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Editorial Staff PUBLISHING DIRECTOR Erica Massey SENIOR EDITOR Gretchen Grote CONTRIBUTING EDITOR Mike Ferguson

4 MEDICAL TOURISM TREND :

Domestic

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Bruce Shutan

Down Market

20 PPACA, HIPAA and Federal Health Benefit Mandates Agencies Issue New Proposed Rules for the Summary of Benefits and Coverage

EDITORIAL ADVISORS Bruce Shutan Karrie Hyatt

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W

hen it comes to shopping for bargains on the so-called medical tourism market, self-insured employers might just be better off sending their inďŹ rmed employees to Peoria than Pretoria. For years, Corporate America has turned to international medical travel as a low-cost alternative to anything from heart-bypass surgery and angioplasty to knee and hip replacements, but domestic medical travel has been quietly gaining traction among self-insured groups of all sizes.

Written by Bruce Shutan 4

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Employers are not only able to avoid risks associated with unstable parts of the world and raise the comfort level of employees who’ve never even been on an airplane before, but also avoid concerns about the quality of care being provided abroad. U.S. prices also are


TRAVEL | FEATURE increasingly transparent and much more competitive because of bundled payments with preferred providers. “I think it’s perfectly suited to self-insured employers because they can have greater control over their benefits design and deciding what best suits the needs of their workforce,” says Laura Carabello, editor of the Medical Travel Today newsletter as well as a principal with Strategic Marketing Communications. She moderated a panel discussion on this topic at SIIA’s annual conference last October.

Fear Factor The cost of care obviously varies from one part of the world to another, with some spots offering better deals than others. Savings opportunities aren’t very significant in Europe and other countries where there’s more westernized medicine relative to the U.S., opines Ruth Coleman, CEO of Health Design Plus, a national leader in managing domestic travel. “Where you start to get really low costs are places like Asia and some parts of Central America, but sometimes it’s a crap shoot with those places and people don’t want to travel that far,” she adds.

“There are places like Mexico which have some great hospitals and providers. But frankly, the drug traffic trade there is significant and very frightening to a lot of people.” Olivia Ross, associate director of the Pacific Business Group on Health’s (PBGH) Employers Centers of Excellence Network (ECEN), agrees that there’s some reluctance or fear from employees to travel to another country for a medical procedure, especially when there’s a language barrier. “We have people who traveled through our program who’ve never left their state, so it’s a big deal to go from Oklahoma to Missouri versus Oklahoma to Thailand,” says Ross, whose nonprofit, member-driven organization serves roughly 60 employers. About 40% of ECEN patients are able to drive to their treatment destination, which she believes is “much more realistic and accessible for some of these employees.” One big downside to international travel for a self-insured employer is that there may not be much value if just two employees end up seeking treatment, Ross observes, whereas stateside travel offers greater potential for a much higher uptake. She points to a significant variation in cost, even within the domestic market and intensive competition over both cost and quality on a region basis. Domestic medical travel will continue to pressure local providers across various markets to offer more reasonable prices for groups of employees and generally hold them more accountable, according to Keith Smith, M.D., managing partner at the Surgery Center of Oklahoma.

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Heart bypass operations, for example, averaged $144,000 in the U.S. in 2013 compared with $27,000 in Mexico and just $5,200 in India, notes list of prices published on the Medical Tourism Association’s website. Most Americans don’t even own a passport, according to the U.S. government, with Carabello noting that many are afraid to travel, or would rather not be too far from home and don’t want to leave behind their support system during such a vulnerable or challenging time.

“If a hospital knows that someone is flying to my facility and getting their procedure for $50,000 less than what they would have charged the employer, then it won’t take very many patients walking out of town before that hospital begins to step up and at least lower their prices,” he observes.

“Employers are very sensitive to this,” she says. “They don’t want to make it difficult for people to access the health care that they need…

One significant driver behind the self-funding trend is that the Affordable Care Act has created self-funded entities out of individuals who are looking to reduce their growing out-of-pocket costs, which Smith says has been great for his business. March 2015 | The Self-Insurer

