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June 2016


Does Wellness


Measure Up?


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



Does Wellness

Group Captives Mitigating Costs of MPL Insurance


INside the Beltway SIIA Takes the Case for Self-Insurance to Congress on Both Sides of the Aisle


OUTside the Beltway Self-Insurance Industry Provided Stop-Loss Forum in New Mexico


United Cuts Ties with the Exchanges – But Who is to Blame?

Some Say ROI is Unattainable, While Others Focus on Outcomes

Bruce Shutan


Volume 92



Measure Up?

June 2016

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

2016 Self-Insurers’ Publishing Corp. Officers


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

Medical Stop-Loss

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& Issues Answers Phillip C . Giles, CEBS and Steven A. McFarland


How a Consumer-Focused, Engaged Telehealth Strategy Can Boost Utilization and Lower Costs


Self-Funded Dental: A Win for Everyone


SIIA Endeavors There are Many Ways to Get Involved and Help Support Our Industry

June 2016 | The Self-Insurer


Does Wellness


Measure Up? Some Say ROI is Unattainable, While Others Focus on Outcomes


mployee health and wellness programs elevate the power of self-insurance, but some industry insiders say it’s impossible to produce credible numbers showing a positive return on investment. Meet Al Lewis and Vik Khanna, whose critical view on the subject spotlights several caveats. The pair is so sure of their hypothesis they’ve offered a legally binding $1 million reward for anybody who can show that wellness breaks even, pointing out that so far there are no takers. Too many wellness initiatives are seen by employees as a chore or even punishment, which they suggest undermine program results along with morale, job satisfaction and productivity. They also point to a perverse system deeply mired in overdiagnosis and over-treatment, charging that experts eschew legitimate evidence-based measures because it would decimate their profits.

Written by Bruce Shutan

WELLNESS MEASURE UP? | FEATURE Others, however, prefer to focus on designing group health plans with clinical pathways targeting higher-level risks that ultimately will improve health outcomes or at least make employees happy. Happier employees, they argue, will lead to happier customers, regardless of whether there’s a price tag associated with that result. They also support more consumer-oriented solutions that help employees better understand the connection between their health and cost of treatment, including tools to sustain healthy habits. Only then, the thinking goes, will workplace wellness reach the level of success that has eluded so many well-intentioned sponsors of these programs. The quickest and most efficient way to ROI is through an increase in employee premiums, deductibles and coinsurance alongside a consumerdriven health plan with high barriers to care, explains Ron Goetzel, Ph.D., who’s often at odds on this issue with Lewis and Khanna.

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But that short-sighted philosophy does nothing to encourage a clear understanding between employee health and the cost of their medical care, says the VP of consulting and applied research for Truven Health Analytics. He believes employees need to be armed with the right tools, resources, skills and knowledge that will help them adopt healthier habits in adherence with evidence-based medicine. “There’s a lot of science out there behind behavior change that ought to be inserted into these programs to help you quit smoking and lose weight,” he says. Eventually, he adds, employees who take better care of themselves will be less likely to visit their doctor or a hospital ER, or use medication to manage disease. And while there have been eye-popping claims made

about wellness ROI, Goetzel says a 1:1 baseline result is good enough as long as the health and wellbeing of the workforce is improved. That’s a far cry from the roughly 30% ROI attributed to McKesson Corporation, one of two C. Everett Koop National Health Award recipients from 2015. The number was based on preliminary findings from an independent research group at Harvard University over a three-year analysis period. Goetzel plays a leadership role in vetting and recognizing program applicants. The true value of a wellness program isn’t necessarily identified in ROI or any given number, but rather whether employers are able to perform a population risk evaluation. So says Joe Hodges, founder and president of INETICO, Inc., as well as a veteran in the medical cost-containment field. Under that scenario, they’d be able to appropriately apply programs and consumer-friendly tools that are meaningful to health plan members. “Only then can you influence a positive outcome for them that actually has an influencing component to the cost of a claim,” he says. His approach is built around four pillars: wellness, condition or disease management, utilization or case management and claims management. Recognizing the challenge of producing credible ROI for employee wellness, the industry has proposed an alternate metric called “value on investment,” which critics say falls short because program intangibles simply cannot be measured.

Elevating Self-Insurance Self-funded companies have more to gain or lose by improving the health and wellbeing of their employees than under a fully insured plan that’s akin to community rating, Goetzel observes. They can also use their own analysis

of ROI, he says, instead of relying upon insurer proposing a formula, algorithm or model. In fact, most recipients of the Koop award over the past two decades that recognition has been in place were self-insured, according to Goetzel. “They have kind of a clearer picture of what their utilization, cost experience and health risk experience is,” he says. Wellness programs at self-insured companies have “more fluidity” than fully insured arrangements, Hodges observes. He believes there’s “a greater opportunity, from a selfinsured perspective, to measure the success of a wellness program because the cost of claims and services on the front end are much more transparent.” Less than 60% compliance or adherence to treatment of employees with a chronic condition will result in a greater than 15% chance of an inpatient admission or ER visit, Hodges explains, which will escalate plan costs. But he says raising that rate to at least to be 80% will drastically lower the chance of an inpatient hospitalization or ER visit to less than 4%.

Credible Measures The best way to measure program success is by a wellness-sensitive medical event rate, according to Lewis, CEO of Quizzify, a consumer health education company and author of “Why Nobody Believes the Numbers: Separating Fact from Fiction in Population Health Management” (John Wiley & Sons). He describes it as “the only methodology that tallies hospitalizations for conditions targeted by a wellness program – statistically avoided heart attacks, etc.” Another reason is it’s the only one among seven methodologies from the nonprofit Health Enhancement Research Organization (HERO) considered acceptable to researchers. June 2016 | The Self-Insurer


WELLNESS MEASURE UP? | FEATURE Two highly respected entities that use this rate are the Health Affairs journal and a GE-Intel joint venture known as the Care Innovations Validation Institute, whose mission is to employ “the highest standards of validity” when evaluating population health outcomes. But since “it rarely, if ever, shows any impact” in terms of program savings, Lewis says industry consultants and suppliers aren’t using the measure.

“Nobody knows how to measure the success of their wellness programs and nobody does it well, no matter whether they’re self-insured or fully insured, or some mix in between,” observes Khanna, an independent health consultant, who has written extensively on the topic with Lewis. If anything, Lewis says wellness actually increases health care spending. He cited as a recent example results associated with Connecticut’s state employee wellness program, as well as a report compiled by HERO and the Population Health Alliance. Those organizations estimated wellness program costs at $1.50 per employee per month, excluding what Lewis noted were incentives, consulting fees, staffing costs, additional medical expenses and other items.

Consumer-Friendly Approach Employers need to replace wellness programs being done to employees with ones that are being done for employees, Lewis recommends. The trouble is that this approach “doesn’t require much in the way of vendors or brokers or consultants, so there’s no revenue model,” he explains. One Quizzify client described as a large medical technology company has sought to make wellness enticing to its roughly 2,000 U.S. employees. Aside from offering a conventional wellness program that Khanna says employees hate but participate in only grudgingly because of a financial incentive, “they are inching towards figuring out that employees are much happier” when their needs are met. For example, the company hired a certified Zumba instructor who holds



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WELLNESS MEASURE UP? | FEATURE classes in a conference room three times a week. “She’s standing room only,” Khanna notes. In addition, the company subsidizes about half the cost of a catered salad bar and encourages employees to take home on Fridays any leftover fresh fruit that’s delivered to the office in unlimited quantities.

Khanna believes a more holistic view of employee health is necessary to encourage healthier living. “There has to be a balance struck between the growth and the needs of the organization and the welfare of the employees,” he says, noting the importance of breaks for lunch or exercise. “If you aren’t paying attention to people’s emotional health and their stress levels, you’re not going to have employees who can grow your company they way they’re growing.” Another way to improve program engagement is through gamification. “But we have to be really cautious because we don’t want to be the game of the week where someone gets bored playing it,” Hodges cautions. It all boils down to participation, which he describes as “the absolute key to the success of any wellness program if we’re going to look at the effect of ROI in the plan.” His larger point is to provide a valued and appropriate incentive to participate, such as deep discounts on monthly premiums vs. a $50 gift card or trinkets.

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With regard to reversing over-diagnosis and over-treatment patterns, two pet peeves of Lewis, he says there’s an easy fix. It involves following guidelines for screening frequencies and medical testing put out by the U.S. Preventive Services Taskforce. But once again, he cites the issue of profits trumping lives, noting how broker and vendor compensation would plummet about 75% under that scenario. In an effort to help employers police their wellness programs, Quizzify created a free website called www.theysaidwhat.net where Lewis says they can learn the facts about their vendors. The company also has partnered with Harvard Medical School to ensure that its material is valid. ■ Bruce Shutan is a Los Angeles freelance writer who has closely covered the employee benefits industry for 28 years.

