Page 1

July 2014




Designated 831(b)


Despite Criticism

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2 July 2014 | The Self-Insurer

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


JULY 2014 | Volume 69

July 2014 The Self-Insurer (ISSN 10913815) is published monthly by Self-Insurers’ Publishing Corp. (SIPC), Postmaster: Send address changes to The Self-Insurer P.O. Box 1237 Simpsonville, SC 29681


ARTICLES 12 ART Gallery: The First Ten Years II 14 From the Bench: Material Change

Editorial Staff

Provisions in Stop Loss and Other More Exotic Species of Insurance Contracts



Small Captives

Designated 831(b) Growing Aggressively, Despite Criticism by Karrie Hyatt


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

2014 Self-Insurers’ Publishing Corp. Officers

22 The Bottom Line by Nancy Landrum, M.A.

28 PPACA, HIPAA and Federal Health

Benefit Mandates: ACA Administrative Simplification Provisions for Health Plans: Time to Apply for an HPID and Prepare for Certification of Compliance

36 Mark Your Calendars! (Part II - Section 6056 Reporting) by Cori M. Cook, J.D.


Don’t Leave Home

without It by Dominick Zenzola


James A. Kinder, CEO/Chairman Erica M. Massey, President Lynne Bolduc, Esq. Secretary


Workers Compensation

Executive Forum 2014 Conference Recap

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The Self-Insurer | July 2014 3

SIIA CHAIRMAN’S MESSAGE Reauthorization of the Terrorism Risk Insurance Act (TRIA) in 2014


IIA’s Government Relations staff is uniquely positioned to represent the legislative and regulatory interests of the alternative risk transfer (ART) industry. No other organization has the resources to lobby for the ART community. Recently SIIA’s Government Relations Offi ce has extended their assets to another organization committed to the Reauthorization of TRIA. The TRIA program is scheduled to expire at the close of the 113th Congress in 2014. Expiration would be detrimental to Real Estate developers and would have a negative impact on our fragile economic recovery. TRIA captives bridge the option for economically self-insuring terrorism and accessing the pool which is only available to insurance companies. Both House and the Senate are working on passing an extension. In the Senate, Senators Chuck Schumer (D-NY) and Mark Kirk (R-IL) have pushed their bill (S. 2244) through the Senate Banking, Housing, & Urban Affairs Committee without any opposition. Part of the bill’s success in committee is due to the bipartisan cooperation of Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID). Both members heard the concerns of stakeholders and worked together to pass a bill through the Banking Committee. In the House, legislation is currently being


July 2014 | The Self-Insurer

drafted in the House Financial Services Committee. Some House members are critical of the program, and it is possible the Insurance Subcommittee or the full committee may alter the program. SIIA joined the Coalition to Insure Against Terrorism (CIAT), a coalition of industry groups and businesses who lobby Congress on the importance of passing a reauthorization. SIIA’s the Government Affairs Office is working closely with CIAT to educate and urge the House to act quickly on reauthorization. The effort to reauthorize this program is a great example of the inner-political workings of the Congress. While business groups and trade associations are diligently communicating the need for this program to continue, some groups are urging members to oppose it, citing the expense to the taxpayer and the need for the market to take control of terrorism coverage. SIIA’s role in educating members of Congress on this issue is vital, as the interests of the captive industry are smaller compared to some of the bigger players supporting the program. SIIA staff will continue to keep members up to date on TRIA Reauthorization, and all other issues that impact the alternative risk transfer industry. Watch for your email for legislative updates from SIIA staff, and don’t miss the “Defending the Self-Insurance Industry – Special Reports From the Front Lines” session at SIIA’s National Educational Conference & Expo October 5-7th in Phoenix, Arizona. This panel presentation will feature

Les Boughner

real time reports from SIIA’s President, CEO and SIIA chief lobbyist Mike Ferguson, John Eggertsen, Attorney, Eggertsen Consulting, P.C. and SIIA’s litigation counsel, Government Relations Committee chairman Horace Garfield, and political action committee (PAC) chairman Bob Tierney on how the association has been working to defend the business interests of those involved in the self-insurance/alternative risk transfer marketplace against attacks at both the state and federal level from legislators, regulators and other policy-makers. The panel will also preview what new developments may be on the horizon. This is a session not to be missed! For more information on SIIA’s legislative work and Government Relations staff, including position papers, news updates, grassroots initiatives and SIIA’s Political Action Committee (PAC) please visit www.siia.org.

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The Self-Insurer | July 2014



CAPTIVES Designated 831(b)


AGGRESSIVELY, Despite Criticism by Karrie Hyatt


July 2014 | The Self-Insurer

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mall captives that opt for the 831(b) tax designation have been growing exponentially over the last fi ve years. However, with their tremendous growth, opponents to the captive structure have also grown. The IRS has begun looking into captives using this tax designation.Yet, when properly set up and managed, these captives can provide a great deal of benefi ts to small companies. The entities known as 831(b) captives are captives created by small or medium sized companies that elect to take advantage of the Internal Revenue Service 831(b) tax code that allows insurance companies with premium of $1,200,000 or less to pay taxes only on its investment income, not on its premium. These small captives can also be part of a cell captive or series LLC structure and, depending on the domicile, be taxed separately from their parent captive. However, these small captives must qualify as actual insurance companies – they must insure risk, and be structured so as to act in risk shifting and risk distribution. Last month, the Self-Insurance Institute of America, Inc. (SIIA) suggested that captives operating as 831(b) captives should be referred to as Enterprise Risk Captives (ERCs). In a release, SIIA said that the “terminology was approved by the association’s Alternative Risk Transfer Committee in response to increased industry concern that the 831(b) label promotes a negative perception of these types of captive programs.” The use of this new terminology is seen by the organization as a step to improve the status of small captives so that they are not seen just as a tax designation. Part of creating this new term is to defi ne what they are, something that has not been done in a systematic manner. SIIA has defi ned the parameters of ERCs as: they manage risks not generally addressed by commercial insurance programs; their risks are low in frequency and high in severity; their policies are fi rst party, they have elected for the 831(b) designation; and they have the option to facilitate wealth transfer/estate planning. For the purposes of this article, the terms 831(b) captives and Enterprise Risk Captive (ERC) will be used interchangeably.

Many Factors Drive Exponential Growth Since 2009, the huge growth experienced in the 831(b) arena has been fueled by several factors. As many larger companies have established captives, the market began to look to small to mid-sized companies interested in forming captives. An increase in the number of domiciles and the development of a wider variety of captive structures have made it more affordable for smaller companies to form their own captive. While, more widespread and better understanding of the tax code and the benefi ts that captives can provide have also played a role in the emerging popularity of ERCs. According to Jeffrey Simpson, an attorney with Gordon, Fournaris & Mammarella, PA, ERCs are “typically are used by small, privately-held companies to address fi rstparty, high severity, low frequency risks that are generally uncovered by traditional commercial insurance or unavailable in the commercial market. Frequently, the captive is structured with the intent of facilitating certain additional fi nancial benefi ts such as wealth transfer and estate planning.” Since 2010, formations of ERCs have been on the rise – especially in domiciles like Delaware, Utah, and Vermont. Captives taking the 831(b) election are thought to make up as much as 30% of the market in the U.S., said Les Boughner, executive vice president with Willis North American Captive & Consulting Practice. He maintains that the net growth of ERCs in the U.S. market is above 75%. Many of these smaller organizations have realized that they have a number of risks that they have been retaining themselves (knowingly or sometimes unknowingly) for which commercial coverage is not available or expensive,” said Patrick Theriault, managing director, Strategic Risk Solutions. “A captive can be a great way to better fi nance these risks.