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TRAVEL | FEATURE “We have patients that have come here from all 50 states except Hawaii,” he reports, referencing about 150 arrangements and direct contracts with very small companies that are self-funded or their third-party administrators. “There aren’t any forces of economies of scale because our prices are online and they’re good for everyone,” he explains. “And there are a lot more facilities that are doing what we’re doing. It’s happening all over the country. There’s actually not even any negotiation required because the prices are all transparent and visible.” Some of the nation’s largest and well-known employers, including Walmart, Lowe’s and McKesson, have launched the ECEN benefit for their employees and the hope is that a half-dozen more employers come on board in the next year or so. “We had 2,000 calls about the program, 1,000 cases referred and 506 cases that went through the program,” reports Ross, who said the expectation was to reach 200 or 300 cases. After Walmart announced in 2013 that it would develop a network with multiple centers, PBGH realized that domestic medical travel could be taken to the next level if enough other employers banded together to leverage their purchasing power and developed the ECEN program. ECEN’s four centers share guidelines and best practices. They also conduct monthly collaborative phone calls and recently held their first annual in-person summit featuring surgeons and other representatives from each of those centers. So as a result, Ross says a Lowe’s employee seeking treatment at a facility in Seattle or Springfield, Mo., will receive the same quality of care both in terms of outcomes and their entire experience. “That’s very different from anything else you’ll see on the market,” she 6

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International Medical Tourism Prices Medical Procedure Heart Bypass Angioplasty Heart Valve Replacement Hip Replacement Hip Resurfacing Knee Replacement Spinal Fusion Dental Implant Lap Band Breast Implants Rhinoplasty Face Lift Hysterectomy Gastric Sleeve Gastric Bypass Liposuction Tummy Tuck Lasik (both eyes) Cornea (both eyes) Retina IVF Treatment

USA $144,000 $57,000 $170,000 $50,000 $50,000 $50,000 $100,000 $2,800 $30,000 $10,000 $8,000 $15,000 $15,000 $28,700 $32,972 $9,000 $9,750 $4,400 N/A N/A N/A

COLOMBIA $14,802 $4,500 $18,000 $6,500 $10,500 $6,500 N/A $1,750 $9,900 $2,500 $2,500 $5,000 N/A $7,200 $9,900 $2,500 $3,500 $2,000 N/A N/A N/A

COSTA RICA $25,000 $13,000 $30,000 $12,500 $12,500 $11,500 $11,500 $900 $8,500 $3,800 $4,500 $6,000 $5,700 $10,500 $12,500 $3,900 $5,300 $1,800 $4,200 $4,500 $2,800

Medical Procedure Heart Bypass Angioplasty Heart Valve Replacement Hip Replacement Hip Resurfacing Knee Replacement Spinal Fusion Dental Implant Lap Band Breast Implants Rhinoplasty Face Lift Hysterectomy Gastric Sleeve Gastric Bypass Liposuction Tummy Tuck Lasik (both eyes) Cornea (both eyes) Retina IVF Treatment

MEXICO $27,000 $12,500 $18,000 $13,000 $15,000 $12,000 $12,000 $1,800 $6,500 $3,500 $3,500 $4,900 $5,800 $9,995 $10,950 $2,800 $4,025 $1,995 N/A $3,500 $3,950

ISRAEL $27,500 $8,000 $29,712 $125,250 $20,000 $24,850 $35,000 $2,150 $12,500 $21,000 $9,500 $16,000 $14,000 $11,500 $11,500 $7,242 $11,000 N/A $16,700 $13,000 $2,800

THAILAND $15,121 $3,788 $21,212 $7,879 $15,152 $12,297 $9,091 $3,636 $11,515 $2,727 $3,901 $3,697 $2,727 $13,636 $16,667 $2,303 $5,000 $1,818 $1,800 $4,242 $9,091

Prices are based on 2013 figures. Source: Medical Tourism Association.


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TRAVEL | FEATURE

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International Medical Tourism Prices (continued) Medical Procedure Heart Bypass Angioplasty Heart Valve Replacement Hip Replacement Hip Resurfacing Knee Replacement Special Fusion Dental Implant Lap Band Breast Implants Rhinoplasty Face Lift Hysterectomy Gastric Sleeve Gastric Bypass Liposuction Tummy Tuck Lasik (both eyes) Cornea (both eyes) Retina IVF Treatment

INDIA $5,200 $3,300 $5,500 $7,000 $7,000 $6,200 $6,500 $1,000 $3,000 $3,500 $4,000 $4,000 $2,500 $5,000 $5,000 $2,800 $3,000 $500 N/A $850 $3,250

JORDAN $14,400 $5,000 $14,400 +valve $8,000 $10,000 $8,000 $10,000 $1,000 $7,000 $3,500 $3,000 $4,400 $6,000 N/A N/A $4,000 $4,000 $5,000 N/A N/A $2,700