June 2016 | The Self-Insurer


Group Captives Mitigating Costs of MPL Insurance


he high cost of medical professional liability (MPL) insurance can be daunting for healthcare practitioners, physicians and physicians groups. Especially as most healthcare practitioners pay the price for a very small number of negligent practitioners. Yet group captives have helped healthcare workers to keep MPL pricing stable and in some cases lower their costs. Since the 1970s, big settlements for malpractice suits has made MPL insurance more expensive and, at times, hard to procure. According to B. Troy Winch, vice president and director of Captive Insurance at Risk Services, LLC, “Medical professional liability claims typically deal with injured individuals which can give rise to large awards, especially in the case of jury trials where sympathy can drive the final judgment amount. Additionally, given the potential for large judgments and settlements, the cost of defending MPL claims can be extremely expensive based on the complexity of the cases, multiple defendants, expert witness costs, etc.� Over the last forty years, many states have implemented tort reform in order to help lower large settlements which helps keep premium for medical malpractice at a lower rate. However, in other states MPL costs continue to rise, which can price many physicians out of practicing.

Written by Kerri Hyatt 10

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In a study published in the March edition of The New England Journal of Medicine only one percent of all physicians accounted for 32% of paid claims.

The study looked at data from the National Practitioner Data Bank from 2005 to 2014 and found that out of physicians with paid claims, 84% incurred only one claim, 16% had two and 4% had at least three. With each additional paid claim, the chances of a physician incurring another incident multiplied. Even with information such as this study provides, all physicians are still being levied high premiums for MPL insurance. In the 1970s, in response to many healthcare practitioners being priced out of insurance, mutual insurers were formed to help them obtain insurance. The 1980s saw a crisis with general liability which led to the growth of captive insurance companies as a solution to that tight market. In the last 30 years captives have matured as a reliable form of insurance coverage and more and more physicians are looking to captives to help control the costs of their MPL insurance. Group captives are formed by individuals or non-related organizations to be an independent entity that insures the risks of its owners. Unlike pure captives where there is one parent company owner, group captives, which include risk retention groups (RRGs), can have multiple owners and each owner is responsible for helping to control and make decisions for the captive. In the healthcare arena, group captives can be groups of physicians that band together to create a captive or it can be created between clinics and group practices or even groups of hospitals. According to Eric W. Dethlefs, president and CEO of Cassatt RRG Holding Co., the management company for a group captive of Pennsylvania-based hospitals,

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“Alternative arrangements like captives – where hospitals and physicians jointly own and manage their own medical liability risk – provide an opportunity for important cost savings. Under this arrangement, the physicians and hospitals manage their own risk and therefore, have a joint, vested interest in ensuring better outcomes for patients.” One of the main benefits of group captives is to stabilize MPL premiums so that when the insurance market fluctuates the group members are not at the mercy of the marketplace. Gary Osborne, president of USA Risk Group said, “Group captives bring tighter control of malpractice costs and controls. The more successful ones are localized models where better tracking, restrictive underwriting and peer review on claims can have a material impact. If you merely replicate a broad national model it is less likely to succeed that a city or state level model where there is greater similarity over court rules and state practices.” “Group captives will generally have cost advantages and lower operational expenses than the regular commercial marketplace, simply due to economies of scale,” said Dethlefs. “However, this is not the only reason they keep medical malpractice costs down.” With ownership in a group captive comes the element of control. Dethlefs

continued, “Members will have the ability to direct the insurance program as well as network with other shareholders to enhance patient safety and risk management initiatives. Group captives will also employ a dedicated staff, who will be held accountable for results... [and can] help reduce medical practice costs with access to the reinsurance marketplace.” According to Winch, “Through creation of a group captive, physicians gain a much greater degree of control and flexibility with respect to their medical professional liability insurance, through the ability to dictate their own underwriting criteria, policy forms, claims handlers, etc., which coupled with good risk selection and risk management can typically ultimately also drive down their medical professional liability insurance costs over time.” Another component in successful group captives is a focus on risk management. Especially for healthcare practitioners, risk management can be a key element in mitigating risk throughout the organization. “Effective risk management can be key to reducing insurance costs for any insurance program, be it traditional market or a group captive,” added Winch. “However, in a group captive program, where the physician members have invested capital and have a stake in the programs profitability, there is a direct incentive to implement and adhere to an effective risk management program.” When each owner of a group captive has the goal of reducing risk they are more likely to adhere to risk management policies in order to make their insurance company more successful by reducing claims. Risk management takes various forms, including continued education and training, but it begins with guidelines June 2016 | The Self-Insurer


established with the group captive. According to Osborne, “Peer review has been enormously beneficial to malpractice claims. Doctors are far more likely to understand that a claim needs to be addressed and settled if a committee of local and knowledgeable colleagues indicate that the fact pattern of an incident is poor and not defensible that an insurance claim professional stating such. The professional opinion from fellow physicians is more readily acceptable.” “In addition,” he continued, “The more localized model can generally allow for greater involvement in workshops and training classes. I have seen several groups successfully use these methods, often with a premium discount for attendance and implementation of new suggested processes.” With this model, incidents and claims reporting are encouraged so

that trends can be monitored and addressed. Rather than promoting a feeling of defensiveness among insureds, healthcare practitioners can approach incidents more professionally. Osborne said, “While obviously maintaining patient privacy, the ability to get a deeper understanding of claims and implement steps to address can be very beneficial.” Dethlefs referred to a recent example from his own RRG with a new member, “Prior to entry into the insurance program, the new member was actively involved in various risk management, patient safety and quality initiatives. We firmly believe that these initiatives will lead to higher quality of patient care being delivered, which will translate into lower premiums, or cost of risk, in the future.” While the benefits of a group captive can be large – both monetarily and in mitigating risk – formation of a captive should not be based on savings alone. “It is... important that the formation is not seen as an immediate cost-saver as that is also a recipe for failure. It must be seen as a cost-stabilizer with the possibility of returns if successful,” said Osborne. According to Winch, “The ability to custom design the groups insurance program typically will give rise to the immediate benefits, such as custom policy forms, streamlined underwriting process, tailored risk management programs, etc. whereas due to the long-term nature of medical professional liability insurance the financial benefits are typically seen more so over the long-term based on the group captive’s results.” In fact, it can be three or more years before members see real benefits. The lag time in processing claims means that it can be several years before incident, reporting and claims patterns appear and before a customized risk management


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program can be put into effect for all group owners. Group captives aren’t a solution for most healthcare practitioners as they take a sincere commitment – both financial and time – to create. Yet, where the participants are willing it can work to everyone’s benefits. “If the past is any indication,” said Dethlefs. “The Cassatt Insured Group has demonstrated that competing health systems can and should collaborate to share intelligence, risk and success. However, the model must be properly structured and wellmanaged for it to work.”

the benefits of creating a long-term insurance solution for themselves.” ■ 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.

Group captives serving healthcare practitioners are continuing to grow. While specific data isn’t known for group captives nationwide, RRGs (which operate under a federal law) organized to provide MPL insurance are far-andaway the largest group of RRGs. “I would say that group captives are the present and future of medical professional liability insurance,” said Winch, “As physicians and physician practices are forced to become more sophisticated insurance buyers and realize

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Osborne warns, “That the biggest issue that needs to be addressed is how to remove an underperforming member. I believe that the rules for joining and leaving must be established ahead of formation and that also means addressing capital contributions and return of capital.”

Any group captive formed with these things in mind should be able to significantly mitigate their risks, minimize their losses and stabilize their premiums. As Dethlefs stated, “[Group captives can] lead to increased collaboration among insureds in working towards a safer and higher healthcare environment and better outcomes to reduce the likelihood of an untoward event from occurring.”