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Criticism Stems from Three Issues Yet even with their rapid expansion, Enterprise Risk Captives have their critics. The criticism stems from three issues: these small captives might be used as tax shelters, not to transfer risk; there have been a number of “promoters” engaging in setting up captives who may not have a background in insurance; and these captives have been used solely as a wealth transfer mechanism. Small captives opting for the 831(b) designation can gain a hefty tax advantage which can incline critics to believe that they are not proper insurance companies. “Many [small captives] engage in pooling arrangements, which we view as creation of risk to gain a tax advantage,” said to Sandra A. Bigglestone, director of captive insurance, Vermont Department of Financial Regulation. “Vermont has a different philosophy for captive insurance. Aggressive tax strategies don’t fi t here. We struggle with reconciling the idea of an insurance company that doesn’t anticipate losses.” The IRS also seems to have a problem with captive insurance companies, particularly ERCs, and has been scrutinizing more heavily companies using the 831(b) tax designation. The extra scrutiny has been caused by the increase of captives fi ling under 831(b) and the fear that some of these companies may not be insuring genuine risk. In the last two years, audits of small captives have increased in frequency, according to industry insiders. Theriault believes that not many ERCs are being used as tax shelters, but the problem is one more related to perception. “Many folks, when they think small captives, focus on a small part of the overall captive structure – the potential tax benefi ts. Because the potential tax benefi ts for a small organization can be material, I think some folks jump to the conclusion that these captives must be The Self-Insurer | July 2014


formed purely for tax reasons and not for risk management reasons.” Another issue affecting ERCs is that they are being promoted and formed by non-insurance professionals. With favorable captive laws that have eased the fi scal requirements and simplifi ed the registration process, it has become easier for those without a background in insurance to organize a captive. “While historically the captive discussion was mostly centered around insurance brokers/consultants, captive managers and a few attorneys, we are now seeing CPAs, bankers and investment managers, fi nancial planners, life insurance agents, etc… being interested in captives,” said Theriault. “Some of the more traditional captive service providers are questioning this and whether some of the new entrants to the market have the appropriate experience to put good programs together.” However, while there have been a number of non-insurance professionals


July 2014 | The Self-Insurer

putting together small captives, according to Simpson, it does not necessarily mean that the captives they form are less likely to be a proper captive. “The owners of these captives often fi rst hear about the idea from a fi nancial planner or investment advisor. Many of the opponents of Enterprise Risk Captives are people from traditional insurance backgrounds who are uncomfortable with… the means by which the captive owner gets educated.” A third issue, which follows hard on the heels of non-insurance professionals promoting small captives, is that captives can be used as a mechanism for wealth transfer. A company can use a captive to shift fi nances between family members or other individuals, avoiding the steep inheritance taxes. It is not prohibited for captives to structure in fi nancial transfer elements, but their primary focus needs to be insuring risk. Bigglestone said that in Vermont, “A few Vermont captives have estate

planning elements, but the essential parent/captive/risk management chain still exists, and the captive has a business insurance reason for operating.” “Captives are a tool for insurance risk management and risk fi nancing,” she continued. “In the context of many 831(b) captives, where there’s minimal chance of experiencing a loss, you have to question the insurance purpose. For that reason, Vermont discourages the use of captives as tax and estate planning vehicles, and really wants to see a necessary insurance purpose, regardless of the premium volume.” According to Boughner, “[831(b) captives] are being tainted by wealth management fi rms that know little about captives who are promoting the tax advantages without any regard to the need for a proper structure in accordance with accepted IRS guidelines. Properly structured they perform a valuable function for selfinsured reserves and accruals.”

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Your Your risk risk is is a unique a unique Your risk is a unique combination combination of of combination of factors. factors. Shouldn’t Shouldn’t your your factors. Shouldn’t your solution solution bebe too? too? solution be too?

Your Your risk isrisk as is unique as unique as your as business. your business. After After all, medical all, medical risk isrisk constantly is constantly in flux. in flux. Your risk change is as as your business. After all, medical risk is constantly in flux. Markets Markets change andunique so and doso opportunities. do opportunities. Markets change and so do opportunities. Over Over the past the twenty past twenty years,years, we have we have growngrown and evolved and evolved across across multiple multiple lines lines Over the past twenty years, we have grown and evolved across multiple lines of business of business and geographies. and geographies. This means This means that while that while we possess we possess the expertise, the expertise, business and geographies. This means while wecontinue possess expertise, scopeof scope and scale and scale to protect to protect against against a wide a wide arraythat array of risks, of risks, we we continue tothe focus to focus on on scope andYours. scale to protect against a wide array of risks, we continue to focus on only one. only Yours. one. only one. Yours. To see Tohow see our howexperience our experience and insight and insight can work can work for you, for visit: you, visit: To see how our experience and insight can work for you, visit: www.partnerre.com/risk-solutions/health www.partnerre.com/risk-solutions/health www.partnerre.com/risk-solutions/health Underwritten Underwritten Underwritten by by PartnerRe PartnerRe by PartnerRe America America Insurance America Insurance Insurance Company CompanyCompany Executive ExecutiveExecutive Office: Office: 199 199 Office: Fremont Fremont 199 St., Fremont St., San San Francisco, St., Francisco, San Francisco, CA CA 94105 94105 CA 94105 Underwritten America Insurance Company Form Form H0214 H0214 Form H0214 by PartnerRe 03/2014 03/2014 03/2014 Executive Office: 199 Fremont St., San Francisco, CA 94105 Form H0214 03/2014

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The Self-Insurer | July 2014 9 4/24/14 4/24/14 4/24/14 4:54 4:54 PM PM 4:54 P


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The Issues at Stake with ERCs is True of All Captives While these problems have been plaguing the small captive sector, many of the issues surrounding ERCs can also be applied to captives of any size. “Every so often we encounter some captive programs that might make you scratch your head as to what problem they are really addressing,” said Patrick Theriault. “This is true for both large and small captives and the principles used to evaluate captives are the same no matter the size of the captive.” Jeff Simpson agrees, “While there are certainly some participants in the Enterprise Risk Captive arena who are bad actors and should be policed, the same is true of every other type of captive insurance program. The fact is that ERCs are perfectly legitimate and the vast majority of them are executed carefully and with good risk management as the underpinning.”

The Future of ERCs What does the future hold for Enterprise Risk Captives? With outstanding growth in recent years, yet surrounded by controversy, what will the future likely hold for 831(b) designated captives? “Everyone is trying to read tea leaves on this question,” said Simpson. “The industry is organizing itself to set some appropriate standards for these types of captives and to ensure those standards are met. At the same time, the IRS appears to be doing essentially the same thing. So, I would not be surprised if the next few years lead to some regulatory and tax guidance that helps practitioners build better Enterprise Risk Captives. But I do see them continuing to be used and do not expect them to go away.” This seems to be the consensus. These small captives have carved a niche out for themselves that is serving an important role in the self-insurance sector. While the IRS may change its rules for the 831(b) designation, Enterprise Risk Captives will still play an important part in the industry. According to Les Boughner, what happens to the tax structure, “Is up to the IRS and Congress, but existing 831(b) s, properly structured in accordance with IRS guidelines, will not go away should the election be discontinued. They serve as a valued structure for the self-insurance needs of medium sized companies.” As with many new concepts in the financial sector, Enterprise Risk Captives are being subjected to criticism and extra scrutiny. And this is a good thing. As these captives continue to fill in coverage gaps and become more prominent, education and proper guidance will be key. “We need to educate potential captive owners to make sure they can make informed decisions,” said Theriault. “Since the majority of the captives being formed right now are small captives I think it is worthwhile looking into this sector of the market to make sure that the growth is being driven for the right reasons, the risk management benefits.” n

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The Self-Insurer | July 2014


ART GALLERY by Dick Goff

The First Ten Years, Part II


s we continue our review that we began last month of the fi rst ten years of the ART Gallery from the fi rst column in July 2004, it becomes apparent that about halfway along I took a decided turn toward political commentary. I promise that’s not a subconscious leaning toward running for offi ce, but solely prompted by the tide of political events around national health care reform.

For Example May 2010 – We made this prediction:

“In future years we will look back on the advent of Obamacare as the time the migration of employee benefits toward self-insurance and ART gained momentum.” And indeed we have, as in the likes of a runaway freight train that is still gaining huge momentum. It’s become such a huge movement that many states are attempting to harness it by legislative actions such as mandating minimum SIR stop-loss coverage attachment points. In fact, some states with enabling captive legislation won’t license a captive that plans to write employee group medical stop-loss coverage. Go fi gure! October 2010 – Included under the headline “Time to Chat Up Your Regulators” was this comment: “Under today’s governance in any domiciles the captive industry would not have fl ourished.” I was making the


July 2014 | The Self-Insurer

point that SIIA members would do well to engage with state insurance regulators informally to enhance their understanding and appreciation for ART’s distinctive benefi ts to organizations, their employees and their communities. Wow, as simply one example does California come to mind? And let’s not limit this to a singular state – how about the NAIC’s new proposed captive governance standards that it wants implemented as yet another state accreditation minimum standard. November 2011 – The observation: “There is plenty of pushback among state insurance regulators against the concept of self-insuring smaller organizations’ employee health plans.” The vision: “An ART solution for self-insured ERISA plans of as few as 25 people supported by a fronted group captive stop-loss program. Such plans could operate with a self-insured retention of as little as $5,000 per individual.” And that, I believe, remains prevalent today. After all, it isn’t fair to the state exchanges for small employers to have the option to self-insure. Why, it would fl at out be unfair competition for state exchanges! And that would be a bad thing if society’s objective were protection of a cumbersome government structure rather than providing effi cient, high quality health care to its citizens. May 2012 – The column left no doubt as to our position: “The

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National Association of Insurance Commissioners’ toxic attitude toward captives drifts into many state departments of insurance where staff regulators know their bread is buttered by the commissioner and the commissioner’s bread is buttered by the NAIC.” Here’s the problem with that brash statement almost two full years ago: it was true then but even more so today! Hello Congressman (fi ll in your own representative’s name), where art thou? February 2013 – We indicted the entire political establishment: “Too many people at all levels of government grovel for their salaries and perks while they lose sight of their mission to serve the public. They become defenders of their ideologies, parties, agencies and personal power within a structure of bureaucratic intransigence.”

