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Januar y 2016 | The Self-Insurer

A WINDING ROAD | FEATURE 95 and sharing the same benefits adviser, these two small and midsize employers charted the same course to save on employee health care costs. After years of fully insured plans, they briefly transitioned to a medical stop-loss captive program before embracing self-insurance for the long haul – despite being told their groups were too small to pursue that route. Along the way, there was a sense about hedging their bets. A famous quote by actor Wesley Snipes in “Passenger 57” was invoked to describe the crossroads faced by NorthBay, which runs group retreats and other school-funded programs for sixth graders as well as other elementary and middle school students.

“You ever play roulette?” Mark Gerhard, the organization’s finance manager, remembers the film’s protagonist asking a European tourist, whose response was: “On occasion.” Snipes’s character then says, “‘Well, let me give you a little piece of advice: Always bet on black.’ So we thought it was better to bet on ourselves.” A similar strategy unfolded at St. John Properties, faced down a 19% premium increase by United Healthcare. “We just thought that was ridiculous,” recalls Teri Mallonee, the company’s VP of operations. In 2009, the company was paying about $9,000 per employee per year, which would have climbed to $12,000 if the fully insured plans were renewed. While NorthBay was performing well in a traditional fully insured environment, Gerhard says “they were coming back with 10% increases every

year, even though they were making $200,000 in profit. So that was a little bit hard to take year after year.”

A Captive Transition The next stop for NorthBay and St. John Properties was to join a heterogeneous medical stop-loss captive featuring at its height about 35 like-minded employers from various industries. It was the first benefit captive created in the Mid-Atlantic region, offering an “opportunity to take a peek under the hood and see what’s really driving their health care costs,” says Gary C. Becker, CEO of the Becker Benefit Group, Inc., a boutique benefit consulting firm. He created the captive in 2010 from his own client base, then banded together with several brokers in 2013 to deepen its risk pool. Requirements included having to meet a certain risk profile and be willing to sponsor a wellness initiative. Each captive member also was expected to pay all claims within its self-funded retention and buy stop-loss insurance, including both specific and aggregate claim protection. In addition, they would post collateral to the group captive, but retain unused claim reserves. “All these groups that I put into the captive were fully insured,” he explains, noting how each of these employers had arrived at a point in time where “they weren’t just going to sit back and just take it on the chin every year.” St. John Properties was one of the first groups to join the captive in 2010, while North Bay came on board the following year. Before long,

they both determined that it made more sense to be self-funded on a standalone basis. The two companies were among the captive’s healthier groups and concerned about what Becker calls “a blending effect” that involves mixing the risks of disparate employee populations. Ultimately, they lost money and decided not to want to wait long enough to share in any surplus down the road in the form of dividends. NorthBay exited the captive in 2012, after just eight months, while St. John Properties left in 2013, after three years. Mallonee initially considered moving from a fully insured arrangement to self-insurance, but was advised that their group was too small and it was a risky proposition. So instead, the captive became a bridge to selfinsurance, but the journey wasn’t without troubled water. “We were getting nailed,” Mallonee explains. “Every time we put up the collateral, they were calling the collateral at the end of the year, so basically it was really costing us more.” Collateral calls were made three years in a row, with multi-million dollar transplants involving other captive members cited as a major driver of the increase. Thus, it was time to move on. “Once they learned about all these wonderful opportunities to manage risk, they felt that it was in their own best interest to do it and have many stop-loss carriers bidding for their business,” Becker says of his clients that sought yet another change in strategy. In transitioning from a captive to stand-alone self-insurance, Becker says employers may prefer to shop for the best deal on stop-loss on their own and re-evaluate the pricing at a Januar y 2016 | The Self-Insurer

SUBROGATION RIGHTS | FEATURE

[St. St.John JohnProperties Properties by the Numbers] UHC/PWC Trend

UHC/PWC PEPY

St. John Properties

Self‐funded

2009

St. John PropertiesTotal Actual Number of St. John Properties UHC/PWC Collateral Call HSA Contr. UHC/PWC PEPY Savings Collateral Call HSA Contr. UHC/PWC UHC/PWC Costs Self‐funded Ee's Trend PEPY Self‐funded Collateral Call HSA Contr. 2009 2009

2010 2009 $588 2010

2010

19.00%

$10,635

$11,223

2011

9.00%

$11,592

$11,242

2010 $769 2011

2012

8.50%

$12,578

$12,029

2013 2014 2015 2016

7.50% 6.50% 6.80% 6.50%

$13,521 $14,400 $15,379 $16,378

$9,213 $8,123 $5,333

2012 $0 2013

2011

2012 2011

2012 2013 2014 2013 2014 2015 2014 2015 2016 2015 2016 2016

UHC/PWC Trend Trend 19.00% $0 19.00% 9.00% 19.00% $0 9.00% 8.50% 9.00% 8.50% $0 7.50% 8.50% 7.50% $0 6.50% 7.50% 6.50% 6.80% $1,145 6.50% 6.80% 6.50% 6.80% $637 6.50% 6.50%

UHC/PWC PEPY Self‐funded Collateral Call PEPY $8,937 $10,635 $11,223 ‐$1,175 $588 $11,810 $10,635 $11,223 $588 $11,592 $11,242 $769 $10,635 $588 $12,011$11,223 $11,592 $11,242 ‐$419$769 $12,578 $12,029 $0 $11,592 $11,242 $769 $12,578 $12,029 $12,029 $549 $0 $13,521 $9,213 $12,578 $12,029 $0 $13,521 $9,213 $9,213 $9,213 $14,400 $8,123 $4,307 $13,521 $14,400 $8,123 $15,379 $5,333 $5,131 $9,269 $8,123 $14,400 $15,379 $5,333 $16,378 $15,379 $5,333 $5,971 $9,408 $16,378 $16,378

Number of

Cumulative

Total Actual Number of Number of Annual Savings PEPY Savings Total Actual Number of Savings Number of Annual Savings Months Costs Ee's Months PEPY Savings Number of Annual Savings Total Actual Number of Costs Ee's Months PEPY Savings Annual Savings $8,937 96 Costs Ee's Months $8,937 96 $11,810 ‐$1,175 94 ‐$55,245 $8,937 6 ‐$55,245 96 ‐$55,24566 $11,810 ‐$1,175 94 ‐$55,245 $12,011 ‐$419 89 11 ‐$34,168 $11,810 ‐$1,175 6 ‐$55,245 11 ‐$34,168 94 ‐$89,412 $12,011 ‐$419 89 11 ‐$34,168 $12,029 $549 94 12 $51,579 $12,011 ‐$419 89 11 ‐$34,168 $12,029 $549 94 12 $51,579 12 $51,579 82 ‐$37,834 $9,213 $4,307 12 $353,203 $12,029 $549 94 12 $51,579 $9,213 $4,307 82 12 $353,203 12 $353,203 82 $315,369 $9,269 $5,131 84 12 $430,996 $9,213 $4,307 12 $353,203 $9,269 $5,131 84 12 $430,996 $5,971 $9,408 87 10 $1,130,308 12 $430,996 84 $746,365 $9,269 $5,131 12 $430,996 $5,971 $9,408 87 10 $1,130,308 $5,971 $9,408 87 10 $1,130,308 10 $1,130,308 $1,876,673

HSA Contr. 96

94$0 $0 $0

89$0 $0

$0 $0

$0 94$0

$0 $0 82$0 $1,145 $1,145 $637 84 $1,145 $637 $637 87

UHC/PWC PEPY Trend vs Self‐Funded PEPY later date, whereas all members of UHC/PWC PEPY Trend vs Self‐Funded PEPY UHC/PWC PEPY Trend vs Self‐Funded PEPY $18,000 $18,000 the captive lock in longer-term pricing UHC/PWC PEPY Trend vs Self‐Funded PEPY $18,000 $16,000 $16,000 with a single stop-loss carrier. $16,000 $14,000 $18,000

Although $16,000

Becker’s clients were $14,000 eager to cut bait from the captive as $12,000 in their risk-management confidence $10,000 grew, he’s still a big believer strategies $8,000 in the potential of these arrangements. $6,000

$14,000 $14,000 $12,000 $12,000 $12,000 $10,000 $10,000 $10,000 $8,000 $8,000 $8,000 $6,000 $6,000 $6,000 $4,000 $4,000 $4,000 $2,000 $2,000 $2,000 $0 $0 $0

PWC PWC Actual PWC Actual UHC Actual UHC UHC

PWC Actual UHC

2009 2010 2011 2012 2013 2014 2015 “It’s absolutely the right place for 2009 2010 2011 2012 2013 2014 2015 2009 2010 2011 2012 2013 2014 2015 employers to go into and stay into for $2,000 a long time,” he says. “Every employer UHC/PWC PEPY Trend vs Self‐Funded PEPY UHC/PWC PEPY Trend vs Self‐Funded PEPY $0 UHC/PWC PEPY Trend vs Self‐Funded PEPY has a different2009 level of risk2010 tolerance 2011 $18,000 $18,000 2012 2013 2014 2015 $18,000 $16,000 and need to make a decision that they $16,000 $16,000 $14,000 $11,810 $12,011 $14,000 $12,029 $11,810 $12,011 believe is in their own best interest... $12,029 $14,000 $12,000 $11,810 $12,011 $12,029 $12,000 $9,269 $9,213 $12,000 $9,269 $8,937 The whole idea of a captive is you’re $9,213 UHC/PWC PEPY Trend vs Self‐Funded PEPY $10,000 $8,937 $10,000 $9,269 $9,213 $8,937 $10,000 $8,000 $5,971 going to have your good years and $8,000 $18,000 $5,971 $8,000 $6,000 $5,971 $6,000 bad years.” $16,000 $6,000 $4,000