June 2016 | The Self-Insurer



the Beltway Written by Dave Kirby

SIIA Takes the Case for Self-Insurance to Congress on Both Sides of the Aisle


s part of SIIA’s ongoing advocacy activities, Board of Directors member Bob Clemente and Vice President of Government Relations Ryan Work visited a number of Democratic and Republican Members who serve on pivotal congressional committees that would be likely to consider legislation affecting self-insurance. “Our goals of these and future meetings on the Hill are to continue our education campaign about self-insurance and stop-loss insurance with Members and their staff,” Work said. “What continues to be clear is that there is not a full awareness of the importance and use of self-insurance, which is why SIIA continues to be a leading proactive voice to educate and brief policymakers.” The meetings included the Capitol Hill offices of: • Both Pennsylvania Senators, Robert P. Casey (D), ranking member of the HELP and Finance Committees and Patrick J. Toomey (R), chairman of the Finance Health Subcommittee. As part of this meeting, the SIIA delegation also met with Brad Grantz, staff director of the Finance Health Subcommittee. • Members of the Education and Workforce Committee, Rep. Marc Pocan (D-WI) and Rep. Katherine Clark (D-PA). • Members of the Energy and Commerce Committee, Rep. Mike Doyle (D-PA) and Rep. Paul Tonko (D-NY). • Member of the Financial Services Committee Rep. Mike Fitzpatrick, (R-PA). SIIA Board member Clemente, Chief Executive Officer of Specialty Care Management of Lahaska, Pennsylvania, was upbeat in describing the reactions of Members and their staffs. “We were pleased that representatives of both parties were generally positive toward our message and we had a good reception everywhere,” he said. “There seems to be less clutter around our issues now than when the Affordable Care Act (ACA) was being debated in Congress,” Clemente said. “The view that self-insurance is trying to steal healthier people from the exchanges has seemed to fade. There’s less caution on the part of, particularly, Democrats since the Congressional Budget Office report in February that said that’s just not happening.” Clemente said that such meetings with Members of Congress in Washington, DC, or in their home districts continue to be a vital process. “Reinforcing Members’ awareness of self-insurance sets the stage for future support,” he said. 16

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“It specifically lays the groundwork for consideration of the Self-Insurance Protection Act (SIPA) (S. 775 and HR 1423) as that bill moves ahead. We’re looking for bipartisan support as Members become aware that selfinsurance provides the health care for over a hundred million Americans.” Congressional relations is not a “one-and-done” process, in Clemente’s view. “We need to be here on an ongoing basis because members of the House are elected every two years and staff members change continually. “The most important visitor to any Congressional office is that person who is a constituent of the senator or representative’s home state or district. SIIA members who can state the case for self-insurance in the context of health care, jobs and economic development always get a fair hearing from their representatives and their staffs.” SIIA’s Work indicated that Congressional visits for the association’s members are a critical component of its proactive approach to strategic outreach and will continue on a regular basis. ■ SIIA members who wish to join the campaign to educate Members of Congress are welcome to contact Ryan Work in the Washington office at rwork@siia.org or (202) 595-0642.

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June 2016 | The Self-Insurer



the Beltway Written by Dave Kirby

Self-Insurance Industry Provided Stop-Loss Forum in New Mexico


ew Mexico, the selfdescribed “Land of Enchantment,” has also become a land of education about stop-loss insurance. In short order, state legislation has improved the position of stop-loss and the Office of the Superintendent of Insurance (OSI) has included SIIA and other members of the self-insurance industry in the future legislative and regulatory process. “While New Mexico is not a huge self-insurance market in itself, improvements there can help our industry gain momentum in our national, state-by-state campaign to protect and promote self-insurance,” noted Adam Brackemyre, SIIA vice president of state government relations. SIIA supported New Mexico legislation (SB 108) which eliminated stop-loss from being defined as a form of health insurance. “This went to our core government relations value,” Brackemyre said. “In addition to being found wrong by many state and federal courts, that definition has justified applying ordinary health insurance loss ratios to stop-loss policies.” In a letter supporting SB 108, Brackemyre wrote, “Approximately 60 percent of New Mexico employees with private health 18

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insurance are covered by a selfinsured health plan, with many of these plan sponsors purchasing stop-loss insurance to protect against expensive medical claims. We view Senate Bill 108 as a critical first step in preserving health plans sponsors’ access to stop-loss insurance.” Longer term, the OSI has sought a rational method to develop stoploss rules that could be legislated next year. It has formed the New Mexico Stop-Loss Task Force, a body representing some 30 carriers and employer or industry associations

from throughout the U.S. SIIA is represented on the Task Force by Brackemyre, New Mexico lobbyist John Underwood and Catherine Bresler, vice president of government relations for The Trustmark Companies of Lake Forest, Illinois. “The OSI has responded to the self-insurance industry in a way that is both transparent and inclusive,” Brackemyre said. “While the Task Force process is still finding its way, members seem to appreciate the forum that has been provided to hear their concerns.” The initial effort of the Task

Force was to identify the current state of stop-loss in New Mexico through a survey that has been circulated to all the state’s stop-loss carriers. “Getting good data about the state’s stop-loss market should help us,” Brackemyre said. “The Superintendent suggested an attachment point of $100,000 at one point and those of us in the room said very respectfully, ‘you’re going to hit a lot of health plans if you do that.’” A “real world” view of self-insurance and stop-loss is provided by Task Force members who are closest to the New Mexico employer community. Task Force member Anne Sperling, president of a local brokerage firm, Vanguard Resources, Inc. of Santa Fe who earlier was instrumental in forming the New Mexico Health Insurance Alliance, said the OSI has moved off of a 2015 position that stop-loss policies should comply with the federal ACA, to its more consultative approach of the present.

“Self-insurance is increasingly important to our state’s small businesses as the fully-insured health insurance industry became more rigidly commoditized,” she said. “My clients appreciate the opportunity to be more creative and have more control over their health plans through level funding with stop-loss coverage.”

“Many smaller employers here do not have HR departments so the burden for their education and communications with their employees should be picked up by our brokerage industry in cooperation with the regulator,” she said. Brackemyre noted that the OSI has indicated that discussions within the Stop-Loss Task Force are planned to contribute to a 2017 legislative bill that would establish future stop-loss regulation. ■ SIIA members who wish to join the state government relations team are invited to contact Adam Brackemyre at the Washington, DC, office (202) 463-8161 or abrackemyre@siia.org.

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“The OSI has seemed nervous about smaller groups that may not have sufficient understanding of the costs and obligations of self-insurance and that’s a valid point,” she said. “I have raised the idea of establishing a certification program for carriers and brokers that could serve as an enforcement tool more effectively than rigid legislated standards.

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June 2016 | The Self-Insurer


United Cuts Ties with the Exchanges – But Who is to Blame?


ate last year, UnitedHealth, the nation’s largest health insurer, warned that in 2016, it may make the decision to pull out of the Obamacare health insurance exchanges completely, starting in 2017 (it had already cut its advertising on all ACA plans). Not surprisingly, this sparked a great deal of commentary among both supporters and critics of the ACA, some leveled and thoughtful, some bordering on panic. Now, approaching the halfway point of 2016, it is becoming clear that United will make good on those representations. Per more recent reports, United already has plans to withdraw from marketplaces in Michigan, Connecticut, Arkansas and Georgia and has maintained the possibility of leaving the exchange marketplaces completely in 2017. Not surprisingly, the reason behind United’s withdrawal from the exchanges is a lack of profitability. So, before discussing the likely effects on the exchanges, it is worthwhile to look at what has made them unprofitable for companies like United in the first place. A primary reason is the same reason self-funding is so attractive to many employers and has become even more attractive in recent years – the ACA stripped insurers of many of the methods they previously utilized to control how much risk they take on.

Written by Andrew Silverio, Esq., The Phia Group, LLC 20

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The inability to place dollar limits on most services, the inability to deny coverage due to pre-existing conditions or increase premiums for older

customers, the establishment of annual out of pocket maximums, however you feel about these regulatory requirements, there is no question that they result in significant added claim exposure for insurers. Add to this a marketplace where a large pool of previously uninsurable Americans are given the opportunity to enroll all at once and the obvious result is a historic influx of high risk insureds. But, are the exchanges truly unprofitable and unfriendly to insurers across the board, or just to insurers such as United? Other insurers are having more success and it is quite possible that United has simply attempted to utilize an outdated model in a new landscape with different rules. Exchange customers tend to choose lower cost options and United is rarely the most economical benefit option (and when it is, it is not by much). Commentators have posited that this could be because its plans tend to offer wide networks, providing for maximum flexibility in choosing between medical providers over a large geographical area, while other insurers have kept costs down despite the ACA with features such as narrow networks and other cost containment methods. In addition to reasoned commentary suggesting that United’s failure in the exchanges is at least partially the fault of United rather than the exchanges themselves, the actual impact on the exchanges of even a full withdrawal by the nation’s largest insurer may not be as devastating as many might think. Despite being the nation’s largest insurer, United’s actual footprint in the exchanges, before any withdrawals, is not particularly large (it covers about 6 percent of all marketplace enrollees). A report released last month by the Kaiser Family Foundation concluded that without United, the cost of the exchanges most popular silver plans would increase by about 1% nationally. However, the loss of United could have a much more significant effect locally, particularly in parts of the south. Many areas have access to few insurers offering exchange plans and if another did not step in to fill the gap, United’s withdrawal would leave millions of exchange enrollees with only one or two insurers to choose from. In an insurance market, a lack of competition is never a good thing for customers.