Did I miss anything back then, as I believe the summary surely holds true today? Two prime examples: the IRS and the Federal Insurance Department. December 2013 – In which we railed against the states’ legislative attacks on self-insured health plans through such ploys as tax assessments or raising stop-loss attachment points to unrealistic levels as: “The current trend among state politicians who carelessly damage the interests of their own state’s employers and employees/ dependent populations by damning self-insured benefi t programs in favor of Obamacare’s health care exchanges.” Wouldn’t you sometimes just like to reach out to Bureaucratic America and ask this one very simple question: “Hey, does anybody in there truly give a damn about we the people out here?” So that completes our review

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of the fi rst ten years of The ART Gallery. I’d like to predict that the next ten years will observe a trend toward legitimate public service by an enlightened, practical political elite. But I wouldn’t suggest that any readers hold their breath until that happens. n 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 and Bermuda broker at dick@taftcos.com.

The Self-Insurer | July 2014


Bench From the

by Thomas A. Croft, Esq.

Material Change Provisions in Stop Loss and Other More Exotic Species of Insurance Contracts


n occasion I am asked to contribute to the drafting of an updated stop loss policy form. I presume that I am asked to do this not because I am one of those “special people” (and you know who you are) whose mission in their work lives is to come up with a “fi leable” product that will please the regulators. Rather, I think it is because my client(s) want my take on a near-fi nished product from my perspective of having litigated/ arbitrated/argued about the meaning and application of various aspects of stop loss and related products over the many years I’ve been involved with this industry. Lately, I’ve moved even beyond participation/consultation in formulating certain aspects of stop loss


July 2014 | The Self-Insurer

policy forms to – gasp! – more exotic industry fauna like Medical Excess of Loss Reinsurance Contracts, HMO Excess Reinsurance Agreements and Provider Excess Loss Policies. As in Nature, all of these animals have several aspects in common, and, as well, critical distinguishing characteristics from one another. This month, I focus on the concept of “Material Change,” and how that particular conceit manifests in these various types of insurance products. I first ran headlong into a “Material Change” provision in a Medical Excess of Loss Reinsurance Contract, but have since recognized provisions designed to achieve something of the same result in virtually all varieties of insurance fauna, including stop loss products. Stated inartfully, overly bluntly, and perhaps unfairly critically – critics contend that the idea is to allow the insurer or reinsurer to re-trade the deal midstream if things go South in a big way. Some believe that these clauses are the means by which insurers and reinsurers protect themselves against making unwise or unlucky decisions in assuming certain risks – a contractual “trap door,” of which any careful and prudent broker/TPA should be acutely aware when comparing policies beyond their typical myopic fixation on rates. Let’s look at some of these escape hatches in stop loss policy forms. To be fair, there are many stop loss policies on the market that lack “material change” language, although universally they have provisions requiring carrier approval of

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changes to the terms of the underlying Plan Document. This, of course, is necessary to protect the scope of the risk that the carrier assumed when it issued the policy in the first place; the insured cannot be free to add benefits otherwise not appearing in the initial underwritten Plan Document without allowing the carrier to either reject the change as it pertains to the scope of stop loss coverage or to adjust premium to account for the midstream increase in risk. But changes to Plan Document language are really the only universal constraint on “Material Change” that I have seen in the marketplace. Common, but not universal, are clauses in stop loss contracts that permit the carrier to modify the terms of coverage, at its option, if there is an increase or decrease in “Covered Units” (or similar phrase) by more than X% from the effective date of the policy, or the last renewal date, as the case may be. Other forms articulate the concept differently: an increase or decrease in Covered Units exceeding X% in any one month or twice X% over any three consecutive month period. “X” in these examples is typically 10%, but sometimes 15%. Other forms are more specific, allowing an adjustment in rates if there is more than an X% “variance” (presumably meaning increase or decrease) between the number of Covered Units on any premium due date and the policy effective date. Yet another major carrier reserves the right to adjust premium if the number of covered units increases or decreases by 15% from the first day of the contract period OR increases or decreases by 10% in any month when compared to the prior month. These up or down fluctuations in covered units have underwriting implications – and therefore profitability effects – well beyond the scope of my limited underwriting knowledge and

understanding, but they most assuredly are there for an economic reason. An insured group experiencing its Plan enrollment increasing or decreasing for business reasons can find itself paying more premium per covered unit under its stop loss policy than it originally contracted for by virtue of such clauses. (I should note here parenthetically that almost every policy form makes the addition of a subsidiary or a merger an event of material change, for obvious reasons.) But apart from the escape hatch provided by material changes in the level of Plan enrollment by many stop loss policies, some forms go further – in some cases much further. One major carrier’s policy form states that it may invoke material change remedies for “[a]ny other change in factors bearing on the risk assumed by us, including but not limited to the age, sex, geographic location and occupation of a [Plan participant]… .”(italics added). Really? Other carrier’s forms also permit material change remedies if payment of claims appear to have been manipulated by the group/TPA during the prior stop loss policy year. That is, one carrier’s form states that it can retroactively adjust rates if there is more than an X% variance between average monthly paid claims during the last two months of the prior policy year versus the average monthly paid claims for the first ten months of the prior policy year. This is apparently designed to protect the carrier from mis-evaluating its estimated aggregate coverage exposure, as aggregate data for the last two months of the ending policy year is often unavailable at underwriting time. Most stop loss policies eschew use of the term “Material Change,” though not all. Such provisions, labelled as such, are much more common in Medical Excess Reinsurance Contracts and HMO Excess Reinsurance Agreements.

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Essentially, such provisions allow the reinsurer to terminate the agreement, exclude the material change from the agreement (i.e., treat the agreement as if the change had not occurred), charge additional premium, or do nothing and accept the change. The reinsured Plan’s loss of its regulatory license, merger or acquisition into another entity or its acquisition of the assets and liabilities of another entity or a change in the Plan’s executive leadership are common listed events triggering material change remedies in such contracts. But there are other typical triggering events as well, such as changes in covered benefits under the reinsured’s Member Service Agreement (Plan benefits), changes to the reinsured’s contracted rates with participating providers, or changes of X% or more of the assumed membership as listed on the Schedule of Reinsurance. Certain forms include a “catch all” clause that lists events such as the foregoing as including but not limited to changes that would cause the reinsurer to increase in the expected member per month reinsurance premium by more than X% (italics added). Some forms put the onus on the insured to notify the reinsurer of any such events, even including changes which would cause the reinsurer to increase its rates by the specified percentage, though it is not immediately clear how an insured would divine what the reinsurer might do, except in clear cases of major changes in circumstances. In essence, I submit that a “Material Change” in such reinsurance agreements be defined as “A Material Change is a change that materially alters the nature, quality or quantity of the business or risk of the Plan,” and then gives several “including but not limited to” examples. Provider Excess Loss Insurance Policies insure hospitals and physicians for losses in excess of specified deductibles exceeding the rates they The Self-Insurer | July 2014


have contracted to charge to a particular Managed Care Organization for specified services/procedures, and for which such providers are at personal financial risk. The agreements between the providers and the Managed Care Organization are commonly referred to as Capitation Agreements. Provider Risk Excess Loss Policies also contain “Material Change” provisions. One example defines a Material Change as any change to a covered plan, participating provider agreement, capitation agreement or agreement with a TPA which “significantly alters” the nature, extent or range of services offers, or alters the geographic service area, or the exclusions or effective dates of a covered Plan agreement or rates. In addition, in this example, a change of X% in the contracted rate with the participating provider or a Y% change in the estimated number of members specified in the Schedule of Insurance triggers a material change. As usual, an event of material change allows the Provider Excess Loss insurer to alter the terms of the policy, reject the material change, cancel the policy, or simply to accept the change. Unfair escape hatch or legitimate protection against unanticipated changes in circumstances, “material change” provisions are everywhere, whether denominated as such or not. Careful buyers, and prudent marketers of policies, should pay attention to the nuances and act accordingly. n Tom Croft is a magna cum laude graduate of Duke University (1976) and an honors graduate of Duke University School of Law (1979), where he earned membership in the Order of the Coif, reserved for graduates in the top 10% of their class. He returned to Duke Law in 1980 as Lecturer and Assistant Dean (1980-1982) and as Senior Lecturer and Associate Dean for Administration (1982-1984). He also taught


July 2014 | The Self-Insurer

at the University of Arkansas-Little Rock law school, where he was an Associate Professor of Law (1990-91), earning teacher of the year honors. Tom currently consults extensively on medical stop loss claims and related issues, as well as with respect to HMO Excess Reinsurance, Medical Excess of Loss Reinsurance, and Provider Excess Loss Insurance. He maintains an extensive website analyzing more than one hundred cases and containing more than fifty articles published in the Self-Insurer Magazine over many years. See www.stoplosslaw.com. He regularly represents and negotiates on behalf of stop loss carriers, MGUs, Brokers, TPAs, and Employer Groups informally, as well as in litigated and arbitrated proceedings, and has mediated as an advocate in many stop-loss related mediations. Tom can be reached at tac@xsloss.com.