$4,000

$14,000

$11,810

$12,011

A$12,000 Matter of $8,937 $10,000 Life or Death

$4,000 $4,000 $2,000 $2,000 $0 $0 $0

$2,000 $12,029 2009 $9,2692011 $9,213 2010 2009 2010 2011 2009 2010 2011

$8,000

At a time when many employers balked at forcing employees into $4,000 wellness initiatives for fear of $2,000 discrimination claims or undermined $0 morale, St. John Properties 2009 2010decided2011 to make twice-annual biometric screenings mandatory. $6,000

$2,000,000

2013 2013 2013

2014 2014

Actual2014

$1,200,000 $1,200,000 $1,200,000 $1,000,000 $1,000,000 $1,000,000 $800,000 $800,000 $800,000 2012 $600,000 $600,000 $600,000 $400,000 $400,000 $400,000 $200,000 $200,000 $200,000 $0 $0 $0 ‐$200,000 ‐$200,000 ‐$200,000

2013

2014

$353,203 $353,203 $353,203

$2,000,000 $2,000,000 $2,000,000 $1,500,000 $1,500,000 $1,500,000

‐$55,245 ‐$55,245 2010 2010 2010

‐$34,168 ‐$34,168 ‐$34,168 2011 2011 2011

$51,579 $51,579 $51,579 $1,130,308 2012 2013 2012 2013 2012 2013

$430,996 $430,996 $430,996

2014 2014 2014

2015 2015 2015

2010 2010 2010 2011 2011 2011 2012 2012 2012 2013 2013 2013 2014 2014 2014 2015 2015 2015

2010

Cumulative Savings Since 2010 Cumulative Savings Since 2010 2011 Cumulative Savings Since 2010 $353,203

$1,130,308 $1,130,308 $1,130,308

2015

2012

$430,996

$1,876,673 $1,876,673 $1,876,673

2013 2014

$746,365

2015 ‐$37,834

‐$37,834 ‐$37,834 2012 2012 2012

$315,369 $315,369 $315,369 2013 2013 2013

$746,365 2015 $746,365

2014 2014 2014

$1,876,673

The Self-Insurer | www.sipconline.net

$1,500,000

2015 2015 2015

$5,971

Employees of St. John Properties $1,000,000 $200,000 $1,000,000 $1,000,000 $51,579 are now reaping the‐$55,245 rewards of‐$34,168 this $500,000 $0 $500,000 tough-love-in-the-workplace approach. $500,000 2010 2011 2012 2013 2014 ‐$89,412 ‐$89,412 ‐$55,245 ‐$200,000 up to $1,500 toward ‐$55,245 They received ‐$89,412 $0 ‐$55,245 $0 2010 2011 $0 2010 2011 their health savings account, which 2010 2011 ‐$500,000 ‐$500,000 led to a marked improvement in Cumulative Savings Since 2010 ‐$500,000 6

2012 2012 2012

UHC/PWC Annual Savings Since 2010 Annual Savings Since 2010 Annual Savings Since 2010

Annual Savings Since 2010 ‐$55,245

“I think people get too concerned $1,200,000 or worried about the employees’ responses and then you take these $1,000,000 little baby-steps,” Mallonee observes. $800,000 “It’s like tearing off a Band-Aid. Just $600,000 do it. Just tell them it’s part of being on the $400,000 insurance.”

Actual Actual Actual UHC/PWC UHC/PWC UHC/PWC

2010

2015 2015 2015

2010 2010 2010 2011 2011 2011 2012 2012 2012 2013 2013 2013 2014 2014 2014 2015 2015 2015

Cumula Cumula Saving Cumulat Saving Saving ‐$55,2 ‐$55,2 ‐$89,4 ‐$55,24 ‐$89,4 ‐$37,8 ‐$89,41 ‐$37,8 $315,3 ‐$37,83 $315,3 $746,3 $315,3 $746,3 $1,876, $746,3 $1,876, $1,876,6

Januar y 2016 | The Self-Insurer

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SUBROGATION RIGHTS | FEATURE

[NorthBay NorthBay by the Numbers] Carefirst & NorthBay NorthBay PWC Trend NorthBayCarefirst & Carefirst & PEPY 2010

2010 2010 2010 2011 2011 2010 2011 2011 2012 2012 2011 2012 2012 2013 2012 2013 2013 2013 2014 2013 2014 2014 2014 2015 2014 2015 2015 2016 2015 2016 2015 2016 2016

2016

PEPY Self‐funded Self‐funded Self‐funded $8,191 Self‐funded $8,928 $6,364 $6,364 $6,364 $5,617 $9,687 $6,364 $5,617 $5,617 $4,969 $5,617 $4,969 $10,414 $4,969 $6,519 $4,969 $6,519 $6,519 $11,091 $6,515 $6,519 $6,515 $6,515 $6,515 $11,845

Carefirst & PEPY PWC Trend PEPY PWC Trend Carefirst & PWC Trend PEPY $8,191 PWC Trend $8,191 $8,191 9.00% 9.00% $8,928 $8,191 9.00% $8,928 9.00% $8,928 8.50% $9,687 8.50%$8,928 9.00% 8.50% $9,687 8.50% $9,687 7.50% $10,414 8.50% $9,687 7.50% $10,414 7.50% 7.50% $10,414 6.50% $11,091 7.50% $10,414 6.50% $11,091 6.50% 6.50% $11,091 6.80% $11,845 6.50% $11,091 6.80% $11,845 6.80% $11,845 6.50% $12,615 6.80% $11,845 6.50% $12,615 6.80% 6.50% $12,615 6.50% $12,615

6.50%

Number of Ee's Ee's Number of Ee's Ee's $6,364 65 65 65 68 $5,617 65 68 68 69 68 69 $4,969 69 60 69 60 60 $6,519 65 60 65 65 65 $6,515

2011 2011 2011 2011

$10,000

2012 2012 2012 2012

2013 2013 2013 2013

2011

$6,364 $6,364 $6,364 $6,364

$5,617 $5,617 $5,617 $5,617

2011 2011 2011 2011

2012 2012 2012 2012

$8,000

2014 2014 2014 2014

2015 2015 2015 2015

2012

$4,969 $4,969 $4,969 $4,969

2013

2014

$6,519 $6,519 $6,519 $6,519

$6,515 $6,515 $6,515 $6,515

2014 2014 2014 2014

2015 2015 2015 2015

2015

Actual Actual Actual Actual Carefirst & PWC Trend Carefirst & PWC Trend Carefirst & PWC Trend Carefirst & PWC Trend

Fully Insured Trend versus Actual PEPY

2013 2013 2013 2013

$6,364

Annual Savings Annual Savings Annual Savings $5,617$375,690 $375,690 $375,690 $375,690$4,969

$276,785 $276,785 $276,785 $276,785

$6,519 $274,305 $274,305 $274,305 $274,305

$6,515 $288,701 $288,701 $288,701 $288,701

$166,667 $166,667 $166,667 $166,667

2010

2011

2011 2011 2011 2011

2012 2012 2012 2012 2012

2013 2013 2013 2013 2013

2014 2014 2014 2014

2014 Annual Savings

Cumulative Savings Cumulative Savings Cumulative Savings

$400,000

$1,600,000 $1,600,000 $1,600,000 $1,600,000$350,000 $1,400,000 $1,400,000 $1,400,000 $1,400,000 $1,200,000 $1,200,000 $1,200,000 $300,000 $1,200,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000$250,000 $800,000 $800,000 $800,000 $800,000 $600,000 $600,000 $600,000$200,000 $600,000 $400,000 $400,000 $400,000 $166,667 $400,000$150,000 $166,667 $166,667 $200,000 $200,000 $200,000 $166,667 $200,000 $0 $100,000 $0 $0 2011 $0 2011 2011 $50,0002011

Annual Savings

Cumulative Savings

$166,667

$276,785

$443,452

$375,690

$819,142

12 10

$274,305 $288,701

$1,093,446 $1,382,147

biometric screening scores, as well as free Fitbits in 2015. Also as part of its health-conscious culture, St. John Properties offers free vitamins and toothbrushes, as well as physical therapy sessions lasting 30 minutes and an on-site gym.

