups moving into this space or seriously considering this approach. Say what you will about RBP (and many critics do) – but in many cases, it has (at least) been shown to actually save money – whereas complex, flashy and mainstream initiatives like Accountable Care Organizations (ACO) are reportedly not faring well (overall).3 As we migrate from volume to value-based models (away from fee-for-service), health systems with a 30 year dependency on volume are struggling to reduce utilization and the unit costs of care.


RBP: Know Your Flavors

We are seeing the largest movement ever of health plans treating out out-of-network (OON) claims to a percentage of Medicare calculation; using RBP solely as a


U&C replacement rather than as a complete PPO replacement. Further, we are seeing an expansion of the definition of OON to include out-ofarea (OOA) wrap PPO networks. The variety of network arrangements and claim types (not to mention ways of using references for pricing and scope of RBP usage) has led to the need for categorizing RBP types: • Layered Reference Based Pricing (LRBP) » Payer imposes fixed prices on certain high-cost services, even when provided by an in-network provider that, in effect, overrides the alreadynegotiated contractual rate/ allowed amount • Medicare Reference Based Pricing (MRBP) » Application of Medicare pricing as the (primary) basis for determining plan indemnification for all claims - These plans offer this reference price to any willing provider • Hybrid Reference Based Pricing (HRBP) » Combination of a professional (physician) PPO network with reference pricing for institutional claims4 At the Phia Group, we have not seen much in terms of LRBP usage despite the fact that it has certainly received the lion’s share of media coverage (due to the performance of the CALPERS program).5 The most common PPO-replacement model to date has in fact been HRBP. Admittedly, facilities see a PPO logo (regardless of sub-script text that says it is for professional services only) and tag the claim for the PPO discount. As expected, this causes disputes. Perhaps for this reason and in partnership with specialty data vendors, we are seeing

a recent surge in the market that uses only a percentage of the Medicare rate (or its equivalent) for all claims, shifting from HRBP to MRBP.


Charges Under Attack from within...

Moody’s Investor Service recently reported that, on average, contracts result in collection of nearly one-fifth of what providers bill.6 In response to this reality and some scathing critiques (think TIME Magazine’s “Bitter Pill”7 ), we are starting to see providers willingly looking at their pricing because consumers are shouldering greater shares of the cost of care.8 Here is a sampling of provider comments that speak for themselves: • “Charges are meaningless data – virtually no one pays charges” 9 • “(the chargemaster) Those are not our real rates. I am not sure why you care.”10 • “We acknowledge that we have had a historically high charge structure. It does not mean however that we are receiving high or unreasonable payments from insurers. The CMS report focuses on charges, not the more meaningful payment data.”11 • “The biggest misconception is that hospitals are charging too much to rip off consumers. I can’t think of anyone that is happy with the current pricing mechanism. We’d like it to be simpler and more transparent.”12


Charges Under Attack from without…

California’s Fifth District Court of Appeals ruled that hospitals cannot seek reimbursement in amounts exceeding the “actual” (fair market) Februar y 2016 | The Self-Insurer


TOP value of the services rendered. In the case of Children’s Hosp. Cent. Cal. v. Blue Cross of Cal. (226 Cal. App. 4th 1260),13 the court overturned a lower court’s ruling that would allow a hospital to argue that what is reasonable and customary – and payable – to a hospital is not limited to the facility’s billed charges and rather, the “value” of the service is determined by examining all rates that are the result of contract or negotiation, including rates paid by government payors. Further, there is IRC § 501(r):14 when Section 501(c)(3) applies to a facility, upon billing self-pay patients directly, the law requires providers to not “engage in extraordinary collection actions before making reasonable efforts to determine whether the individual is eligible for... financial assistance... .” The law explicitly prohibits the use of gross charges. Providers may only bill the qualified self-pay patient at the “best” (meaning lowest) negotiated commercial rate, average of the three “best” (lowest) negotiated commercial rates, or the applicable Medicare payable rate. The subtleties of Section 501(r) cannot be overlooked. If a patient has insurance, the patient’s liability is the billed charges and whatever “discount contract” the insurer may have; if a patient does not have insurance, the patient’s liability is a reduced or fair market value-based rate, but only via the financial assistance policy. When will this bubble pop?


Medicare is a Good Benchmark but Providers Do Not Like It

Providers that do not want to explore RBP opportunities will not appreciate any metric (Medicare, “Costs,” etc.), aside from the very narrow scope of what they are willing 6

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to accept (e.g., charges or a meaningless discount off random charges). If you ever speak or have ever spoken to providers about Medicare rates, you know that they will be quick to tell you that Medicare “does not cover costs.” This is supported by the American Hospital Association (AHA) Underpayment by Medicare and Medicaid Fact Sheet: • Medicare and Medicaid account for 58% of all call offered by hospitals; • 85% of Hospitals participate despite the fact that doing so is voluntary (i.e., non-obligatory); • Medicare pays for only 88% of costs; • Medicaid pays for only 90% of costs; • 65% of hospitals reported that Medicare payments were less than cost (the other 35% of hospitals reported that Medicare covered their costs); and, • 62% of hospitals reported that Medicaid payment were less than cost (in other words, 38% of hospitals reported that Medicaid covered their costs).15 To be clear, 35-38% of hospitals have their costs covered by Medicare and Medicaid; the rest do not at varying levels. On that point, I would like to remind people that nearly one-third of healthcare is waste,16 so one could argue that if hospitals removed their share of the waste; Medicare would likely cover more reported costs and then some, wouldn’t it? Either way, MRBP plans pay Medicare plus a percentage. Though RBP payments may represent a shortfall from typical reimbursements; the payment is meant to pay a reasonable profit above responsible use of resources.


MOOP, the Willing Provider and You!

The Department of Labor (DOL) has explained (see FAQ XXI)17 that amounts applied to an individual’s out-of-pocket maximum do not (but may, at the plan’s option) include “premiums, balance billing amounts for nonnetwork providers, or spending for non-covered services.” Confusion has since arisen regarding the FAQ, which presented “parameters” (like network adequacy) that must be met by RBP plans before this can apply. In other words, charges not covered by the RBP plan will not apply to the patient’s maximum out of pockets (MOOP), if the qualifications are met. It seems obvious that only LRBP plans were considered. Some read the FAQ as requiring plans to have (adequate) networks in place, while others read it to mean that only if you have a network, must it be adequate. According to some, plans with no network whatsoever are immune to the adequacy rules. It appears we have lived with networks for so long that this market and the Department of Labor, cannot conceive an environment where payer simply does not use network. Healthcare providers all want volume; they want “steerage.” In contrast, payers want to encourage members to obtain the necessary services from a low-cost, high-quality facility – and hospitals have been known to sue if they are excluded from a network under “any willing provider” laws.18 In this context, providers want the patients to have the right to choose and choose them (and providers spend a fortune in direct to consumer marketing). “Any willing provider” laws allow any provider that meets a plan’s standards and agrees to the plan’s terms to become one of the Plan’s preferred providers. RBP plans address “any willing provider” concerns by nullifying them and the plan can actually save money in the process. It’s a beautiful thing.

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C’mon! Really?

RBP programs (whatever the flavor) require proper plan language to be compliant and user-friendly, as it relates to other stakeholders in the self-funded community. I have personally seen RBP plans that had... drum roll please... no plan document at all! More common, however, are poorly drafted documents. I am all for moving at the speed of business, but you absolutely cannot compromise when it comes to actually granting the plan rights (in writing) that it later exercises. Also, let’s face it – RBP is en vogue; nearly every industry vendor either offers some RBP product, wants to, or at least says that it can if clients need it. All plan sponsors, TPAs and brokers should view those options with caution and concern. Fear the potential that you may be sold on a vendor that has only just started to deal with RBP, because you, the client, asked for it. Also, many vendors, through active sales, may actually be growing beyond their ability to scale operations, the result being poor service or no service at all – yet charging top-dollar for it. Finally, I have lost count of the


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number of people in the industry that are somehow equating the term “fiduciary” with protection of patients from balance billing. In response to that let me summon my inner Bob Newhart in emphatically saying “STOP IT!” In the RBP context, fiduciary responsibility means paying claims according to the fixed fee schedule explicitly stated in the plan document. If Plan Administrators do that, they have fulfilled their fiduciary duty and can defend themselves from those who would challenge this. Balance billing is the responsibility of the member. While the plan may choose to step in and help protect the member by settling claims (and I think they should), strictly speaking, the plan has no fiduciary or equitable obligation to do so.