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The Self-Insurer | July 2014


Don’t Leave


without It


July 2014 | The Self-Insurer

by Dominick Zenzola

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unisia, Egypt, Libya. Political unrest has swept through parts of North Africa and the Middle East in recent months, shaking political regimes and creating a volatile environment that has increased the risk of travel in that part of the world. Businesses have had to think twice about whether to send employees into the region and a number of companies have had to cancel their travel plans. The tensions in the Middle East have served as a reminder of just how risky business travel can be. In a foreign country, far from home, business travelers are vulnerable if there is a political crisis or a medical emergency. As the economy grows ever more global and interconnected, however, the risk is increasing as businesses send people into countries that are often remote and politically unstable. More than 6.4 million U.S. business travelers went on trips outside of North America in 2009, according to a report citing figures from the U.S. Office of Travel and Tourism Industries. Many people still go to Western Europe on business, but a large number are also heading to Asia, the Middle East and South America. Although nearly 2.4 million U.S. business travelers went to Europe in 2009, roughly the same number, 2.4 million, went to Asia, with China an increasingly popular destination, according to the U.S. travel office report. Business travel to the Middle East, however, rose 16 percent with about 514,000 people traveling there in 2009. About a half a million business travelers went to South America that year. With so many people traveling on business, companies that send their employees to foreign nations need to have a comprehensive business travel plan. Travel assistance and travel accident insurance are two of the critical components of such a plan.

Travel assistance offers critical services Travel assistance is critical for businesses that send their employees on trips outside of the country. By providing timely and detailed information about travel destinations, travel assistance vendors can help businesses keep their employees out of volatile and potentially dangerous locations. Travel assistance companies have extensive knowledge about the destinations that employees plan to visit. While businesses can turn to the State Department for information and travel advisories, travel assistance vendors can provide information not just about the countries, but specific cities as well as information about the safety of hotels, restaurants and transportation services as well. All of this information can be crucial in helping a company make an informed decision about whether to send an employee to a location, and if so, where the employee should stay. In spite of careful planning, however, business travelers can still find themselves in the middle of an unexpected political uprising, and employees may be stranded and unable to get out of the country. Commercial flights may be canceled, roads and bridges may be impassable and telecommunications systems may be shut down. A travel assistance provider can come to the aid of the traveler in such a situation, providing the quickest and safest flight out of a troubled country. If commercial flights are not available, they can arrange for a chartered military aircraft. If the roads are unsafe and local taxis are too risky or unavailable, the vendor can arrange for a military armored car service. Although the tensions in the Middle East have brought the political risk of business travel to the forefront, medical emergencies are a much more common and a much more costly risk. Business travelers who become injured or seriously ill while out of the country can be extremely vulnerable. Far from their family doctors, unable to speak the language, they may not know where to get medical care and may even become unable to speak or make decisions for themselves. A travel assistance company can make sure an employee who has been in an accident or who becomes seriously ill gets to the nearest hospital that can provide the most appropriate care for the person. The provider also can provide assistance in case the employee is unable to speak the language or is incapacitated and unable to speak. The travel assistance provider also will take care of fees that a foreign hospital may require before admitting a patient. Once the employee’s condition is stable, the travel assistance provider will arrange for the employee to be transported out of the country and back home again.

Travel accident insurance helps offset losses Businesses also need travel accident insurance to help defray the cost of a loss, especially the cost of an evacuation for a medical emergency. Political evacuations are relatively inexpensive, with the average claim for a flight out of a troubled country coming in at under $5,000. Medical evacuations, however, are another story. Because a medical evacuation may involve the use of a Medevac aircraft, a nurse, and other specialized equipment, the average claim is about $50,000 and in some cases much more than that. In one incident, a scientist injured while on expedition in Antarctica had to be evacuated by air. The total cost: $200,000. Travel accident insurance will help to cover the cost of these claims and will pay for out-of-country medical bills that aren’t covered under an employee’s health insurance. Travel accident insurance often will cover other perils such as kidnap and ransom as well.

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The Self-Insurer | July 2014


a comprehensive travel program that includes travel assistance and travel accident insurance, businesses can help to keep their employees safe and can protect themselves from the cost of a significant evacuation claim. n Dominick Zenzola is a vice president, Chubb & Son, and the group benefits manager for Chubb’s Accident & Health business based in the Chicago office. He can be reached at dzenzola@chubb.com.

When choosing an insurer, companies should look for a carrier that has extensive experience working outside of the United States, a strong branch network and a reputation for reliable, quality loss control and claims services. Business travelers are vulnerable whenever they leave their country. Political unrest or a natural disaster can shut down air travel and strand employees far away from home. In a medical emergency, business travelers may be incapacitated and unable to find good medical assistance on their own. By having


July 2014 | The Self-Insurer

From BenefitsPro.com, March 31 ©2011Summit Professionals Networks. All rights reserved. Used by permission and protected by the Copyright Laws of the United States. The printing, copying, redistribution, or retransmission of this Content without express written permission is prohibited.

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WITH AmWINS GROUP BENEFITS, YOUR CLIENTS GET THE TOTAL PACKAGE. When you partner with AmWINS, you can help your clients select from an extensive range of products and administrative solutions, including medical stop loss, small group self-funding, audit services, care management, dialysis management solutions and healthcare benefits administration. We provide them with seamless customer service through our proprietary administrative systems, and you keep them in the know with timely insights from our practice experts — ensuring you’re the first place they turn for new program information. To learn more about offering your clients the most comprehensive self-funded healthcare solutions, visit amwins.com.

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The Self-Insurer | July 2014


The Bottom Line by Nancy Landrum, M.A.


very business wants the largest net profit possible while delivering the best product or service to their customers. In today’s competitive market, the balance is more delicate than ever between good value to the customer, adequate benefits to employees and a reasonable profit for owners or shareholders. So how can an employer build employee loyalty, increase productivity and still protect their bottom line? It’s no longer a surprise that happier people live longer and are more productive. Barbara Lee Fredrickson, a psychologist at University of Michigan, is one of the leading lights of a new branch of psychology called Positive Psychology. In the premier issue of Live Happy Magazine, she is quoted as saying, “Negative emotions serve to focus our attention on immediate concerns or safety issues... survival. But more positive emotions – such as joy, interest, contentment or love... open the mind’s focal lens wider, leading to greater discovery, learning, growth and development, allowing us to become more resourceful, creative and socially integrated. In essence, being happier makes you smarter.”1 Some employers are adding surprising benefits that increase employee happiness, and thereby improve employee performance and increase loyalty. Arianna Huffington, after discovering that day-time naps helped her regain her health and improve her personal work performance, added a nap room for her employees. As measured by independent analysis, performance and loyalty increased for employees who availed themselves of a 15-20 minute nap during their workday, while health issues created


July 2014 | The Self-Insurer

by stress went down.2 Other employers have added features such as on-site child care, job-sharing and flexible hours that have also increased employee performance and loyalty. A major area where increasing happiness creates a huge potential benefit to employers is in the largely ignored realm of personal relationships. One of the major causes of adult illness, work days lost and low performance is stressful relationships with a spouse or child. When it comes to an employee’s contentment – or lack of – at home, the employer may think it’s too personal an area to be addressed on the job. The need for privacy is an important one. But as with other services that improve employee performance, a benefit may be simply offered, or made more convenient to access, without invading one’s privacy.

