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January 2015

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Cross-Hairs

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ERISA

Post-PPACA

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Volume 75

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ART Gallery A DOL ‘Grinch’ for the Holidays

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From the Bench Ninth Circuit Court of Appeals Rejects Group’s and Carrier’s Cross-Motions for Summary Judgment on Eligibility Issue; Remands Case for Trial

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January 2015

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PPACA, HIPAA and Federal Health Benefit Mandates Health and Welfare Plan Sponsor Affordable Care Act and 2014 Year End Checklist

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SIIA President’s Message Self-Insurance/ART Marketplace Continues to Face Legislative/ Regulatory Headwinds in the New Year

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ERISA

Post-PPACA in the

Cross-Hairs T Written by Christopher Aguiar, Esq. and Ron E. Peck, Esq. THE PHIA GROUP, LLC 4

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he Employee Retirement Income Security Act (“ERISA�) has been a solid foundation for employee benefit plans since it was enacted in 1974. This federal law was passed by Congress intending to set forth minimum standards for pension plans in private industry and protect the interests of employee health benefit plan participants and their beneficiaries, as well as create a comprehensive scheme of federal enforcement to ensure uniformity in the administration of benefit plans offered by multi-state employers.


ERISA | FEATURE For many in the health benefits industry, we view ERISA as our own little hero; but the truth is this monster applies to more than just private, self-funded health plans. ERISA applies to almost all health plans – both self-funded and fully insured (save for a few specifically enumerated exceptions), as well as pension plans. Those of us that deal heavily with private, self-funded health plans can be excused for referring to such programs as “ERISA plans,” even though (truth be told) almost all plans are “ERISA plans.” In reality, however, it’s not the applicability of ERISA that matters, but rather – the true power of a private, self-funded plan is the fact that state insurance law does not apply, thanks to ERISA’s preemptive powers; arising in part from the deemer and savings clauses. ERISA is like a great castle wall... and all health plans (self-funded and fully insured) are hiding behind it. Outside the fortress, the conquering forces of state regulation are hammering at the walls. They have successfully knocked the wall over where the fully funded insurance carriers were hiding. As a result, although ERISA applies to such insurance, so too does state law. Where private, self-funded health plans hide, however, the ERISA wall has successfully repelled state law... at least, for the time being. For years, State regulators have dreamed of a day that ERISA’s ability to prevent the application of their State laws to private, self-funded plans would come to an end. One need not look any further than the state of New York to see repeated attempts at re-drafting laws whose specific purpose is to chip away at the ERISA and plans rights, including their ability to avoid the cumbersome meddling of state legislators. Look just a little bit further and you’ll see states all over the map from Connecticut to California looking for more covert, albeit equally offensive ways of minimizing the impact of ERISA on their regulatory powers and scope of influence.

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For those of us that see the value in a uniform, nationally administered self-funded program, state based regulation is a nightmare. For a moment, however, let’s give the state regulators and legislators the benefit of the doubt and assume that they believe – to their very core – that the laws they pass and impose on fully funded insurance carriers strengthen their state and the people they represent. The fact that private self-funded plans can provide coverage in their State, while avoiding the socially beneficial, rational and flat out equitable rules they created, is outrageous. This anti-ERISA/anti-preemption attitude is not new. It has been, for instance, quite pervasive in the health benefits arena specific to the subrogation and reimbursement rights of benefit plans. Until recently, the banner was carried by a vocal minority. It has, however, recently seen an influx of new supporters. Where once, anti-ERISA sentiment was strictly the hobby of State legislators; private entities and Federal lawmakers are now siding with the anti-ERISA crowd. Why? Because private, self-funded health plans are, in the words of Timothy S. Jost, Professor of Law at the Washington and Lee University School of Law, co-author of books and articles regarding health care regulation and relied upon by numerous law makers and insurance commissioners, “The greatest threat facing exchanges,” due to “adverse selection.” What is adverse selection? This is the phenomenon that occurs when an opportunity to shift bad-risk appears without an equal shift of good-risk as well. The development of the individual-policy exchanges (resulting from the passage of The Patient Protection and Affordable Care Act [“PPACA”]), created a method

for high-risk (sick, costly, pre-existing condition, etc.) participants to secure health insurance. To counter this costly migration of high-cost lives to the exchanges, it was believed, that many low-risk/low-cost lives would join the exchanges as well. Many employers, who – heretofore had provided coverage for high-cost populations – chose to terminate their costly insurance programs and send their high-risk, costly lives to the exchange. Employers who, meanwhile, employ healthy employees, held onto their low-risk/low-cost lives, in the form of self-funded health plans. By hoarding the low-cost lives and burdening the exchanges with the high-cost lives, the exchanges – one of the pillars upon which PPACA is built – cannot stand. Those who are invested in PPACA’s success, therefore see private self-funding as an enemy; and as the saying goes, the enemy of my enemy is my friend. Bolstering a desire to end self-funding and adverse selection, an alliance has formed between PPACA supporters and state insurance powers; against ERISA and the private self-funded plans it protects. Take, for example, the aforementioned state of New York, but more specifically the 2nd Circuit and the Federal appellate jurisdiction in which it resides. It was less than two years past that the Supreme Court of the United States, for the fourth time since 2002, reaffirmed ERISA’s preemptive power establishing that not only did ERISA plans have the ability to preempt application of state regulation under its “express preemption” clause, but cases involving ERISA plans that “relate to” employee benefits were subject to federal court jurisdiction by way of ERISA’s “complete preemption” provision. Strip all the legal lingo away and you have a very basic concept; when a claim is brought to a court by January 2015 | The Self-Insurer

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ERISA | FEATURE any party and that claim has anything to do with provision of benefits under an ERISA health benefit plan, that claim has virtual automatic entry to the federal courts at the option of either party; or so it seemed to be the case until the 2nd Circuit’s recent decision in Wurtz v. Rawlings, 761 F.3d 232 (2014). In Wurtz, the federal court diverted from what was established authority (that a claim against an ERISA plan to vitiate a plan’s subrogation rights “related to” employee benefits and therefore could be heard in federal court) and, instead, ruled that a claim against subrogation rights does not relate to employee benefits. It therefore fails the threshold question needed to gain entry into a federal court. How, you might ask, can a claim to maximize benefits under a health plan via subrogation not “relate to” employee benefits? As inconceivable as it seems, the Federal court found a way to turn against an overwhelming amount of authority and create a scenario where self-funded benefit plans, absent some other method of entry into federal court, may be forced to stay and have their preemption arguments heard in state court, at the mercy of state judges who have historically demonstrated an aversion to ERISA’s preemption scheme. Plans ill prepared for this possibility will find themselves in unfriendly territory, arguing against application of laws and theories to which Congress never intended them to be subject. At least in the subrogation context, the idea of Federal courts taking liberties with ERISA preemption is certainly not new. One need only look at traction in the Supreme Court since the late 1990’s. Some Federal jurisdictions, like the 9th Circuit, have shown an almost maniacal obsession with contorting the rights of ERISA 6

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plans wherever possible. In almost every situation, the High Court has come down and righted the ship. Perhaps the High Court will do the same in the 2nd Circuit as industry advocates, including both the Self Insurance Institute of America (“SIIA”) and the National Association of Subrogation Professionals (“NASP”) have recently filed an amicus brief in support of a Writ of Certiorari to the Supreme Court to hear this 2nd Circuit case and overturn the decision (once again) allowing benefit plans to administer plans in the 2nd circuit as they would in any other circuit, without fear of application of divergent state law. While ERISA attacks are pervasive in the subrogation realm, make no mistake, they are prevalent in other areas as well. SIIA has been engaged in a dispute regarding a Michigan tax imposed on self funded plans since 2011. The battle continues into the upcoming year as SIIA is filing an appeal to the Supreme Court of the United States asking the Court to overturn a 6th Circuit U. S. Court of Appeals decision that ERISA does not bar a provision forcing self-insured benefit plans to pay a tax imposed by Michigan; intended to aid in the funding of its Medicaid program. At the core of the dispute is a familiar issue; to what extent does this tax “relate to” employee benefits? Proponents of the tax assert that the tax has no impact or bearing on how a benefit plan pays or administers claims. Of course, those proponents ignore the multi-state issues implicated where benefit plans either have employees in multiple states, or pay claims to providers in multiple states. The tax imposed by Michigan is imposed only with regard to Michigan residents obtaining care in the state of Michigan. Benefit plans will necessarily be required to administer

claims differently where this tax is applied than when it isn’t – so, where is the disconnect? Despite the efforts discussed above, we see a troubling trend as it relates to the rights of ERISA plans, developing at a fundamental level. The Department of Labor (“the DOL”) is the Federal agency charged with enforcing the rules governing the conduct of plan managers, investment of plan assets, reporting and disclosure of plan information, enforcement of the fiduciary provisions of the law and worker’s benefit rights. As evidenced through the development of PPACA, it is not unprecedented for federal agencies (charged with administration of a statute with the breadth of ERISA) to have substantial rule making authority that is considered to have the force of law. With this agency rulemaking power in mind, the amount of anti-ERISA decisions seems to have experienced an uptick since PPACA became the law of the land. Coincidence, or collusion? In October 2014, the DOL entered into the sphere of ERISA plans in the form of an “FAQ”. Essentially, the DOL issued notice that benefit plans utilizing a reference based pricing approach to benefit payments would need to craft the plan carefully, with specifically enumerated standards to be followed, to avoid balances billed to the patient being credited against that participant’s maximum out of pocket deductible. Why is this important? Since PPACA banned benefit plans’ ability from establishing lifetime maximums, all amounts billed to patients above the annual maximum out of pocket, effectively becomes the responsibility of the benefit plan. Imagine for a moment the impact this may have on the fiduciary obligations of a plan who has established maximum payable amounts at some multiple of Medicare


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ERISA | FEATURE allowable. Will plans now be subject to lawsuits alleging a breach of fiduciary duty because they are possibly required by law to pay more than they originally established as payable under the terms of the plan? What about a plan that employs a reference based payment structure and then obtains stop loss insurance underwritten on the basis of those maximum allowable rates? How can the DOL effectuate its administrative obligations over ERISA while seemingly establishing law that may force a benefit plan to pay amounts directly in contravention with the terms of the plan necessarily forcing them to be in breach of their fiduciary duties under ERISA?