You’ve Got to Know When to Hold ‘em; Know When to Fold ‘em

Oddly, we have seen many RBP plans absolutely refuse to negotiate claims with providers and openly opine that all claims need to go to collections before settlement can ensue. In general, I disagree with that approach.

External collections can add a difficult layer of liability: additional cost. Once external collections are in play, providers net less money on any settlement. They now want more to cover those costs; more than they may have previously been inclined to offer a payer, because they now need to pay the collector (typically 20-35%). Plus, outside parties have their own interests, which therefore look to compromise budding positive conversations between payers and providers. Remember, collectors (and RBP vendors too to a large extent) make money from disagreement in this market. In many instances, a complete lack of flexibility in strategic settlements can galvanize a regional provider community to “gang up” and reject an RBP Plan. We have witnessed state hospital associations actively campaign against certain vendors, educating their membership on how to fight or even eliminate RBP plans. This can involve en masse pursuing the patient for payment or even pushing away patients for non-emergent care (aka “black balling”), which can damage the viability of an RBP program (and potentially all RBP programs).



That is not to say that being inflexible cannot work at times; in some cases, rigidity has value and the trick is to be watchful and thoughtful about what is happening in the provider community context. For this reason, we recommend open strategy discussions between all parties involved in the RBP program, which typically involves input from TPAs, vendors and the plan sponsor. A mere subtlety in market dynamics or a key relationship can make all the difference between success and failure. In other words, the ideal RBP program is a customized one, tailored to the needs of a given client in a given situation. This is where many vendors show their true colors – whether in a positive or negative light.


Contract-o-Phobia The contracting process is not simple. The following is a redacted excerpt from an actual communication we have received:

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“I’m still unclear as to why a smaller TPA such as you would not contract with a network such as [regional networks] for a statewide provider network. Even if we could come up with a reasonable reimbursement rate, I am reluctant to set a precedent with one TPA. I think I mentioned before that there is not enough volume of covered lives in our service to negotiate a significant discount with you. We might be more open to the idea of a small discount if we were the only providers in a narrow network of choice.”

Regardless, it is imperative that plans who choose not to use a network at all must still work toward contracting with (or at least identifying) “safe harbor” providers that have agreed to refrain from balance billing in exchange for the plan’s maximum payable amount. The primary challenge is to avoid creating networks. In many ways, RBP expands the leverage with the provider as you now can combine both the claims incurred to date and future claims. We have seen some RBP plans able to get providers to compete for their business and would highly recommend pursuing these options when it makes sense. From a contracting perspective, stop-loss coverage should be taken into consideration as well. If an RBP plan pays an amount rigidly defined in the plan document, then the carrier will be satisfied with that payment since it was what the carrier has underwritten. If, however, the RBP plan pays extra to settle the claim, various carriers will react to that expense in different ways. The best-case scenario is a plan document that supports payment of contracted or settlement amounts; if the carrier has indicated that it will honor negotiated rates as the plan’s proper payment, then a negotiated agreement may not only safeguard the

patient, but also can help safeguard stop-loss reimbursement.


Balance Billing; It’s About Punishing Non-Par Plans

The first thing I do when I call on an account undergoing balance billing is to ask the provider if it knows that it is billing a patient the balance up to 100% of its charges. I usually get a response in the affirmative and something like “well, the Plan is nonpar and so charges are due.” I go on to explain that the Plan is not “nonpar” in the traditional sense. In other words, this Plan has not rejected the provider as part of a network, but rather, the plan defined its benefits to be a percentage of Medicare and that it was the member who chose to seek care at the provider’s facility. In this context, the consumer has actively chosen that provider – over all other options – for services and the provider is billing the patient at its highest rate possible. I am pleased to report that many providers, when they truly understand this dynamic, write off the balance. That having been said, there are and likely will always be, providers that are aggressive and will balance bill the member in every case. By acting in this manner, providers are effectively punishing patients who do have insurance. The purpose of this practice is to reiterate their expectation of greater payment from insured patients; even if the patient’s insurance does not cover the full balance, which self-funded plans very rarely do. This is a way to try and force insurers to pay more by holding the patients’ credit as ransom; and we are back to the status quo...

Conclusion RBP simply reduces the unit cost or price of what is (one way or Februar y 2016 | The Self-Insurer





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another) being consumed. Is this too simple or blunt an approach? At the end of the day, we are well served to recall the 2003 article from Gerard Anderson, Professor at Johns Hopkins Bloomberg School of Public Health, about the real problem in US healthcare: It’s the Prices, Stupid: Why the United States is so different from other countries.

References If RBP is a new concept for you, I refer you to an excellent primer by my colleague, “In Reference to Reference Based Pricing” by Ron E. Peck, Esq., Sr. Vice President and General Counsel, The Phia Group LLC, The Self-Insurer, May 2014


2 Bill Gates, “The Road Ahead” published in 1996, quoted by Nancy Weil and IDG News Service Technology/PCWorld/story?id=5214635 June 23, 2008 3 See, Are Medicare ACOs Working? Experts Disagree, KHN News as republished by PublicHealthPolicy/Medicare/54215) October 21, 2015 4 Timothy D. Martin. Cost-Sharing, Maximum Out of Pocket Limits, and Balance Billing: An Analysis of Regulatory Guidance for Reference-Pricing Plans Under the Affordable Care Act. 5 David Frankford and Sara Rosenbaum, Go Slow On Reference Pricing: Not Ready for Prime Time, http:// March 9, 2015 6 Melanie Evans, Hospitals Rethink prices as patients grow more cost-conscious, article/20151205/MAGAZINE/312059981?utm_ source=modernhealthcare&utm_medium=email&utm_ content=20151205-MAGAZINE-312059981&utm_ campaign=am December 5th, 2015 7; “Bitter Pill: Why Medical Bills Are Killing Us” By Steven Brill, Feb. 20, 2013 8 Melanie Evans, Hospitals rethink prices as patients grow more cost-conscious, article/20151205/MAGAZINE/312059981?utm_ source=modernhealthcare&utm_medium=email&utm_ content=20151205-MAGAZINE-312059981&utm_ campaign=am December 5th, 2015

Whether I’m purchasing a home (shelter) or a cheeseburger (sustenance), there is a general range of prices. Those prices are set by the seller taking various real elements into account, such as location, quality, supply and demand. Cost to the seller, necessary profit margins and other factors impacting the seller, as well as need, ability to pay and other options available to the buyer, are hallmarks of a free market, capitalistic, healthy economy. This is how we establish fair value, drive (healthy) competition and make sense of things. What we pay; what we charge; and why. Yet, for some reason, common sense economic concepts are moot when applied to healthcare. Without the shelter and sustenance referenced above, I’d perish – yet – we allow these concepts to apply to the obtainment of such goods. Healthcare does matter – of course – but it is not so unique that it should be treated like some invaluable, priceless commodity for which providers can charge whatever they wants, at will, randomly, without any controls or rationale. ■

9 Jan Emerson-Shea, Vice-President for External Affairs for the California Hospital Association, quoted by Roni Caryn Rabin, Wide Range of Hospital Charges for Blood Tests Called Irrational, August 14 2014

Statement from an unnamed Hospital spokesperson as reported by Stephen Brill, Bitter Pill – Why Medical Bills are Killing Us, Time Magazine, April 4 2013


11 Grant Gegwich, vice president of public relations and marketing for the Crozer-Keystone Health System, as quoted by Patti Mengers, Study: Crozer is #12 in U.S for high patient mark-ups, Delaware County Daily Times, www. June 10th 2015

James Wentz, CFO of University of Mississippi Medical as quoted in Emily Le Coz, The Big Shell Game: What you need to know about your hospital bills, http://archive.clarionledger. com/article/20131006/NEWS01/310060034/The-BigShell-Game-What-you-need-know-about-your-hospital-bills October 13, 2014


Children’s Hospital Central Cal. v. Blue Cross of Cal. 72 Cal. Rptr. 3d 861, 876, Cal. App. 2014), review denied, f065603.html

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Jason C. Davis is Business and Product Development Consultant at The Phia Group. He specializes in medical claim review/negotiations and cost-containment program development including vendor, network and provider contracting. With the goal of combating the steadily increasing costs, Jason routinely consults The Phia Group’s industry-leading attorneys on complex claims provider negotiations, payment disputes and balance billing management. Before joining The Phia Group, Jason was a key member of another cost-containment firm, holding positions in claim negotiations, cost-containment R&D, business development, and upper management.