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Even if the exchanges’ loss of United likely doesn’t mark the death knell for the ACA or the exchanges themselves, it will create some volatility, in some locations more than others and it has become exceedingly clear that it will take longer than initially expected for the exchange markets to stabilize. A way around this problem for many employers and the sometimes skyrocketing premiums associated with it, is self-funding. Self-funding allows an isolated group, an employer, to shoulder only its own risk, not the pooled risk of an entire marketplace. Recent reports have estimated the average annual cost of medical care for exchange enrollees at 22% higher than that of Americans enrolled in employer-sponsored healthcare ($559 per month in 2015, versus $457). A young, healthy workforce will have a fraction of the healthcare costs of an older workforce and the ability of a company to selffund, removing those lives from the general risk pool in the insurance market and assuming only the claims risk of its own health employees, will reflect this, resulting in huge savings as compared to purchasing group coverage from a traditional insurer. The problem, at least for insurers and the ACA, is that the market needs those low-risk lives to balance out the influx of risk coming into fully insured plans. So, lawmakers can either wait for these markets to eventually stabilize themselves, or take action to help things along. Here are a few scenarios:

A Bailout of Health Insurers This possibility may be determined more by the next election than by the healthcare marketplace, but it is a distinct possibility nonetheless. Any campaign promises aside, a “bailout” would likely come in the form of a restructuring of the ACA’s “risk corridor” cost-shifting features rather than an actual “repeal” of the ACA (which would render millions of Americans immediately uninsured with no prospect of replacement coverage). In its current form, the risk corridors are budget-neutral, in that funds are shifted only from profitable insurers to unprofitable ones, thereby insulating participating insurers from some of the losses they may stand to incur by taking on additional claims risk. Introducing public funds into this system could bolster this insulation, making the ACA exchanges more attractive to insurers, with the ultimate cost of course falling onto taxpayers.

Self-Funding in the Crosshairs As discussed above, a significant pool of healthy, low-risk lives, along with their potential premium dollars, is safely insulated from the exchanges in self-funded health plans. Herding these lives into the exchanges would immediately make the exchanges more attractive to insurers. Rather than taking aim at the ACA itself, or funneling more funds into the system, it is possible that self-funding could become a target, with policy attempting to reduce or eliminate its viability as an alternative to traditional health insurance. The most obvious way this would be accomplished is through changes to ERISA, but this could also be accomplished to an extent by implementing policy which would disassemble the structures June 2016 | The Self-Insurer


supporting self-funding, particularly stop-loss or reinsurance, which can be regulated at a state level without the need for federal action. In fact, many lawmakers at state and federal levels are already attempting to hyper-regulate stop loss and reinsurance carriers, openly stating that the purpose of such regulation is to cull self-funding, thereby strengthening the exchanges.

find ways in the interim to manage the symptoms – this means innovating ways to manage costs at the plan level, finding new ways to incentivize individuals to take responsibility for their own healthcare spending and of course combating legislative efforts to undermine the viability of self-funding as a health coverage option. ■

But, perhaps both of these approaches are ignoring the real problem. Perhaps the real question is: why are we operating in a system where simply getting sick can likely result in complete financial ruin? If having hemophilia, or end stage renal disease, didn’t require hundreds of thousands or even millions of dollars in medical care, the very reference point for what “high risk” means would shift. Whatever the eventual solution to this illness, self-funded plans must

Andrew Silverio joined The Phia Group, LLC as an attorney in the summer of 2014. In addition to conducting research into novel and developing areas of the industry, his primary focus is on subrogation and reimbursement and he handles many of the company’s more challenging and complex recovery cases.

he took the step into the healthcare realm of the legal world, serving first as an editor and content contributor and then on the executive board of the Journal of Health and Biomedical Law. Andrew is licensed to practice in the Commonwealth of Massachusetts. For more information on how to stay ahead of the curve, contact info@phiagroup.com.

Andrew attended Berklee College of Music in Boston, earning his B.A. in professional music. He then attended Suffolk University Law School, graduating with an intellectual property concentration with distinction. There,



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By integrating IHC’s business we are complementing this highly-regarded firm’s wealth of expertise with our own financial strength and global capacity. It’s a powerful combination of expertise and capabilities, and we believe it offers enhanced value to any employer seeking to self-fund their healthcare benefit plan. But there’s another belief that we share with IHC, and that’s in the paramount importance of understanding and supporting the needs of our customers and building strong, enduring partnerships. We wouldn’t have it any other way. We’re smarter together. swissre.com/esl Insurance products underwritten by Westport Insurance Corporation and North American Specialty Insurance Company.

June 2016 | The Self-Insurer


Medical Stop-Loss


ssues & I Answers S

elf-funding has become one of the most widely used forms of risk financing for employee healthcare coverage. In 2000, about 48% of all employers self-funded their employees’ healthcare coverage. Five years later, the percentage of selfinsured employers had grown to the mid-50’s and in 2016, fueled by the Affordable Care Act (ACA), the percentage of self-insured employers has eclipsed the 60% threshold and is expected to continue growing at a significant pace.

Written by Phillip C . Giles, CEBS and Steven A. McFarland 24

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At the present time, more than 80 million individuals – 60% of all workers under the age of 65 – are covered by self-insured employer health plans. Given the rising cost of healthcare and the complexities associated with ACA compliance, more employers will be likely to explore self-funding as

MEDICAL STOP-LOSS CAPTIVES | FEATURE an option to lower or offset the cost of healthcare delivery to their employees. With such sustained growth, the strategic use of stop-loss captives, to augment traditional self-funding, is also likely to grow. Medical stop-loss captives have enjoyed niche-level popularity for several years. However, during the past year, their acceptance has risen to a more mainstream level. Increasing familiarity with alternative financing options, coupled with increasing ACA regulatory discomfort, are probably responsible for this rise in the comfort level employers now feel with regard to stop-loss captives. As a result, the same alternative-risk financing techniques that, for decades, were used to reduce the cost of casualty risks, have recently found a new degree of popularity within self-funded healthcare programs.

What are the Benefits in Arranging Medical Stop-Loss Cover(age) Through a Captive? The first and most obvious, benefit is the cost reduction made possible by delivering healthcare insurance to employees through a captive, especially on a long-term basis. The premise any alternative risk structure is based upon, is that of achieving the most appropriate balance between risk assumption and risk transfer – in order to optimize savings, while at the same time supporting the organization’s risk management, financial and business objectives. Captive participation in excess coverage (Medical Stop-loss) that insures a self-insured plan, will amplify the benefits derived from self-funding alone. For smaller employers, participation in a group captive can provide increased access to many of the same advantages (increased risk spread, service provider cost leveraging, surplus dividend sharing and so forth) that are enjoyed by larger organizations with a single-parent captive. Since the underwriting variables for each employer and captive are different, it is difficult to provide potential cost savings figures. The primary objective of a properly structured alternative risk program is to distance the employer from dependence on more volatile, or cyclical, standard insurance markets – in order to promote long-term stability and sufficiently reduce the cost of risk over time.

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What are the Implications of Using a Captive for Medical Stop-Loss for the Parent Organization? It should first be noted that, with the exception of group captives, it doesn’t usually make sense to form a captive solely for medical stop-loss. The premiums, except for very large employers, are not typically large enough to provide appropriate economic justification. The primary opportunities are for employers who already have an established captive, to which the stop-loss can be added. Employers with an existing captive are likely to be self-funding medical benefits already and adding medical stop-loss is an easy captive addition. Stop-loss captives should not be viewed strictly as a mechanism for saving money on the stop-loss itself, but rather incorporating the use of a captive as a contributing component within a more holistic strategy for reducing the overall cost of delivering healthcare benefits to employees. Just as a captive is used to strategically enhance risk management efforts, adding stop-loss to a captive can augment organizations human resource reward objectives by enhancing the efficiency of employee benefits financing and delivery. One primary purpose of a captive is to provide coverage or facilitate capacity that is disproportionately

expensive, or otherwise unavailable within traditional or standard insurance markets. Although some stop-loss policies will provide coverage that mirrors an employer’s Plan Document, most stop-loss policies contain exclusions (Differences in Conditions a/k/a DICs) that conflict with the Plan Document. Stop-loss carriers will also frequently identify specific individuals with large, ongoing medical conditions and exclude (a/k/a “lasered”) them from stop-loss coverage. DICs and lasers are examples of terms and conditions that can be effectively absorbed by a captive, in order to help maintain long-term continuity to self-funded benefit delivery.