Fully Insured Trend versus Actual PEPY Fully Insured Trend versus Actual PEPY Fully Insured Trend versus Actual PEPY 2010

Number of Months

$12,615

Carefirst & PWC Trend Carefirst & PWC Trend Carefirst & PWC Trend Carefirst & PWC Trend Actual Actual Actual Actual

$2,000

PEPY Savings PEPY Savings PEPY Savings PEPY Savings $0$2,564 $2,564 $2,564 $4,070 $0$2,564 $4,070 $4,070 $5,445 $5,445 $0$4,070 $5,445 $4,572 $5,445 $4,572 $4,572 $0$4,572 $5,330 $5,330 $5,330 $0$5,330

Number of

PEPY Savings

Ee's Number of Cumulative Number of Cumulative Number of Annual Savings Cumulative Months Annual Savings Savings Annual Savings Cumulative Months Savings Number of Months Savings Annual Savings Months Savings $2,564 65 12 $166,667 $166,667 12 $166,667 $166,667 12 $166,667 $166,667 12 $276,785 $443,452 $4,070$166,667 68 12 $166,667 12 $276,785 $443,452 12 $276,785 $443,452 12 $375,690 $819,142 12 $276,785 $443,452 12 $819,142 69 12 $5,445$375,690 $375,690 $819,142 12 $274,305 $1,093,446 12 $375,690 $819,142 12 $274,305 $1,093,446 12 $4,572$274,305 $1,093,446 60 10 $288,701 $1,382,147 12 $274,305 $1,093,446 10 $288,701 $1,382,147 10 $288,701 $1,382,147 10 $5,330$288,701 $1,382,147 65

PEPY Spend Comparison

$4,000

$400,000 $400,000 $400,000 $400,000 $6,000 $350,000 $350,000 $350,000 $350,000 $300,000 $300,000 $300,000 $4,000 $300,000 $250,000 $250,000 $250,000 $250,000 $2,000 $200,000 $200,000 $200,000 $200,000 $150,000 $150,000 $150,000 $0 $150,000 $100,000 $100,000 $100,000 $100,000 $50,000 $50,000 $50,000 $50,000 $0 $0 $0 $0

Total Self‐ Funded Number of Number of

Collateral Call

Total Self‐ Total Self‐ Collateral Call Total Self‐ Collateral Call Funded Collateral Call Funded Total Self‐ Funded Collateral Call Funded $6,364 $0 $6,364 $0 $6,364 $0 $6,364 $0 $5,617 $5,617 $6,364 $0 $0 $5,617 $0 $5,617 $0 $4,969 $0 $5,617 $0 $0$4,969 $4,969 $4,969 $0 $6,519 $0 $4,969 $0 $6,519 $0$6,519 $6,519 $0 $6,515 $0 $6,519 $0 $6,515 $0 $6,515 $0$6,515 $6,515

PEPY Spend Comparison PEPY Spend Comparison PEPY Spend Comparison

$14,000 $14,000 $14,000 $14,000 $12,000 $12,000 $12,000 $12,000 $14,000 $10,000 $10,000 $10,000 $10,000 $8,000 $8,000 $12,000 $8,000 $8,000 $6,000 $6,000 $6,000 $10,000 $6,000 $4,000 $4,000 $4,000 $4,000 $8,000 $2,000 $2,000 $2,000 $2,000 $0 $0 $0 $6,000 2010 $0 2010 2010 2010

$14,000 $14,000 $14,000 $14,000 $0 $12,000 $12,000 $12,000 $12,000 $10,000 $10,000 $10,000 $10,000 $8,000 $8,000 $8,000 $8,000 $6,000 $6,000 $6,000 $6,000 $4,000 $4,000 $4,000 $4,000 $14,000 $2,000 $2,000 $2,000 $2,000 $0 $0 $12,000 $0 2010 $0 2010 2010 2010

Self‐funded

2015 2015 2015 2015 2015

$375,690 $1,382,147 $1,382,147 $1,382,147 $1,382,147

$276,785 $819,142 $819,142 $819,142 $819,142

$1,093,446 $1,093,446 $1,093,446 $1,093,446

$443,452 $443,452 $166,667 $443,452 $443,452

2012 2012 2012 2012

2013 2013 2013 2013

2014 2014 2014 2014

2012

The results at St. John Properties have been significant, with $1.5 million saved over the past five and a half

2015 2015 2015 2015

2013

Beyond these incentives, which have been well received, the company occasionally is reminded that the right health plan design could actually save a life. For example, warning signs surfaced for at least one employee who was then able to make some adjustments Actual to reduce his high blood pressure, such as losing 40 pounds. Carefirst & PWC Trend There also was a light-hearted, weightloss contest during which employees had to appear in a bikini. Another employee wasn’t so lucky. He suffered a stroke at a young age before biometric screenings were required, which Mallonee believes could have prevented the unfortunate event.

Unlike St. John Properties, NorthBay shied away from biometric $288,701 screening because of employee $274,305 pushback. It also wasn’t deemed all that beneficial based on the group’s current health status.

$0 2011

Carefirst & PWC Trend Becker likened the notion of lower monthly Actualpremiums for employees with favorable biometric screening results to a good-driver discount on auto insurance, adding that it offers employees “an incentive to start thinking about taking their health more seriously.”

2014

Januar y 2016 2015 | The Self-Insurer

SUBROGATION RIGHTS | FEATURE

2011

2012

2013

2014

2015 2011

2011 2012 2013 2014 2015

Tradi-onal + Cap-ve Insurance Cap-ve + Self-‐Insured Self-‐Insured Self-‐Insured Self-‐Insured

$ 437,000.00

2016 Self-‐Insured Savings over Tradi-onal Insurance

2013

2014

Actual net medical expenses

spend per employee per year is going down 30% to 40% when everybody else’s rates or spend is going up... They do a lot of things to enhance the employee experience at their company and it’s paying dividends.” Indeed, premiums haven’t risen in four years. “That’s huge,” Mallonee exclaims, noting that the average per employee per year cost is now down to about $7,000. “We’ve been really, really, really happy being self-insured,” she says.

Betting on Self-Insurance When NorthBay entered the captive market, the average age of its 65-employee group was about 28 or 29 and the workforce was healthy. But when the numbers didn’t justify sticking with this arrangement, the company decided it could do better with stand-alone self-insurance and pocket any savings rather than hand it over to the captive. “The thought was we could monitor ourselves better than we could monitor other groups [in the captive] that may have a lot more employees and then worry about them pushing health at their business,” Gerhard explains. The Self-Insurer | www.sipconline.net

2015

2016

2011 2014 *Est. 2012-‐2015 2012 with a 6.5% 2013 * increase each year which is a in $ 465,405.00 * $ 495,656.33 * $ 527,873.99 * $ 562,185.80 * $ 598,727.87 conserva-ve increase co 2011 Tradi-onal + Cap-ve Insurance $ 437,000.00 $ 465,405.00 * $ 495,656.33 * $ 527,873.99 * $ 562,185.80 * $ 598,727.87 2011 Tradi-onal + Cap-ve Insurance $ 437,000.00 $ 465,405.00 * $ 495,656.33 * $ 527,873.99 * $ 562,1 $ 279,000.00 2012 Cap-ve + Self-‐Insured 2012 Cap-ve + Self-‐Insured$ 279,000.00 $ 279,000.00 $ 2013 287,000.00 Self-‐Insured 2013 Self-‐Insured $ 287,000.00 $ 287,000.00 2014 Self-‐Insured $ 270,000.00 2014 Self-‐Insured $ 270,000.00 $ 270,000.00 2015 Self-‐Insured $ 301,0 2015 Self-‐Insured $ 301,000.00 $ 301,000.00 So So even my worst case senario in 2 2016 this $507K, which would be $ 2016 Self-‐Insured $89K beNer than what t$ radi-onal 2016 Self-‐Insured $ 507,358.00 Savings over Tradi-onal Insurance $ 186,405.00 208,656.33 $ 257,873.99 $ 261,1 h Savings over Tradi-onal Insurance $ 186,405.00 $ 507,358.00 $ 208,656.33 healthcare w $ ould 257,873.99 $ 261,185.80 $ 914,121.11 R have charged $ 186,405.00 $ 208,656.33 $ 257,873.99 $ 261,185.80 $ 914,121.11 Realized savings over 4-‐years

past hcompares istory of increases years on a health plan that averagesEs-mated based on He it to a six-sided die with ones on four of the sides, a two about 95 employees. and three on the remaining sides. “If “Their average spend went from you roll a two, one year in six, you’re close to $11,000 per employee going to finish at par,” he explains. per year back in 2009 before I got “And then maybe one year is bad and involved to about $7,000 and change you’ve got some claims.” this past year,” Becker marvels. “Their

2016 2012

As was the case with St. John Properties, NorthBay also was told that its size was inadequate for the actuaries if it switched to self-insurance and that the company should expect to pay a higher premium that would be commensurate with the risk level of a smaller group. Still, he was confident that costs could be controlled on the front end through health and wellness programs that offered employees a financial incentive to stay healthy, as well as changing their mindset to reflect the importance of maintaining good health. This approach includes paying for free annual checkups for the workforce, whose average age is now about 32. “Once we went into self-insurance, there was no turning back,” Gerhard notes. “We’ve been very happy.” In 2011, NorthBay’s actual net medical expenses were $437,000 as it moved from a traditional fully insured arrangement to captive insurance. The following year represented a tipping point as a new blend of captive and self-insurance reduced that cost to $279,000. Since then, the tab has fluctuated slightly from $287,000 in 2013 to $270,000 in 2014 and

Es-mated based on past history of increases Actual net medical expenses Es-mated based on past history of increases

$301,000 in 2015 with stand-alone self-insurance. The per employee per year cost has dipped from $8,928 in 2011 to $6,515 in 2015. NorthBay’s net savings over traditional insurance is estimated at $914,121 between 2012 and 2015 based on a conservative annual increase of 6.5% that reflected past rate hikes. The future also appears to be bright. “Even our worstcase scenario in 2016 of $507,358 would be $89,000 better than what traditional health care would have quoted us,” Gerhard explains. He’s satisfied that annual increases are at least in the reasonable range of 3% to 5%. And while NorthBay’s administrative services only arrangement with Cigna and its third-party administrator reflect price increases, he’s nevertheless comfortable “dealing with a known player in the health market” that is welcomed by many doctors and hospitals. Becker is bullish about the future of self-insurance, particularly as it trickles down market to smaller employers. “We’re putting employees in a position to know who the best doctors are, where the fairly priced facilities are,” he says. “If they choose to use that, we’ll give them 100% coverage instead of 90% coverage. We’ll also give them a $1,000 deductible credit.” The result is lower readmission rates and claims costs, along with higher quality of care, he adds. ■ Bruce Shutan is a Los Angeles freelance writer who has closely covered the employee beneﬁts industry for 28 years.