26 U.S. Code § 501 - Exemption from tax on corporations, certain trusts, etc




Health Policy Brief, Reducing Waste in Health Care. A third or more of what the US spends annually may be wasteful. How much could be pared back – and how- is a key question brief_pdfs/healthpolicybrief_82.pdf December 13, 2012


U.S. Department of Labor, FAQs Aboout Affordable Care Act Implementation (Part XXI) faqs/faq-aca21.html October 10


Susan K. Livio 17 N.J. hospitals sue state for approving Horizon’s new health plans ssf/2015/11/11_nj_hospitals_challenge_state_approval_ of_horizo.html November 19th 2015


Februar y 2016 | The Self-Insurer



the Beltway Written by Dave Kirby

SIIA Formally Opposed ACA’s Cadillac Tax; Congress Agreed to Delay 40% Levy to 2020


hen Congress delayed implementation of the Affordable Care Act’s (ACA) “Cadillac Tax” on high-value employee benefit plans from 2018 to 2020, it pushed further into the future the draconian tax’s damaging effects on self-insured benefit plans and the nation’s economy.

to Congressional action and the Board of Directors concurred. “While the delay may be a welcome reprieve, the tax still lurks on the horizon,” said Jerry Castelloe, GRC chairman. “Without repeal or major restructuring the Cadillac Tax is an unfair burden on employers working diligently to provide quality benefits to their plan members.”

“This excise tax on some employee benefit plans would have a far-reaching effect on the U.S. economy,” said Ryan Work, SIIA’s Vice President of Government Relations. “The National Coalition on Benefits, to which SIIA belongs, estimates that the 40% tax would result in job losses totaling 2.6 million, reduce personal income by almost $3,800 per household and cut GDP by 1.7% by 2035.”

Bob Shupe, a member of the GRC and CEO of ESP, LLC, a health plan management company in Brentwood, Tennessee, said that the tax on some employee health plans would be a disaster for employers sponsoring self-insured plans whenever it may be implemented.

A cross-section of America including Members of Congress from both sides of the aisle, major corporations, labor unions, local political jurisdictions and business organizations have joined in opposing the Cadillac Tax and many now predict its ultimate demise. SIIA’s Government Relations Committee (GRC) recommended support for efforts to repeal the Cadillac Tax at its meeting prior 12

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“Whether you agree with the ACA or not, it has to be funded and the only way to do that is through some kind of tax,” Shupe said. In addition to providing revenue to fund the ACA, Shupe believes the Cadillac Tax was conceived to reduce the number of self-insured plans. “It would make it so expensive and complicated that employers may

throw up their hands and let the government take over.” Shupe finds a particular problem in the way the tax would be structured over a period of years. “Annual increases of the cap on allowable health benefits would be pegged to the national consumer price index (CPI) while employers would likely face continued increases in health costs which are entirely different economic indicators. For example, this year the cap would have moved up only a fraction of one percent while health costs were going up seven or eight percent. Over years, this could push many more employer plans into the tax. Instead of a Cadillac Tax it would be a Chevrolet Tax because everyone could have one.” Shupe said SIIA and others must remain vigilant about this and other elements of the ACA, particularly this year. “Some big changes are likely because of the national election, no matter how it turns out,” he said. GRC member Ron Peck, senior vice president and general counsel of The Phia Group of Braintree, Massachusetts, which partners with self-insured employers on their operation of health plans including subrogation and claims recovery, recalls the meeting in Austin where


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SIIA’s formal support of Cadillac Tax repeal was established. “Our discussion focused on who really wanted this tax,” he recalled. “It is opposed by business and employee organizations across the political and economic spectrum.

“But one cause of concern is that if the government doesn’t get money to support the ACA through this means, it will attempt to get it through another form of taxation, he said. We’re going to have to keep an eye on this process to make sure the next repressive tax isn’t even worse.”

250 or more forms must be done by June 30 rather than March 31; and paper or electronic filing of the 2015 Form 1094-C (for fewer than 250 forms) must be done by May 31 rather than February 28. ■ Further information of these and other issues of federal legislation or regulation remain available by contacting Ryan Work in SIIA’s Washington office at or (202) 595-0642.

IRS Reporting Delays Welcomed A good number of SIIA members relayed the news of IRS delays for reporting health coverage information to their constituent clients and colleagues after receiving SIIA’s bulletin on Dec. 28, 2015, which was the first notification they received of the changes. To recap, the 2015 IRS form 1095-C must be provided to employees and dependents covered by self-insured plans by March 31, 2016, rather than January 31; electronic filing of the 2015 Form 1094-C with the IRS for employers with

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the Beltway Written by Dave Kirby

Federal PACE Act Defining Small Groups at 50 Reduces Impact of Maryland Stop-Loss Study


ome of the air went out of the Maryland Insurance Administration’s (MIA) current study on stop-loss insurance for sponsors of selfinsured employee benefit plans when Congress passed the PACE act last year that revised the ACA to allow states to continue defining small employers at 50 head count.

future impact on self-insured plans in Maryland while potentially diminishing the purposefulness of the study. A final report is scheduled to be delivered to legislative committees in October. “When I read the report I wondered why they didn’t just stop the process right there,” said SIIA member Rodger Bayne, CEO of Benefit Indemnity Corp. of Towson, Maryland.


Following last year’s Maryland legislation regarding small group health plans, MIA was tasked by the legislature to conduct a study of how stop-loss insurance is used by small group employee plans with the goal of establishing “certain protections and prohibitions for small employers,” then thought to include groups of up to 100. Prominently noted in the MIA interim report in December was the fact that the federal PACE Act will keep the definition of small employers at 50 employees for the foreseeable future (early in this process Maryland accepted that it would follow the government’s definition of small groups). This eliminated MIA consideration of groups in the 51-100 range and so appears to have greatly reduced the possible 16

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The report states: “Since

Maryland employers

with 50-100 employees will continue to be considered large employers, it does not appear there will be any impactful movement by small employers which would result in adverse selection that would affect the stability and visibility of the small group market.”

That statement seems to preclude the need for further consideration of stop-loss insurance by Maryland lawmakers and regulators but the rule, that once a government bureaucratic process is launched it must be completed, appears to be in force.

as a vital part of self-insurance.

The report recounted how thoroughly MIA mined for information about small group self-insured benefit plans in establishing the parameters of its survey. MIA held a series of town meetings around the state and an informational hearing last September (reported in the November issue of The Self-Insurer).

“The longer our industry goes without challenging government intervention, the state becomes more comfortable with the idea of regulating self-funded plans by attaching regulations to stop-loss insurance.” Bayne believes that Maryland and other states can or even have edged into regulating selfinsurance, which is overtly denied by the federal ERISA law, by regulating the level of risk employers accept (stop-loss attachment points) and the size of self-insured groups.

The MIA’s appetite for data appears not yet satisfied as its report indicates that further information will be invited in a 2016, “data call letter” to be sent to carriers participating in the Maryland small group market. Presumably “carriers” includes stoploss insurers as well as traditional group health insurers.

“The camel’s nose has come under the wall of the tent,” Bayne says, “and if we allow it to become comfortable there we’ll be living with the whole beast.” He points to the federal Fourth Circuit ruling in the 90’s that self-funded plans are able to buy all the insurance they want without changing their status to an insured plan, therefore should not be subject to interference by the states. “Our industry should forcibly

“Our primary concern in protecting self-insurance is that stop-loss insurance does not become regulated as a health insurance product, which it is not,” said Adam Brackemyre, SIIA Director of State Government Relations. “We take the position that all state minimum attachment point laws or regulations are ERISA violations.” The MIA interim stop-loss survey report has been distributed to SIIA members. Information remains available from Brackemyre at the Washington, DC, office (202) 463-8161 or ■

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Even beyond MIA’s data initiative, Bayne of Benefit Indemnity believes that employers and members of the self-insurance industry should continually and without specific invitations express to the regulator their support for stop-loss insurance

“It’s up to people engaged in selfinsurance to initiate their responses,” Bayne said. “SIIA is working hard along with the Maryland Association of Health Underwriters to support the stop-loss market.

remind state government about that precedent,” he said.