When evaluating the preceding examples, one could argue that the DOL is simply doing its job. Perhaps, it too, is being placed in an untenable position, that of being heavily involved in the administration of two of the largest statutes ever written, which just so happen to contradict each other in their effects. In a vacuum, one might argue that the DOL is simply looking at two separate laws, assessing them, interpreting them, issuing regulation pertinent to them and passing the buck; that it is virtually impossible to comply with both without breaching fiduciary duties, breaking the law, or incurring penalties. When the DOL’s actions and positions are viewed in their totality, however, the intent seems much more nefarious. Look back to about mid 2013 and you may recall the DOL’s role in the case of Liberty Mutual Insurance Company v. Susan L. Dorgan in her capacity as the Commissioner of the Vermont Department of Regulation. Vermont passed a healthcare database statute that Liberty Mutual claimed was preempted by ERISA as it applied to ERISA plans. The statute required health insurers, care providers, facilities and government agencies to “file reports, data, schedules, statistics, or other information as determined by the commissioner” and defined the term “health insurer” broadly such that it included any administrator of a self-insured group health plan, including Third Party Administrators. Liberty Mutual sued the

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Just a few weeks later, the DOL threw its hat into the fray as it relates to the recent surge in stop loss regulation. In this area, which has been quickly developing and likely will continue to be among the hottest

topics of the 2015 legislative season, the DOL opined via a Technical Release on November 6 that, indeed, stop loss insurance attachment levels can be regulated by the state without fear of the application of ERISA preemption. This is, undoubtedly a huge win for those states that have for years tried (and failed) to take down the barriers to legislation of self-insured plans provided by ERISA. By making stop-loss less accessible to employers, self-funded opportunities die on the vine.

January 2015 | The Self-Insurer

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ERISA | FEATURE state because, it argued, requiring this reporting created administrative burdens imposed by the state and therefore triggered ERISA preemption. The DOL, which has historically defended ERISA’s broad preemptive capabilities, filed an amicus brief in support of the State of Vermont. Industry analysts opined that this action was indicative of a shift in the DOL’s approach and causally related to the administration’s need to bolster the success of PPACA by negatively impacting the success of the private healthcare marketplace. On a more anecdotal level, one of the authors of this very article recently left the world of academia. While attending graduate level classes (and in light of a decade of experience in the self-funded health plan space), I spent some time taking courses focusing on ERISA and visiting seminars regarding health

reform; featuring speakers from none other than the DOL. On more than one occasion, DOL representatives focused their discussion on the “evils” of ERISA plans – perhaps informed discourse was expecting too much. The message was clear; “self-funded plans are unfair, unfunded and lack financial viability!” When taken to task, these representatives ignored the counterpoint, in some instances even ignoring citations to reports on self-funded plans done by the DOL itself, as mandated by PPACA. Indeed, the anti-ERISA prognosticators are even taking their biased propaganda to the hallowed halls of academia. The hope? Shape minds and create droves of advocates for toppling private self-funding, thereby bolstering the exchanges with low risk/low cost lives. Allow no analysis, no discourse, no acknowledgement of the successes of the industry; it isn’t conducive to

their efforts; in fact, the very truth that self-funding is the best way to maximize benefits and minimize costs for a group is the very reason they need the private self-funded market to crumble. So, whether it be experts like the Commonwealth Fund and Timothy Jost, the NAIC, state regulators looking for creative ways to impose burdens on ERISA plans, the Federal Courts, or the perhaps most troubling of all, the DOL, it has become painfully apparent that as it relates to ERISA, “Big Brother” is not on our side. The fact that ERISA plans and especially self-funded plans have seemingly found a way to provide comprehensive, cost effective benefits (a model the country seems to be embracing as the ratio of self-funded benefit plans grows annually) is bad news for those who are invested in PPACA and the exchanges, which are financially dependent upon the low-cost lives

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msl2205 - 09/14


currently self-funded. Their goal seems clear, force PPACA to be successful – at any cost! Our goal, then, must also be clear; educate and advocate! Self-funded health plans currently make up over 60% of the private insurance market. There is a power in numbers that we must take advantage of. Those with interests in the continuity of ERISA must take it upon themselves to spread the word regarding the importance of ERISA; its ability to do what the public sector has failed to do – that is, provide access and coverage to plan participants. If we allow “Big Brother” to control the rhetoric, their message and intention seems clear. Adverse Selection is the main threat to the exchanges and PPACA, even if it is a byproduct of intelligent people shying away from a faulty option. If “they” have their way, ERISA, federal preemption and private self-funding will be eradicated. The question is, what will you do about it? ■ Christopher Aguiar has been a member of The Phia Group team since 2005 and spent the first few years honing his subrogation and third party recovery and negotiation skills while learning the incredibly complex field of subrogation and benefit plan recovery law. As an attorney with The Phia Group, Christopher has become a valuable member of the Legal Department responsible for the oversight and education of staff on the ever developing arena of subrogation law as well as the strategic development and implementation of the organization recovery program. Christopher also consults with self-funded benefit plans regarding plan drafting, plan language analysis, reference based pricing, claims appeal assistance, balance billing defense, overpayment recovery, as well as stop loss and PPO disputes. He was selected to present at the 2012 Annual Conference for the National Association of Subrogation Professionals in Las Vegas, Nevada. Christopher obtained his law degree from Suffolk University Law School in Downtown Boston, MA. Ron Peck, Sr. Vice President and General Counsel, has been a member of The Phia Group’s team since 2006. As an attorney with The Phia Group, Ron has been an innovative force in the drafting of improved benefit plan provisions, handled complex subrogation and third party recovery disputes and spearheaded efforts to combat the steadily increasing costs of healthcare. In addition to his duties as counsel for The Phia Group, Ron leads the company’s consulting, marketing and legal departments.

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Ron is also frequently called upon to educate plan administrators and stop-loss carriers regarding changing laws and strategies. Ron’s theories regarding benefit plan administration and healthcare have been published in many industry periodicals and have received much acclaim. Prior to joining The Phia Group, Ron was a member of a major pharmaceutical company’s in-house legal team, a general practitioner’s law office and served as a judicial clerk. Ron is also currently of-counsel with The Law Offices of Russo & Minchoff. Ron obtained his Juris Doctorate from Rutgers University School of Law and earned his Bachelor of Science degree in Policy Analysis and Management fromCornell University. Ron is also a Certified Subrogation Recovery Professional (“CSRP”).

S

ince the late 1990s, attorneys and claims handlers have taken caution when settling workers’ compensation claims that involve someone who is either a Medicare beneficiary, or will become a beneficiary in the foreseeable future. A Medicare Set-Aside (MSA) allocation is a tool one can use to prevent the burden of future medical care from being shifted to Medicare. Given the issues an MSA presents, more claims professionals and attorneys are looking at a structured any settlement as a wayDo to you fully have fund an stories or opinions the self-for MSA and avoid potentialon problems theinsurance parties post settlement. and alternative risk

Do you aspire to be a published author?

transfer industry that you would

What is anwith MSA? like to share your peers?

The Centers for Medicare and Medicaid Services (CMS) defines a We would like to invite you to Medicare Set-Aside Arrangement share your insight and submit (MSA) for workers’ compensation an article to The Self-Insurer purposes (WCMSA) as a “financial! SIIA’s offi cialallocates magazine is agreement that a portion of distributed in a digital and a workers’ compensation settlement to print pay for futureto medical format reachservices over related to the workers’ compensation 10,000 readers around the injury, illness, disease” (cms. world. TheorSelf-Insurer has gov). Although not required by The been delivering information to Medicare Secondary Payer Act, 42 the self-insurance/alternative U.S.C. §1395y(b)(2), and federal risk transfer community since regulations 42 C.F.R. §411.20 et. seq., 1984 to self-funded employers, most employers and insurers use an TPAs, stopMSA as aMGUs, tool to reinsurers, determine and fund future expenses otherwise lossmedical carriers, PBMs and other reimbursable by Medicare for a service providers. workers’ compensation settlement. CMS has published guidelines for Articles or guideline determining an appropriate inquiries can be MSA amount for workers compensation submitted to Editor cases. An MSA can be prepared by the Gretchen Grote at employer or its insurer, an attorney, orggrote@sipconline.net. by a company that specializes in providing this service. A typical The Self-Insurer also has MSA report includes a projection of advertising future Medicareopportunities related medical and prescriptions determined a available. Please contactby Shane comprehensive review of medical and Byars at sbyars@sipconline.net prescription recordsinformation. and payment for advertising

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ART

Gallery Written by Dick Goff

A DOL ‘Grinch’ for the Holidays

T

he recent holiday season started on a down note before Thanksgiving for many in the ART industry when the Grinch arrived in the form of the Obama Administration Department of Labor’s Technical Release: Guidance on State Regulation of Stop-Loss Insurance.