Januar y 2016 | The Self-Insurer

INSIDE

the Beltway Written by Dave Kirby

SIIA Moves Needle on Enterprise Risk Captive Legislation, Congress Moves Forward

any small to mid-size companies and the captive insurance industry are still assessing more restrictive rules on small captives operating under IRS 831(b) status contained in hurried 2015 “tax extender” legislation passed by Congress just before the end of last year.

in discussions with Congress that resulted in a succession of three documents suggesting bill language or modifications.

After nearly a year of close consultation with Congress by SIIA and its allies in support of enterprise risk captives (ERC), the captive industry was surprised by bill language that largely set aside common-sense modifications proposed by SIIA, business organizations and regulators. The bill language affecting ERCs had never been circulated or seen publicly before being released just days before a scheduled vote, despite numerous conversations and meeting with policymakers and their staff.

Having been part of the process throughout and commenting on the outcome, Ryan Work, SIIA’s Senior Director of Government Relations, noted, “We have made progress and moved the needle substantially from where we began last February, particularly in overcoming some of the proposed ERC restrictions that were much more onerous. In addition, we were able to discuss and educate policymakers and their staff on captive issues that most of them had never encountered.” Work said that effort established an industry presence and legislators’ awareness that will continue to gain ground and pay dividends into the future.

SIIA’s discussions with Congress about ERCs were prompted last February by draft bill language introduced before the Senate Finance Committee intended to curtail possible abuses of the tax law for purposes of estate planning or capital accumulation beyond the scope of anticipated risks. For most of the year SIIA’s volunteer ERC Task Force, staff and lobbyists were engaged 12

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While these proposed modifications helped to educate policymakers and move the conversation forward, Congress nevertheless proposed further sweeping restrictions with what many believe will cause unintended consequences. The new law provides an increase of allowable annual captive premium tax deductions from $1.2 million to $2.2 million but will provide major challenges to captive formation and operation in its limitations on familial ownership, new asset valuation reporting and other definitional changes.

Enterprise Risk Captive Task Force Members Jarid Beck Risk Management Associates Bill Buechler Crowe Horwath Doug Butler MIJS John Capasso Captive Planning Associates Kevin Doherty Nelson Mullins Park Eddy Active Captive Management Upon learning of the tax extender bill threat last month, SIIA immediately mobilized the ERC Task Force (listed on the right) to begin pyramiding contacts to members of Congress from themselves, clients, colleagues, state captive associations and state insurance regulators.

Rick Eldridge The Intuitive Companies

“Our members responded with immediate response and firepower,” Work said. He guided the grassroots network from SIIA’s Washington DC office and provided daily updates, briefing documents and strategic planning.

Sandra Fenters Capterra Risk Solutions

Jeff Simpson, chair of the ERC Task Force, said,

I know that SIIA and its allies are being heard in Washington. I’m very impressed with how quickly SIIA hit the ground running and I’m very impressed with the greater industry in aggressively dealing with the legislative threat in an organized and civil manner.

As an example of how support for ERCs has broadened, Simpson said he attended an on-line webinar on the tax extender bill by the American Bar Association that drew the largest attendance of any ABA event he had witnessed. SIIA’s quick response in attempting pushback to the bill language was enabled by advance planning, in Simpson’s view. “We started the ERC group just over a year ago, before a significant government threat against small captives surfaced,” he said. “If we hadn’t created that structure to advocate for the industry, we couldn’t have responded in time to head off some of the worst legislative threats.” At one time, draft bill language would have prohibited ERCs from accessing reinsurance. SIIA intends to continue this year its interface with Congress in support of ERCs and has already set meetings with key Members and staff to consider more flexible modifications to the rules. ■ Further information will be available from Ryan Work in SIIA’s Washington ofﬁce at rwork@siia.org or (202) 595-0642.

Martin Eveleigh Atlas Captives

Adam Forstot USA Risk Matt Holycross The Taft Companies Matthew Howard MIJS Jeremy Huish Artex Keith Langlands Synergy Captive Strategies Jerry Messick Elevate Captives Josh Miller KeyState Kevin Myers Oxford Michael O’Malley Strategic Risk Solutions Kerrie Riker-Keller The Intuitive Companies Mathew Robinson Wilmington Trust Dana Sheridan Active Captive Management Jeff Simpson Gordon, Founaris & Mammarella, PA Robert Vogel ProGroup

Januar y 2016 | The Self-Insurer

OUTSIDE

the Beltway Written by Dave Kirby

SIIA Members Continue to Clarify Stop-Loss with Texas Regulator

IIA members along with representatives of the Texas Association of Life and Health Insurers (TALHI) and the Texas Association of Business (TAB) joined in a second recent consultation with the Texas Department of Insurance (TDI) as it ponders a draft rewrite of employee health insurance regulations targeted for adoption later this year. TEXAS

The main point of discussion was stop-loss insurance for self-insured employee health plans. In contrast with the earlier public hearing that drew SIIA members’ participation, this was a lobbying event initiated by TALHI in partnership with SIIA. “The best kind of lobbying is performed by local constituents of any government body,” said Adam Brackemyre, SIIA Director of State Government Relations, who was among the industry delegation that held meetings last month with TDI leadership and staff members of Governor Greg Abbott. “We very much appreciated TALHI’s leadership on this project.” The SIIA contingent for the Austin meetings included Jay Ritchie of HCC Life and a SIIA Director; Barry Koonce and Marc Marion of 14

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American Fidelity Assurance Company; Catherine Bresler of The Trustmark Companies and Brackemyre. TDI participants included Doug Danzeiser, Deputy Commissioner, Life, Health and Licensing.

Deputy Commissioner Danzeiser has stated that no new elements will be added to the draft regulations but that some revisions and reductions of elements could be made. But the selfinsurance industry is unable to predict

This was an informal meeting to help TDI understand how stop-loss insurance works to support the self-insured plans of Texas employers, Brackemyre noted. TDI has stated that the draft regulations are a work-in-progress that could be shaped in part by meeting with the self-insurance industry, employers and other interested parties. As noted in a previous Self-Insurer article, SIIA is concerned that some employers would lose their health plans and others would see stop-loss premium increases if the early draft of regulations were adopted. Particularly troubling is a possible small business minimum aggregate of $4,000 per enrollee. SIIA members report that that requirement is far too expensive for small businesses and SIIA has consistently urged the elimination of the minimum products standards from the draft.

when – or even if – the rewritten regulations would be adopted. One important issue raised by the industry was the question of whether stop-loss insurance would be regulated as health insurance or casualty insurance. “This is the classic debate that we seem to encounter in every state,” SIIA board member Ritchie commented. “The point of confusion for regulators appears to be that stop-loss acts like liability insurance but operates in the health world.

“While regulators mistakenly approach our product in the context of health insurance, we cannot operate as health insurance,” he said. SIIA has long made the distinction that stop-loss insurance pays no claims for health care to members of plans and so cannot be categorized as health insurance. Rather, it covers liabilities that plan sponsors experience in amounts above a predetermined level. A preponderance of federal and state courts have agreed with SIIA on this point and no court has ever defined stop-loss insurance as health insurance.

SIIA will continue to participate in the development of Texas regulations. Copies of the current draft and SIIA’s written comments are available from Adam Brackemyre in SIIA’s Washington DC ofﬁce, (202) 463-8161 or abrackemyre@siia.org.

“To many, it appears that much of the Texas draft regulation is a solution looking for a problem,” Ritchie said. One member of the Texas industry group asked if TDI had evidence that supports the need for new regulations and none was offered in reply. ■

Januar y 2016 | The Self-Insurer

Captives Facing Legislative, Regulatory and Financial Obstacles in 2016

016 is looking to be an active year in the captive industry, with a continuing soft market, persistent scrutiny by the Internal Revenue Service (IRS) and the National Association of Insurance Commissioners (NAIC), captives will likely have a challenging year. In addition, there is still

a decision to be made by the Federal Housing Finance Agency (FHFA) whether or not to exclude captives, as well as legislation that will bar the agency from doing so. Congress has several legislative measures before them that could affect captive formation and regulation. In speaking with a number of captive professionals, from regulators to attorneys to managers, the consensus is that conventional captives, pure captives and long-standing captives, will likely be untouched by many of the issues likely to come up in 2016. However, niche captives and small captives, will be bearing the brunt of any inquiries or legislative changes. Small captives and group captives are most likely to feel the effects of the soft market.

Another Year for a Soft Market The continuing soft market is one of the key issues captives will face in 2016. Written by Karrie Hyatt 16

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In this soft market, well-capitalized traditional insurance companies are able to

keep premiums low. When traditional insurers can offer low premiums, captive programs can lose their appeal.

is then pushing 300. All this growth in spite of the continued soft market.”

According to Sandra A. Bigglestone, director of captive insurance, Vermont Department of Financial Regulation, “Captives will continue to contend with the soft market cycle and some captive programs may shrink as a result. The soft market may be a bigger problem for group captives as it may grow more difficult to keep membership engaged.”

Inquiry Into Captives by Agencies and Associations

“The continuing soft market is keeping premiums at historic low levels. Many of the admitted carriers are very well capitalized and can afford to compete on price,” said Christina Kindstedt, senior vice president, Willis Management (Vermont), Ltd. “Captives, with their capital requirements, will have a hard time competing on pricing alone with well-capitalized admitted carriers.”