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Between 2008-2011, Healthy Relationships California published a series of pamphlets about the effects of divorces and distressed marriages on adults’ and children’s health. A very few of the hundreds of compiled research outcomes follow: An unhappy marriage can increase the chance of illness by 35% and shorten life by four years. Happily married people live longer, healthier lives than divorced or unhappily married couples.3 Couples in conflict-ridden marriages take longer than the happily married to heal from all kinds of wounds; hostile couples healed the slowest, taking 40% longer to heal.4 A spouse’s use of negative language and angry tone of voice can have a detrimental effect on the other’s immune function; marital arguments cause changes in the endocrine and immune systems, with epinephrine and cortisol levels staying elevated for more than 22 hours afterward.5 Many links between marriage and better health in children as well as adults “have been documented in hundreds of quantitative studies covering different time periods and different countries.”6 Health effects during childhood from divorced families include, for instance, a doubling of the risk of asthma and a significant increase in injury rate.7 It’s not hard to extrapolate that decreases in health for both adults and children translate into lower employee productivity and higher absenteeism. What if offering no- or low-cost relationship education to your employees would result in a more robust net profit for the company? A meta-analysis of 16 studies observed meaningful program effects with regard to gains in communication skills, marital satisfaction, and other relationship qualities.8 One longitudinal study on a well-known marriage education program found that, compared with couples without the training, participating couples maintained high levels of relationship and sexual satisfaction plus lower problem intensity three years after training; they also

demonstrated significantly greater communication skills, less negative communication patterns, and greater conflict-management skills up to 12 years after instruction, and reported fewer instances of physical violence with their spouses three to five years after training.9 A lateral benefit is that often the skills practiced in the marriage generalize to other relationships, such as with co-workers. So relationship education classes increase marital satisfaction. Increased marital satisfaction results in less illness and more productive efforts at work. So how can the benefit of relationship education be incorporated into what you already offer your employees? 1. Have your employees fill out an anonymous questionnaire regarding the health of their relationships and the effects of their relationship on their job performance. Ask them what would be the most helpful way to support the health of their relationships. Give them several options from which to choose, including some of the ones listed below. 2. There are a large number of books and video-based relationship education programs that could be made available to your employees through an onsite lending library. One recently published self-study video program is Couple Talk found at www.coupletalk.com There are even on-line relationship support programs that may be recommended such as 3. An on-site, after hours, 8-12 week class could be offered to employees and their spouses once per quarter, taught by local, certified trainers of various programs that have a track record of positive outcomes. Most classes and trainer fees are extremely reasonable. 4. Have a neutral organization such as Healthy Relationships

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California10 help you create an anonymous pre- and post-class evaluation that participants fill out. An evaluation would help you, the employer, quantify the benefits of such classes to your employees. 5. Go to www.smartmarriages. com for a comprehensive list of recommended books, self-taught video programs and curricula taught by certified trainers. Think-out-of-the-box employers are learning that nurturing the whole person, rather than investing only in jobrelated skills, pays off with a healthier company bottom line. n Nancy Landrum, MA, has been teaching relationship skills to couples since 1994. Her most recent series of short, practical, easy-to-read books share powerful skills with many personal and client examples. The series title is “Love Potions for Healthy Relationships” currently being published by Self-Insured Publishing Corp. References P. 56-57, Live Happy Media, 6860 Dallas Pkwy, # 279, Plano Tx, 74024, or www.livehappymagazine.com 1

As quoted during her May 11, 2014 interview with Oprah on Super Soul Sunday. 2

Verbrugge, Lois M. (1979). “Marital status and health.” Journal of Marriage and the Family, 41, 267-285. 3

Kiecolt-Glaser, Janice and Ronal Glaser. American Psychosomatic Society Meeting, Vancouver, BC, March 2005. 4

Kiecolt-Glaser, J. and Glaser, R., in Lerner, S. “Two words that will bring you a long life span: ‘I do’” (New York Times News Service, Nov. 23, 2002.) 5

Ribar, David C. (2003) What Do Social Scientists Know about the Benefits of Marriage? A Review of Quantitative Methodologies, Washington DC: U.S.l Department of Health and Human Services, Office of Planning, Research, and Evaluation, Administration for Children and Families, pp. 1 6

Dawson, D.A. (1991). “Family structure and children’s health and wellbeing. Data from the 1988 National Health Interview Survey on Child Health.” Journal of Marriage and the Family, 53, 573-584. 7

Butler, Mark H. and Karen S. Wampler, “A meta-Analytic Update on Research on the Couple Communication Program,” American Journal of Family Therapy, Vol 27 (1999), p. 223 8

Markman, H.J., et al. “Prevention of Marital Distress: A Longitundianl Investigation,” Journal of Consulting and Clinical Psychology. Vol. 56 (1988, pp. 210-217, and “Preventing Marital Distress Through Communication and Conflict Management Training: A four and Five Year Followup,” Journal of Consulting and Clinical Psychology, Vol 62 (1993), pp 1-8. 9



The Self-Insurer | July 2014





July 2014 | The Self-Insurer

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IIA’s 16th Annual Self-Insured Workers’ Compensation Executive Forum, the country’s premier association-sponsored conference dedicated exclusively to selfinsured Workers’ Compensation funds, took place at the iconic Eden Roc hotel in Miami Beach, FL May 20-21st. Group Self-Insured Workers’ Comp Fund Executives/Directors, Workers’ Compensation SelfInsurers, Third Party Administrators, Excess Insurance Carrier/Reinsurers, Attorneys, Accountants/Actuaries, Risk Management Consultants and Industry Service Providers took advantage of the superior educational program, networking opportunities and the beautiful South Florida weather. One of the highlights of this year’s Forum was award winning author and business speaker Mark Scharenbroich, who gave an unforgettable and entertaining keynote presentation detailing his “Nice Bike” principle. Other educational sessions included:

Predictive Analytics Pam Finch, Vice President, Alternative Service Concepts, LLC (ASC), Marcos Iglesias, MD, MMM, FAAFP, FACOEM, Medical Director, Midwest Employers Casualty Company, and Mark Sidney, Vice President of Claims, Midwest Employers Casualty Company provided a case study of how data analytics are a critical component to pinpoint potential problem claims. They explained how early identification of a high risk claim can open the door for early intervention, which can drive down ultimate loss costs and successful interventions lead to better outcomes for the claimant and reduced Worker’s Compensation claims costs for the employer.

Integrated Disability Management: The Value of Engaging a Total Absence Management Program Approach. “Absence Does Not Make the Heart Grow Fonder” Edmund C. Corcoran Jr., Esq., Director, Enterprise Absence Management, Raytheon Company and Josh Zirin, Casualty Actuarial Practice, Dion Strategic Consulting Inc. presented information on how combining claims management for WC, Benefits and Disability can help identify and protect fraud for both employees and vendors. Total Absence Management looks at employee absence broadly, both work and non-work related, focusing on illness and disability and promotes recovery and return to work. They discussed the components of a Total Absence Management program, and one employer’s experience. The presentation concluded with measuring costs and savings.

Safety Training that Sticks Mark Meek, CSP, Safety Manager at Advance Auto Parts highlighted an award winning effective safety training strategy that is working and provided a blueprint on how to make it happen. He described how effective safety training for thousands of employees, spread across thousands of locations can be challenging, and explained how to make training memorable, providing consistency in the safety message and how to get to the point where employees actually look forward to training and are able to retain all of the information.

Specialists of St Louis presented a case study of an injured worker and his family, and their struggle with his failed surgeries, depression and opioid addiction. George Furlong, Senior Vice President Managed Care Program Outcomes Analysis, Sedgwick Claims Management Services, Inc. continued the session by discussing results from a predictive analytics study which used injured worker data to accurately predict who will become a long-term opioid user. Predictive modeling can more effectively examine all available historical data assets, identify a greater number of potential predictors, take into account interactions among predictors, and utilize the most impactful ones in order to accurately predict an outcome. By addressing the multiple stakeholders involved, positive impact can be made to the injured worker’s therapeutic care.

Taking Your TPA from Good to Great Barry Bloom, Principal at The bdb Group showed attendees how to take a good TPA program and make it great, including claim program blueprinting, the difference in “pushing” the marketplace vs. “pulling” the marketplace, how to find the right claim partners, full cost benchmarking, Key Performance Indicators (KPI’s), incentive programs, claim administration costs vs. claim costs, data blueprints, plan execution and ROI analyses.

Opioids Case Study

The Human Factor: Using Integrity and Safety Related Personality Assessments to Screen Out High Risk Applicants and Prevent Workplace Incidents

Kaylea M. Boutwell, MD, Interventional Pain Management Specialist at Pain and Rehabilitation

Dennis Fox, Founder and President of the Client Development Institute presented research findings and

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The Self-Insurer | July 2014


case studies on how organizations can identify prospective high risk behavior employees and those with an “entitlement mentality” through state- of- the art online testing systems.

Using Captive Insurance Companies to Support Self-Insured Groups (SIGs) Charles Caldwell, President & CEO, Midlands Management Corporation, William L. Shores, President, Shores, Tagman, Butler & Company, P.A., and Bill Yaeger, President, McNeary, Inc. discussed how captive insurance companies are used to supplement and enhance group funds. A case study was presented showing how the captive supports the Workers Comp Fund’s reinsurance program, provides contingency plan and low-cost risk financing plan for other cells through a rent-a-captive structure.