What are the Main Types of Captives? Captives for medical stop-loss generally follow the same structure as the more traditional casualty captives and both single-parent (pure) captive and group captive structures are becoming widely used. Single-Parent Captives – A single-parent (or pure) captive is formed as a subsidiary of another entity, referred to as the “parent” (i.e., a single owner), to insure the risks of its parent. Their primary opportunities are for large individual employers who already have an established singleparent captive, to which the stoploss can be added. Many self-funded employers of this size previously did not purchase stop-loss, but since the enactment of ACA and its mandate of unlimited lifetime benefit maximums within a health plan, they now purchase high (unlimited) levels of coverage and assume lower layers into their captive. As mentioned earlier, stop-loss coverage by itself would not typically generate enough premiums to justify formation of a captive solely for that purpose. June 2016 | The Self-Insurer


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MEDICAL STOP-LOSS CAPTIVES | FEATURE However, it can be used to effectively expand the utility and enhance the efficiency of an existing captive. Funding layers of medical stop-loss coverage through a single-parent captive, as opposed to simply paying claims within the same layers from general assets or through a formal trust, allows the employer to more easily recognize and deploy underwriting profit and investment returns attributable to these layers. Surplus derived from the underwriting and investment return from the captive can be returned to the employer (i.e., captive parent) more efficiently in the form of dividend distributions or strategically deployed to offset future plan costs, expand benefit to employees or retained within the captive to smooth financial volatility associated with other lines of coverage. Adding stop-loss to a captive that primarily writes “long-tail” coverage,

such as workers compensation or liability, can provide a protective “shorttail” stability hedge by diversifying the captive’s risk portfolio. Group Captives – A group captive is a legal entity jointly owned by a group of unrelated companies and formed primarily to insure the risk of its member-owners. There generally are two types of group captives: Heterogeneous (dissimilar industries) and Homogeneous (similar industries). The objective of both types of group captives is to enable a grouping of mid-market employers to replicate the risk profile of a single large employer to spread risk, promote stability and achieve leveraged cost savings from different service providers. A.Heterogeneous Groups generally require more participants to achieve an appropriate spread of risk among its diverse members. A larger size and risk spread

are necessary to mitigate the increased risk variability and the potential for increased underwriting volatility, caused by differing demographics among the participating employer populations. For example, the risk profile of the employee population of a 250 life professional services firm is much different than the risk profile of a 250 life construction firm. Both could be members of the same heterogeneous group captive, though size and risk spread must be appropriately proportioned to achieve sustainable stability. B. Homogenous Groups Being industry-specific in their composition, these groups can be smaller because their underlying risks and underwriting profiles are similar, so the size needed to achieve an appropriate spread

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MEDICAL STOP-LOSS CAPTIVES | FEATURE of risk is not as large as it is with heterogeneous groups. Group captives are especially effective when formed by closely aligned groups (or associations) of like-minded employers within the same industry. Risk Retention Groups (RRGs) are a form of homogenous group captives. RRGs are only authorized by the Federal Liability Risk Retention Act (LRRA) to cover liability risks; however, the potential exists for groups of employers participating in RRGs to form a parallel group captive for medical stop-loss coverage. But the average individual member size within homogeneous groups tends to be larger than it is in heterogeneous groups and, given the similarity of the participants’ employee populations, an appropriate risk spread can be achieved within a smaller group. C.Open-Market Groups There is a sub-category of group captives that we generally refer to as open-market group captives. These captives are typically heterogeneous programs sponsored by large brokers, captive managers, or other program administrators. They are “open” to new members who meet the eligibility guidelines established for entry. The average member size within this category is typically smaller than in other group captives and is generally between 50 and 250 employees (lives). It is important to note that smaller employers have less underwriting credibility and tend to be more unpredictable within this range. Given the smaller average member size and differing risk demographics, it is especially important for open-market heterogeneous captives to achieve both the size and appropriate risk spread that will enable them to hedge volatility. Group captives can be structured as traditional member-owned captives or as renta-captives (RACs). A RAC is a captive insurance company owned by a nonaffiliated

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sponsoring entity, typically an insurance company, which “rents” space within the pre-established captive to insureds. This rental structure provides many of the same benefits, without much of the required financial commitment associated with traditional (memberowned) captives. RACs may also be structured as segregated (or protected) cell companies in which the assets and liabilities of each group of participants are legally separated from other groups and cannot be used by other members to meet their liabilities.

Are Group Stop-Loss Captives Considered MEWAs? Group captives are not considered Multiple Employer Welfare Associations (MEWAs) and that is an important distinction. In a MEWA, premium contributions from several employers are commingled into a single trust or custodial account and used either to purchase insurance or pay claims directly to providers or employees. All MEWA funds are controlled and managed by a centralized administrator, leaving room for little or no control by employers. MEWAs are also heavily regulated by the few states that actually permit them. In a group stop-loss captive, each employer establishes a separate selffunded benefit plan and purchases a separate (individual) medical stop-loss policy. There is no comingling of plan assets, nor is there joint risk sharing among the benefit plans of individual participating employers. Each employer maintains full control of their benefit plan, including the ability to set funding levels and select, appoint and control plan administrators, TPAs and most other related service components. The captive participates only in the medical stop-loss coverage, which is separate and not directly connected, to the benefit plan itself.

June 2016 | The Self-Insurer


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Mechanics of a Group Captive Within a group captive, each employer establishes a separate self-funded plan for their own employees and purchases medical stop-loss coverage according to their own risk appetite. The stop-loss is purchased from the common insurer or reinsurer that will provide coverage to each member of the captive. The actual captive participation level will be determined by the collective risk appetite of the insured members and can be structured on either an excess- or quota-share participation basis. The basic structure of a stop-loss captive is fairly simple:

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• The group participants select a common stop-loss carrier to provide coverage to all members. • Once a viable participation commitment (critical mass) has been achieved, each employer will establish and maintain an individual self-funded healthcare plan. This will include choosing the desired plan design and all related service components, such as third-party administrators (TPAs), provider networks and the like. Although each employer’s plan is designed and maintained separately, the size advantages of the group can be leveraged, if related components are collectively obtained from common providers. • Each employer purchases specific and aggregate medical stop-loss coverage, according to their own risk appetite. The stop-loss is purchased from the common insurer or reinsurer that will provide coverage to each member of the captive. • The stop-loss carrier then cedes a portion of the collective stop-loss portfolio, attributable to all participating group members, to a captive owned jointly by all participating members. (For example, the captive would assume risk participation within the $250,000 excess of $250,000 layer or $500,000 excess of $500,000 layer within the collective portfolio.) The actual captive participation level will be determined by the collective risk appetite of the insured members, with agreement from the ceding carrier. Group captives can increase leverage with carriers, provider networks and related service providers, in order to generate volume-related discounting that typically would not be within reach of many individual self-insurers. By retaining an additional participation layer through the captive, the pricing volatility associated with the stop-loss coverage can be mitigated. Employers with more than 1,000 employee lives typically have little mechanical or financial difficulty in maintaining a self-funded program and have access to stop-loss coverage in relative abundance. Medical stop-loss and overall structural options for smaller and mid-sized companies (those having between 100 and 500 employee lives) can be more challenging. Group captives show significant promise in enhancing self-funded program stability and in expanding the accessibility of stop-loss to employers within this segment. Group captives are not new; they have been effectively used to cover the casualty exposures of mid-sized employers for decades. Both single-parent and group captives are empowered with the control to select unbundled service providers, determine coverage levels, manage losses, direct the use of surplus and, ultimately, share in the results – ideally generating a bottom-line profit. Effectively exercising these capabilities helps firms strategically reduce the cost of risk while optimizing their long-term stability.


How to Determine Whether a Stop-Loss Captive Is Appropriate for an Employer

Whether single-parent or group captive, all employers must demonstrate the following: appropriate financial stability, a willingness to assume risk and a commitment to sound risk management and the promotion of improved employee health and wellness.