The DOL memo had the impact of a blindside sack of self-insurance’s long-cherished faith in federal preemption of state insurance regulation for ERISA employee benefit plans. Its conclusion was that ERISA preemption is not available to self-insured employee health plans in regard to the states’ regulation of stop-loss insurance. You can read the operative passage for yourself:

A state law that prohibits insurers from issuing stop-loss contracts with attachment points below specified levels would not, in the Department’s view, be preempted by ERISA. The self-insurance industry, principally in the form of SIIA, has been defending against states’ adoption of regulations that set minimum standards for stop-loss policy attachment points for reimbursement of individual and aggregate health care claims. Always, its argument has been based on reliance on ERISA law to shield self-insurers from state policy standards or legislation. Now that shield has been fractured, if not destroyed. Reading the DOL document more carefully, I focused on its characterization as “guidance” rather than a more substantial ruling such as “carved in granite.” To be sure, the DOL is the federal agency responsible for enforcement of ERISA, but even it is subject to U.S. court rulings. On many past occasions, the freedom of self-insurance from state regulation has been upheld by federal courts. I’m no legal scholar but I hold the fond hope that future litigation on these issues could be successful. But in the meantime we’re faced with life on a new playing field. The DOL made no secret of who has designed that field when it referred in its “guidance” memo to the model state law promulgated by the National Association of 12

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Insurance Commissioners (NAIC) that “prohibits the sale of stop-loss insurance with a specific annual attachment point below $20,000. For groups of 50 or fewer, the aggregate annual attachment point must be at least the greater of (1) $4,000 times the number of group members, (2) 120% of expected claims, or (3) $20,000. For groups of 51 or more, the model law prohibits an annual aggregate attachment point that was lower than 110% of expected claims.” That model, if applied by the states – 10 have reportedly enacted laws based on the NAIC model – would pretty much prevent smaller firms from selfinsuring their benefit plans even despite the most favorable circumstances. The reason behind the DOL’s current interest in this issue was betrayed in its memo, when it states that stop-loss insurance with modest attachment points would tend to create “adverse selection” in the broad risk pool “by encouraging small employers with healthier employees to self-insure and thus increasing the proportion of less healthy enrollees in (state exchange) insured coverage.” Once again, the government admits it will sacrifice the truly beneficial self-insured coverage of millions to defend its rickety structure of health insurance state exchanges under the ACA. I contend this is bald-faced


political manipulation to protect the current federal administration’s pet project. And the NAIC and many states find enough motivation in their own power grab to go along with it. The federal government can be flagged for “piling on” to the states’ attacks on self-insurance. The DOL, wittingly or not, has sanctioned the NAIC’s regulatory strength, even though that organization contends it’s not in the business of regulation.

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

You’re going to hear more in coming months about strategic education programs directed toward state regulators that utilize case studies such as the 10-year-old captive of our acquaintance that is owned by a TPA, whose risk assumption layer has increased from $150,000 to $500,000, has never had a rate increase and covers a range of employer groups’ self-insured retention from $35,000 to $450,000. Wouldn’t it be great if regulation of our industry were based on reality rather than politics? ■

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We see resistance to self-insured plans’ use of stop-loss insurance now coloring state regulators’ views. Our company recently conducted a casual survey of 12 captive domiciles’ level of acceptance of new health care captives’ applications for regulatory approval. Only one domicile said it currently was not accepting such applications, but among the others, acceptance appears lukewarm at best.

We heard regulators’ comments such as “very selective,” “only if each employer in the group has 100 or more employees” and “a great many questions that would have to be addressed” that indicate an environment of reluctance toward health care captives.

January 2015 | The Self-Insurer

13


Bench From the

Ninth Circuit Court of Appeals Rejects Group’s and Carrier’s Cross-Motions for Summary Judgment on Eligibility Issue; Remands Case for Trial Regional Care Services Corp., et al. v. Companion Life Insurance Company, No. 12-16538, United States Court of Appeals for the Ninth Circuit, December 2, 2014

Written by Thomas A. Croft, Esq. 14

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T

he most salient aspect of this opinion is its application of discretionary decision-making provisions in the Plan in deciding whether the stop loss carrier owed the claim at issue. Even so, the Court of Appeals reversed a summary judgment that the trial court had granted in favor of the group and sent the case back for a trial on the merits. The Court’s brief opinion, available at http://cdn.ca9.uscourts.gov/datastore/ memoranda/2014/12/02/12-16538.pdf, is technically an “unpublished” opinion. See first asterisk at the beginning of the referenced opinion, stating that that the decision “... is not precedent except as provided by 9th Cir. R. 36-3.” The effect of this “unpublished” designation is presently unclear to this writer, as the cited rule states that unpublished opinions


“are not precedent,” but may be cited to courts within the circuit “in accordance with [Federal Rule of Appellate Procedure] 32.1.” That Rule (applicable to all Courts of Appeal nationwide) expressly permits citation of unpublished opinions if issued after January 1, 2007. Whether the Federal Rule of Appellate Procedure affects the precedential value of the opinion – but only permits citation of it – is not readily apparent from a reading of the above-discussed rules.

Court of Appeals principally relied on three Ninth Circuit cases (see footnote 6 of the opinion), all of which were ERISA cases involving claims for benefits by Plan beneficiaries and none of which involved a stop loss contract. If there were any “anti-discretion” provisions in the stop loss contract at issue, the Court of Appeals did not refer to or discuss them.

In any event, the Court’s analysis of the issues before it remains of interest, whether “precedential” in cases other than the one at hand or not.

The carrier argued that the administrator abused her discretion because the Plan required that the covered employee supply over one-half of the child’s support and that there was evidence, deemed by the Court of Appeals as “an unusual arrangement” whereby the child in question was placed with a guardian thousands of miles from the employee’s household. The carrier argued that the Plan administrator had not conducted a reasonable investigation of the support issue before paying the claims at issue. The Court of Appeals agreed that issues of fact remained to be determined on this point and remanded the case for further proceedings.

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At issue was the eligibility of an adopted dependent under the Regional Care Plan and thus whether his claims were reimbursable under the stop loss carrier’s contract with the group. At the very outset, the Court of Appeals recognized that the substantive law of Arizona governed (presumably due to a choice of law provision in the stop loss contract), that the stop loss contract incorporated the Plan and that Arizona law provided that insurance contracts are construed against the insurer if ambiguous. Next, the Court noted that the Plan gave the Plan Administrator “maximum legal discretionary authority to interpret” the Plan and to decide eligibility questions. The Court further noted that the Plan declared that the decisions of the administrator would be “final and binding on all interested parties.” Based on these provisions, the Court of Appeals concluded that the carrier was bound by the Plan administrator’s decision as to eligibility, “absent an abuse of discretion.” In other words, the Court of Appeals applied an ERISA-type “abuse of discretion” deference to the Plan’s decision-making. In doing so, the

The carrier first argued that the Plan’s requirement that natural children live with the employee applied to the adopted child involved. The Court of Appeals noted that there was no similar express requirement for adopted children, such that the language of the Plan was at least ambiguous on this point and thus, under applicable Arizona law, should be construed against the stop loss carrier. This would have been the end of matter, were it not for the Court of Appeals’ observation that the Regional Care Plan also required that the Plan administrator carry out her duties “with care, skill, prudence and diligence.”

So, despite the extremely favorable “abuse of discretion” standard used by the Court of Appeals, the Plan administrator’s decision was not blindly affirmed.

Update on Undocumented Workers Stop Loss Case: California Federal Court Enters Summary Judgment for Plaintiff on Breach of Contract Claim Bay Area Roofers Health & Welfare Trust v. Sun Life Assurance Co., No. 13-cv-04192-BLF, November 6, 2014 I originally reported on this case in my From the Bench article in The SelfInsurer in January 2014, http://stoplosslaw.com/wp-content/uploads/2014/07/ FTB-01-14.pdf, noting that the issue of whether an undocumented alien was an “employee” under a self-funded Taft-Hartley Trust was one of first impression in the stop loss arena. Last month, the United States District Court for the Northern District of California answered that question with a resounding “Yes.” See the Court’s opinion at https://cases.justia.com/federal/district-courts/california/ candce/5:2013cv04192/269916/64/0.pdf?ts=1415352450. The Court based its lengthy opinion almost entirely on California state statutes and case law:

“Under California law there is an express public policy... to ensure that undocumented workers in this state receive all employment rights and benefits available to other workers...” January 2015 | The Self-Insurer

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Schedule of

Events

March 4-5, 2015

J.W. Marriott Camelback | Scottsdale, AZ

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.

International Conference April 13-15, 2015 Hilton Panama | Panama City, Panama 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 selfinsurance/ART business opportunities in key international markets. Participation is expected from countries all over the world. Translation services provided.

April

2015

March

Self-Insured Health Plan Executive Forum

NEW EVENT!

MaY

Self-Insured Workers’ Compensation Executive Forum May 12-14, 2015 Windsor Court Hotel | New Orleans, LA 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 strwwengthen your business relationships within the self-insured/alternative risk transfer industry.

october

Self-Insured Taft-Hartley Plan Executive Forum April 29-30, 2015 Marriott Metro Center | Washington, DC 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.

35th Annual National Educational Conference & Expo

October 18-20, 2015 Marriott Marquis | Washington, DC 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. 16

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› For more information visit

www.siia.org


Because the term “employee” was not defined in either the Plan or the stop loss policy, the Court concluded that “the plain and ordinary meaning of ‘employee’ in the Plan and the [stop loss] Policy includes undocumented workers for the purposes of receiving health care benefits.”

After granting the Trust’s motion for summary judgment on the breach of contract claim, the Court went to deny Sun Life’s motions for summary judgment on the Trust’s claims for breach of the duty of good faith and fair dealing and for punitive damages, reserving these issues for trial due to apparent fact issues. The Court concluded that the carrier’s investigation of certain “indicia of lawful employment” was lacking and that it based its denial on a Texas case which was, in the Court’s judgment, misplaced.

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

While this case may well influence other California federal district courts in their analysis of similar issues, its impact outside the state is questionable, given the Court’s extensive and substantial reliance on California statutory and case law. In addition, the Court noted that the stop loss policy did not contain an exclusion for benefits for undocumented workers. We may see such exclusions in future stop loss policy forms in states where undocumented workersare prevalent. ■ Known for his extensive writing on medical stop loss insurance issues, both in The Self-Insurer and on his comprehensive website, www.stoplosslaw.com, Tom has been practicing law for 34 years. Currently he practices through his own firm, CROFT LAW LLC, in Atlanta, GA. He regularly advises and represents stop loss carriers, MGUs and occasionally TPAs, brokers and self-insured groups, in connection with matters relating to stop loss insurance and the disputes that may arise among these entities regarding it. He currently serves on SIIA’s Healthcare Committee. He has been honored as a Georgia “Super-Lawyer” for the past six years running and is listed as “Tier 1” in insurance by Best Lawyers. He is an honors graduate of Duke University and Duke University School of Law, where he formerly served as Senior Lecturer and Associate Dean.