While the continuing soft market is affecting all aspects of the insurance market, Robert H. Myers, Jr., partner with Morris, Manning & Martin, LLP believes that the captive industry will see growth but at a slow rate. Kevin M. Doherty, director of the Tennessee Captive Insurance Association (TCIA) and partner with Nelson Mullins Riley & Scarborough LLP, agrees that the soft market does not warrant unnecessary concern. “No one has expected this soft market to last for so long. It doesn’t concern me that much. To me, people are forming captives for the right reasons – for the benefits of good financial management – not for the tax incentives. Captive growth is not being driven by a hard market.” “Tennessee is about to license its 100th captive,” continued Doherty, “Which will happen before the end of [2015]. Add in the protected cells and incorporated cells and that number

IRS

In February 2015, the U.S. Internal Revenue Service name captives to its “Dirty Dozen” list – an annual list issued by the department naming financial vehicles that are under scrutiny for illegal tax avoidance activity. The IRS singled out captives filing under the 831(b) designation, specifying that companies are using the designation to avoid taxation. Captives will most likely once again be named to the “Dirty Dozen” list which could translate into more scrutiny of all captives. According to Bigglestone, “Increased scrutiny will be a certainty. I believe the “Dirty Dozen” list was a warning that should be heeded. Industry consultants should carefully consider the risks when generating business that is not for risk management and risk financing reasons.”

FHFA

In 2014, the FHFA proposed substantial rule changes governing membership in the Federal Home Loan Bank (FHLB) system which would effectively bar captive insurance companies from participating. The insurance industry responded to the recommended changes in force, with the agency receiving more than one thousand responses. During 2015, the FHFA did not taken any action and new captive members have been accepted into the FHLB system. However, the issue is still on the table and no decision has been made. “Given the volume of responses to the FHFA in support of captive insurers being included,” said Bigglestone, “It’s likely that captive insurers will continue

to be allowed as members of the Federal Home Loan Banks. We support captives that want to be members of the FHLBs and hope they will continue to be allowed.” It is not only the captive industry that is working to block the change, members of Congress have also taken an interest. In October, H.R. 3808 was introduced in Congress by Rep. Blaine Luetkemeyer (R-MO), Rep. Dennis Heck, (D-WA), Rep. Patrick McHenry (R-NC) and Rep. John Carney (D-DE). However, since its introduction there has been no actions taken in Congress. Gary Osborne, president of USA Risk Group, Inc. said, “I think the captive industry will succeed in resisting this change... The industry support for this facility is strong and seems to meet the intent of the loan program.”

NAIC

The NAIC will likely continue to focus on captives. After nearly two years, the Financial Regulation Standards and Accreditation (F) Committee has agreed on a new Preamble Part A for the accreditation standards that will regulate a small niche of captive companies – those that reinsure life insurance products – as multi-state insurance companies. While many captive professionals begrudgingly accept the change, Vermont’s Bigglestone sees it as an effort to increase transparency and understanding by state regulators. “As a result of initiatives already taken at the NAIC, life reinsurance captives are now subject to a set of rules to be applied consistently from state to state... . With defined standards... state regulators will achieve more uniformity, while maintaining some discretion for the assets allowed to support the excess level reserves under a state’s credit for reinsurance laws.” Januar y 2016 | The Self-Insurer

Others, such as Osborne, see this as a step towards eliminating captives from insuring these products. He said it’s likely that, “The reserving rules for life insurance will be amended to eliminate the benefit from using captives. New York and other states will attack this but change comes slow at the NAIC and there are now many more captive friendly states than previously.” “The NAIC attention to captives is unwelcome and unnecessary,” continued Osborne. “Particularly their seeming desire to insist on “licensing” captive managers could be problematic in reducing competition and adding cost and administrative burden.” At the most recent meeting of the F Committee, in November, the committee began to consider additional changes to the Preamble Part A which would list risk retention groups as multi-state insurance companies. This will certainly be an issue to watch over the course of 2016. On the recent efforts of the NAIC, Myers said, “Continuing to scrutinize the captive industry, the NAIC will likely dig deeper into how captive regulation differs from traditional insurance companies. They have experienced some success in probing into the use of life, annuity and long-term care captives. This is leading the NAIC towards seeking to regulate captives as traditional insurers in an effort to achieve greater “harmony” in regulation.”

Election Year 2016 In addition to bill H.R. 3808, there are several other pieces of legislation up for consideration in Congress. In the spring of 2015, H.R. 1788 was introduced

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into Congress to amend taxation law 831(b) to exclude many captive companies. This bill had been introduced in a previous Congress, but had languished. This bill is likely to see the same fate. However, if it does gain traction it could prove to be a very contentious bill with the captive industry. Legislation to clarify the Nonadmitted and Reinsurance Reform Act (NRRA), passed as part of the larger financial reform bill Dodd-Frank in 2010, in regards to captives was introduced last July into the Senate. S.B. 1561 was introduced by Vermont’s Patrick Leahy and South Carolina’ Lindsey Graham. The bill, Captive Insurers Clarification Act, would amend NRRA to exclude captives under the definition of non-admitted insurer. According to Doherty, “If NRRA is applied to captives then they will have to domicile in the state where their

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headquarters are. This is not really effective as far as we are concerned. There are only a handful of good domiciles so forming captives in other states may be a disadvantage to good captive regulation.”

Do you aspire to be a published author? Do you have any stories or opinions on the self-insurance and alternative risk transfer industry that you would like to share with your peers?

Doherty, as part of TCIA, has been working with Vermont Captive Insurance Association and several other captive organizations to get this amendment enacted.

The problem getting it through Congress will be a matter of perception, continued Doherty. NRRA was a completely separate bill that was tacked on to Dodd Frank and is now perceived as a law that was part of the larger financial reform bill. There is a lot of politics regarding Dodd Frank, on both sides of the aisle.

Whether any legislative action on these bills comes this year is a matter of wild speculation. As Myers said, “As it’s an election year, Congress’s main job will be making sure incumbents get reelected, so legislation that could affect the insurance industry is less likely to be passed.” ■ Karrie Hyatt is a freelance writer who has been involved in the captive industry for more than ten years. More information about her work can be found at: www.karriehyatt.com.

We would like to invite you to share your insight and submit an article to The Self-Insurer! SIIA’s official magazine is distributed in a digital and print format to reach over 10,000 readers around the world. The Self-Insurer has been delivering information to the self-insurance/alternative risk transfer community since 1984 to self-funded employers, TPAs, MGUs, reinsurers, stoploss carriers, PBMs and other service providers.

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

The Self-Insurer also has advertising opportunities available. Please contact Shane Byars at sbyars@sipconline.net for advertising information.

Januar y 2016 | The Self-Insurer

Fiduciary

Liability & Solution the

GAP A

s is the case in most American neighborhoods, a new neighbor might move in every few years. Place yourself in this familiar scenario: A new neighbor has moved in right across the street from your home. You spy through your front window and see kids, dogs, an assortment of nice furniture exiting the moving van and most importantly a really, really nice car parked in the driveway. Now you are interested. Protocol dictates that you immediately schedule a barbeque so that you might meet your new neighbor. If the stars align, you will somehow compel a conversation about that new, beautiful car parked in the driveway across the street.

Written by Tim Callender, Esq. 22

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FUDUCIARY LIABILITY | FEATURE Luckily for you, all goes according to plan. The kids play, the spouses compare vacation stories and the dogs romp through the green grass chasing butterflies. It really is a picturesque scene. You manage to force an awkward conversational segway and suddenly find yourself learning about “the car.” The gas mileage is unheard of, the safety features are top of the line, it vacuums itself, the wiper blades never need to be changed, it can parallel park for you, the paint simply does not show dirt, ever and its purchase price is insanely cheaper than any car you have ever owned. You do not understand how this can be – you figure there must be a catch – and then your neighbor mentions “The Downside.” “Well,” he says, “you do need to know that all maintenance for this car must be done by you. There are no mechanics or shops around that work on these cars, period. If you buy one, you better make sure you know what you’re doing. It’s a lot of responsibility. I hope you’re ready for that.” Sound familiar... ?

With Self-Funding Comes Great Responsibility The advantages to self-funding are many and tend to revolve around two primary ingredients: customization and cost-savings. Custom processes tacked on to practices such as subrogation, claim negotiation, medical tourism, unique plan design and reference based pricing can all lead to cost-savings and significant financial performance for a health plan. As is routinely the case, though, all roses do come with thorns. In this case the “rose” of customization and cost-savings comes with the “thorn” of fiduciary responsibility. This thorn can be especially shocking for the self-funding rookie who has grown used to an insulated health insurance

experience where fiduciary liability concerns for the plan-sponsor are extremely limited and oftentimes nonexistent. Like our neighbor’s new car and its maintenance needs, self-funding comes with a unique set of responsibilities that a plan-sponsor may not be equipped to handle. The fiduciary is solely responsible for the health plan’s administration, it will be expected to exercise discretion regarding claims decisions and the fiduciary is accountable for the handling of plan assets. Not to mention that ERISA §404 mandates that all of this must be done in the sole interests of plan participants and beneficiaries, commonly known as the “duty of undivided loyalty.” §404 further obligates that this undivided loyalty must be executed with the care, skill, prudence and diligence that a person acting in a similar capacity and familiar with such matters, would employ in a similar situation. Part of the problem, of course, is that a fiduciary that is new to the self-funding game may not be familiar with what a person acting in a similar capacity would do in a similar situation. The key phrase is “familiar with such matters,” and some fiduciaries are, in fact, not familiar with such matters. The most daunting and serious of fiduciary liabilities comes when a plan administrator is faced with analyzing a final, internal appeal of a denied medical claim. The fiduciary absolutely must understand the claim and ultimately must decide how the plan’s governing plan document should be applied to that claim appeal – and of course ERISA §404(a)(1)(D) requires a plan fiduciary to strictly follow the terms of that plan document. It is fair to say that the vast majority of self-funded plan administrators lack the qualifications necessary to understand a medical claim let alone properly apply language from a complicated plan document to that same claim. Plan sponsors (and/or administrators) make widgets – they do not adjudicate health claims, nor should they have to handle such a task. Consider a final appeal of a health claim hinging on a medical necessity determination. Is it fair, or right, or even ethical to expect the widget maker to exercise fiduciary discretion based on medical expertise? Consider the final appeal of a health claim that hinges on the interpretation of a plan document’s uniquely worded and complicated “Illegal Acts Exclusion.” Is it reasonable to expect the plan administrator to play the role of lawyerly wordsmith while dealing with the stress of a contentious final claim appeal? Obviously not. In addition, the unqualified plan administrator must not only juggle its duty to handle the responsibilities enumerated above, it must also sweat and worry about numerous penalties and consequences that may be realized, should the plan administrator fail to comply with any one of its vast array of fiduciary responsibilities.