Februar y 2016 | The Self-Insurer


Legislation to Amend the LRRA Splits Industry Opinion


ince the Liability Risk Retention Act (LRRA) was signed into law nearly thirty years ago, the industry has been attempting to get the law amended, with the most recent attempts centering on property coverage. As it stands, the LRRA allows risk retention groups (RRGs) and risk purchasing groups (RPGs) to insure liability only. Legislation introduced into Congress last October is the most recent effort to amend the LRRA, but it is meeting with opposition from some industry supporters. The Nonprofit Protection Act (NPPA), H.R. 3794, introduced by Congressman Dennis Ross (R-FL) and Congressman Ed Perlmutter (D-CO), would allow a small subset of RRGs the opportunity to provide property insurance to its members. The bill, spearheaded by Pamela E. Davis, the founder, president and CEO of Nonprofits Insurance Alliance Group which manages Alliance of Nonprofits for Insurance, Risk Retention Group, would allow for certain RRGs that provide coverage for nonprofits to write property coverage.

Amending the LRRA

Written by Karrie Hyatt 18

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Efforts to amend the LRRA began shortly after it was enacted in 1986. Early efforts intended to “shore up� language about domicile regulation and state registration fees and processes. However, beginning in 2002, efforts at amending

the law have centered on enabling RRGs to write property for their members. Since 2010, proposed legislation has also included creating a dispute resolution process for RRGs and addressing corporate governance concerns. While the continual efforts of the risk retention industry have resulted in several bills introduced into both the House of Representatives and the Senate, none of the bills have made it to the floor for a full vote. Previous efforts to amend the law intended all RRGs the opportunity to offer property, NPPA will only apply to RRGs whose members are 501(c)(3) nonprofits. The pool of RRGs that qualify to offer property would be further reduced by several stipulations in the bill. A RRG must also have been in operation for at least ten years and have surplus of at least $10 million. The total insured value of risks covered by additional forms of commercial insurance would be capped at $50 million for any one member of the RRG. If NPPA is passed the law would apply to an estimated six RRGs out of more than 230 currently operating groups.

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Why Only Nonprofits? One of the RRGs that would benefit from NPPA has led the way for the bill’s introduction into Congress. Alliance of Nonprofits for Insurance, Risk Retention Group (ANI) was formed in 2000 to provide small nonprofits affordable liability insurance. The motivation behind ANI’s campaigning for the NPPA is primarily its inability to provide auto physical damage insurance to its members. “Unlike most commercial business who purchase their professional liability separate from the General Liability and Property, nonprofits are typically offered their coverage from traditional insurers on a combined

basis... on a ‘take it or leave it’ basis,” explained Pamela David. “ANI has been using a partner commercial carrier for both the property and auto physical damage, but we have grown a lot and are reluctant to have the vast majority of our members insured by one company over which we have no control.” Several years ago, ANI discovered that traditional insurance companies won’t provide BOP (business owner’s policy) property coverages without also writing the corresponding liability coverage. ANI has found no company willing to write small auto physical damage policies without writing the liability. “We knew that that we had to get this law changed,” said Davis. “Eighty percent of the nonprofits ANI serves have annual budgets of less than $1 million per year. These are very small community-based organizations with virtually no clout in the insurance marketplace.” Davis said that she had been traveling between California and Washington, DC nearly once a month for two years to meet with members of Congress. Members of ANI and associated brokers sent “about 450 letters” to Congress in support of the proposed legislation. The original bill started out with much broader language, but received considerable opposition. According to Davis, “We were challenged to demonstrate through market surveys that the monoline property and auto physical damage coverage we are seeking to offer our members is simply not available in the traditional market. While other RRGs would like to have the option of providing property and auto physical damage, no other market segment was able to demonstrate, like ANI was, that the property coverage our members need is simply not provided by traditional insurers. The

bill was crafted to solve the specific market failure that has been proven.”

Opinion is Split The NPPA has the support of ANI and several national insurance associations according to Davis, including the Reinsurance Association of America, the Council of Insurance Agents & Brokers and Property Casualty Insurers Association of America. The bill has also been endorsed by the Vermont Captive Insurance Association (VCIA). According to Richard Smith, president of the association, “I see the LRRA legislation as a step forward for the industry. The industry has been pursuing the expansion of the LRRA to allow property coverage for over a decade to no avail. Although the current legislation is too limited, my hope is that it brings a greater chance of passage if it is more narrowly defined. My hope that if it passes, there will be the proverbial ‘foot in the door’ to expanding it for all RRGs in the future.” Conversely, the board of the National Risk Retention Association (NRRA), the trade association for RRGs and RPGs, voted in December to oppose the NPPA. The association is primarily opposed to certain language in the bill. A new clause redefines commercial liability within the bill to exclude, “health, life, or disability insurance or workers compensation insurance or express contractual obligations.” This added section would not allow RRGs to offer contract liability or warranty coverage. Several existing RRGs primarily write this type of commercial insurance. According to Jon Harkavy, executive vice president and general counsel, Risk Services, LLC and an active member of NRRA, “[The NPPA] has a new definition of commercial Februar y 2016 | The Self-Insurer


insurance which doesn’t exist in the LRRA and which was totally unnecessary for the purpose that the legislation seeks to address. I see this as both disqualifying a number of RRGs and I see it also, if passed, as encouraging states like California, who have a very restricted definition of liability insurance, to seize upon this and make their law more restrictive.” The NRRA Board is also concerned with the narrow scope of the proposed legislation. The number of nonprofit RRGs who would benefit from this legislation is smaller than the number of RRGs and PGs that currently offer contractual liability products. Joe Deems, executive director of NRRA said that, “The legislation was pursued without any advance knowledge or submission to us for input as to the potential effect it might have on the RRG industry. NRRA’s Government Affairs Committee tries to address issues for their possible effect upon the industry as a whole.” “I’m sympathetic to non-profits,” said Harkavy. “But I think that there are medical practitioners and others equally deserving of the opportunity to write property and have an equal amount of difficulty being able to provide property coverage as ANI says nonprofits have. I have trouble isolating ANI’s situation from any other group or policyholder as far as difficulties in not writing property.”

“Any bill in Congress is a long shot,” said Davis. “However, I have been pleasantly surprised with the reception we have had, especially the past six months. I believe that our message is starting to get traction. We are not asking for any handouts from Congress, only the ability for small and mid-sized nonprofits to pool their resources to jointly provide a type of coverage that the traditional insurance market simply is not providing.” ■ Karrie Hyatt is a freelance writer who has been involved in the captive industry for more than ten years. More information about her work can be found at:

NRRA has long endorsed an amendment to the LRRA that would allow its members to write property coverage, but considers the language in the NPPA too exclusive and contentious to be the right bill for the industry, Deems added. “NRRA has not changed its position regarding of the inclusion of property coverage into the LRRA for qualified companies,” said Deems, “and is looking forward to the next session of Congress to work with the bill’s sponsors and proponents to draft a broader bill that is more inclusive and beneficial to the RRG and PG community.”

Outlook There has been no movement on the bill since it was referred to the House Committee on Financial Services in late October. As 2016 is an election year, bills will be much harder to get passed. While NPPA has some positive backing, those against it will be lobbying hard to keep it from being passed.

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Februar y 2016 | The Self-Insurer


Reining in


Risks Enterprise risk captives ďŹ ll niche for small and midsize ďŹ rms,

but preserving their power has proven to be an ongoing quest


ome risks are so unusual to insure that they actually have their own self-funding mechanism. One such approach involves the use of an enterprise risk captive (ERC), which weathered a nearly yearlong legislative attempt to render the arrangement and other captive programs useless. ERCs generally address uninsured risks or gaps in commercial insurance programs for first party, claims-made exposures of the shorttail variety, including business interruptions. Written by Bruce Shutan 22

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REINING IN UNIQUE RISKS | FEATURE They’re also typically owned by small or privately held enterprises rather than big, publicly held companies. In contrast, a medical stop-loss captive or workers’ comp captive is designed to simply help manage the cost of a commercial insurance program.