Occupational Wellness: Wellness and Workers’ Compensation T. Warner Hudson, M.D., Medical Director, UCLA Medical Center Occupational Health Facility discussed the University of California’s innovative use of WorkStrong wellness program including the some of the roadblocks, successes and failures they have faced in implementing the program, emphasizing that personal health risks can predict Workers Comp costs. Mark Priven, FCAS, MAAA, Director, Regulatory & Alternative Risk Consulting for Bickmore then gave an actuarial analysis of the WorkStrong program, providing a breakdown in claims, claim costs, claim size and claim reporting patterns. He concluded by giving an analysis of the estimated savings.

Chasing the Work Comp Tail: Self-Insured Group Panel The educational program concluded with a SIG panel discussion with Freda Bacon, Administrator of the Alabama Self-Insured Workers’ Comp Fund, Christopher J. Burkhalter, Vice President and Principal, Bickerstaff, Whatley, Ryan & Burkhalter, Todd Greer, Senior Vice President, Insurance Program Managers Group, and David G. Johnson, Esq., Corporate Counsel, Self Insured Solutions discussed some of the biggest issues facing SIG’s today, such as adverse loss development, joint and several liability collection, loss portfolio transfers, regulatory changes and structured settlement options. n

PROVIDING SERVICE TO THE SELF INSURANCE INDUSTRY FOR OVER 36 YEARS IN OVER 30 STATES Audits Tax Preparation, Compliance and Minimization NAIC Annual Statements, assistance and preparation Management Consultation Expert Witness Regulatory Matters

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


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PPACA, HIPAA and Federal Health Benefit Mandates:


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.


ACA Administrative Simplification Provisions for Health Plans: Time to Apply for an HPID and Prepare for Certification of Compliance


hile much has been written about Affordable Care Act (“ACA”) compliance obligations for employer-sponsored plans – such as the “pay or play” rules, various fees and taxes, and insurance reforms – the ACA’s changes with respect to HIPAA’s administrative simplifi cation provisions have received less attention. As deadlines approach, however, it is important for plans to ensure compliance with these requirements. This article discusses two major developments applicable in 2014 and 2015: the requirements to i) obtain a unique health plan identifi er (“HPID”) and ii) fi le a certifi cation of compliance with HHS. Section § 1104(c)(1) of the ACA required HHS to promulgate rules regarding HPIDs for health plans.1 The HPID is a standardized ten-digit number assigned to health plans, which is designed to increase standardization and help covered entities verify information from other covered entities. Whether a health plan must apply for an HPID depends on the level of control it has over its own activities. If the HPID requirement applies, large health plans must obtain one by November 5, 2014 and small health plans must do so by November 5, 2015. In addition, HHS has issued proposed regulations regarding the “certification of


July 2014 | The Self-Insurer

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On April 27, 2012, HHS issued a proposed rule about HPIDs.2 The final regulations, issued on September 5, 2012, modified the implementation dates originally set forth in the April rulemaking, but did not substantively modify them.3

meets the definition of a CHP. This includes self-insured plans that satisfy the definition of a CHP. A SHP, by contrast, is defined as a health plan whose business activities, actions, or policies are directed by a CHP. In determining whether an entity is a SHP, the following considerations are relevant: 1) Does the entity meet the definition of health plan at 45 C.F.R. § 160.103? 2) Does a CHP direct the business activities, actions, or policies of the health plan entity? If the answer to both questions is yes, the entity meets the definition of a SHP. While it is not entirely clear from the regulations, it appears that insurers may apply for HPIDs on behalf of fullyinsured plans. More guidance to clarify this issue would be welcome.

Who Needs an HPID?

Practice Pointer: A “health plan,”

The regulations draw a distinction between Controlling Health Plans and Subhealth Plans, based on the level of control the entity has over its activities. Under these regulations, a Controlling Health Plan (“CHP”) is required to obtain an HPID. A Subhealth Plan (“SHP”) is not required to obtain an HPID, but may do so, or a CHP can obtain a HPID on its behalf. A CHP is defined as a health plan that 1) controls its own business activities, actions, or policies; or 2) is controlled by an entity that is not a health plan, and if it has one or more SHPs, exercises sufficient control over them to direct their business activities, actions, or policies. The regulations list the following considerations in determining whether an entity is a CHP: 1) Does the entity itself meet the definition of a health plan at 45 C.F.R. § 160.103? 2) Does either the entity itself or a nonhealth plan control the business activities, actions, or policies of the entity? If the answer to both questions is yes, the entity

as defined in 45 C.F.R. § 160.103, includes, among other entities, a group health plan, health insurance issuer, or HMO. Thus, for example, even excepted benefits such as dental or vision only coverage and health FSAs would be required to obtain HPIDs. Likewise, HRAs and retiree only health plans would be required to obtain an HPID as well. However, it appears that plans may file for one HPID for bundled plans (e.g., if the plan constitutes one plan for Form 5500 filings), so some of these types of coverage may be bundled with other coverage for HPID purposes, depending on the structure of the plan.

compliance” with HIPAA’s electronic transaction standards required by ACA § 1173(h)(1). Most health plans must file the first of two certifications with HHS by December 31, 2015. While much detail regarding this certification remains to be developed, health plans should begin planning so that they can complete the certification’s required testing process when final regulations are issued.


Obtaining an HPID A national enumeration system, known as the Health Plan and Other Entity Enumeration System (“HPOES”), assigns unique HPIDs through an online application process. HPOES became available within CMS’ HIOS system in late March 2013. Data

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elements that will be requested in the application for employer-sponsored plans include i) company information (including name, EIN, and address); ii) authorizing official information (including name and contact information); and iii) the plan’s NAIC number or payer ID for standard transactions. CMS has created several videos, presentations, and explanatory slides to guide plans through the application process.4 As noted above, large health plans must obtain an HPID by November 5, 2014. Small health plans must do so by November 5, 2015. For this purpose, a “small health plan” is defined as a health plan with annual receipts (i.e., benefits for a self-funded plan or premiums for an insured plan) of $5 million or less. So many excepted benefit coverages (e.g. FSAs, dental or vision only coverage) or plans that otherwise qualify for the small plan extension should be eligible for a one year extension. By the “full implementation date” of November 7, 2016, all health plans must use the HPID in their standard transactions.5

Practice Pointer: It will be important to secure an HPID well before the mandatory compliance dates, so that there is sufficient time to work out any administrative issues that may arise with multiple entities implementing the new system.

How will an HPID be used? A covered entity is required to use an HPID when it identifies a health plan in a standard transaction. Note that this requirement also applies to business associates when they conduct standard transactions on a covered entity’s behalf. While multiple standard transactions apply to health plans, one which employer-sponsored plans may The Self-Insurer | July 2014


directly perform (rather than relying on TPAs) is the eligibility for a health plan standard (270 /271), which applies to inquiries between health care providers and health plans regarding a participant’s eligibility, coverage, and/or benefits under a plan. There are also several uses for which an entity is permitted, but not required, to use an HPID. CMS has stated that the HPID can be used for “any other lawful purpose” (in addition to a standard transaction).6 The regulations list the following potential uses of an HPID, which CMS believes will increase efficiency: in internal files, to facilitate the processing of transactions; on an enrollee’s health insurance card; as a cross-reference in healthcare fraud and abuse files and other program integrity files; in patient medical records to help specify health care benefit packages; in EHRs to identify health plans; in federal and state health insurance exchanges; and for public health data reporting purposes.

health plans will want to require their business associates to obtain OEIDs in contractual agreements, particularly any TPAs handling eligibility and/or claim status issues on the plan’s behalf. Entities are eligible to apply for an OEID if they 1) need to be identified in a transaction for which a standard has been adopted by HHS; 2) are not eligible to obtain an HPID or a NPI; 3) are not an individual. Because the adoption of an OEID is voluntary, there is no required compliance date.

Practice Pointer: While none of these uses currently require an HPID, they

Practice Pointer: For employers, the

are helpful in that they illustrate how CMS intends the HPID to be used. In addition, CMS may decide to mandate some of these uses of HPIDs in the future.

HIPAA standard unique identifier is the employer’s EIN. For providers, the NPI, or National Provider Identifier, is the standard unique identifier.

Other Entity Identifiers The HPID regulations also introduce the concept of an Other Entity Identifier (“OEID”) for non-health plan entities that may engage in, and thus must be identified in, standard transactions. The possible users of OEIDs include third-party Risk Mitigation 1 administrators, transaction vendors, clearinghouses, and other payers. Nonhealth plan entities are permitted, but not required, to obtain an OEID. However,

B. Certification Requirement Another important requirement imposed on plans with respect to

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July 2014 | The Self-Insurer

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© 2013 Helmsman Management Services LLC.