The Thorny Realities ERISA §409 tells us that a plan fiduciary is liable for losses caused to the plan. Further, it mandates that a plan fiduciary can be held liable for equitable or remedial relief, as a court may find appropriate, should a breach of fiduciary duty occur, such as the wrong decision on the final appeal of a medical claim. ERISA §502(a)(3) authorizes equitable relief for a breach of fiduciary duty. The United States Supreme Court has held that plan participants and beneficiaries are able to seek individual equitable relief under this section of the law.1 Recently, the Supreme Court has expanded the meaning of “equitable relief.”2 This recent holding broadened ERISA §502(a)(3) by specifically identifying possible, equitable remedies that could be levied against a fiduciary, including, reformation of the Januar y 2016 | The Self-Insurer

FUDUCIARY LIABILITY | FEATURE plan’s terms, estoppel and surcharge. Although traditional equitable remedies might not include “money damages,” this holding seems to suggest that the surcharge remedy would absolutely allow for a monetary payment, akin to money damages. This very well could lead to monetary payments by plan fiduciaries, for varieties of alleged fiduciary breach. Further, ERISA allows for an award of attorney fees, to the prevailing party, in actions that involve the very scenarios we have discussed herein: a plan fiduciary denies a medical claim at the final level of appeal, yet the claim proves payable upon legal review and now interest and the participant’s attorney’s fees must be paid. As we all know, attorneys ain’t cheap. In addition to the above, plan fiduciaries involved in a fiduciary breach are likely to face a U.S. Department of Labor penalty, pursuant to ERISA

§502(l). By law, this civil penalty is set at 20% of the applicable recovery amount. ERISA 502(l) tells us that “applicable recovery amount” means “any amount which is recovered from a fiduciary or other person with respect to a breach or violation... pursuant to any settlement agreement with the Secretary, or ordered by a court to be paid by such fiduciary or other person to a plan or its participants and beneficiaries in a judicial proceeding instituted by the Secretary... .”

The risks to a plan fiduciary are numerous and the potential financial fallout is high. Here, then, is where our industry is faced with a unique and significant service gap regarding the transfer of fiduciary liability to a qualified entity. Multiply instances of this service gap by the growth of our industry and you can see the growing need that must be met.

Most frightening in all of this is the fact that a plan fiduciary may end up being an individual, thus triggering personal liability for fiduciary breaches, pursuant to ERISA. Oftentimes family-owned companies, closelyheld enterprises, or even large, privately-held organizations will either intentionally or inadvertently name an owner, or a handful of high-level individuals, as plan fiduciaries.

Using a typical Request for Production as the benchmark indicator for rookie, self-funder concerns, it becomes readily apparent that every plan administrator (likely on the advice of its broker) is gravely concerned about fiduciary liability. In a survey orchestrated by The Phia Group, we learned that 88% of broker RFPs submitted to third-party administrators include a question

The Fiduciary Service Gap and Industry Growth

HCAA’s Executive Forum 2016

ARCHITECTS O F

T H E

F U T U R E

FEBRUARY 9-11, 2016 Caesars Palace 3570 Las Vegas Blvd., Las Vegas, NV 89109

WEDNESDAY OPENING KEYNOTE SPEAKER: SENATOR TOM DASCHLE

Senator Tom Daschle

“An Insider’s View on President Obama’s Public Policy and Its Implications for the Election of 2016”

Look for more information: www.hcaa.org 24

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Januar y 2016 | The Self-Insurer

April

International Conference

2016

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

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

Schedule Events

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

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

sept

march

May 18-19, 2016 | Chicago, IL

may

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

Self-Insured Workers’ Compensation Executive Forum May 24-26, 2016 | Scottsdale, AZ

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

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

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

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For more information visit

› www.siia.org

FUDUCIARY LIABILITY | FEATURE focused on shifting fiduciary liability, whether in general, or for specific, final appeal functions. Like the Roadrunner fleeing from Wylie Coyote, the average TPA will run from this liability shift as quickly as its TPA legs will allow often losing business in the process. But, can any liability-conscious business person fault a TPA for answering “no” to this new and frightening RFP question? Absolutely not – the TPA’s hesitance is valid and understood. As if it was not difficult enough for TPAs to field this fiduciary transfer question on 88% of the RFPs coming through the door, the rapid growth of self-funding is now necessitating even more RFPs, thus dramatically increasing the demand for this transfer of fiduciary liability. From the end of 2013 through the first six months of 2014, the number of lives covered by a self-funded health plan grew by approximately 4 million while the fully-insured platform saw a decline of approximately 5 million lives. It goes without saying that new self-insured lives equal new health plans which equal new plan-sponsors submitting RFPs, which RFPs, very likely, ask, “will you, pretty, pretty please, assume fiduciary liability for my health plan?” As noted above, this question will routinely be answered in the negative. A gap exists. When a consumer becomes aware of a gap in service, the consumer will routinely shy away from those service providers unable to cure the gap. This results in lost business and another study performed by The Phia Group reveals that lost business is not good. In other fields, examples of a service gap leading to lost business can tend to seem ridiculous with so many solutions readily apparent to all involved. If a house painter refuses to include clean up in his painting services, the savvy home owner will choose a different house painter. A landscaper is not willing to include lawn fertilizing in her service offering – so the reasonably selective consumer will go with a different landscaping contractor. An auto mechanic does not offer a courtesy shuttle to drive his customers to/from his garage while he works on their cars – and the average consumer will look elsewhere for better service. No business owner should allow business to walk away when the reason behind the customer’s departure is so easily fixed.

Fiduciary Service Gap Solutions and the Move Forward The plan administrator has a handful of options when considering the fiduciary service gap.

Perhaps they flee. Some plan administrators are so frightened by the lack of fiduciary assistance that they simply pack up and return to the fully-insured world. In essence, these plan administrators – if also the plan-sponsors – choose to give up the rose to avoid the thorns. Perhaps they go in-house. Should widget makers look to hire medical experts and legal wordsmiths, in-house, specifically to handle those complicated, final, internal appeals? This would most certainly assure that the widget-making plan administrator could meet its fiduciary responsibility when making complex appeals decisions. As nice as this might sound, it is completely unrealistic and an unfair expectation. Perhaps they move forward, naked into the wilderness. Should plan administrators simply accept a “no” answer to the fiduciary RFP question and do nothing to prepare for their fiduciary demands? While clearly ill-advised, it seems that this tends to be happening more and more. Unfortunately, this option tends to result in a plan administrator being forced into the unappetizing position of

a final appeal reviewer, bringing the entire “C-suite” and a handful of attorneys into the room to sit and make a medical, or legal determination, on a complex final appeal. Not surprisingly, a few of these experiences over a plan year and you tend to see the typical plan administrator and/or plan-sponsor pack up and walk away from the self-funded platform. Perhaps TPAs address the need. Should TPAs begin to adjust their response to this frightening RFP question and accept a transfer of the plan’s fiduciary liability? Should TPAs begin to explicitly name themselves as “fiduciaries” in the hundreds of plan documents they service? Although this is, arguably, a question for TPAs to determine individually, based on their unique business models, it is clear that this was never the role of a TPA and probably should not be the role of a TPA, especially if the TPA is handling first-level appeals. In this first-level scenario, how is the TPA to meet its newly acquired fiduciary duty of objectivity, at the final level of appeal, when it already handled the first level? Further and by its very nature and modeling, a third-party administrator is not meant to be a risk-bearing entity. TPAs are service providers that are not insured or financially arranged to handle the financial fallout that might occur with the assumption of fiduciary liability. Lastly, a TPA’s assumption of fiduciary liability opens the TPA up to fiduciary claims and lawsuits, as brought by the plans or members it serves. As a frightening side note, it should be mentioned that many TPAs are likely assuming fiduciary liability unbeknownst to them. Courts have held that a service provider’s exercise of control over a health claim decision may result in fiduciary liability regardless of whether an express agreement to that effect exists, or Januar y 2016 | The Self-Insurer

FUDUCIARY LIABILITY | FEATURE not. Further, a TPA’s “exercise of control” may be as simple as the routine review of a health claim appeal, by a staff member, when an automated adjudication process would not suffice.3