“What we have here is a tool that is meeting a risk management need and that’s why it continues to be popular and grow, despite the whirlwind of controversy

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around it,”

has been made since a legislative proposal made in February 2015 that could have been disastrous for the captive industry. “SIIA has really stepped up to the plate in terms of our protection and advocacy for the ERC industry,” he reports. That effort includes educating policymakers and members of Congress about what 831(b) captives mean, especially to small and midsize businesses and their ability to mitigate unique risks such as cyber security or wind damage. Simpson believes the relative newness and mounting popularity of captives may explain why they landed on the IRS’s infamous “dirty dozen” list of tax scams and are prone to misconception or suspicion of ulterior motives. “The IRS hates captives, always has,” he says. Regulators, on the other hand, in large part appreciate and generally understand captives, he adds, though there are still a fair number of them who are skeptical or misinformed.

Filling a Void Whatever happens with respect to government oversight in the months and years ahead is anyone’s guess, but there’s no doubt that ERCs fill a void in the marketplace. They’re essentially alternative risk insurance companies that insure unique risks that are not covered in traditional market policies, explained Mike O’Malley, managing director of Strategic Risk Solutions, Inc., during a panel discussion at SIIA’s recent national conference. They not only complement other types of coverage, but also offer protection against unusual or rare sets of circumstances based on a very different set of actuarial methods and assumptions, noted Rob Walling, a principal and consulting actuary with Pinnacle Actuarial Resources, Inc.

says Jeff Simpson, an attorney with Gordon, Fournaris & Mammarella, P.A. who chairs SIIA’s Alternative Risk Transfer Committee. It’s seen as particularly useful for small and midsize employers.

He cited two client examples. One involved product contamination and recall coverage purchased for a consumer food producer that experienced three large claims over an eight-year span. These claims fell under the policy exclusions and created material financial volatility. Another case involved a computer software developer that purchased cyber liability that expanded software use to a handheld sales environment, including personal information.

The tie-in to self-insurance is that many captives mitigate against stoploss risk, according to Ryan Work, SIIA’s VP of government relations.

“Those kinds of conversations are nontraditional, to say the least, but they require a dialogue between the insured and captive at a bare minimum to understand what the real problem is and what the risk is,” he said.

The regulatory reins on small captives were loosened under recent changes to Section 831(b) of the Internal Revenue Code. Premiums allowed for property and casualty insurers under elections made to this part of the tax code will increase to $2.2 million from $1.2 million and be adjusted to inflation for the first time since 1986. A subset of ERCs actually takes the 831(b) election, explains Simpson. The Protecting Americans from Tax Hikes Act of 2015 was signed into law by President Obama before Congress adjourned for 2015. Work says quite a bit of headway

The educational workshop – “Enterprise Risk Captives: How does the Insurance Actually Work?” – examined the inner-workings of ERCs and what makes them unique. Simpson acted as moderator and deftly fielded questions throughout the session.

Assessing Risks The focus is on risk management, since each captive structure requires real risk. As such, “a good starting point is a formal risk assessment to quantify the frequency and severity of each risk considered,” according to O’Malley. It’s also vital that risk is re-evaluated annually to determine any changes in underlying exposure. Two other tips he imparted is that the resulting captive premium be calculated on an arm’s-length basis by a qualified actuary or underwriting professional and that captive operations be governed by a common-sense approach that’s similar to the traditional insurance market. For example, it’s important to price risks and determine premiums just like other insurance companies perform these functions. Mindful that an ERC’s business purpose is insurance, Walling said these captives are expected to produce a myriad of documentation to support their Februar y 2016 | The Self-Insurer


REINING IN UNIQUE RISKS | FEATURE mission. Included in that mix are financial statements; premium and loss accruals; and cash flows – especially premiums, reinsurance premiums and losses. Other key areas address the treatment of loan backs and dividends; as well as an actuarial loss reserve analysis; statement of actuarial opinion; and audit opinion. Walling also identified the need for market-comparable pricing and to determine the rate-of-return model being used. In addition, he said actuaries need to consider nontraditional data sources and it’s important to recognize the length of a captive. “Oftentimes you’re dealing with losses from 10 or 12 years ago,” he added. Dana Sheridan, general counsel and chief compliance officer at Active Captive Management, LLC, detailed several best practices in insurance policy drafting and claims adjusting for ERC insurers. Her checklist for standard policy features included application documents, a declarations page, insuring

agreement, definitions, exclusions and conditions to coverage. She also reiterated what she’d written in the April 2015 issue of Captive Visions: “Any captive policy should adequately describe the risk transferred in a way that insurable interest could be substantiated in the contract terms itself.” That same article noted that “artful policy drafting happens when it’s possible to hand craft policies tailored specifically to the risk, which is why captive policies can present an ideal policy drafting scenario… [and] it’s not always possible for the commercial market to hand tailor a line for a single insured, or a single series of related insureds, or for the nuanced risk of a particular type of industry.” ERC captives should follow best practices not only in how they write their lines, she said, but also in how they interpret them in the context of claims, which means taking consistent

coverage positions under the same policy language for all claims that trigger the coverage. With regard to claims adjusting, Sheridan stated that proper claim documentation is at the center of effective adjusting. Claims adjusting generally involves investigating claims and documenting the coverage evaluation, as well as setting and documenting reserves, she added.

Questions to Ask In looking at the big picture, O’Malley suggested there are several meaningful questions to ask when considering an ERC and assessing risk. They include the following: – What are the major risks that impact long-term viability of the operations? – What controls are currently in place to manage these risks? – How effective are the controls in place?


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Februar y 2016 | The Self-Insurer



International Conference


April 5-7, 2016 | San Jose, Costa Rica

SIIA’s International Conference provides a unique opportunity for attendees to learn how companies are utilizing self-insurance/alternative risk transfer strategies on a global basis. The conference will also highlight self-insurance/ ART business opportunities in key international markets. Participation is expected from countries all over the world.

Schedule Events

Self-Insured Health Plan Executive Forum March 21-23, 2016 | New Orleans, LA

The educational focus for this event will be to address the interests of plan sponsors, in addition to third party administrators and stop-loss entities. This forum delivers high quality educational content of interest to executives involved with the establishment, management and/or support of self-insured group health plans. In addition to the educational program, the event will feature multiple unique opportunities.




May 18-19, 2016 | Chicago, IL



Self-Insured Taft-Hartley Plan Executive Forum Taft-Hartley plans refer to the multi-employer pension plans collectively bargained by a union and a group of employers, usually in related industries. Taft-Hartley plans are governed by a trust, half of whose trustees are appointed by the employers and half by the union. This retirement plan model has enabled tens of thousands of small and medium-sized businesses to provide workers with the traditional defined benefit pensions that used to be standard among larger employers, but have now virtually disappeared in the non-unionized private sector.

Self-Insured Workers’ Compensation Executive Forum May 24-25, 2016 | Scottsdale, AZ

SIIA’s Annual Self-Insured Workers’ Compensation Executive Forum is the country’s premier association sponsored conference dedicated to self-insured Workers’ Compensation employers and group funds. In addition to a strong educational program focusing on such topics as analytics, excess insurance, wellness initiatives and risk management strategies, this event will offer tremendous networking opportunities that are specifically designed to help you strengthen your business relationships within the self-insured/alternative risk transfer industry.

36th Annual National Educational Conference & Expo September 25-27, 2016 | Austin, TX

SIIA’s National Educational Conference & Expo is the world’s largest event dedicated exclusively to the self-insurance/alternative risk transfer industry. Registrants will enjoy a cutting-edge educational program combined with unique networking opportunities, and a world-class tradeshow of industry product and service providers guaranteed to provide exceptional value in three fastpaced, activity-packed days.