Department of Labor, ERISA and State Regulation For stop-loss captives, it is important to differentiate self-funding and medical stop-loss insurance from the healthcare insurance plan itself. This distinction is important because the captive is a separate entity, unconnected to the actual benefit plan (The Plan) provided to employees. The U.S. Department of Labor (DOL), by way of the Employee Retirement Income Security Act (ERISA), has regulatory jurisdiction over the plan

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Whether or not to make use of a stop-loss captive is a collaborative process, one involving the client and their consultant/broker, along with the (re)insurance carrier. Client suitability for captive participation is predicated upon their financial management and employee benefit objectives, followed by the selection of the most efficient structure to achieve those objectives. Self-funding is based on retaining predictable segments of risk, while transferring the more unpredictable risk layers to an insurer. The level of appropriateness for participation in a captive is determined by an employer’s ability to assume additional risk, along with a slight increase in administrative responsibility, in order to achieve an enhanced reduction in overall plan costs.

In terms of appropriate characteristics, size is the first consideration. Can the entity efficiently (and perhaps sufficiently) assume enough credibly predictable risk to achieve a commensurate return? For single-parent captives, assuming the owner is adding stop-loss to an existing captive, $1 million of premium is a normal benchmark for minimum appropriateness. For group captives, the minimum threshold is generally 10 employer groups, or 1000 lives (averaging 100 lives each) and $2.5 million of premium, with a more homogenous (industry-specific) member composition being preferable, from an underwriting standpoint. As mentioned earlier, the more heterogeneous the group, the larger it needs to be, in order to attain an appropriate spread of risk across various industry classifications and employer sizes.

June 2016 | The Self-Insurer


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MEDICAL STOP-LOSS CAPTIVES | FEATURE itself, but does not regulate insurance. Within a self-insured structure, the employer assumes the financial liability for all the claim obligations of the plan. Medical stop-loss coverage, purchased by the plan sponsor, does not insure the plan; rather, it indemnifies the sponsor for its claim obligations to the plan. In this regard, the DOL only regulates a plan sponsor’s responsibilities as they relate to overall plan administration and the delivery of benefits to employees. Individual states regulate insurance, including medical stop-loss. However, since the plan is self-insured (and specifically deemed by ERISA not to be insurance), state insurance mandates are preempted and are therefore not applicable in relation to the plan.

Does a Stop-Loss Captive Require DOL Approval? Any employee benefit insurance (other than voluntary coverages) that provides coverage directly to an employee will require an ERISA Prohibited Transaction Exemption (PTE) from the DOL, for inclusion into a captive. Since the self-funded medical plan itself is not part of the captive, it does not require a PTE. Medical stop-loss is not recognized by the IRS as a plan asset and, as mentioned previously, it insures the employer rather than the employer’s employees. It is not considered employee benefit coverage and since neither the DOL nor ERISA have regulatory jurisdiction, a Prohibited Transaction Exemption (PTE) is not applicable to a medical stop-loss captive and is not required from the DOL. The fact that medical stop-loss insurance is not considered employee benefit coverage was recently affirmed by the U.S. DOL in a November, 2014 technical release (US DOL No. 2014-01).

Fronted Insurance vs. Reinsurance Since medical stop-loss is not a statutorily mandated coverage, singleparent captives do not usually need to be “fronted” by an insurance company. The captive itself is recognized as an insurance company by its domicile and can issue a stop-loss policy to its own parent, i.e., the employer. As reinsurance, much of the expense associated with the issuance of an insurance policy (front fees, premium taxes, collateralisation and so forth) has been stripped out, thus reducing the cost of coverage. Being able to write stop-loss as a reinsurance transaction is usually the most efficient structure for single-parent captives, which in most cases will not require a fronting carrier. Group captives will normally be required to have an authorized

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June 2016 | The Self-Insurer


MEDICAL STOP-LOSS CAPTIVES | FEATURE carrier issue an approved stop-loss policy to its member-owners. In most cases, captive insurance companies are recognized as “non-authorized” insurers by the National Association of Insurance Commissioners (NAIC) and by states. Since stop-loss insurance is regulated by the states, most will require that any entity acting as an insurance company must be recognized as an authorized insurer and appropriately licensed by the individual state(s), in order to issue an insurance policy to nonaffiliated entities, i.e., group members. Therefore, most group captives are typically structured behind a front company, which issues a stop-loss policy and then cedes risk to the captive as a reinsurer. Ceding insurance to a captive, behind a front, obviously adds to the captive’s expense structure and because the captive itself


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is not recognized by the NAIC as an “authorized reinsurer,” some level of collateralization, commensurate with the amount of risk ceded to the captive, will be required. However, most of these expenses would be part of a traditional self-funded program and are offset by the potential underwriting and investment returns generated by the captive and returned as dividends or premium credits to the owner-members.

Does Medical Stop-Loss Enhance the Tax Advantages of a Captive? There are differing opinions about the answer to this question. Even though medical stop-loss can provide beneficial risk portfolio diversification for a captive, our opinion is that it should not be considered third-party risk, for single-parent captive tax purposes. It is generally recognized that captives generating some degree of premium (50% is considered a safe harbor) from unrelated, or third-party, risk, may be able to claim premium deductions. Employee benefit insurance coverage that pays benefits directly to the employee, or to healthcare providers on behalf of the covered person, is recognized as third-party captive risk by the Internal Revenue Service. However, because medical stop-loss insurance provides coverage to the employer, rather than directly to employees, no third-party risk exists. The distinguishing element is determined by whose liabilities are actually being insured – the employer’s or the employee’s. This interpretation was reaffirmed by the U.S. DOL in the previously mentioned 2014 technical release. Taxation circumstances for group captives may be different, however, as the participating member-owners

MEDICAL STOP-LOSS CAPTIVES | FEATURE are unrelated entities. Since we are unable to provide tax advice and as there have been some conflicting opinions, our recommendation is to always seek appropriate guidance from a qualified captive tax attorney.

ensuring that the appropriate surplus has been established to accommodate the new line of business. Domicile selection for group captives is a bit different. More of these are being established solely to write stop-loss and as such, the incorporations have gravitated to domiciles that are friendlier to and familiar with, the nuances specific to group captives, such as the Cayman Islands, Bermuda and Vermont.

Continued Growth Expectations

Risk Management Critical to Success

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Just as self-insured casualty programs utilize loss control techniques to improve employee safety and mitigate claims, it is imperative for self-insured health care plans to employ effective cost containment measures. Programs such as utilization review, large case management and negotiated provider discounts, have long-proven their effectiveness for reducing the cost of claims, after they occur. Newer initiatives, such as employee wellness programs and predictive modeling, strive to preemptively reduce claim expenses by improving the overall health of the employee population. Increasing employee wellness will help to significantly decrease the cost of providing employee health care coverage – not immediately, but over time, as the effects of the wellness program matriculate. More progressive plans incorporate elements such as referenced-based pricing, virtual (telemedicine) care and medical tourism into their design, as additional cost-reduction techniques. There will be some increase in fixed costs associated with the implementation of some risk management initiatives; however, the savings generated by the corollary reduction in claims costs – a much larger expense – will offset the initial expenses, over time.

Domicile Considerations Unlike captives that provide employee benefits requiring a DOL PTE, a medical stop-loss captive is not required to be domiciled onshore. Since more offshore captives have made the IRS 953(d) election to be taxed as a U.S.-based corporation, the advantages of incorporating offshore have eroded. In reality, most single-parent stop-loss coverage will be added to an existing captive, so the domicile decision becomes automatic. In most cases, the existing domicile will only require an expansion or amendment to the original captive business plan, while

Interest in self-funding and stoploss captives will continue to grow as medical costs continue to rise and uncertainties related to the ACA threatens the amount of control employers can maintain within more conventional insurance structures. Properly structured captives can stabilize and even lower the cost of medical stop-loss coverage and they can facilitate enhanced benefit delivery, over more traditional self-insurance, for many employers. ■ Phillip C. Giles, CEBS, is Vice President of Sales and Marketing for QBE North America’s Accident & Health business, overseeing sales and strategic marketing initiatives and medical stop-loss captive production. He has 30 years of experience in Accident & Health and Property & Casualty Alternative Risk. Steven A. McFarland is Vice President of Specialty Markets for QBE North America and manages its Medical Stop-loss Captive Programs. He is a member of the Alternative Risk Transfer Committee for the Self Insurance Institute of America and has more than 25 years of industry experience.

June 2016 | The Self-Insurer


How a Consumer-Focused, Engaged Telehealth Strategy Can Boost Utilization and Lower Costs


ave you noticed an increase in the number of free standing emergency rooms in your community? How about the number of billboards promoting current wait times at the local ER? When the focus these days is increasingly on lowering health costs, this is both an alarming trend and a misaligned message. Promoting the convenience of heading to the nearest emergency room sends the wrong signal to health care consumers. We are asking insureds to be engaged consumers of health care now more than ever, and the notion of marketing an emergency room based on wait time is likening the ER to your local walk-in hair salon. There’s value in having emergency rooms as very important points of care for true emergencies, but self-insured employers are risking significant capital if their employees start to view the ER as the most convenient place to see care.