January 2015 | The Self-Insurer

17


Network

SCRUTINY T

Written by Cori M. Cook, J.D. CMC CONSULTING, LLC 18

The Self-Insurer | www.sipconline.net

he National Association of Insurance Commissioners (NAIC) held its fall meeting in the Nation’s Capital in November. They have been working diligently for months on a proposal to update the 1996 Managed Care Plan Network Adequacy Act (Model Act). This task supposedly grew out of the concern of a growing trend of narrow networks, tiered networks and similar network designs. The Affordable Care Act (ACA) requires that health plans participating in the Health Insurance Marketplace provide enrollees access to a sufďŹ cient number of in-network providers, including primary care and specialty physicians and access to necessary care needs to be available to all enrollees without unreasonable delay. The NAIC has since revealed their draft proposed changes to the Model Act and are accepting comments until January 12, 2015.


NETWORK | FEATURE Most states have pretty broad standards requiring health plans in the insurance market to have a “robust” or “sufficient” network. In an attempt to help states set more standardized network adequacy, accessibility, transparency and quality standards, the NAIC has released their draft proposed changes titled “Health Benefit Plan Network Access and Adequacy Model Act” (Draft Model Act) and, once finalized, may be adopted by the States and may have far reaching implications for health plans and provider networks. The Draft Model Act would apply to “health carriers” which is defined as follows:

“[A]n entity subject to the insurance laws and regulations of this state, or subject to the jurisdiction of the commissioner, that contracts or offers to contract, or enters into an agreement to provide, deliver, arrange for, pay for or reimburse any of the costs of health care services, including a sickness and accident insurance company, a health maintenance organization, a nonprofit hospital and health service corporation, or any other entity providing a plan of health insurance, health benefits or health services.” Single employer, self-funded group health plans governed by ERISA will not necessarily be directly impacted by this Draft Model Act. However, the networks they may be accessing may very well be. Insured plans, Multiple Employer Welfare Arrangements (MEWAs) and non-federal governmental plans will need to become familiar with the Draft Model Act and determine its applicability, particularly if it is likely to be adopted in their jurisdiction(s).

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

The Draft Model Act requires health carriers providing network plans to, inter alia: 1. Maintain a network that is sufficient in numbers and types of providers to assure that all services to covered persons will be accessible without unreasonable delay; emergency services will be available 24 hours per day, 7 days per week; and “sufficiency” of the network shall be determined using reasonable criteria, including: a. Provider-covered person ratios by specialty; b. Primary care provider-covered person ratios; c. Geographic accessibility; d. Geographic population dispersion; e. Waiting times for visits with providers; f. Hours of operation;

g. New health care service delivery system options (i.e. telemedicine); and h. Volume of technological and specialty services available for covered persons requiring technologically advanced or specialty care. 2. Have a process to assure a covered person can obtain a covered benefit at an in-network level of benefits from a nonparticipating provider if: a. A certain type of participating provider is not available; and b. An insufficient number or type of participating provider is available to the covered person. 3. Establish and maintain adequate arrangements to ensure reasonable access of participating providers to the business or personal residence of covered persons. 4. Monitor, on an ongoing basis, the ability, clinical capacity, financial capability and legal authority of participating providers to furnish contracted covered benefits to covered persons. 5. File an Access Plan with the State Insurance Commissioner. 6. Establish a mechanism where the participating provider will be notified of the specific covered services, including limitations or conditions on services. 7. Establish certain contract requirements with the participating provider including a hold harmless provision protecting covered persons, specific termination provisions, no balance billing and standards for tiering providers. 8. Develop a written disclosure or notice to covered persons advising them (at time of pre-certification, January 2015 | The Self-Insurer

19


NETWORK | FEATURE if applicable) that services provided by a provider at an in-network hospital may not be treated as a participating provider. 9. Post an online directory of all current providers for each network plan and update the directory at least monthly. This, the Draft Model Act, on the heels of the October 10, 2014, Department of Labor (DOL) FAQ addressing factors the Departments will consider when evaluating whether a plan, that utilizes Reference Based Pricing or similar network design, is using a reasonable method to ensure that it provides adequate access to quality providers for purposes of complying and enforcing the requirements in PHS Act section 2707(b). Although we are patiently awaiting additional guidance from the Departments on this particular issue, the factors that will be utilized in the interim include the following: 1. Type of Service – Standards should be established to ensure that the network is designed to enable the plan to offer benefits from high-quality providers at reduced costs. 2. Reasonable Access – Procedures should be established to ensure that an adequate number of providers accepting the reference prices are available to participants. 3. Quality Standards – Procedures should be established to ensure that the providers meet reasonable quality standards. 4. Exceptions Process – Develop an easily accessible exceptions process to address out-ofnetwork allowances. 5. Disclosure – Automatically provide information regarding pricing structure, list of services to which the pricing structure 20

The Self-Insurer | www.sipconline.net

applies and the exception process and further disclosure, upon request, a list of providers that will access the reference price; a list of providers that will accept a negotiated price above the reference price; and well as information on the process and underlying data used to ensure that adequacy and quality exist. Carriers, PPOs, TPAs and group health plans need to determine the extent of the applicability of the Draft Model Act as well as the anticipated guidance by the DOL on Reference Based Pricing. Some entities are considering the following: 1. Evaluating cost sharing levels for care that can only be obtained out-ofnetwork to prevent unexpected and often prohibitively costly medical bills. 2. Engaging the PPOs to determine applicability, network adequacy, quality measures and ability to comply. 3. Evaluating Reference Based Pricing models that are currently in place. 4. Engaging in a dialogue with Insurance Commissioners and regulators. Regardless if your organization and/or your clients may be directly or indirectly impacted by one or both of the foregoing, I would strongly encourage engaging in a dialogue with all applicable entities and providing input to try and educate and offer clarity to avoid any unintended consequences that may result therefrom. ■ This article is intended for general informational purposes only. It is not intended as professional counsel and should not be used as such. This article is a high-level overview of regulations applicable to certain entities. Please seek appropriate legal and/or professional counsel to obtain specific advice with respect to the subject matter contained herein. Cori M. Cook, J.D., is the founder of CMC Consulting, LLC, a boutique consulting and legal practice focused on providing specialized advisory and legal services to TPAs, employers, carriers, brokers, attorneys, associations and providers, specializing in healthcare, PPACA, HIPAA, ERISA, employment and regulatory matters. Cori may be reached at (406) 647-3715, via email at cori@corimcook.com, or at www.corimcook.com.


January 2015 | The Self-Insurer

21

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


Court Wins for RRG Help Create Case Law for Industry In 2014, Allied Professionals Insurance Co., A Risk Retention Group, won three court cases that help support a risk retention group’s right to operate nationally under federal law.

A

llied Professionals’ successful court cases decided in their favor in 2014 is helping to establish important case law that can help all other risk retention groups (RRGs) when challenged by state laws. With the support of the National Risk Retention Association (NRRA), who filed amicus briefs on behalf of the RRG, the wins by Allied Professionals in two appellate courts and one state Supreme Court show that the Liability Risk Retention Act preempts state direct action and non-arbitration statutes. The states involved were New York, Florida and Nebraska. RRGs are meant to be able to operate across state lines as stipulated under the 1986 Federal Liability Risk Retention Act (LRRA). RRGs are domiciled and regulated in their state of domicile and, by the intention of the law, can operate in any other state as long as they register to do business in that state. While the intention of the federal law is clear, many states would like to have a hand in regulating RRGs operating in their states and often try to apply state laws to govern a RRG’s actions.

Written by Karrie Hyatt 22

The Self-Insurer | www.sipconline.net

The problem that Allied Professionals found when they began pursuing these cases is that there was not much case law regarding RRGs. Case law are decisions from the higher courts that establish new interpretations of the law and can then be cited as precedents.


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

“That was one of the things I noticed when I started working in this area, there were not a lot of case law against us, there just wasn’t any case law period,” said Michael Schroeder, chairman of Allied Professionals Insurance Company, RRG. “It was a chance to paint the canvas in our favor, instead of against us.”

captive insurance sector, it views its main goal as being an advocate on behalf of its members and issuing Amicus Briefs is one important way that it can meet its goal. According to Schroeder, there are a number of legal experts on the committee that work together to vet cases and choose the ones that can help support the LRRA.

Allied Professionals began operations in 2003 to provide professional and general liability coverage to three risk purchasing groups whose members consist of alternative health practitioners, including chiropractors, acupuncturists and massage therapists. The RRG holds an A- (Excellent) rating from A.M. Best and an A’ (Unsurpassed) rating from Demotech. In 2013, according to the Risk Retention Group Directory & Guide published by the Risk Retention Reporter, Allied Professionals had $21.6 million in premiums and reported membership at 153,000. They have, by far, the largest number of members and policyholders of any RRG.

A letter to the courts weighing in on one side or the other can really make or break a case, so NRRA carefully chooses the cases it supports. “One of the issues here is that a bad case can make bad law and a good case can make good law,” said Schroeder. “If you aren’t smart about how you pick your cases you can end up having someone bring a case and get it up to the court of appeals and establishing bad precedence. The idea was to be smart about it, in terms of what cases we picked and when we picked those cases we made sure they were ones we could make good law on.”