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REINING IN UNIQUE RISKS | FEATURE As part of that process, he said it’s critical to conduct a risk assessment to identify potential hazards and analyze what could happen if a hazard occurs. In addition, a business impact analysis will help determine the potential impacts resulting from the interruption of time-sensitive or critical business processes. The risk-assessment process involves several major steps that identify or assess relevant business objectives, events that could affect the achievement of objectives and risk tolerance, as well as both the inherent and residual likelihood and impact of risks in those two scenarios. It’s also important to evaluate the portfolio of risks and determine risk responses – and as such, consider the captive approach as one of several options to help control cost. Another key theme involved the risk-sharing terms associated with risk distribution. There must be sufficient exposure units and the involvement of many insured individuals, while one test occasionally used is that an insured not pay its own losses. Each member of the ERC shares its respective risk and exposure and in return, receives the benefits of “pool risk,” which O’Malley noted evenly distributes the risk and is “the foundation of insurance in general.” The panel also discussed risk shifting, citing Revenue Ruling 2002-91. It was noted that any financial loss by the insured is offset by an insurance payment after some or all of the financial consequences of the potential loss is transferred to the carrier. Any prospective ERC customers should be on their guard when assessing this arrangement, according to O’Malley, whose parting words were: “If it’s too good to be true, it’s too good to be true.” He suggested a strong need to closely consider the fact pattern of the entity and follow fundamental core concepts such as arm’s length pricing, limited rollback and premiums being paid on time.

Although ERCs represent an alternative to traditional insurance, the arrangements still must adhere to basic principles to pass muster with industry regulators and draw customers. “Insurance companies need to act like insurance companies and captive insurance companies are no different,” Walling opined. That means posting reserves for unpaid claims, producing income statements, conducting rigorous reviews, ensuring that the captive’s capitalization is reasonable after dividends are paid and the funds available to pay claims are unimpaired after a runback. ■ Bruce Shutan is a Los Angeles freelance writer who has closely covered the employee benefits industry for 28 years.

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We know the bottom line is important to you. Go direct with Prime PPO and realize immediate cost savings. 866-348-3887 Februar y 2016 | The Self-Insurer


PPACA, HIPAA and Federal Health Benefit Mandates:



Staying on the Compliance Track: The 2015 Health Benefits Year in Review


ave you ever attended a NASCAR race? We’re not asking if you’ve ever watched a race on TV, but whether you have actually ever attended a race. Unlike TV, with the benefit of many camera angles and varied vantage points, you can’t simply watch the cars go leisurely around the track when watching live. There are so many cars going so fast that you have to focus on a single car directly in front of you and stay focused on that one car and only that car, as it speeds down the front straightway. Otherwise, all you see is blur – total blur. Lately, it has felt like monitoring legislative and regulatory activity related to health and welfare benefits is similar to watching a NASCAR race live. There are so many rules and regulations coming out and they come out so fast, that if you don’t focus on each rule or regulation as it passes by you, then all you see is a blur.


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Unfortunately, if you are reading this, you are already an active participant in the race and charged with knowing all of the rules and regulations that impact your plans and/or your clients’ plans. This is why we do this “year in review” each year – so that you can better see all the cars on the compliance track and hopefully avoid a year-end crash. In 2015, there was so much activity – legislation, regulations, Supreme Court cases, FAQs and other subregulatory guidance – that we aren’t able to cover everything. We do, however, hit the high points of 2015.

Final Health Insurance Reform Regulations In November, the Department of Labor (DOL), Department of the Treasury and Department of Health and Human Services (HHS) issued final, final tri-agency health insurance reform regulations. The final regulations, which are applicable for plan years beginning on or after January 1, 2017, combine the interim final regulations issued during the first few years after the health insurance reforms became effective and the subregulatory guidance (e.g., the FAQs posted on the agencies’ websites) subsequently issued by the agencies without significant changes or clarifications; however, there are a few clarifications worth noting.

Grandfather Plan Status If applicable, grandfathered status enables plans to avoid some, but not all, of the ACA insurance reform provisions. The regulations clarified the following: • A loss of grandfather plan status that occurs during a plan year due to a decrease in the employer’s share of the total cost of a fully insured plan is not effective until the start of the next renewal date (as opposed to the effective date of the change) so long as the employer warranted grandfather plan status at the time of the prior renewal. • Adding new contributing employers to a multiemployer health plan does not, in and of itself, cause the multiemployer plan to lose grandfather plan status.

The regulations fail to address a few open issues related to grandfather status, including the potential impact that a wellness program premium surcharge has on grandfather plan status or, for purposes of losing grandfather status due to a coverage reduction, when benefits necessary to treat or diagnose a condition have been substantially eliminated.

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Practice Pointer :

Year End Update : As addressed in our separate advisory ( advisories/year-end-employeebenefits/), the PATH Act, which was signed into law December 18, provides for a two-year delay of the 4980I tax (the so-called “Cadillac Plan” tax), making its start date 2020 and makes the tax deductible. The thresholds will continue to be adjusted for inflation during this period. The legislation also provides for permanent parity for transit benefits retroactive for 2015. Also, the IRS issued comprehensive guidance in Notice 2015-87 that addresses health reimbursement accounts (HRAs) and cafeteria plans and Notice 2013-54; affordability, creditable hours and other issues under 4980H; and certain compliance issues associated with flexible spending account (FSA) carryovers, including COBRA. IRS Notice 2015-87 will be the subject of a forthcoming article.

Dependent Child • An HMO cannot limit eligibility to children under age 26 who live in the service area. NOTE: The regulations do not require the HMO to provide services outside of the service area; the regulations merely prohibit limiting eligibility to children who live in the service area. Februar y 2016 | The Self-Insurer



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Rescissions • Voluntary retroactive terminations are not rescissions. Thus, if an employee erroneously enrolls in a group health plan and wishes to retroactively undo that enrollment, the plan may allow that (subject, of course, to any Code Section 125 restrictions) even in the absence of fraud or failure to pay the applicable premiums.

Claims and Appeals

The external review requirements appear to only apply to wellness programs that condition the reward upon completion of an activity (such as walking, exercise or a diet program). If a reward is conditioned on completion of an activity, then a plan must provide an alternative standard only to those who are unable to complete the activity due to a medical condition. If, however, the reward is conditioned on achieving a health standard (e.g., cholesterol below a certain level), the plan must make available a reasonable alternative to those who are unable to achieve the standard without regard to medical condition. Practice Pointer :

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• For plans subject to the federal external review process (e.g., self-funded ERISA plans), the final regulations make permanent the limitation on external review of benefit claims to those adverse benefit determinations that the independent, external reviewer determines involve medical judgment and rescissions.

• In addition, the final regulations add two more to the list of claims subject to external review: » Whether an individual is entitled to an alternative standard under a wellness program due to a medical condition. » Whether the plan satisfies the nonquantitative treatment limitation requirements of the Mental Health Parity and Addiction Equity Act.

Februar y 2016 | The Self-Insurer


Prohibition Against Annual Dollar Limits on Essential Health Benefits • Self-funded plans may use any of the effective State or Federal Employees Health Benefit Plan benchmark plans to determine which of its benefits qualify as “essential health benefits.” Prior guidance indicated that any of the plans that could have been adopted as a benchmark (whether adopted by a state as a benchmark or not) could have been selected.

A literal interpretation of the rule suggests that no nexus is required between the benchmark plan and the geographic reach of the plan. For example, a plan with no participants in Utah could nevertheless use Utah’s chosen benchmark plan as its guide to define essential health benefits. Practice Pointer :

• Account-based plans may be integrated with an employer’s group health plan in order to satisfy the annual dollar limit prohibition. Account-based plans are defined as any fixed amount reimbursement arrangement that reimburses medical expenses, other than insurance premiums for coverage in the individual market. Account-based plans include HRAs, health FSAs and 32

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medical expense reimbursement plans (MERPs). This clarification was needed because Public Health Service Act Section 2711 contains an exclusion only for integrated HRAs, which technically require a carryover. • In an expansion of the relief in Notice 2015-17, these regulations indicate that an employer with fewer than 20 employees that offers coverage to non-Medicare eligible employees but does not offer coverage to Medicare eligible employees may still reimburse a Medicare eligible employee’s premiums. • In order to allow group health plan participants to be eligible for an exchange subsidy, Notice 201354 indicated that to be integrated, HRA funds must be forfeited upon termination or the participant must be permitted to opt out and waive reimbursements. It was unclear whether any such waiver was permanent under Notice 2013-54. These regulations clarify that the waiver is effective even if the reimbursements can be reinstated at a later date (e.g., the start of the next plan year or death or the earlier of the two) so long as the waiver is irrevocable prior to the occurrence of the reinstatement event.