Thankfully, catastrophic and complex claims don’t happen often. But when they do, they can result in significant losses for your business and significant injury to your valued employees. A compassionate claim professional with the right resources and experience can make all the difference in bringing about a positive outcome for you and your injured worker. To learn more, ask your broker or visit helmsmantpa.com.


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HIPAA’s administrative simplification rules is the certification of compliance. Section 1173(h)(1) of the ACA requires CHPs to file two separate statements with HHS certifying that their data and operating systems are in compliance with the applicable standards and operating rules. The first “certification of compliance” applies to the following standard transactions: eligibility for a health plan; health care claim status; and health care electronic funds transfers and remittance advice. It is due by December 31, 2015 for plans that have applied for an HPID by January 1, 2015 (i.e., most large health plan CHPs) and within a year of applying for an HPID for plans that apply for an HPID between January 1, 2015 and December 31, 2016 (i.e., small and new CHPs). Thus, as a practical matter, many health plans that provide excepted benefits and/or otherwise qualify as a small health plan will have an additional year for compliance. The second certification of compliance – applicable to health claims or equivalent encounter information; enrollment or disenrollment in a health plan; health plan premium payments; health claims attachment; and referral certification and authorization transactions – is, according to the statute, also due on December 31, 2015. However, there are currently no standards or operating rules for these transactions, so this requirement will likely be delayed. HHS issued proposed rules on January 2, 2014, setting forth the requirements for the first certification of compliance.7 While much remains to be worked out in the final rules, the proposed rules give a sense of what compliance obligations CHPs should prepare for by the end of 2015. HHS stated in the proposed rules that it

intends for the certification to serve as a “snapshot” of compliance, so this is likely a one-time compliance obligation for each required certification.

Practice Pointer: The certification requirements will take some time to satisfy because they require external testing, so plans should be prepared to act when the final regulations are issued by HHS.

Details of Certification Requirement The proposed rules would require CHPs to submit to HHS: • Number of covered lives, including covered lives in SHPs, on the date the certification is submitted; and • Documentation that the CHP has obtained one of two permissible certifications: -- HIPAA Credential, or -- The Phase III Core Seal. CHPs will report this information on their own behalf, as well as on behalf of SHPs and business associates conducting standard transactions on their behalf. The term “covered lives” means individuals (including spouses and dependents) covered by major medical policies of a CHP and its SHPs.

Practice Pointer:The use of the term “policy” in the definition of covered lives suggests that the proposed rules only contemplate reporting enrollment counts for fully-insured plans; further guidance on this subject would be welcome. The HIPAA Credential certification is still under development, but as currently envisioned by HHS, would involve: • Attestation about completing certain external testing of operating rules (although no specific testing process is specified), • Application form, and • Attestation of compliance with HIPAA’s Security, Privacy, and Electronic Transaction standards by a senior level executive. The Phase III CORE Seal would involve: • Specified external testing process through a CORE-authorized vendor to obtain the Seal, • Application form, and • Attestation (also by senior level executive) of compliance with HIPAA’s Security, Privacy, and Electronic Transaction standards. Plans should watch for further development on these methods of certification in the final rules.

Potential Penalties Plans that fail to comply with the certification and documentation of compliance requirements (either by submitting the required information late or not at all) may face penalties of $1 per covered life per day, up to a maximum of $20 for covered life, or $40 per covered life if the plan knowingly provides incomplete or inaccurate information.

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Practice Pointer:The penalties for violations of these provisions are less


draconian than other ACA penalties, such as for violations of the “pay or play” rules (under IRC § 4980H) and the PHSA Mandates. However, this penalty will likely be very easy for HHS to enforce, as HHS states that it can compare the list of entities that applied for an HPID with the list of entities that complied with the certification requirement. n Attorneys John R. Hickman, Ashley Gillihan, Johann Lee, and Carolyn Smith provide the answers in this column. Mr. Hickman is partner in charge of the Health Benefits Practice with Alston & Bird, LLP, an Atlanta, New York, Los Angeles, Charlotte and Washington, D.C. law firm. Ashley Gillihan, Carolyn Smith and Johann Lee are members of the Health Benefits Practice. Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner’s situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation. Readers are encouraged to send questions by email to Mr. Hickman at john.hickman@alston.com.

This requirement is described in Social Security Act § 1173(b). This rule was required to be based on input from the National Committee on Vital and Health Statistics (“NCVHS”) and be effective no later than October 1, 2012.


2 Department of Health and Human Services, Administrative Simplification: Adoption of a Standard for a Unique Health Plan Identifier; Addition to the National Provider Identifier Requirements; and a Change to the Compliance Date for ICD–10–CM and ICD–10–PCS Medical Data Code Sets, 77 Fed. Reg. 22950, April 17, 2012. 3 Department of Health and Human Services, Administrative Simplification: Adoption of a Standard for a Unique Health Plan Identifier; Addition to the National Provider Identifier Requirements; and a Change to the Compliance Date for the International Classification of Diseases, 10th Edition (ICD–10–CM and ICD–10–PCS) Medical Data Code Sets; Final Rule, 77 Fed. Reg. 54664, September 5, 2012. 4 CMS, “Health Plan Identifier,” March 30, 2014, available at www.cms.gov/Regulations-and-Guidance/HIPAAAdministrative-Simplification/Affordable-Care-Act/HealthPlan-Identifier.html. 5 45 C.F.R. § 162.504. This was corrected from mistake in the original regulations by 77 Fed. Reg. 60629, Oct. 4, 2012. 6 CMS, HPID and OEID System Overview, March 2013, available at www.cms.gov/Regulations-and-Guidance/ HIPAA-Administrative-Simplification/Affordable-Care-Act/ Downloads/HPOESTrainingSlidesMarchSlideDeck.pdf. 7 Department of Health and Human Services, Administrative Simplification: Certification of Compliance for Health Plans; Proposed Rule, 79 Fed. Reg. 298, January 2, 2014.


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The Self-Insurer | July 2014


Mark Your Calendars! (Part II - Section 6056 Reporting) by Cori M. Cook, J.D., CMC Consulting, LLC


n March of 2014 the Internal Revenue Service and Treasury issued final regulations providing guidance to those entities that are subject to the information reporting requirements of sections 6055 and 6056 of the Internal Revenue Code, as enacted by the Patient Protection and Affordable Care Act (PPACA). This article will focus on section 6056 which requires applicable large employers to report to the IRS information about the health care coverage being offered to its full-time employees in order to administer the employer shared responsibility provisions of section 4980H. Section 6056 also requires applicable large employers to furnish related statements to employees that may be used to determine whether, for each calendar month of the year,


July 2014 | The Self-Insurer

the employee may claim a premium tax credit under section 36B. By way of background, applicable large employers may be subject to one of two potential excise taxes imposed under Internal Revenue Code Section 4980H if the employer fails to offer a full-time employee (and their dependent children) health insurance coverage that satisfies certain requirements prescribed in Section 4980H, during a month, and a full-time employee receives a premium subsidy for health insurance in the Marketplace during a month.

Who is required to report? Section 6056 requires applicable large employers to comply with the reporting requirements. As a general rule, an applicable large employer is an

employer that employed, on average, at least 50 full-time employees on business days during the preceding calendar year, and for purposes of this calculation, fulltime employees include both full-time employees and full-time equivalents. Applicable large employer status is determined on a controlled group basis as set forth in sections 414(b), 414(c), 414(m) or 414(o). All employer members of the controlled group will be treated as a single employer. However, section 6056 reporting requirements apply on an employer-by-employer basis. Hence, the determination of whether an employer is an applicable large employer is made at the aggregated group level of a controlled group and the section 6056 reporting requirement determination is made at the individual employer member level.

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When and how must the information be reported? Section 6056 reporting originally was to apply to coverage provided on or after January 1, 2014. However, the IRS provided transition relief for one year as set forth in Notice 2013-45. Reporting is now required beginning in early 2016, for coverage that was provided in 2015, and annually thereafter. In the interim, the IRS is encouraging voluntary compliance and reporting prior to the effective date. A reporting entity must file a transmittal form (1094-C) on or before February 28 (March 31 if filed electronically) of the year following the calendar year in which the coverage was provided. Electronic filing is required for high-volume filers (250 or more returns under section 6055). For the first reporting year, since the 2016 deadline falls on a Sunday, the first returns and transmittal forms will be due by March 1, 2016 (unless filed electronically). All applicable large employers with self-funded group health plans may use a combined Form 1095-C to satisfy the 6055 and 6056 reporting requirements. Statements (1095-C) must be furnished to full-time employees on or before January 31st of the following year. For the first reporting year, since the 2016 deadline falls on a Sunday, the first statements will be due by February 1, 2016. Statements must be mailed first class to the last known permanent address on file for the full-time employee and must include the following: • Name, address and contact information of the applicable large employer; and • Information required to be shown on the section 6056 return with respect to the full-time employee. Similar to the 6055 reporting requirements, although not required, the final regulations indicate that the applicable large employer may choose to provide the full-time employee with a copy of the return that was provided

to the IRS to satisfy the statement requirement. The applicable large employer may furnish these required statements to the full-time employee within the same mailing as the W-2. The final regulations also permit furnishing the statements to the full-time employee electronically so long as the proper consent has been received from the individual to receive electronic notices. A general consent to receive statements electronically will not be sufficient. Detailed requirements must be met in order to satisfy the electronic disclosure rules. Although liability may not transfer, applicable large employers are permitted to contract with third parties to facilitate the filing of the returns and furnishing the employees with the requirement statements.