During the RRG’s history, it has faced several disputes in different states when state laws are inaccurately applied to risk retention groups despite the preemptions stated in the LRRA. Schroeder, himself an attorney, believed that the federal law was on the side of Allied Professionals. “I felt like if we spent the money now and established [case law] then we wouldn’t have to spend the money later. In the long term, this would be more cost effective. As I’ve gotten more involved in the industry, I thought it would be a good step for the industry.” Schroeder sits on the board of the National Risk Retention Association (NRRA) and on its Amicus committee – a committee formed to decide which cases NRRA would weigh in on. While NRRA is a small trade association for a small slice of the

The cases that Allied Professionals won in 2014 all set important precedence for RRGs and the LRRA. In the most recent case, Speece v. Allied Professionals Ins. Co., Nebraska chiropractor Dr. Brett Speece was sued by the State of Nebraska regarding false Medicare claims. When Speece applied to Allied Professionals to cover his legal expenses, the RRG declined coverage, which resulted in the doctor suing Allied Professionals. The RRG includes an arbitration clause in its policies, so filed a motion to compel arbitration. Nebraska state insurance law does not permit arbitration provisions and the district court ruled in favor of Speece. Allied Professionals appealed and the case was taken up by the Nebraska Supreme Court which found that the LRRA preempts the Nebraska state law: “We conclude that although [the Nebraska law] does not preempt, the

LRRA does preempt the application of this Nebraska statute to foreign risk retention groups and that as a result, the arbitration clause in the policy [Allied Professionals] issued to Speece was not prohibited.” In the decision handed down by the 11th Circuit Court of Appeals in Kong v. Allied Professional Insurance Co., the appeals court upheld the ruling by a lower court that Allied Professionals could not be forced to arbitrate a case in Florida under the state’s direct action statute when the insurance agreement stipulated that disputes were to be arbitrated in California. Patient Joanne Kong broke her ankle during treatment by a massage therapist covered by Allied Professionals. The RRG denied the claim with the therapist. After Kong and the therapist came to a settlement, which the therapist could not pay, Kong pursued the settlement with Allied Professionals. An arbiter in California submitted a decision in favor of Allied Professionals, so Kong tried to bring the arbitration to Florida under the state’s direct action statutes. In April, the 2nd Circuit Court of Appeals upheld a district court judgment in the case of Wadsworth v. Allied Professionals Insurance Co., A RRG. In this case, a New York chiropractor pled guilty to sexually assaulting several patients. Sexual misconduct is excluded under Allied Professionals policies, so the insured’s claims were denied. The action in this case was brought by one of the insured’s victims, Renata Wadsworth who sought to recover a state court judgment of $101,175 against the chiropractor from Allied Professionals in a suit citing New York state’s direct action statute. With comprehensive support of Allied Professionals, the Appeals Court stated that “The federal Liability Risk Retention Act of January 2015 | The Self-Insurer

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1986...contains sweeping preemption language that sharply limits the authority of states to regulate, directly or indirectly, the operation of risk retention groups chartered in another state.” The decision went on to add that “[The New York statute] specifically governs the content of insurance policies, requiring insurers to place in their New York contracts a provision that is not contemplated by the LRRA and that is not required by all other states. Application of the statute would therefore make it difficult for a foreign risk retention group to maintain uniform underwriting, administration, claims handling and dispute resolution processes.” These decisions are already lending weight to actions taken against risk retention groups. According to Joe Deems, the executive director of NRRA, “It should be helpful for the industry to

24

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understand that our courts are not hampered with the usual politics of the NAIC, nor the sometimes stubborn ideologies we find in some of our state insurance departments. With the use of the courts, we can hopefully effect a more objectively balanced and sometimes necessarily clarified interpretation of the legal statutes and case authorities affecting the LRRA and our industry in general. These cases also reflect a good example of how proactive NRRA can be when it comes to being an advocate for our members. We are showing a viable alternative to certain regulatory or legislative strategies.” As for Allied Professionals, despite one lingering case, they haven’t had any new cases come up. “We aren’t pursuing any new cases. We haven’t had to interestingly. When we present these cases to the lawyers they back down pretty quickly.” He continued, “The whole idea was to create a body of case law so that we didn’t have to keep doing this and I think we have been successful in that. We looked at the limited resources that NRRA had and we didn’t really have the financial resources to pass federal legislation but we did have the resources to team up with different members and it’s been pretty successful.” ■ Karrie Hyatt is a freelance writer who has been involved in the captive industry for nearly ten years. More information about her work can be found at: www.karriehyatt.com.


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January 2015 | The Self-Insurer

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PPACA, HIPAA and Federal Health Benefit Mandates:

Practical

Q&A

Health and Welfare Plan Sponsor Affordable Care Act and 2014 Year End Checklist

2

014 has been another busy year of regulations and guidance affecting health and welfare benefit plans. We have the Affordable Care Act (ACA) to thank for much of the seemingly endless flow of regulations and guidance in 2014; however, the ACA cannot take full credit. Code Section 125, HIPAA privacy, the Mental Health Parity and Addiction Equity Act and the ADA – just to mention a few – are each worthy of an honorable mention in the “which laws generated the most late nights” award category for 2014. Many of the rules and regulations went into effect in 2014 while others were issued in 2014 but will not be effective until 2015 or later. Needless to say, keeping track of the “what” and the “when” are a challenge for even the most seasoned benefit professional. To help you ensure that nothing slips through the cracks, we have provided the highlights for 2014.

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The Self-Insurer | www.sipconline.net


Affordable Care Act As in prior years, the ACA occupied the majority of time and compliance effort for health plan sponsors, administrators and benefit advisors. The Departments of Labor, Treasury and Health and Human Services (collectively, the “Agencies”) issued regulations and guidance – either independently or jointly – on a wide array of ACA topics. The Supreme Court even joined in with its controversial ruling on a religious based corporation’s obligation to cover contraceptives. The 2014 ACA related highlights include:

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

• Employer shared responsibility requirements (aka 4980H or “pay or play” rules): In February 2014, Treasury issued final regulations with respect to 4980H, which generally go into effect in January 2015. The much anticipated regulations were lengthy and complex and provide material clarification as well as critical transition relief. The IRS also issued Notice 2014-49, which clarified the application of the 4980H rules to employees who transfer between members of a controlled group that use different methods for identifying employees. Highlights of the 2014 guidance related to the 4980H rules include: » A 1-year delay (to 2016) for excise taxes for applicable large employers (ALEs) that had less than 100 full-time equivalents in 2014 and who also satisfied certain additional requirements – i.e. the delay is not applicable solely because the employer had between 50 and 99 full-time equivalents. Caution: Although ALEs subject to the delay avoid excise taxes

in 2015, they must still satisfy the reporting requirements associated with the 4980H rules for 2015 (see discussion below regarding Section 6056 reporting requirements); » Clarification that the look back measurement period method for identifying fulltime employees applies to all employees of the ALE member who are within the same distinguishable class, as defined by the regulations (e.g. salaried or hourly) – i.e. an ALE member cannot simply apply the look back measurement period method to “variable employees”. » Transition relief for certain ALEs that maintain plans that have a non-calendar plan year (“fiscal plan year”). According to the regulations, ALE members can avoid excise taxes with respect to a full-time employee to whom coverage was not offered in the months preceding the start of the fiscal plan year in 2015 (or 2016 if subject to the 1 year delay for certain smaller ALEs) if certain conditions are satisfied. Caution: The transition relief isn’t automatically available to employers who sponsor plans with a fiscal plan year. It is available only to the extent certain requirements are satisfied (e.g., related to the number of employees or full time employees offered coverage or actually covered) and even then, the relief may only be available for certain employees. » Transition relief for 2015 that decreases the “substantially all” test threshold from 95% to 70%. In order to avoid the 4980H(a) (or “sledgehammer”)

tax for a month, ALE members must satisfy the substantially all test. ALE members satisfy the substantially all test in a month if they offer coverage through an eligible employer sponsored plan (as defined in Code Section 5000A) to the applicable percentage of their full-time employees (and their dependent children) for that month. » Transition relief for 2015 that increases the full-time employee reduction available for employers (the “throw away” rule) subject to the 4980H(a) tax from 30 to 80. If an ALE does not satisfy the substantially all test for a month, the total number of full-time employees on which the excise tax is based is reduced by the ALE member’s allocable share of the controlled group’s fulltime employees, not to exceed applicable full-time employee reduction number. Caution: this increase in the full-time employee reduction from 30 to 80 does not apply to ALEs with less than 100 full-time equivalents (i.e. employers who are not subject to the one year delay). » Clarifications regarding application of the 4980H rules in certain situations in which an ALE’s employees receive coverage from an unrelated third party, such as: – Multi-employer plans – Staffing agencies » Clarifications regarding the application of the 4980H rules to certain types of employees, such as: – Students/interns – Bona fide volunteers – Employees performing services outside the United States (e.g. Puerto Rico) January 2015 | The Self-Insurer

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» Clarification regarding the calculations of hours of service for certain types of employees, such as: – Adjunct faculty – On-call employees » Clarification that an ALE member is not considered to have made an offer of coverage to a full-time employee unless the employee had the opportunity to elect coverage for his/her dependent children (if any) AND that coverage, if elected, would extend through the end of the month in which the child turns age 26 (or the date coverage ends for the employee, if earlier). » Transition relief for plans that did not offer coverage for dependent children on February 9, 2014.

• Section 6056 Reporting: The ACA added new Code Section 6056, which requires ALE members to file a form with the IRS that identifies each of the employer’s employees who were full-time (as defined in Code Section 4980H) at least one month during the calendar year and what, if any, coverage was offered to those full-time employees. Employers must also furnish that form to the full-time employees. The purpose of the reporting requirement is to assist the IRS with administration of both the 4980H rules and the Code Section 36B premium tax credit rules. In 2014, the IRS issued final regulations with respect to the Section 6056 reporting requirements along with draft forms (1094 and 1095-C) and instructions. The forms have yet to be finalized but they shed significant light on what will be reported and how, such as: » Each ALE member is responsible for satisfying the reporting requirements with respect to its full-time employees (although a third party may file on their behalf), even if another member of the controlled group of employers sponsors the health plan in which the applicable large employer member’s full-time employees participate. » Most of the relevant information with respect to the employer’s full-time 28

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employees, including the scope of coverage offered to fulltime employees (if any), will be provided through various codes. The codes are described in the instructions to the 1094 and 1095-C forms. » Employers must generally provide information for all 12 months of the year if an employee is full-time at least one month during the year – even if the employee is not employed by the employer for all 12 months. For example, if an employee is hired in August of 2015 (and is subsequently full-time at least one month such that there is a Code Section 6056 reporting obligation), the applicable large employer member will indicate on the 1095-C – using the applicable codes – that the employee was not employed by the employer January through July. • Section 6055 Reporting: The ACA also added new Code Section 6055, which requires providers of minimum essential coverage to file a form with the IRS that identifies for the IRS each individual who enrolled in minimum essential coverage at least 1 day during the year. Whereas the 6056 requirement applies only to ALEs and then only with respect to full time employees, this requirement would apply to any employer who sponsors a self-insured plan and any individuals (including retirees and dependents) covered under a plan. Coverage providers must also furnish this form to the covered individuals. The purpose of the Code section