Patient Protections • Plans may impose reasonable geographic limitations on primary care physicians who may be chosen by a participant; however, they do not define reasonable geographic limitations.

Proposed Disability Plan Claims Procedures On the same day that the agencies issued the final health insurance reform regulations, the DOL issued proposed claims procedure rules applicable to disability plans. The proposed rules would incorporate into ERISA’s claims procedure rules the following requirements previously made applicable to group health plans by the ACA: • Rescissions of disability benefits not triggered by a claim (e.g., through an audit) are considered adverse benefit determinations. • Letters must be available in a culturally and linguistically appropriate language. • If new evidence is relied on during appeal, the plan must provide the claimant with the new evidence prior to the due date of the determination and the claimant must be provided a reasonable opportunity to respond.

The regulations do not specifically address employer payment plans. Employer payment plans were defined by Notice 2013-54 and subsequent FAQs as plans that facilitate the payment or reimbursement of premiums for policies issued in the individual market. The regulations indicate that the subregulatory guidance that severely constricts such arrangements for individual major medical coverage continues to apply. Practice Pointer:

Februar y 2016 | The Self-Insurer


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• Claimants can forgo the internal appeal process if the plan fails to follow a full and fair review process, as set forth in Section 503 (and the regulations), unless those failures are minor.

EEOC Proposed Wellness Program Rules Under the ADA and GINA Not to be outdone by the agencies, the Equal Employment Opportunity Commission (EEOC) issued proposed regulations in 2015 that attempt to clarify the application of the Americans with Disability Act (ADA) and the Genetic Information Nondiscrimination Act (GINA) to wellness programs. These proposed regulations were the subject of our prior Self-Insurer articles.

U.S. Supreme Court Cases There were three U.S. Supreme Court cases in 2015 that significantly impact health and welfare plans:

Obergefell v. Hodges In a 5-4 decision written by Justine Kennedy, the Court held it unconstitutional for a state to deny same-sex couples the right to marry. While the case did not specifically require welfare plans to offer the same benefits to same-sex spouses that are offered to opposite-sex, the case paved the way for federal-like income tax exclusions under state law for employers that offer benefits to same-sex spouses (although not every state has changed its laws to be consistent with Obergefell). Also, the case likely paves the way for federal (e.g., Title VII) and state anti-discrimination claims (to the extent not preempted by ERISA) against employers that choose not to offer the same benefits to same-sex spouses. See IRS Notice 2015-86, which was issued in early December, for a more detailed description of the impact Obergefell has on welfare plans. Practice Pointer:

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King v. Burwell In a 6-3 decision written by Justice Roberts, the Court held that premium tax credits and advance premium subsidies were available to individuals enrolled in policies issued by federally run exchanges. Had the Court held that they weren’t available, then exchange participants in a majority of states would have lost their premium subsidies/tax credits. For employers, a different decision would have lessened the impact of the ACA’s employer-shared responsibility provisions (i.e., the IRC 4980H so-called “pay or play” provisions) on “applicable large employers,” especially employers with most if not all of their employees in states with federally run exchanges.

M&G Polymers v. Tackett In a 9-0 decision written by Justice Thomas, the Court held that you cannot infer an intent by parties to a collective bargaining agreement to vest retiree health benefits merely because a termination provision is absent in the collective bargaining agreement, reversing the inferences created by the Sixth Circuit’s decision in Yard-Man (716 F.2d 1476).

ACA Reporting After several draft forms and instructions, the IRS issued 2015 final instructions and draft 2015 Forms 1094 and 1095 B and C series to be used in connection with reporting required under Code Sections 6055 and 6056. The final instructions contained a few clarifications and changes from previous instructions and guidance.

See also Notice 2015-68 for additional guidance regarding various aspects of reporting, including special rules for reporting coverage under an expatriate health plan and guidance on exemptions from reporting for coverage the enrollment that is conditioned on having other minimum essential coverage. Practice Pointer :

Code Section 6055 • Each employer that “maintains” a self-insured plan that provides minimum essential coverage has a reporting obligation under Code Section 6055 to identify all employees and their dependents who are covered under the plan. IRS officials informally indicated that the employer would be obligated to report under Section 6055 for former employees last employed by that employer. However, members Februar y 2016 | The Self-Insurer


of a controlled group that each participate in a single self-insured plan but are not also applicable large employers may designate a single employer to file on behalf of all employers. • An applicable large employer that maintains a self-insured plan that provides minimum essential coverage must satisfy its Section 6055 obligation for any individual employed at any time during the year. Such employers may use a C-Series form to satisfy the Code Section 6055 reporting obligation for non-employees (e.g., a former employee whose termination of employment occurred last year) so long as they have the social security number of the responsible individual (typically the individual who has the enrollment right under the plan).


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• Employers that maintain a self-insured plan (such as an HRA), the eligibility of which is conditioned on being enrolled in other minimum essential coverage, have no Code Section 6055 reporting obligation for that selfinsured plan coverage. If eligibility is conditioned on being enrolled in another employer plan, then the exception from reporting applies only if the other coverage is maintained by the same employer.

Employers that maintain self-insured retiree medical plans for retirees age 65 and older (i.e., Medicare eligible retirees) are not exempt from reporting unless the employer conditions enrollment in the plan on actually being enrolled in Medicare. Likewise, an employer that maintains a self-insured account-based plan (such as an HRA) is exempt from reporting the account-based plan only to the extent eligibility is conditioned on being enrolled in a major medical plan maintained by the same plan sponsor. Practice Pointer :

Code Section 6056 • Applicable large employers that contribute to multiemployer plans need not report offers of coverage or enrollment in the plan by an employee who is full time at least one month during the year if the employer is taking advantage of the multiemployer transition relief from Code Section 4980H excise taxes. In other words, employers report no offer of coverage – even if coverage is actually offered by the multiemployer plan – for each month that the employer is also indicating that it made a contribution that month to the plan for that employee. • Applicable large employers also report no offer of coverage for former employees offered COBRA coverage, even though COBRA was offered. There is still much confusion regarding the rules for reporting offers of COBRA coverage to active employees. The instructions prescribe a somewhat ambiguous rule and even though FAQs issued shortly after the final instructions were issued provide a clear and concise rule (with examples), IRS officials have informally indicated that the FAQs need to be updated.

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Code Section 4980I (So-Called “Cadillac Tax”) Guidance The IRS issued two notices in 2015, Notices 2015-17 and 2015-52, regarding the so-called “Cadillac tax” imposed by Code Section 4980I. The notices were primarily a request for comments on a variety of issues necessary to implementation and administration of the tax; however, the IRS did propose a number of possible rules, including the following:

• Self-insured dental and vision plans that qualify as excepted benefits (under final agency regulations) would likely be excluded from the definition of applicable employer-sponsored coverage (the statute only literally excludes fully insured dental and vision benefits). This provides an exception for most standalone vision and dental plans, including limited purpose vision/dental HRAs. • Employee assistance plans that qualify as excepted benefits would also likely be excluded from the definition of applicable employer-sponsored coverage. • Health FSAs are not excluded and neither are employer and employee pre-tax HSA contributions (although much effort is underway to get them excluded). As addressed in our separate advisory,1 the PATH Act, which was signed into law December 18, provides for a two-year delay of the 4980I tax (the so-called “Cadillac tax”), making its start date 2020 and makes the tax deductible. The thresholds will continue to be adjusted for inflation during this period.

Miscellaneous Roundup Deadlines Expiring December 31 December 31 marks an important deadline for two different requirements: • The transition relief provided by Revenue Ruling 2014-32, allowing cash reimbursement of transit pass expenses in areas where the only “transit voucher” that is readily available in the area is a terminal restricted card, will come to an end. Beginning January 1, 2016, if the only

voucher that is readily available in an area is a terminal restricted card, cash reimbursement will no longer be available. As addressed in our separate advisory, the PATH Act, which was signed into law December 18, provides for permanent parity for transit benefits retroactive for 2015. • Cafeteria plans that implemented the new election changes prescribed by Notice 2014-55 in 2014, have until December 31, 2015, to retroactively amend the cafeteria plan.