What then, is the Solution? Perhaps a vendor solution addresses the need. When weighing the pros and cons of the various options explored above, it becomes apparent that a well-oiled fiduciary transfer service clearly serves the needs of the fiduciary service gap explored herein. By shifting fiduciary burdens to a reputable, thirdparty vendor, a plan-sponsor, plan administrator and/or a TPA can rest easy knowing that the legal, medical and analytical expertise necessary to meet fiduciary obligations will be satisfied, most especially in the

complicated scenario of a final, internal appeal of a medical claim. With a vendor solution in place, a plan administrator/sponsor can return to making widgets, with the confidence that complicated, final claims decisions will be made accurately and within the strict purview of the governing plan document. All the while, the plan’s servicing TPA can rest easy, knowing that it has retained good business and helped to provide a solution to that very troublesome RFP question, while also avoiding the assumption of fiduciary liability itself. ■ Tim is a Staff Attorney with The Phia Group. Prior to coming to The Phia Group, Tim gained a great deal of industry knowledge and experience functioning as in-house legal counsel for a third party administrator. Tim is well-versed in complex appeals, plan document interpretations, direct provider negotiations, keeping abreast of regulatory demands, vendor and network contract disputes, stop-loss conﬂict resolution and many other issues unique to the industry. Tim has spoken on a variety of industry topics at respected venues such as the Society of Professional Beneﬁt Administrators (“SPBA”) and the Health Care Administrator’s Association (“HCAA”). Tim currently sits on the Board of Directors for HCAA as well. Prior to his time as a TPA’s in-house counsel, Tim spent many years as an attorney in private practice, successfully litigating many cases. References Varity Corp. v. Howe, 516 U.S. 489 (1996) CIGNA Corp. v. Amara, 131 S.Ct. 1866 (2011) 3 More information on this topic can be found in the cases of LifeCare Mgmt. Servs. LLC v. Ins. Mgmt. Adm’rs Inc., 703 F.3d 835 (5th Cir. 2013), and Cyr v. Reliance Standard Life Ins. Co., 642 F.3d 1202 (9th Cir. 2011) 1 2

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PPACA, HIPAA and Federal Health Beneﬁt Mandates:

Practical

Q&A

EEOC’s Proposed Rules for Wellness Programs Under the Genetic Information Nondiscrimination Act (GINA) 1

n October 30, 2015, the Equal Employment Opportunity Commission (EEOC) published proposed rules on the Genetic Information Nondiscrimination Act of 2008 (GINA) (the “Proposed Rules”). The Proposed Rules provide clariﬁcation about what incentives may be offered to spouses under employer-sponsored wellness programs without violating GINA. The Proposed Rules follow 2013’s HIPAA wellness rules2 and the EEOC’s proposed wellness rules under the Americans with Disabilities Act (ADA) from April 20153 and add yet another layer of complexity for employer-sponsored wellness programs. The proposed ADA wellness regulations left some question as to the permissibility of offering incentives for spousal participation in a wellness program.

The Self-Insurer | www.sipconline.net

These Proposed Rules clarify that GINA does not prohibit employers from offering limited inducements (either rewards or penalties) if covered spouses pro-vide information about their current or past health status, as long as certain requirements are met. Among other things, the Proposed Rules require that the provision of information must be voluntary and that the individual provide prior, knowing, voluntary and written (including electronic) authorization. This Article discusses the background of GINA and the highlights of the Proposed Rules for employer-sponsored wellness programs.

Background: What is GINA? Title II of GINA, which is the focus of these Proposed Rules, is designed to protect employees from discrimination based on their genetic information.4 While the full scope of GINA is beyond the scope of this Advisory, it generally prohibits the use of genetic information in employment; restricts employers from requesting, requiring, or purchasing genetic information, except in very limited circumstances; and places strict limits on disclosure of genetic information. “Genetic information” is broadly defined under GINA and includes, for example, information about the genetic tests of an individual or a family member (including blood relatives and spouses) and family medical history, including the manifestation of disease – i.e., health status. One of the limited exceptions in which employers can acquire genetic information is as part of voluntary wellness programs, as long as certain requirements are met. The Proposed Rules provide much-needed guidance about the scope of this exception.

Overview of the Proposed Rules Under the Proposed Rules, employers may offer inducements to enrolled spouses to provide their medical history through a medical inquiry or exam, as long as certain requirements (discussed more fully below) are met. While some of these requirements, if finalized, may prove burdensome, the rules are not as stringent as they could have been. For instance, employers can use 30% of the family rate of coverage (under certain circumstances), which was not clear from the EEOC’s proposed ADA regulations. (See our prior Advisories for a discussion of the 30% limit, as interpreted under HIPAA and the ADA). Employers also now have guidance regarding when spouses may participate in wellness programs that collect information about current or past health status and clear guidance that inducements cannot be made for a covered child’s medical information.

The new requirements that employers must address before offering an incentive for spousal participation are discussed below.5 Employers may acquire genetic information as part of a wellness program only when the program is reasonably designed to promote health or prevent disease. The program must have a reasonable chance of improving the health of, or preventing disease in, participating individuals and must not be burdensome, a subterfuge for violating the law, or highly suspect in the method chosen to improve health or prevent disease. This language should be familiar to employers, as there is similar language in the HIPAA wellness regulations and proposed ADA wellness regulations. While the Proposed Rules provide some examples, whether a wellness program meets this threshold will ultimately be a fact-specific inquiry.

Employers cannot condition participation in a wellness program or the receipt of a reward on an employee, spouse or dependent agreeing to the sale of genetic information or waiving GINA’s protections. In other words, employers cannot avoid the application of GINA’s rules by requiring individuals to waive their protection under the statute. The spouse must be covered by the health plan and there cannot be any inducement for the spouse’s genetic information. As part of a health plan, an employer may offer an inducement to an employee whose spouse is covered under the employer’s health plan, receives health or genetic services offered by the employer and provides information about current or past health status, as long as an inducement is not offered in return for the spouse providing his or her own genetic information, including the results of genetic tests. According to the EEOC, the health risk assessment can include a medical questionnaire, a medical examination, or both. In order for this to be permissible, employers must abide by the same rules that apply to employees under GINA; for example, the spouse must provide prior knowing, voluntary and written authorization and the employer must describe the confidentiality protections and restrictions on the disclosure of genetic information.The good news here for employers is that the regulations do not seem to require that employers provide an inducement directly to spouses, which may have prevented the common practice of reducing the employee’s contribution for health coverage. However, note that employers will need to have some contact with spouses, because the spouse must affirmatively consent to participate. Januar y 2016 | The Self-Insurer

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9/15 9/15

Practice Pointer :

Employers may need to incorporate new steps to meet these requirements (e.g. a spouse may have to log on and verify receipt of the various notices and authorization to proceed before providing any health information during an HRA). In addition, under these rules, a wellness program would have to be designed to include questions about health status, not genetic information.

Under the Proposed Rules, it does not matter whether such request is benign. For example, an HRA could not include an inducement for questions about genetic markers for BRCA, even if the employer was merely intending to offer a fuller picture of the individual’s health and risk of future illness.

Practice Pointer :

The Proposed Rules also make clear that the spouse must be enrolled in the employer’s group health plan

in order to trigger an incentive. One implication of this is that employees who cover their children but not a spouse would automatically be limited to 30% of the cost of individual coverage (because no incentive can be offered for a child’s participation). Finally, it is important to keep in mind that these rules apply to wellness programs that are part of group health plans. The EEOC has requested comments on whether wellness programs outside of group health plan arrangements may use inducements for spousal participation and whether the final rules should al-low inducements in such situations. Any employers utilizing such arrangements should consider submitting comments on this issue. If a spouse participates in a wellness program, the limit for the incentive is 30% of the total cost of the plan in which the employee and any dependents are enrolled (i.e., family, not just individual, coverage). This is welcome news for employers who want to provide a reward based on 30% of the cost

of family coverage (which is likely to be much more persuasive to an employee than a reward based on 30% of individual coverage alone) and helps to clear up what appeared to be a discrepancy between the HIPAA wellness rules and the proposed ADA wellness program rules. Under the Proposed Rules, the limit of 30% of family coverage, as set forth in the HIPAA rules, is available, but requires participation by the spouse. The Proposed Rules also describe how to calculate the reward when either the employee or the spouse does not participate in the wellness program. The maximum portion of an incentive that may be offered to an employee alone may not exceed 30% of the total cost of self-only coverage (which is consistent with the EEOC’s proposed rules under the ADA). Likewise, the maximum inducement for a spouse would be 30% of the cost of family coverage minus 30% of the cost of self-only coverage. The Proposed Rules also point out that the 30% cap does not apply if there is no information about health status provided. Januar y 2016 | The Self-Insurer

Notably, the Proposed Rules state that an “inducement” includes financial and in-kind rewards, including time-off awards, prizes and other items of value (either rewards or penalties) – all of which would count toward the 30% cap.

Open Questions One point on which many plan sponsors would have liked clarity is GINA’s application to a spouse’s use of tobacco products. Under the proposed ADA regulations, the EEOC stated that it would not treat a re-quest regarding an employee’s tobacco use to be a disability related inquiry for purposes of the ADA, but any medical test or examination would be considered such an inquiry. Here, it is not clear whether a re-quest for a spouse’s tobacco use status would be treated similarly for purposes of GINA, or would be subject to the 30% limit. In addition, the EEOC did not discuss how limits are calculated if the wellness program is not part of a group health plan. Clarity on these points in the final regulations would be welcome. ■ The Affordable Care Act (ACA), the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and other federal health benefit mandates (e.g., the Mental Health Parity Act, the Newborns and Mothers Health Protection Act and the Women’s Health and Cancer Rights Act) dramatically impact the administration of self-insured health plans. This monthly column provides practical answers to administration questions and current guidance on ACA, HIPAA and other federal benefit mandates. Attorneys John R. Hickman, Ashley Gillihan, Carolyn Smith and Dan Taylor provide the answers in this column. Mr. Hickman is partner in charge of the Health Benefits Practice with Alston & Bird, LLP, an Atlanta, New York, Los Angeles, Charlotte and Washington, D.C. law firm. Ashley Gillihan, Carolyn Smith and Dan Taylor are members of the Health Benefits Practice. Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner’s situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation. Readers are encouraged to send questions by email to Mr. Hickman at john.hickman@alston.com.