January 2015 | The Self-Insurer

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We offer a diverse portfolio of insurance products designed to help businesses offer competitive benefits that protect their employees and families. • Supplemental Medical Solutions for more complete health coverage • Protection Solutions including life, accident and disability plans • Employer Risk Solutions including stop-loss and captive arrangements • Multi-Product Solutions like ProtectPakSM to simplify benefit offerings

Visit aig.com/us/benefits to learn more about what AIG Benefit Solutions can do for your business. AIG Benefit Solutions® is the marketing name for the domestic benefits division of American International Group, Inc. The underwriting risks, financial and contractual obligations, and support functions associated with products issued by American General Life Insurance Company, The United States Life Insurance Company in the City of New York, and National Union Fire Insurance Company of Pittsburgh, Pa., are the issuing insurer’s responsibility. The United States Life Insurance Company in the City of New York is authorized to conduct insurance business in New York. National Union Fire Insurance Company of Pittsburgh, Pa., maintains its principal place of business in New York, NY, and is authorized to conduct insurance business in all states and the District of Columbia. NAIC No. 19445. Not all policies are available in all states. © 2014. All rights reserved. AIGB100051 R08/14

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

6055 reporting requirements is to help the IRS administer the individual mandate. Employers who sponsor self-insured plans that provide minimum essential coverage (an “eligible employer sponsored plan” as defined in Code Section 5000A) are obligated to satisfy the Code Section 6055 requirements with respect to ALL individuals enrolled in the self-insured plan. If the plan is fully insured, the insurance carrier who issues the policy will satisfy the Code Section 6055 obligation with respect to individuals covered under the insurance policy. As they did with the Section 6056 requirements, the IRS issued final Code Section 6055 regulations in 2014 along with draft forms (1094 and 1095B) and instructions. Highlights of the Section 6055 reporting requirements, as they relate to employers with self-insured plans, include: » Each employer whose employees participate in a self-insured plan – even if the plan sponsored by another employer- is independently responsible for filing the forms; however, a third party may file on behalf of the employer. NOTE: Employers who contribute to multi-employer plans are not obligated to satisfy the Code Section 6055 requirements with respect to employees covered by the multi-employer plan; the administrator of the multiemployer plan is obligated to satisfy the Code Section 6055 requirements with respect to employees of employees covered by the multi-employer

plan. Caution: Don’t confuse multi-employer plan with a “MEWA”. In the latter situation, each employer who participates in a self-insured MEWA retains the Code section 6055 reporting obligation. » All individuals covered under the plan for at least one day during the year must be identified, including but not limited to current employees, former employees and dependents. Unlike the Code Section 6056 requirements, the Code Section 6055 requirements extend beyond employees who qualify as full-time. It applies to any individual covered under the plan. Caution: employers are generally required to provide the dependent’s social security number; however, there is a specific process whereby the employer is able to use the dependent’s date of birth if the employer who follows the process is unable to obtain the social security number. » Employers who sponsor self-insured plans and are also ALEs will satisfy their Section 6055 and 6056 obligations on the same form – the 1095-C. Caution: IRS has informally indicated that the employer may have to report coverage elected by a former employee (and his/her family members) and any independent contractors on the 1095-B as opposed to the 1095-C. » One additional late November change that has garnered a great deal of attention are regulations that address how employer credits should be considered for purposes of determining affordability for purposes of determining eligibility for the individual premium subsidy. For purposes of affordability determinations under health care reform’s individual shared responsibility provisions, the employee’s required contribution is reduced by any contributions made by an employer under a cafeteria plan that the employee: – may not opt to receive as a taxable benefit; – may use to pay for minimum essential coverage; and – may use only to pay for medical care within the meaning of Code § 213. While IRS regulations do not specifically address how employer contributions that an employee may elect to use for health coverage are treated under the employer responsibility provisions, we do not see any reason why a different interpretation would apply. In addition, this has caused some employers to consider whether cashable credits provided by an employer would increase the employee’s required contribution for affordability purposes. More guidance on this issue would be helpful. • 2014 Health Insurance Reforms. Various health insurance reforms were added by the ACA to Section 27 of the Public Health Service Act (and also ERISA Section 715 and Code Section 9815). The reforms apply to all group health plans other than plans that provide only “excepted benefits” or plans that have less than 2 active employees participating in the plan on the first day of the plan year (“stand alone retiree plan”). Although some of the reforms went into effect for plan years beginning on or after September 23, 2010, some went into effect for plan years beginning on or after January 1, 2014. » Two of the 2014 reforms received the bulk of attention from the agencies during the year: the waiting period limitation and out of pocket maximum requirements: – The Agencies issued final regulations under PHSA Section 2708, which generally limits waiting periods for otherwise eligible individuals to 90 calendar days. The regulations clarify that terms of eligibility generally January 2015 | The Self-Insurer

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cannot be based solely on the passage of time (e.g. continuous days of employment) but that eligibility based on accumulated hours (not to exceed 1200) or a “measurement period” are permissible. Additional regulations issued by the Agencies in 2014 further clarify that employers may implement a 30 day “orientation” period for an employee who otherwise satisfies the eligibility requirement after which the waiting period can begin. – The agencies also issued a series of FAQs (FAQs XIX and XXI) addressing the application of the out of pocket requirements for “reference based pricing arrangements”. Generally, the out of pocket maximum imposed by the ACAapplies to all cost sharingwith respect to services or treatments provided by network providers; cost sharing for out of network providers do not have to be applied to the out of pocket maximum. The Agencies attempted to clarify the application of the out of pocket rules to reference based pricing arrangement. Generally, reference based pricing arrangements identify an amount that will be paid or allowed by the plan with respect to a particular service or treatment. According to the FAQs, plans may treat providers who accept the plan’s reference based pricing as the only network providers provided certain conditions are satisfied. If the conditions are satisfied, then all services or treatments provided by providers who do not accept the plan’s reference based pricing – including “network providers” can be treated as out of network and the cost sharing for such services falls outside the out of pocket maximum limitation.

Finally, regulations issued in late November request comments on whether plans should be limited to the self-only out of pocket maximum for individual family members (i.e. an embedded out of pocket maximum). » Employer’s Payment or Reimbursement of Individual Market Coverage: Following on the heels of guidance issued in 2013 (e.g. 2013-54), the agencies issued FAQs in 2014 (FAQs XXII) that confirm what many already knew: it is a violation of PHSA Section 2711’s prohibition against annual dollar limits on essential health benefits for an employer to pay or reimburse an employee’s premiums for major medical coverage purchased in the individual market, including

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the Marketplace. This is true whether the reimbursement is tax free under Code Section 106 or taxable. Caution: Employers who condition the taxable payment on receiving coverage would run afoul of the rules. In order to avoid running afoul of the DOL safe harbor, employers could only give employees taxable dollars and hope that they enroll in coverage. The agencies further clarified that plans that attempt to offer unhealthy individuals a choice between coverage under the plan or additional taxable cash would violate HIPAA’s non-discrimination provisions. » New Preventive Care Requirements: The agencies issued a FAQ in 2014 regarding the scope of smoking cessation coverage that the Agencies believe a non-grandfathered plan must provide to satisfy the preventive care requirements in PHSA section 2713. See FAQs XX and XXI. In addition, a number of new or modified preventive care requirements go into effect for plan years beginning in 2014 and 2015. For example, an additional change to the preventive care guidelines will require certain cancer drugs to be covered as preventive care beginning January 1, 2015 for calendar year plans. See FAQs XVIII. NOTE: a new or revised recommended preventive service or treatment goes into effect with the plan year that begins at least 1 year after the date the recommendation is issued. Moreover, recommendations issued in a month are considered issued on the last

day of that month. Thus, a recommendation issued in June 2013 would apply to plans for plan years beginning on or after July 1, 2014.1 » Hobby Lobby Contraception Case: In 2014, the Supreme Court ruled that the ACA’s requirement for nongrandfathered plans to cover certain contraceptives violated the 1st amendment rights of for-profit corporations established and maintained based on religious beliefs that are inconsistent with such requirements. The Agencies subsequently established processes whereby such corporations would be exempt from the contraceptive coverage requirements. » Transitional Reinsurance Fee Registration and Payment: The ACA added the transitional reinsurance fee to assist insurers offering coverage in the Marketplace with absorbing the additional costs associated with high risk claimants. Selfinsured health group plans and insurance carriers that provide coverage for fully insured plans are responsible for paying this annual fee for 2014, 2015 and 2016. Registration for payment was initially required by November 17th (first weekday after November 15th), 2014; however, on November 14th CMS announced a delay until December 5th for reinsurance fee registration. www.cms.gov/ CCIIO/Programs-and-Initiatives/ Premium-StabilizationPrograms/The-TransitionalReinsurance-Program/ Reinsurance-Contributions. html. The total payment for

Affordable Care Act Implementation Frequently Asked Questions (FAQs) Visit http://www.dol.gov/ebsa/healthreform/ regulations/acaimplementationfaqs.html for more comprehensive explanations.

Part I – Implementation topics including compliance, grandfathered health plans, claims, internal appeals and external review, dependent coverage of children, out-of-network emergency services and highly compensated employees. Part II – Grandfathered health plans, dental and vision benefits, rescissions, preventive health services and ACA effective date for individual health insurance policies. Part III – The exemption for group health plans with less than two current employees. Part IV – Grandfathered health plans. Part V – ACA implementation topics, the HIPAA nondiscrimination and wellness program rules and the Mental Health Parity and Addiction Equity Act of 2008. Part VI – Grandfathered health plans. Part VII – Summary of Benefits and Coverage and Uniform Glossary requirements of PHS Act §2715 and the Mental Health Parity and Addiction Equity Act of 2008. Part VIII* – Summary of Benefits and Coverage requirements of PHS Act §2715. Part IX* – Addresses the Summary of Benefits and Coverage requirements of PHS Act §2715. Part X* – Summary of Benefits and Coverage requirements of PHS Act §2715.

January 2015 | The Self-Insurer

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FAQs continued from page 31

Part XI – Employer notice of coverage options, health reimbursement arrangements, disclosure of information related to firearms, employer group waiver plans supplementing Medicare Part D, fixed indemnity insurance and payment of PCORI fees. Related information: CMS Bulletin on Non-Medicare Supplemental Drug Benefits. *Note: See Technical Release 2013-03 for comprehensive guidance addressing health reimbursement arrangements that was issued after the date of these FAQs.