Other Guidance • The IRS approved issuance of a 12-month transit pass so long as one-twelfth of the annual value did not exceed the monthly limit for transit passes (see PLR 201532016). • The IRS issued Revenue Notice 2015-43, which addresses the application of certain ACA-related requirements to expatriate health plans. • The IRS issued an information letter that expands the circumstances that permit an employer to recoup contributions erroneously made to an HSA. The September 9, 2015, information letter provides that if there is “clear documentary evidence demonstrating that there was an administrative or process error,” corrections can be made. Although not binding,2 this guidance seems to express the IRS’s view that in certain circumstances, a mistaken HSA contribution can be reversed. • The IRS issued a chief counsel memorandum (CCA 201547006) addressing the situations in which an HRA can Februar y 2016 | The Self-Insurer


reimburse premiums for coverage provided through a spouse’s employer’s health plan. • Also, the IRS issued comprehensive guidance in Notice 2015-87 that addresses HRAs and cafeteria plans and Notice 2013-54; affordability, creditable hours and other issues under 4980H; and certain compliance issues associated with FSA carryovers, including COBRA. IRS Notice 2015-87 will be the subject of a forthcoming advisory. ■

2016 COLA Adjusted Amounts Very few limits were adjusted for 2016. We identify below the relevant limits for 2016 (amounts that changed for 2016 are in bold). ITEM



Health FSA Salary Reduction



Transit Pass




















Health Savings Account Contribution Limits (self only) Health Savings Account Contribution Limits (other than self only) Health Savings Account Minimum Deductible (self only) Health Savings Account Minimum Deductible (other than self only) Health Savings Account Maximum OOP (self only) Health Savings Account Maximum OOP (other than self only) ACA Maximum OOP (self only) ACA Maximum OOP (other than self only) PCORI Transitional Reinsurance Fee 4980H(a) Excise Tax 4980H(b) Excise Tax Definition of HCE for 414(q) and Cafeteria Plan testing purposes Key Employee Officer Compensation Threshold for Section 125 SS Wage Base 38






($33 contribution/ $11 for treasury)





($21.60 contribution/ $5.40 for treasury)

$2160 ($180/mo)










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The Affordable Care Act (ACA), the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and other federal health benefit mandates (e.g., the Mental Health Parity Act, the Newborns and Mothers Health Protection Act and the Women’s Health and Cancer Rights Act) dramatically impact the administration of self-insured health plans. This monthly column provides practical answers to administration questions and current guidance on ACA, HIPAA and other federal benefit mandates. Attorneys John R. Hickman, Ashley Gillihan, Carolyn Smith and Dan Taylor provide the answers in this column. Mr. Hickman is partner in charge of the Health Benefits Practice with Alston & Bird, LLP, an Atlanta, New York, Los Angeles, Charlotte and Washington, D.C. law firm. Ashley Gillihan, Carolyn Smith and Dan Taylor are members of the Health Benefits Practice. Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner’s situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation. Readers are encouraged to send questions by email to Mr. Hickman at References


According to Section 2.04 of IRS Rev. Proc. 2015-1, information letters call attention to certain general principles of law and are not binding on the IRS 2

Februar y 2016 | The Self-Insurer


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SIIAEndeavors The Crescent City to Host the First Executive Forum of 2016


he Self-Insured Health Plan Executive Forum is March 21-23, 2016, at The Westin New Orleans Canal Place in New Orleans, Louisiana. Executives involved with the establishment, management and/or support of selfinsured group health plans will find this educational conference exceptionally valuable. Anticipated attendee profiles include: corporate benefit directors, third party administrators, brokers/ consultants, stop-loss insurance carriers/MGUs, captive managers and industry service providers.

Highlights of the educational program include the follow sessions:

The Role of the Self-Insurance Industry in Advancing the Health Care Transparency Movement » Martin Makary, MD, MPH, Professor of Surgery at John Hopkins University School of Medicine, author of the widely-acclaimed Unaccountable: What Hospitals Won’t Tell You and How Transparency Can Revolutionize Health Care, shares his unique view on the state of the health care transparency movement and how the self-insurance industry in playing an increasingly important role in helping to disrupt the status quo for the benefit of patients and their employer plan sponsors.

Employer Health Care Coalitions-Breaking the Grip of Health Insurance Monopolies One State at a Time » Karen van Caulil, Chairwoman of National Business Coalition on Health will highlight and describe how employer coalitions are re-shaping the health care marketplace in various states to help even the playing field for self-insurers when competing against insurance carriers for provider pricing and related arrangements.

Breakout Sessions Include: • Big Data for Stop-Loss – Adding Value or Just Adding Cost and Complexity? with Heather Lavallee, President, Employee Benefits Distribution of Voya Financial and Matt Rhennish, President and COO of HM Insurance Group • Provider Sponsored Health Plans – A New Role for TPAs with Karin Landry, Managing Partner, Spring Consulting Group, LLC 40

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• Self-Insurance Industry ICD-10 Transition Update with Rick Raup, President & CEO of Business Administrators & Consultants, Bruce Carlson, FSA, Windsor Strategy Partners, LLC and Chris Haugan, Stop-Loss Supervisor of Employee Benefit Management Services, Inc. • The Evolution of TeleHealth Solutions for Self-Insured Plans with Dr. Jeffrey Kesler, President and COO of Salus The conference will conclude with a Legislative/Regulatory Update from Adam Brackemyre, Director of State Government Relations for SIIA and Ryan Work, Senior Director of Federal Government Relations for SIIA.

In addition to the educational program, the event will feature multiple unique networking opportunities and multiple high profile companies exhibiting. ■ For more information visit

Mind over risk.

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Staying confident in a world where change is constant.

With today’s ever-changing and challenging market, successful companies rely on financial stability and strong credentials. We’ve used those needs to drive us into group life and disability products while maintaining our position as a leader in the medical stop loss market for over 35 years. We have the strength and experience to remain prepared for whatever tomorrow brings. We call it Mind over risk. For more information, visit us online at A subsidiary of HCC Insurance Holdings, Inc.

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

2016 Board of Directors CHAIRMAN * Steven J. Link Executive Vice President, Midwest Employers Casualty Co. Chesterfield, MO PRESIDENT Mike Ferguson SIIA, Simpsonville, SC TREASURER & CORPORATE SECRETARY* Duke Niedringhaus Senior Vice President, J.W. Terrill, Inc. Chesterfield, MO


Committee Chairs

Joseph Antonell Chief Executive Officer/Principal A&M International Health Plans Miami, FL

ART COMMITTEE Jeffrey K. Simpson Attorney Gordon, Fournaris & Mammarella, PA Wilmington, DE

Adam Russo Chief Executive Officer The Phia Group, LLC Braintree, MA Andrew Cavenagh President Pareto Captive Services, LLC Philadelphia, PA Mark L. Stadler Chief Marketing Officer HealthSmart Irving, TX Robert A. Clemente Chief Executive Officer Specialty Care Management LLC Bridgewater, NJ David Wilson President Windsor Strategy Partners, LLC Junction, NJ

GOVERNMENT RELATIONS COMMITTEE Jerry Castelloe Principal Castelloe Partners, LLC Charlotte, NC HEALTH CARE COMMITTEE Leo Garneau Chief Marketing Officer, SVP Premier Healthcare Exchange, Inc. Bedminster, NJ INTERNATIONAL COMMITTEE Robert Repke President Global Medical Conexions, Inc. Novato, CA WORKERS’ COMP COMMITTEE Stu Thompson Fund Manager The Builders Group Eagan, MN *Also serves as Director


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SIIA New Members Regular Members Company Name/ Voting Representative

Scott Larson VP Sales AEU Benefits Bonita Springs, FL David Reynolds CEO Capitol Administrators Rancho Cordova, CA Paul Skrtich Senior Vice President Odyssey Re Stamford, CT Lucille Connors CEO Significa Benefit Services Inc. Lancaster, PA

Employer Members Dwight Hanna Richland County Columbia, SC

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Totally Transformed Learn More at or call 1-877-828-8770. Februar y 2016 | The Self-Insurer




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