Written by Jim Prendergast, HealthiestYou and Reed Smith, CoBiz Insurance 36

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Fortunately, there is another growing trend in health care benefits that can combat the risk of inappropriate ER visits: ET – or Engaged Telehealth. While telehealth is arguably the fastest growing trend in health care, a deeply engaging telehealth strategy is the smartest trend in health care and needs to be integrated into every self-insured employer’s strategic planning for the future. Organizations usually opt to self-insure to save costs and provide more freedom in plan designs that allow employers to make better use of their health dollars and save money. ET

is a crucial strategy that drives medical claims down while giving employees more choices in seeking care. Telehealth gives health care consumers 24/7/365 access to board-certified primary care, internist, and pediatric physicians. The best telehealth partners will provide this access via landline phone, desktop computer and most importantly to increase engagement... through a smartphone app. Let’s face it; we live in a world of real-time access to all important information in our life thanks to technology. It’s true of banking, travel and retail, so why shouldn’t we expect the same for health care? Let’s combat the risk of “steerable” emergency room visits by outlining the key characteristics of a best in class telehealth partner.

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Vital Components for An Effective and Engaging Telehealth Plan For telehealth to truly lower claims and costs, first, the technology must be engaging and easy to access. Mobile functionality and consumer decision support tools are critical to ensure the patient has access to quality care wherever they are and whenever they need it. For families, the primary insured should be able to access the same quality of care for dependents via the same mobile app, website or phone. There should also be “push” functionality to remind insureds of this benefit along with other health and wellbeing messaging, so it is top of mind when the patient has a care need that can be treated through telehealth. Reminding employees is warranted since studies show that insureds tend to not keep track of what benefits they have. In fact, a survey conducted by ADP, an HR and payroll services company, discovered that 40%

of employees do not understand their benefits, which is a convincing argument that engagement needs to focus on education. Another survey similarly found that employees don’t understand how their behaviors and use of their benefits impact health care cost. That’s where transparency, technology and consumerism comes in. But what does successful engagement look like? As a self-insured organization, make sure that your telehealth partner puts education first to encourage high utilization and engagement. Influencing behavior takes time but also must acknowledge a path to the hearts and minds of the insureds. That path starts with brokers who must engage and educate admins, who in turn must help plan members connect their actions with the moneysaving potential of telehealth. Multiple education outlets targeted to brokers, admins and plan members that articulate the goals and engagement strategy are vital components and keep money-saving as top of mind when individuals are making care decisions. Communication vehicles like on-site trainings, one-onone webinars, and even pre-recorded webinars, set brokers up to be as effective as possible. Consequently nothing is lost in translation to the organization. An informed broker enhances engagement, impresses the client and improves chances that the plan member will become a full partner in utilization. The same strategy should be used for admins and members. A telehealth partner that reaches out to employers with phone calls, emails and webinars and provides admins with tools they can in turn use easily for their engagement efforts with their employees is an ideal turnkey approach that keeps everyone aligned toward the same goals.

Today consumerism enters the picture with smartphone apps. More and more people are turning to apps to provide transparency and why not, especially when they are easy and quick to use and make finding relevant information relatively pain-free. For example, if your employees can find better prices for prescriptions and procedures and can then act on that information to make the smartest care choices, isn’t that the true definition of a smart health consumer? And, for self-insured organizations, employees know the connection of lesser costs incurred by their employer means cost savings that they’ll enjoy themselves one way or another – whether through lower out-of-pocket costs or perhaps a better bottom line that ends up in their paychecks. It’s no surprise that the amount an employee cares about saving their employer money is in direct proportion to how it affects their own wallets. Next, a subscription model telehealth service offering a $0 copay model encourages the patient to use the benefit because they will also save any applicable copay or deductible that would apply to a routine visit to their PCP, Urgent Care or ER. A subscription-based model should not file a medical claim with your selfinsured health plan, thus the ROI is shared between both the employee and employer... truly a win/win. Speaking of ROI, if you can’t measure it, you can’t manage it, should be the philosophy of your telehealth partner (and self-insured medical TPA). A telehealth partner that provides great utilization reporting will allow you to truly integrate the utilization data and ROI into your total health & welfare budget. In order to properly assess ROI, make sure you have a detailed analysis of current primary care physician June 2016 | The Self-Insurer


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(PCP), Urgent Care and ER utilization, including visits per 1000 and total cost per visit (both paid by your plan and by the patient). Your telehealth partner should be able to report on number of consults, type of diagnosis, prescriptions issued, and redirection of care. Also make sure they record the time of day the consults occurred, to help reinforce we live in a 24/7 world; you’ll find no argument that the traditional 8am-5pm access to care does not meet the needs of a 21st century health consumer.

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When effectively designed and communicated, employers can expect to see a positive ROI within the first 12 months and significant, credible returns by year two and beyond. To effectively measure the return on investment, you want to integrate your telehealth utilization with the same self-insured health plan data points noted above. Effective use of telehealth should result in a significant reduction in ER admits per 1000 and a higher ER cost per visit, signifying appropriate use of the ER for true emergency situations. Finally, the telehealth redirection savings should be compared against the subscription cost to complete the ROI analysis. Engaged telehealth delivers significant ROI to the self-insured plan and the insured employees when managed as part of the overall health care strategy as opposed to a secondary “bolt on”.

We know the workforce is evolving and attracting Millenials is a critical success factor for all industries. A truly high performing health care benefit plan must be designed to attract and ENGAGE (not just retain!) three distinct generations. We also know that employees are key stakeholder in the success of any self-insured benefit plan. Engaged telehealth provides a great opportunity for employers to deliver a 21st century benefit program that will enable employees to make confident, informed decisions. This is the crux of true consumerism in health care and should be an area of focus for all self-insured employers. Let’s save the billboards promoting short wait times for airport security. ■ Digital health entrepreneur Jim Prendergast is the CEO and co-founder of Scottsdale, Arizona-based HealthiestYou, which was recently named one of the fastest growing companies in America by Inc. Magazine. Reed Smith is Senior Vice President and Practice Leader for benefit consulting for CoBiz Insurance in Denver, Colorado. Prior to joining CoBiz, Reed was a Sales Executive with Great-West/Cigna Healthcare for nine years, where he focused on large, self-insured employers.

Employee satisfaction surveys including probability to use again and likeliness to refer a colleague should be expected from your telehealth partner. National averages for telehealth utilization are about 5% of a covered population; however, the strategies outlined can achieve greater than 40% utilization by designing a program that is a win/win for the employer and its employees. June 2016 | The Self-Insurer


Self-Funded Dental: A Win for Everyone


elf-funding dental can create winners for everyone- employers, brokers and consultants. For employers, it can provide you much needed cash savings for other projects, hiring additional employees or an offset to the continuously rising medical costs. For brokers and consultants, it can help you obtain new business. Most employers would be very happy for you to ďŹ nd the money needed for them to purchase your services!

How Does Self-Funding Your Dental Save Money? Let me start out by asking you a question. Have you looked at your dental claims history over the last three years? You may be surprised to find that the actual increase in usage from year to year varies from less than one percent to three percent per year, in most cases. Since that is true, let me ask you one more question. Why are you purchasing insurance for something that varies so little? Believe it or not, most people do not ask themselves this question and remain fully insured giving the profit to the insurance company.

Why is the Risk So Small? Written by Alan Bayse 40

The Self-Insurer | www.sipconline.net

Your dental plan usually has a cap placed on the dental. It may be $1000, $1250, $1500 or $2000 depending upon your benefit program; but large claims

are capped at that point. In addition to the cap, there are several other factors and these are listed below: • 40% of the participants in a dental plan don’t use the benefit every 12 months • 5% or fewer participants hit their annual max • $400 per person per year is the average cost of dental care • About 80% of dental claims come from low cost preventive care

What Can the Employer Expect in Terms of Savings? If you compare dental premiums to your actual cost, a 100-member group could be saving $10,000 to $15,000 per year after paying their administrative cost to a qualified Third Party Administrator (TPA). This means if your company has as many as 600 employees and their dependents are also covered, your savings could be as much as $60,000 to $100,000.

How Can Employers Project Savings, if They Do Not Have Claims? Well, here is a rule of thumb:

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Put your actual projected premium for the coming year on a sheet of paper. Your actual claims will most likely be between 75% and 78% of the above number (conservatively, multiply by .78) The calculation of the numbers above should give your projected claims for the coming year. Add the cost for administration only.