KOREA $28,900 $15,200 $43,500 $14,120 $15,600 $19,800 $15,400 $4,200 N/A $12,500 $5,000 $15,300 $11,000 N/A N/A N/A N/A $6,000 $7,000 $10,200 $2,180

Medical Procedure Heart Bypass Angioplasty Heart Valve Replacement Hip Replacement Hip Resurfacing Knee Replacement Spinal Fusion Dental Implant Lap Band Breast Implants Rhinoplasty Face Lift Hysterectomy Gastric Sleeve Gastric Bypass Liposuction Tummy Tuck Lasik (both eyes) Cornea (both eyes) Retina IVF Treatment

VIETNAM N/A N/A N/A $8,250 N/A $8,500 $6,150 N/A N/A $3,850 $2,100 $4,150 N/A N/A N/A $2,850 $3,850 $1,640 N/A N/A N/A

AFRICA $10,000 $8,000 $10,130 $10,480 $7,640 N/A N/A $5,340 N/A $2,930 $3,935 $4,620 $3,270 $8,770 $3,935 $5,060 $2,530 $4,200 $6,460 $3,370 $5,620

MALAYSIA $11,430 $5,430 $10,580 $7,500 $12,350 $7,000 $6,000 $345 N/A N/A $1,293 $3,440 $5,250 N/A $9,450 $2,299 N/A $477 N/A $3,000 $3,819

Prices are based on 2013 figures. Source: Medical Tourism Association.

notes, adding that the result is lower complication rates and fewer inappropriate cases. ECEN uses bundled payments and because it does consistent reviews of each patient and all four centers on an annual basis, “they know they’re getting what they’re paying for,” she adds. “The bundle allows them to have predictable costs ahead of time.” While ECEN focuses on companies with 5,000 to 10,000 lives, Ross anticipates that the domestic medical travel trend will trickle down market. “Self-insured employers have the ability to make their own changes,” she says, “and to do these kinds of programs like ours as a carve-out. I think we’ll see more and more employers who are recognizing that change has got to happen. And if they can make a contribution to that positive change, they will.” About 15% of large U.S. companies are estimated to offer domestic medical travel to their employees. Carabello agrees that the next frontier is going to be smaller and midmarket employers that finance these treatments or aggregate their purchasing power. “I think employers realize now that they can shop around for the best price,” Carabello says. “They can leverage their buying power by coming together in coalitions and strategic alliances.”

Focusing on Value While Coleman’s clients want bundled rates that are affordable, she says their top priority is high quality care, along with a certain level of support for their associates and family members. The expectation is that a higher quality of care will be more cost-effective and raise the level of employee satisfaction. She says to a certain extent, there needs to be enough volume of March 2015 | The Self-Insurer

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TRAVEL | FEATURE

Largest U.S. Employers Using Domestic Medical Travel Source: www.statisticbrain.com/u-s-largest-employers/ Statistic Verification – Source: US Department of Labor, SEC Date Verified: 1.1.2014

Company

Employees

1. Walmart 2,100,000 2. IBM 436,085 3. McDonald’s 400,000 4. United Parcel Service 400,600 5. Target 355,000 6. Kroger 338,000 7. Sears Holdings 312,000 8. General Electric 287,000 9. Citigroup 267,000 10. Albertson’s 240,000 11. FedEx 222,300 12. General Motors 210,000 13. United Technologies 208,200 14. CVS 201,000 15. Altria Group 199,000 16. Verizon Communications 195,400 17. Aramark 195,000 18. Berkshire Hathaway 192,012 19. AT&T 189,950 20. Home Depot 189,390 21. Delphi 185,200 22. Safeway 180,000 23. Bank of America 176,638 24. JP Morgan Chase 168,847 25. Yum Brands 165,920 26. HCA 165,450 27. Lowe’s 164,794 28. Ford Motor 164,000 29. PepsiCo 157,000 30. Walgreen 155,200 31. Wells Fargo 153,500 32. Boeing 153,000 33. Darden Restaurants 150,100 34. Hewlett-Packard 150,000 35. Gap 150,000 36. JC Penney 150,000 37. Starbucks 149,000 38. Starwood Hotels & Resorts 145,000 39. Marriott International 143,000 40. Sara Lee 137,000 41. Lockheed Martin 135,000 42. Walt Disney 133,000 43. Alcoa 129,000 44. Northrop Grumman 123,600 45. Electronic Data Systems 117,000 46. Honeywell 116,000 47. Johnson & Johnson 115,600 48. Lear 115,113 49. Tyson Foods 115,000 50. Emerson Electric 114,200

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surgeries to make implementing a domestic medical travel program a worthwhile investment, adding that it’s already trickling down market to smaller employers. It’s harder for fully insured employers to benefit from these programs, according to Coleman. “One is they generally are smaller, but the other thing is that they’re not at risk financially, so there wouldn’t be as much benefit to them,” she says, unless insurance carriers are willing to reduce the premium based on program utilization. She noted a recent partnership between UnitedHealthcare and the University of Texas MD Anderson Cancer Center, which could be a precursor of similar arrangements from other carriers.