The Self-Insurer | www.sipconline.net

References Stacy Clark, Esq. an associate in Alston & Bird’s Atlanta ofﬁce assisted with the preparation of this article.

2 www.alston.com/ﬁles/Publication/f88638f79114-4d35-b0ac-b8247b4a0da3/Presentation/ PublicationAttachment/eff6f36f-eab1-40f0-a024ca20ace1b11c/13-801%20ACA%20Update.pdf 3 www.alston.com/ﬁles/Publication/124fff92fc6a-4e00-a2e5-34ddb49387c6/Presentation/ PublicationAttachment/54a3750d-245b-4be3-943935869137fee2/G-15-286%20Wellness%20Programs%20 Gut%20Check.pdf 4 Title I, which is not at issue here, addresses nondiscrimination in health insurance (including group health plans and insurers). 5 While the Proposed Rules are not limited to wellness programs, this Advisory will focus on their application to employer-sponsored wellness programs.

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RRGs Report Financially Stable Results Through Third Quarter 2015 This article originally appeared in “Analysis of Risk Retention Groups – Third Quarter 2015”

review of the reported financial results of risk retention groups (RRGs) reveals insurers that continue to collectively provide specialized coverage to their insureds. Based on third quarter 2015 reported financial information, RRGs have a great deal of financial stability and remain committed to maintaining adequate capital to handle losses. It is important to note that ownership of RRGs is restricted to the policyholders of the RRG. This unique ownership structure required of RRGs may be a driving force in their strengthened capital position.

Balance Sheet Analysis

Written by Douglas A. Powell Demotech, Inc. 36

The Self-Insurer | www.sipconline.net

During the last five years, cash and invested assets, total admitted assets and policyholders’ surplus have increased at a faster rate than total liabilities. The level of policyholders’ surplus becomes increasingly important in times of difficult economic conditions by allowing an insurer to remain solvent when facing uncertain economic conditions. Since third quarter 2011, cash and invested assets increased 79.8% and total admitted assets increased 64.4%. More importantly, over a five year period from third quarter 2011 through third quarter 2015, RRGs collectively increased policyholders’

surplus 65.8%. This increase represents the addition of over $1.8 billion to policyholders’ surplus. These reported results indicate that RRGs are adequately capitalized in aggregate and able to remain solvent if faced with adverse economic conditions or increased losses. Liquidity, as measured by liabilities to cash and invested assets, for third quarter 2015 was approximately 68.8%. A value less than 100% is considered favorable as it indicates that there was more than a dollar of net liquid assets for each dollar of total liabilities. This also indicates an increase for RRGs collectively as liquidity was reported at 66.4% at third quarter 2014. This ratio has improved steadily each of the last five years.

Loss and loss adjustment expense (LAE) reserves represent the total reserves for unpaid losses and LAE. This includes reserves for any incurred but not reported losses as well as supplemental reserves established by the company. The cash and invested assets to loss and LAE reserves ratio measures liquidity in terms of the carried reserves. The cash and invested assets to loss and LAE reserves ratio for third quarter 2015 was 213.1% and indicates a decrease over third quarter 2014, as this ratio was 216.7%. These results indicate that RRGs remain conservative in terms of liquidity. In evaluating individual RRGs, Demotech, Inc. prefers companies to report leverage of less than 300%. Leverage for all RRGs combined, as measured by total liabilities to policyholders’ surplus, for third quarter 2015 was 153.2% and indicates an increase over third quarter 2014, as this ratio was 146%. The loss and LAE reserves to policyholders’ surplus ratio for third quarter 2015 was 104.6% and indicates an increase compared to third quarter 2014, as this ratio was 101.4%. The

higher the ratio of loss reserves to surplus, the more an insurer’s stability is dependent on having and maintaining reserve adequacy. Regarding RRGs collectively, the ratios pertaining to the balance sheet appear to be appropriate and conservative.

surplus ratio greater than 300% would subject an individual RRG to greater scrutiny. In certain cases, premium to surplus ratios in excess of those listed would be deemed appropriate if the RRG had demonstrated that a contributing factor to the higher ratio is relative improvement in rate adequacy.

Premium Written Analysis

In regards to RRGs collectively, the ratios pertaining to premium written appear to be conservative.

Since RRGs are restricted to liability coverage, they tend to insure medical providers, product manufacturers, law enforcement officials and contractors, as well as other professional industries. RRGs collectively reported nearly $2.6 billion of direct premium written (DPW) through third quarter 2015, an increase of 6% over third quarter 2014. RRGs reported $1.6 billion of net premium written (NPW) through third quarter 2015, an increase of 7.6% over third quarter 2014. These increases are favorable and appear reasonable. The DPW to policyholders’ surplus ratio for RRGs collectively through third quarter 2015 was 75%, up from 69.8% at third quarter 2014. The NPW to policyholders’ surplus ratio for RRGs through third quarter 2015 was 47.5% and indicates an increase over 2014, as this ratio was 43.6%. Please note that these ratios have been adjusted to reflect projected annual DPW and NPW based on third quarter results. An insurer’s DPW to surplus ratio is indicative of its policyholders’ surplus leverage on a direct basis, without consideration for the effect of reinsurance. An insurer’s NPW to surplus ratio is indicative of its policyholders’ surplus leverage on a net basis. An insurer relying heavily on reinsurance will have a large disparity in these two ratios. A DPW to surplus ratio in excess of 600% would subject an individual RRG to greater scrutiny during the financial review process. Likewise, a NPW to

Income Statement Analysis RRGs collectively reported a $46.3 million underwriting loss through third quarter 2015. The collective underwriting losses were offset by strong investment gains and other sources of income. RRGs reported an aggregate net investment gain of $220.8 million and a net income of $167.6 million. The loss ratio for RRGs collectively, as measured by losses and loss adjustment expenses incurred to net premiums earned, through third quarter 2015 was 79.1%, a decrease over 2014, as the loss ratio was 80.6%. This ratio is a measure of an insurer’s underlying profitability on its book of business. The expense ratio, as measured by other underwriting expenses incurred to net premiums written, through third quarter 2015 was 19.6% and indicates a decrease compared to 2014, as the expense ratio was reported at 20.6%. This ratio measures an insurer’s operational efficiency in underwriting its book of business. The combined ratio, loss ratio plus expense ratio, through third quarter 2015 was 98.7% and indicates a decrease compared to 2014, as the combined ratio was reported at 101.2%. This ratio measures an insurer’s overall underwriting profitability. A combined ratio of less than 100% typically indicates an underwriting profit. Januar y 2016 | The Self-Insurer

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calculated based on the financial results of RRGs appear to be reasonable, keeping in mind that it is typical and expected that insurers’ financial ratios tend to fluctuate over time. The results of RRGs indicate that these specialty insurers continue to exhibit financial stability. It is important to note again that while RRGs have reported net income, they have also continued to maintain adequate loss reserves while increasing premium written year over year. RRGs continue to exhibit a great deal of financial stability. ■

Regarding RRGs collectively, the ratios pertaining to income statement analysis appear to be appropriate. Moreover, these ratios have remained fairly stable for each of the last five years and within a profitable range.

Douglas A Powell is a Senior Financial Analyst at Demotech, Inc. Email your questions or comments to dpowell@ demotech.com. For more information about Demotech visit www.demotech.com.

Conclusions Based on Financial Results Despite political and economic uncertainty, RRGs remain financially stable and continue to provide specialized coverage to their insureds. The financial ratios

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SIIA

Endeavors Written by Steven J. Link

A New Year, A New Chairman

t is a great honor being elected Chairman of the Board of SIIA and I will do my best to uphold the tradition of the great leaders that have preceded me. This is an extraordinary opportunity to give back some of the beneﬁts that SIIA membership has given me throughout the years. I would like to thank the outgoing board members for their dedication and service. With the holiday season behind us it’s time for everyone to get back to work. This is certainly true at SIIA, where we have a busy year ahead of us, with numerous educational and networking events ahead in 2016, that every member will find of great value.

Highlights Include • The Self-Insured Health Plan Executive Forum is March 21-23, 2016, at The Westin New Orleans Canal Place in New Orleans, LA • SIIA International Conference April 5-7, 2016, at the Costa Rica Marriott Hotel San Jose in San Jose, Costa Rica. • Self-Insured Taft-Hartley Plan Executive Forum May 18-19, 2016, at the Sheraton Chicago Hotel & Towers in Chicago, IL • SIIA’s Annual Self-Insured Workers’ Compensation Executive Forum, May 24-26, 2016, at the J.W. Marriott Scottsdale Camelback Inn Resort & Spa in Scottsdale, AZ • The 35th Annual National Educational Conference & Expo, September 25-27, 2016, at the JW Marriott Austin in Austin, TX I look forward to serving as your Chairman in 2016, and seeing you at SIIA events! ■

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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

2016 Board of Directors CHAIRMAN * Steven J. Link Executive Vice President, Midwest Employers Casualty Co. Chesterﬁeld, MO PRESIDENT Mike Ferguson SIIA, Simpsonville, SC

Directors

Committee Chairs

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

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

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

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

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Regular Members Company Name/ Voting Representative

Rich Roge President Delta Health Systems Laguna Niguel, CA

Silver Members

TREASURER & CORPORATE SECRETARY* Duke Niedringhaus Senior Vice President, J.W. Terrill, Inc. Chesterﬁeld, MO

Adam Russo Chief Executive Ofﬁcer The Phia Group, LLC Braintree, MA

SIIA New Members

Christine Ferris Partner Connect Healthcare Collaboration, LLC Memphis, TN W.Y. Alex Webb Manager Webb & Coyle, PLLC Aberdeen, NC

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