How Does the Consultant and Broker Benefit? On many occasions, an employer is hesitant about purchasing your services for the health care program because of the additional money for fees or commissions or maybe it is because you have some very strong competition. Now, ask your client if their dental plan is fully insured. If so, here is your next question. If I could find the money for you to pay my fees, would you consider using my services? Most employers find this difficult to turn down. Now, you have the edge on getting the business because you have already provided most, all or more than enough money to the client for paying your fees. Advantage you! The next advantage to the employer or your client involves the dreaded “Cadillac Tax” due to occur in 2018. Under the current proposed regulations, if their dental is included with their medical program the cost of both will go towards meeting the penalty limits. Don’t let that happen. Keep your dental plan separate and self-fund it. If you are still a little unsure, let me share with you the following. Should you switch to self-funding and still use your fully insured program’s projected cost for the coming year, it is likely you will not need to raise your premiums for the next three to five years, especially if you are moving the surplus forward. This will be a pleasant surprise for the employer and employee if they share in the cost. Don’t be surprised if you never leave self- funding especially, if you have a good TPA to administer your program.

Estimate $3.50 per employee (includes dependents) for 12 months.

Now, let’s take a look at what a good dental TPA should look like.

Now, subtract this from the original projected premium. You have your projected savings for the year.

A good dental TPA should be able to provide the employer with on-going information about their

claims, as well as provide total flexibility in plan design. Employers need to have instant on-going access to premiums paid, administrative costs and claims incurred and paid. Initially, the employer may still be a little apprehensive about self-funding. Letting employers know what those claims really are versus premiums they have set aside helps decision makers realize the big advantage they do have. It is just as important to know where those claims are incurring, the number of employees meeting their deductible and those exceeding the maximum. If a network is being used, it is also good to know how many of the claims are being incurred in network as well as out of network. This allows the employer to project the cost of changes in the benefit structure should they decide to improve or change their dental program. The Dental TPA should provide other services as listed below: 1. A call center to help answer questions about benefits and quickly estimate costs for procedures. 2. A web portal with self-service capabilities. 3. Business informatics for both client and member analytics with a suite of reports to support the management of expenses and the overall program. 4. Viable networks appropriate for your location or UCRs, which are usually more appropriate in rural settings. 5. The ability to detect fraud and abuse. 6. Capabilities of assisting you in projecting costs for the coming year. In summary, you can now see that it is a win for the employer and June 2016 | The Self-Insurer


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Being in the medical self-insurance stop loss

market isn’t new to Houston International Insurance Group (HIIG). The experts and seasoned employees that founded the Company have decades of experience in this industry. In fact, HIIG was built using strategy, sound judgment, and business savvy from some of the same leaders who made this industry great from the very beginning. Don’t get thrown for a loss. Make HIIG Accident & Health your partner in stop loss.

Learn more at hiigah.com or call us at 800.796.9165. 42

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Employers want to help improve the dental health for their employees and do it as economical as possible. This means controlling costs while improving the employee experience. Most importantly, success occurs when you have a deep understanding of each and every aspect of claims, benefit administration, communication and control. All of this is provided to you by a well-chosen dental specific TPA that can help you manage your desired plan, contain costs and reduce expenses. Employers begin saving money while successful consultants and brokers begin adding to their business portfolios. Self-funding Dental: It is a win for everyone. ■ a win for the consultant or broker who choose to use the strategy of moving their dental benefits to self-funded plans. More and more employers are deciding to self-fund their dental benefits, while consultants and brokers are not only recommending this change, but also helping their clients get there.

Alan Bayse, Independent Consultant has been helping companies self-fund their dental benefits for more than 25 years. Contact Alan at (540) 521-7711 or alanbayse@comcast.net.

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Exciting New Format This Year!

JULY 13 - 15, 2016 June 2016 | The Self-Insurer


SIIAEndeavors There are Many Ways to Get Involved and Help Support Our Industry


oining SIIA is a great first step. SIIA membership represents many different areas, including self-insured entities, Third Party Administrators, Captive Managers, Excess/Stop-Loss/Reinsurance Carriers and other industry service providers.

SIIA is truly a “one-stop-shop” for companies looking for a single association to meet all of their informational, educational, networking and legislative/regulatory representation needs. To complement its role as the “umbrella” association for the self-insurance/ART industry, SIIA operates membership sections to facilitate more targeted membership benefits in Health Care, Alternative Risk Transfer, Workers’ Compensation and International. Each section has a designated committee comprised of volunteers. Joining a committee is an invaluable way to contribute and support the growth of the self-insurance/alternative risk transfer industry. Look for more information soon on how to volunteer. Supporting the Self-Insurance Educational Foundation, Inc. (SIEF), the 501(c)(3) non-profit organization affiliated with SIIA, is another way to contribute to the cause. SIEF’s mission is to raise the awareness and understanding of self-insurance among the business community, policy-makers, consumers, the media and other interested parties. Foundation-sponsored educational initiatives and projects have included: • Produce and maintains a website that serves as on online hub for objective information about self-insurance. Learn more at www.siefonline.org. • Self-insurance briefings for congressional staff members on Capitol Hill • Sponsors the participation of high profile, professional and government speakers to participate at SIIA conferences • Underwrites an annual survey report of the stop-loss marketplace • Published: “Understanding Group Self-Insured Workers’ Compensation Funds” • Published: “Understanding Self-Insured Group Health Plans” • Published: “Managing Corporate Risks Through Captive Insurance Programs” The foundation’s financial support comes entirely from voluntary contributions and from participation in various fundraising events, including the always popular golf tournaments held in conjunction with SIIA events. This year SIEF is holding a raffle. Tickets can be purchased now at www.siefonline.org. Raffle prizes include a 5 night stay on Whidbey Island in Washington, a 2 night stay at the JW Marriott 44

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Desert Ridge Resort & Spa in Phoenix, Arizona, a 2 night stay at the JW Marriott Starr Pass Resort & Spa in Tucson, Arizona, a $500 Amazon gift card and a $100 American Express Gift Card. ■ For more information on SIIA Committees or SIEF, please visit www.siia.org and www.siefonline.org.

Catastrophic medical claims aren’t just a probability — they’re a reality.

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As a Captive Director, Risk Manager, VP of HR or CFO, QBE’s Medical Stop Loss Reinsurance and Insurance can help you manage those benefit costs. With our pioneering approach to risk and underwriting, we make self-insuring and alternative risk structures possible.

Individual Self-Insurers, Single-Parent and Group Captives For more information, contact: Phillip C. Giles, CEBS 910.420.8104 phillip.giles@us.qbe.com

QBE and the links logo are registered service marks of QBE Insurance Group Limited. Coverages underwritten by member companies of QBE. © 2016 QBE Holdings, Inc.

June 2016 | The Self-Insurer


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 CHAIRMAN-ELECT Jay Ritchie Senior Vice President, HCC Life Insurance Company Kennesaw, GA PRESIDENT & CEO Mike Ferguson SIIA, Simpsonville, SC TREASURER & CORPORATE SECRETARY* Duke Niedringhaus Senior Vice President, J.W. Terrill, Inc. Chesterfield, MO


Committee Chairs

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

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

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


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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 CEO The Builders Group Eagan, MN *Also serves as Director

SIIA New Members Regular Members Company Name/ Voting Representative

Jennifer Borislow President Borislow Insurance Methuen, MA David Mazza Director of Fixed Income Sales and Marketing Dana Investment Advisors Brookfield, WI Don Hughes President Encompass Medical Management Inc. Austin, TX William Beeler CEO Health Cost Solutions Hendersonville, TN Kirti Mutatkar CEO UnitedAg Irvine, CA

Silver Members David Goldman Chief Product Officer Awbury Greenwich, CT Stephanie Chtata President SA Benefit Services, LLC San Antonio, TX

Employer Members Alyce Bailey Health Care Trust Administrator Montana Association of Counties Helena, MT Charles Caswell CFO Shale Support Lafayette, LA

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Totally Transformed Learn More at ppsonline.com or call 1-877-828-8770. June 2016 | The Self-Insurer




At PHX, we offer a comprehensive solution that is tailored to fit your business – take advantage of our comprehensive suite of cost-management Products, enjoy the benefits of outstanding Performance, and together we will build a long-term Partnership. Contact us at (888) 311.3505 to find out how PHX can add value to your business, or visit us online Copyright 2014 Premier Healthcare Exchange, Inc. All Rights Reserved.

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Self -Insurer June 2016  

Self -Insurer June 2016