Part XII – Limitations on cost-sharing under the ACA. Part XIII – Expatriate health plans. Part XIV* – Summary of Benefits and Coverage requirements of PHS Act §2715. Part XV – Annual limit waiver expiration date based on a change to a plan or policy year, provider non-discrimination, coverage for individuals participating in approved clinical trials and transparency reporting.

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Part XVI – Employer notice of coverage options and the 90-day waiting period limitation. Part XVII – Implementation of the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA), as amended by the Affordable Care Act. Part XVIII – Coverage of preventive services, limitations on cost-sharing, expatriate health plans, wellness programs, fixed indemnity insurance and the Mental Health Parity and Addiction Equity Act of 2008.

2014 is $63.00 multiplied by the average number of covered lives during the first three quarters of the year; however, the payment consists of two components: a component for reinsurance and another for the general Treasury fund. Each component is due on separate dates. The reinsurance component of the fee is $52.50 multiplied by the average number of covered lives and it is due no later than January 15, 2015. The Treasury component is $10.50 multiplied by the average number of covered lives and it is a due by November 15, 2015. Although plans and carriers may choose to pay the fee in two installments, they may also choose to pay the entire fee by the January 15th deadline if desired. NOTE: HHS has already indicated that the total fee due for 2015 is $44.00 and the total fee for 2016 is $27.50. In addition, HHS issued regulations this year that clarified critical aspects of the requirements, such as: – Plans and insurers need only count individuals covered by major medical plans that provide minimum value. – Individuals covered by plans that are secondary to other primary plans also do not have to be counted (e.g. a spouse who is also covered by the spouse’s employer’s plan). » Health Plan Identifier Number: The ACA also required health plans with annual receipts of more than $5 million to obtain a health plan identifier number (“HPID”). Regulations originally issued by HHS required plans with at least 5 million in gross receipts to obtain the HPID by November 5, 2014 and all other health plans to obtain the HPID by November 5, 2015. However, on October 31st, 2014, CMS announced that it is suspending enforcement of the HIPAA HPID requirement until further notice. The following statement is on the CMS website at www.cms.gov/Regulationsand-Guidance/HIPAA-Administrative-Simplification/Affordable-Care-Act/ Health-Plan-Identifier.html Caution: The impact of this delay on HIPAA’s EDI certification requirements (late in 2015) is currently not clear. » Revised PCORI Fee: Another fee added by the ACA was the Patient Centered Outcomes and Research Institute (PCORI) fee. The fee is imposed on health insurance issuers that insure group health coverage and sponsors of self-insured group health plans. The fee was first payable for plan years ending on or after October 1, 2013 and will be payable for each plan year thereafter that ends on or before October 1, 2019. The IRS issued guidance in 2014 indicating that the PCORI fee due for plan years ending on or after October 1, 2014 and prior to October 1, 2015 is $2.08 (up from $2.00). NOTE: Don’t forget that the PCORI fee is due by July 31 following the plan year for which the payment is due. » Minimum value rules for plans that don’t provide hospital coverage: The IRS issued Notice 2014-69, which closed the loophole that allowed group health plans that do not provide substantial inpatient and/or physician care to qualify as minimum value coverage. If there was a binding written commitment prior to November 4 to offer the plan, or enrollment had already started and the plan year began on or before March 1, 2015, the plan would continue to be treated as providing minimum value (according to the MV calculator or an actuary) for 4980H purposes (and only 4980H purposes) until the end of the plan year in which the final regulations are January 2015 | The Self-Insurer

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issued (expected to be in early 2015). Otherwise, such a plan would qualify as providing minimum value only until such date as the final regulations are issued. Notwithstanding the treatment of such plans for 4980H purposes, such plans will not be treated as providing minimum value for purposes of an individual’s eligibility for a premium subsidy or tax credit in the Marketplace. Caution: If communications have already been provided that such plans will disqualify an individual from receiving a subsidy, additional communications are required to clarify the treatment of such coverage for purposes premium tax/subsidy eligibility. » Excepted Benefits: Certain benefits are exempt from many of the Affordable Care Act requirements, including but not limited to the health insurance reforms. On October 1st the Agencies issued regulations this year that clarified the excepted benefit status of certain benefits such and dental and vision plans. The regulations also prescribe the rules for employee assistance plans to qualify as an excepted benefits. More specifically: – Dental and Vision Plans qualify as excepted benefits if * Participants in an employer’s primary health-care plan are allowed to decline the benefits OR * The claims for the benefits are administered under a separate contract from claims administration for any other (presumably health) benefits under the plan. » Employee Assistance Plans (EAPs) qualify as excepted benefits if – The EAP doesn’t provide significant benefits in the nature of medical care, – The benefits can’t be coordinated with the benefits under another group health plan,

FAQs continued from page 33

Part XIX – Updated DOL model notices, limitations on cost-sharing, coverage of preventive services, health FSA carryover and excepted benefits and the Summary of Benefits and Coverage requirements of PHS Act §2715. Part XX – Coverage of preventive services. Part XXI – Llimitations on cost-sharing under the ACA. Part XXII – Compliance of premium reimbursement arrangements. *Note: Some of the guidance in FAQs Parts VIII, IX and X have been superseded by guidance contained in FAQs Part XIV. Some of the guidance in FAQs Parts VIII, IX, X and XIV have been superseded by guidance contained in FAQs Part XIX.

– No employee contributions are required as a condition of participation and – The EAP imposes no cost sharing requirements.

Cafeteria Plans The IRS issued guidance in 2014 regarding several aspects of cafeteria plan administration (some of which is ACA driven), including: • 2 new permissible election changes: The IRS issued Notice 2014-55,

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January 2015 | The Self-Insurer

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We can’t stop misfortune. We can stop loss. Becoming a top tier Stop Loss carrier doesn’t just happen. For 35 years, our dedication to creative solutions has made us the top choice for our clients. Not all Stop Loss carriers are created equal. Today’s businesses have unique needs that demand expert-level service. That’s been the foundation of our Stop Loss offering from the beginning. We know it’s not just the plan; it’s the team behind it. Your business is unlike any other. It’s time for a Stop Loss carrier that’s unlike any other, too. Our mission as Voya Financial™ is to make a secure financial future possible for employers and employees nationwide.

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Appendix A: Cost-of-living Adjustments for 2015 High-Deductible Plans Annual Deductible (self-only)

$1,300

Annual Deductible (family)

$2,600

Out-of-pocket maximum (self-only)

$6,450

Out-of-pocket maximum (family)

$12,900

Health Savings Accounts HSA Contribution (self-only)

$3,350

HSA Contribution (family)

$6,650

Traditional Plans Out-of-pocket maximum (self-only)

$6,600

Out-of-pocket maximum (family)

$13,200

Flexible Spending Accounts FSA Contribution

$2,550

Transportation Transportation in a commuter highway vehicle/transit pass (monthly)

$130

Qualified parking (monthly)

$250

SIMPLE Plans SIMPLE Maximum Contributions

$12,500

Catch-up Contributions

$3,000

401(k), 403(b), Profit-Sharing Plans, etc. Annual Compensation

$265,000

Elective Deferrals

$18,000

Catch-Up Contributions

$6,000

Defined Contribution Limits

$53,000

ESOP Limits

$1,070,000 $210,000

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

Other HCE Threshold

$120,000

Defined Benefit Limits

$210,000

Key Employee

$170,000

457 Elective Deferrals

$18,000

Control Employee (board member or officer)

$105,000

Control Employee (compensation-based)

$215,000

Taxable Wage Base

$118,500

which creates two new permissible election changes. According to Notice 2014-55, cafeteria plans are allowed, but not required, to permit plan participants to revoke their group health plan coverage and elect other minimum essential coverage in the following situations: » An employee who was expected to average 30 hours of service or more per month experiences an employment status change such that the employee is no longer expected to average 30 hours or more each month but does not otherwise lose eligibility under a group health plan that provides minimum essential coverage. » An employee is eligible to enroll in a Qualified Health Plan offered in the Marketplace (i.e., “Exchange”) during the Marketplace’s special or annual election period. Plans that wish to permit these election changes must amend their plan by December 31, 2015, or if later, the end of the plan year in which the changes are allowed. Employers who permit these election changes must notify participants of the new election change provision in order for the amendment to be effective. » Pay and Chase Procedures: A Chief Counsel’s Memorandum (CCM) issued in 2014 clarified the procedures required to chase overpayments of Health FSA. The CCM also clarified that failure to recover the overpayment results in income to the participant that must be reported on a W-2. » Impact of Carryover on HSA eligibility: A second CCM issued in 2014 clarifies the impact January 2015 | The Self-Insurer

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Health FSA carry overs have on HSA eligibility. The CCM also provides options for plans that are designed to facilitate HSA eligibility despite the existence of a carryover (e.g. employee may choose to opt out or can convert to a limited purpose carry over if employer otherwise has a limited purpose Health FSA). » Deadline to amend plans to add carryover: Employers that added a carryover provision to their Health FSA for 2014 have until the end of the 2014 to officially amend their plans to add the carryover. » Deadline to Amend Health FSA Plans for $2500 Salary Reduction Cap and Increase in $2500 Limit to $2550. Plan sponsors that have not yet formally amended their plans for the ACA $2500 salary reduction cap for health FSAs must amend their plans by the end of 2014. Also, the $2500 amount has been increased to $2550 for 2015 (see Appendix A).

Mental Health Parity and Addiction Equity Act The final regulations under the Mental Health Parity and Addiction Equity Act (“MHPAEA”) became effective for plan years beginning on or after July 1, 2014. The final regulations made a number of clarifications regarding the application of the MHPAEA, including but not limited to the application of the rules to non-quantitative treatment limitations. The agencies also issued several FAQs (see FAQs XVII and XVIII) and an overhauled self-compliance tool in 2014.