What information must be reported? We are still waiting for the required forms and instructions to be developed and distributed. We know at the very least the returns will require the following information: • Name, address, and taxpayer identification number (TIN) of the applicable large employer; • Calendar year for which the information is being reported; • Name and telephone number of the applicable large employer’s contact person; • Certification (by calendar month) as to whether the applicable large employer offered its full-time employees (and dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan; • Number of full-time employees, for each calendar month during the calendar year, by calendar month; • For each full-time employee, the months during the calendar year for which minimum essential coverage was available; • Each full-time employee’s share of the lowest cost monthly premium for selfonly coverage providing minimum value offered to a full-time employee under an eligible employer sponsored plan, by calendar month; and the • Name, address and TIN of each full-time employee during the calendar year and the months, if any, during which the employee was covered under an eligible employer sponsored plan. The final regulations also set forth additional information that is required to be reported under section 6056. However, the following information will be reported through indicator codes: • Information as to whether the coverage offered to full-time employees (and dependents) under and employer sponsored plan provides minimum value and whether the employee had the opportunity to enroll his/her spouse in the coverage; • Total number of employees, by calendar month; • Whether an employee’s effective date of coverage was affected by a permissible waiting period under 4980H, by calendar month; • Whether the applicable large employer had non-employees or otherwise credited any hours of service during any particular month, by calendar month; • Whether the applicable large employer is a member of an aggregated group, determined under the controlled group rules, and, if applicable, the name and TIN of each employer member of the aggregated group on any day of the calendar year for which the information is reported; • Name, address and identification number of an appropriately designated person if reporting on behalf of the applicable large employer that is a governmental unit or any agency or instrumentality thereof; • If an applicable large employer is a contributing member of a multiemployer, whether, with respect to a full-time employee, the employer is not subject to an

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assessment payment under 4980H due to the employer’s contributions to the multiemployer; and • If a third party is reporting for the applicable large employer, the name, address and TIN of the third party (in addition to the name, address, and TIN of the applicable large employer already required). “In an effort to simplify and streamline the section 6056 reporting process” (seriously… ) the following information will also need to be reported with respect to each full-time employee for each calendar month utilizing indicator codes: • Minimum essential coverage meeting minimum value was offered to 1) the employee only, 2) the employee and the employee’s dependent’s only, 3) the employee and the employee’s spouse only, or 4) the employee and the employee’s spouse and dependents; • Coverage was not offered to the employee and 1) any failure to offer coverage will not result in a payment under 4980H, 2) the employee was not a full-time employee, 3) the employee was not employed by the applicable large employer during that month, or 4) no other code or exception applies; • Coverage was offered to the employee for the month although the employee was not a full-time employee for that month; • The employee was covered under the plan; and • The applicable large employer met one of the affordability safe harbor tests with respect to the employee.

Alternative Reporting Methods? Eligible applicable large employers may utilize an alternative reporting method if the employer is unlikely to be subject to a penalty under 4980H given that its employees will likely be ineligible for a premium tax credit. 1. Reporting Based on Certification of Qualifying Offers Applicable large employers may certify on 1094-C that for all months during the year in which the employee was a full-time employee a “qualifying offer” was made:

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an offer of minimum value coverage providing employee-only coverage at a cost of no more than 9.5% of the Federal Poverty Level, combined with an offer to the employee’s spouse and dependents. The IRS anticipates that applicable large employers utilizing this method will be allowed simplified information reporting depending on the circumstances of the qualifying offer. Applicable large employers that can certify that they made a qualifying offer for all 12 months of the year will need to certify the offer and report only the names, addresses, and TINs of those employees who received the qualifying offers. Applicable large employers will also provide the employees with a copy of the simplified report or a standard statement indicating that the employee received a full-year qualifying offer. Applicable large employers will be permitted to use a code for each month a qualifying offer was made for any employee who receives a qualifying offer for fewer than 12 months of the year. For 2015 only, applicable large employers certifying that it made qualifying offers to at least 95% of its full-time employees (and their spouses

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and dependents) will be able to utilize the simplified reporting method for the entire workforce and will also be permitted to furnish simplified statements to the full-time employees. 2. Reporting without Separate Identification of Full-Time Employees (98% Offer Rule) Applicable large employers may certify on 1094-C that it offered affordable minimum value coverage to at least 98% of reportable employees. The applicable large employer is not required to identify or specify the number of full-time employees. If a full-time employee later reports a premium tax credit there would likely by follow-up with the applicable large employer so adequate record keeping is important.

Penalties for non-compliance? Failure to comply with these reporting requirements may result in penalties ranging from $100 per return up to $1.5 million in a calendar

year. In an effort to provide shortterm relief from penalties, the IRS will not impose penalties where it can be shown that a good faith attempt to comply has been made but only for incorrect and/or incomplete information. No relief will be provided where a reporting entity does not make a good faith effort to comply or for failure to file timely returns or furnish the requisite statements, and penalties could exceed $1.5 million for a reporting entity that intentionally disregards the requirement.

important that employers understand that they need to start strategizing now to identify which employees will be treated as full-time employees in 2015 for the 2016 deadline. n

Next Steps?

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 health plans. Please seek appropriate legal and/or professional counsel to obtain specific advice with respect to the subject matter contained herein.

January 2016 will be here before we know it and between now and then many systems may need to be designed or refined to capture the relevant data elements that will enable reporting entities to streamline the 6055 and 6056 reporting requirements. Reporting entities and/or their TPA partners will need to look at current processes and assess the operational impact complying with these requirements will have and it is

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 can be reached at (406) 647-3715, via email at cori@corimcook. com or at www.corimcook.com.

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

2014 Board of Directors CHAIRMAN OF THE BOARD* Les Boughner Executive VP & Managing Director Willis North American Captive and Consulting Practice Burlington, VT PRESIDENT* Mike Ferguson SIIA Simpsonville, SC VICE PRESIDENT OPERATIONS* Donald K. Drelich Chairman & CEO D.W. Van Dyke & Co. Wilton, CT VICE PRESIDENT FINANCE/CFO* Steven J. Link Executive Vice President Midwest Employers Casualty Co. Chesterfi eld, MO

Directors Jerry Castelloe Vice President CoreSource, Inc. Charlotte, NC Robert A. Clemente CEO Specialty Care Management LLC Bridgewater, NJ Ronald K. Dewsnup President & General Manager Allegiance Benefi t Plan Management, Inc. Missoula, MT Elizabeth D. Mariner Executive Vice President Re-Solutions, LLC Wellington, FL


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SIIA New Members Regular Members Company Name/ Voting Representative

Jay Ritchie Senior Vice President HCC Life Insurance Co. Kennesaw, GA

Mark Fiechter Vice President of Sales Assist America Inc. Princeton, NJ

Committee Chairs

Gordon Thompson Actuarial Consultant AmeRisk Consulting Phoenix, AZ

CHAIRMAN, ALTERNATIVE RISK TRANSFER COMMITTEE Andrew Cavenagh President Pareto Captive Services, LLC Conshohocken, PA

Amer Haider Doctella Sunnyvale, CA Jarvis Shockey Director of Sales & Marketing VPay Inc. Richardson, TX

CHAIRMAN, GOVERNMENT RELATIONS COMMITTEE Horace Garfi eld Vice President Transamerica Employee Benefi ts Louisville, KY

Silver Member Keith Sullivan President & CEO ArmadaCorp. Hunt Valley, MD

CHAIRMAN, HEALTH CARE COMMITTEE Robert J. Melillo VP Alternate Funding Strategies USI Insurance Services Meriden, CT CHAIRMAN, INTERNATIONAL COMMITTEE Greg Arms Chief Operating Offi cer Accident & Health Division Chubb Group of Insurance Companies Warren, NJ CHAIRMAN, WORKERS’ COMPENSATION COMMITTEE Duke Niedringhaus Vice President J.W. Terrill, Inc. St Louis, MO

Trinity Steelman Vice President Co-Owner ISU McMullen Insurance Agency Elko, NV Greg Cromer CEO Louisiana Health Cooperative Metairie, LA David Feinberg Executive Vice President WellNet New York, NY

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