ADA and GINA In 2014, the EEOC made news when it sued Honeywell with respect to its wellness program. The EEOC claims that Honeywell’s wellness program violates both the ADA and GINA. Honeywell’s wellness program imposes premium surcharges for employees and spouses who fail to complete the biometric screen and/or who use tobacco. The EEOC claims that imposing a penalty on employees for failing to complete the screening violates the ADA’s prohibition against “involuntary” post hire medical inquiries. The EEOC further claims that imposing penalties for failure to provide a spouse’s information is a violation of GINA’s prohibition against requesting a family member’s medical history. The EEOC requested a temporary restraining order from the District Court, which was denied. It remains to be seen how this case will come out.

Transit Guidance The IRS issued Rev. Rul. 2014-32, which addresses the use of smart cards and other electronic media as “fare media” for transit passes. The rule creates doubt about the permissibility of cash reimbursement of transit passes in some areas where smart cards and certain types of terminal restricted cards are otherwise “readily” available.

Cost of Living Adjustments Appendix A, on the previous page, is a list of the cost of living adjustments issued this year for next year. ■

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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, Johann Lee, Carolyn Smith and Dan Taylor provide the answers in this column. Mr. Hickman is partner in charge of the Health Benefits Practice with Alston & Bird, LLP, an Atlanta, New York, Los Angeles, Charlotte and Washington, D.C. law firm. Ashley Gillihan, Carolyn Smith and Johann Lee are members of the Health Benefits Practice. Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner’s situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation. Readers are encouraged to send questions by email to Mr. Hickman at john.hickman@alston.com. References See www.uspreventiveservicetaskforce.org/uspstf/ uspsabrecs.htm for a list of the U.S. Preventive Services Task Force A&B recommendations and their release dates.

1


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SIIA

President’s Message Written by Michael W. Ferguson

Self-Insurance/ART Marketplace Continues to Face Legislative/Regulatory Headwinds in the New Year

O

rganizations involved in the self-insurance/alternative risk transfer marketplace are getting back to business after the holiday break. While they are focused on managing risk for the new year, regulatory headwinds continue to blow, generated by certain policy-makers who do not fully recognize the importance of self-insurance solutions for employers, Taft-Hartley plans and public section entities. While no one knows exactly how legislative/regulatory developments will play out during 2015, we can certainly identify some areas to watch. With that disclaimer noted, let’s explore some anticipated storylines for the next 12 months.

Stop-Loss Insurance Regulation State regulation of stop-loss insurance is expected to continue to be a hot area as Legislatures come back into session over the next couple months. Despite strong opposition by SIIA and other industry stakeholders, restrictive stop-loss laws have been enacted in California and the District of Columbia over the past two years. Other efforts have been beaten back. One development that could add fuel to this fire is that the U.S. Department Labor of issued a Technical Release on November 6, 2014 expressing the opinion that states should not be concerned that stop-loss regulation restricting policies based on attachment points would be preempted by the Employee Retirement Income Security Act (ERISA). The full language of DOL’s conclusion follows:

SIIA views this unsolicited Technical Release as explicit encouragement for states to regulate more in this area to make it increasingly difficult for smaller and mid-sized employers to operate self-insured health plans.That said, we reject the conclusion that the ERISA preemption question is settled. In fact, the closest legal precedent (AMS v Bartlett) concluded that states cannot classify stop-loss insurance as health insurance regardless of attachment point levels. In any event, watch for additional states to decide to target stoploss insurance for the purpose of “protecting their insurance exchange from adverse selection,” a favorite canard of industry critics. But the stop-loss regulatory threat is not confined to the state level.There is ongoing concern that federal regulators will redefine health insurance coverage

The Department of Labor, which is the agency primarily tasked with administration of Title I of ERISA,(9) takes the view that States may regulate insurance policies issued to plans or plan sponsors, including stop-loss insurance policies, if the law regulates the insurance company and the business of insurance.(10) Insurance regulation of group health insurance clearly limits insurance policy choices available to third parties, including employee benefit plans. Insurance regulation of stop-loss insurance can have a similar consequence without ERISA preempting the insurance regulation. Thus, a State law that prohibits insurers from issuing stop-loss contracts with attachment points below specified levels would not, in the Department’s view, be preempted by ERISA. Thus far, about ten States have enacted laws using the same approach as the NAIC model. The Department is not aware of any challenges to such laws based on ERISA preemption. 42

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to include stop-loss insurance with “low” attachment points.This would have a significant adverse affect on the selfinsurance marketplace nationwide. This threat prompted the introduction of the Self-Insurance Protection Act (SIPA) last year, which was intended to close off regulatory discretion in this area. SIIA expects that the legislation will be reintroduced soon for the new Congress to consider, so watch for this announcement in the coming weeks.

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

Erosion of ERISA Preemption While efforts to more tightly regulate stop-loss insurance have and will continue to be flashpoints for industry stakeholders and regulators, there has been a slow burn taking place related to attacks on ERISA preemption. Since the passage of the landmark law back in 1974, states have periodically tested the statute’s preemption provision by attempting enact laws that affect self-insured plan sponsors in various ways. Many of such laws have been challenged in federal court and the results have been mixed. But more recently, there has been an uptick in state regulatory activity around the edges of ERISA preemption – poking and prodding how far they can go without judicial pushback. And as noted previously, even the Department of Labor is now encouraging such provocative actions. SIIA has been engaged high stakes litigation against the state of Michigan in response to it Health Claims Assessment Act, with an appeal to U.S. Supreme Court filed just last month (SIIA v. Snyder). The association also recently partnered with the National Association of Subrogation Professionals (NASP) to request that the U.S. Supreme Court hear an appeal of an Appellate Court ruling that would allow state antisubrogation laws to trump the ability of self-insured employers to enforce clear plan language. While these and other current ERISA preemption cases are clearly important in response to existing state statutes, the importance is also of a prospective nature as well, as additional states may consider

additional opportunities to insert their noses under the regulatory tent. NOTE: For a deeper on current ERISA preemption litigation, please read the article on page 4 authored by Chris Aguilar and Ron Peck from the Phia Group.

State Assessments While the closure of state high risk pools post-ACA is relieving our stoploss carrier members of assessments to support these pools, don’t look now but new assessments are on the horizon – this time to support state run health care exchanges. Federal money for these exchanges has now run out and many are now desperate for additional funding sources to supplement user fees paid by participating health insurance carriers. It should be noted that exchanges run by the federal government will also face budgetary pressures, but they are not permitted to raise money through assessments. We already know that New Mexico has signaled an interest in imposing such assessments on stop-loss carriers, while Rhode Island is looking at targeting self-insured employers directly as a source of revenue. SIIA will oppose such assessment proposals because the self-insurance marketplace derives no benefits from the exchanges. And the extent that assessments create additional administrative burdens on plan administrators, we once again may have an ERISA preemption issue.

ACA Regulatory Developments The regulatory process continues to play out with regard to ACA implementation and there is still forthcoming guidance and rules that will affect the self-insurance marketplace. We know from past experience that often time the unexpected happens, so SIIA continues to be directly engaged with key representatives within Treasury, DOL and HHS. One unresolved matter is the contraceptive coverage mandate rule and more specifically the “accommodation” made for non-profit religious

organizations – and not closely-held for profit corporations. As SIIA has reported previously, this accommodation does not work in the real word, which will likely result in many religious organizations dropping their selfinsured plans.This may now also be an issue outside this relatively small market niche so the association continues to push for a regulatory fix.

Enterprise Risk Captives On the captive insurance front, the main area of interest for SIIA in 2015 will be Enterprise Risk Captives in the context of potential tax reform legislation. These are small captive insurance companies that take the 831(b) tax election are viewed by some policymakers as tax shelters despite their legitimate business purposes. The association has therefore initiated an educational outreach campaign to make sure congressional staffers and federal regulators understand how important these captive programs are to thousands of smaller and mid-sized businesses throughout country so that the current tax treatment is not affected, should corporate tax reform legislation start to gain momentum in the new Congress.

SIG Regulation Finally, SIIA has will continue to monitor the regulatory environment for self-insured group self-insured workers’ compensation funds (SIGs). Since the failure of several SIGs in New York two years ago, some states have signaled an interest to close down SIGs through more restrictive regulation. California has already come close through higher collateral requirements enacted last year.

Stay Tuned As pointed out at the beginning of this article, it is impossible to predict exactly what the new year has in store for the self-insurance/ART marketplace in terms of legislative/regulatory obstacles, so be sure to stay tuned for exclusive SIIA reporting – and perhaps more importantly, how your company the help the cause. ■

January 2015 | The Self-Insurer

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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

2015 Board of Directors CHAIRMAN OF THE BOARD* Donald K. Drelich Chairman & CEO D.W. Van Dyke & Co. Wilton, CT CHAIRMAN ELECT* Steven J. Link Executive Vice President Midwest Employers Casualty Co. Chesterfield, MO PRESIDENT* Mike Ferguson SIIA Simpsonville, SC TREASURER & CORPORATE SECRETARY* Ronald K. Dewsnup President & General Manager Allegiance Benefit Plan Management, Inc. Missoula, MT

Directors Andrew Cavenagh President Pareto Captive Services, LLC Philadelphia, PA Robert A. Clemente CEO Specialty Care Management, LLC Bridgewater, NJ Duke Niedringhaus Vice President J.W. Terrill, Inc. Chesterfield, MO

Jay Ritchie Senior Vice President HCC Life Insurance Company Kennesaw, GA Adam Russo Chief Executive Officer The Phia Group, LLC Braintree, MA

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Regular Members Company Name/ Voting Representative

Michelle Jones BlueCross BlueShield Vermont Montpelier, VT Rick Eldridge President/CEO The Intuitive Companies Greenwood Village, CO

Gold Member Committee Chairs ART COMMITTEE Jeffrey K. Simpson Attorney Gordon, Fournaris & Mammarella, PA Wilmington, DE GOVERNMENT RELATIONS COMMITTEE Jerry Castelloe Castelloe Partners, LLC Charlotte, NC HEALTH CARE COMMITTEE Robert J. Melillo 2nd VP & Head of Stop Loss Guardian Life Insurance Company Meriden, CT 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

Kevin Myers Principal Oxford Risk Management Group Sparks, MD


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