The trend toward domestic medical travel dovetails into other noteworthy developments. Ross, for example, notes how Medicare wants to shift 50% of its payments to value-based structures by 2018. “These self-insured employers are saying, ‘we need to be doing this, too. We don’t want to be paying these ridiculous fee-for-service prices with no emphasis on quality,’” she says. Before employers decide whether to embrace domestic vs. international medical tourism, it might be worth first polling employees about their preferences, especially if they’re skittish about air travel or seeking care halfway around the world. “If their employees don’t embrace these options, then there’s not much sense in offering them in the first place,” Smith says, noting how traveling to another country may be seen as a daunting proposition. ■ Bruce Shutan is a Los Angeles freelance writer who has closely covered the employee benefits industry for more than 25 years.


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ART

Gallery Written by Dick Goff

(Police) State of the Union

M

y usual wry humor fails me today because my message is of such a serious nature. I believe that we, as American citizens, are experiencing an erosion of our rights that is nearly unprecedented this side of a historically totalitarian government. The kind of government that we describe as a “police state.” Many of us in a law-abiding industry are being increasingly harassed and persecuted by an arm of the United States government to such a degree that we fear losing certain rights which were the reason we learned the word “inalienable:”

negativity – as if the agency were trying to squash them with intimidation rather than factual evidence. The companies I’m describing are grouped in the description of enterprise risk captives (ERC). Their common element is election of IRS Code 831(b) status, a lawful option provided by Congress nearly 30 years ago that allows insurance premiums up to a certain level to be deducted from the captive owner’s tax bill. This tax break has enabled many companies to afford the kind of insurance coverage that would be unavailable or unaffordable through traditional means. But to tar every such company as a “tax cheat” makes no more sense than to describe every homeowner who deducts mortgage interest as a “tax cheat.” Both make lawful use of tax relief offered by the government.

– The right to equal justice under the law. – The right to be considered innocent until proven guilty. – The right not to be held guilty by association. These rights are being trampled by the Internal Revenue Service when it audits certain captive insurance companies in a threatening tone of skepticism and 12

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The increasing popularity of ERCs among small-to-midsize businesses has boomed recently, with thousands of small captives growing toward the tens-of-thousands. With their popularity has come increased – and increasingly aggressive – attention by the IRS. ERC owners are commonly notified of an IRS audit with a questionnaire that seemingly eliminates the right to be assumed innocent before being proven guilty. ERCs begin the process “guilty” through an inquiry that leaves


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them almost powerless to respond. It’s impossible to prove a negative – in this case, that favorable tax treatment didn’t influence formation of the captive. But here’s the reality of the situation. I am personally aware of dozens of cases of ERCs taken by the IRS through the audit process and I know of none where wrongdoing was found on the part of a captive owner. Rampant abuse of the tax code by ERCs just isn’t happening. If it were, we would be reading about successful IRS cases in our insurance trade publications, on websites and other media because the agency’s own publicity machine would be cranking them out. But none. Zero. Zilch. No guilty parties. But still we continue to be harassed by our government’s daily attacks on our integrity. Now, that’s not our only problem. We also must defend ourselves from sniping by members of our own industry who somehow find us beneath their contempt. We’re not “real captives” or even “real insurance” in many views stimulated by competitive zeal or plain old ignorance. Meanwhile, many ERC owners are covering risks that they were unable to defend against by traditional means. Rather than using ERCs for commonplace coverage that the

commercial market does so well, they provide an affordable opportunity to cover special risks that typically occur with low frequency and high severity – you know, the kind of risks that can put a smaller firm out of business. These include business interruption for any number of reasons, loss of key personnel or customers, loss of licenses, accreditations or franchises, loss of reputation and – increasingly now – losses due to breakdown of cyber security.These and many other possible risks are those that cause a business owner to lose sleep far more than the prosaic risks covered by usual means. Before the ERC structure there was no efficient way to cover these risks and now there is. But still, the attacks by the government and our own industry continue to wear us down. The need for an industry defender has been picked up by SIIA in the early stages of an educational and lobbying campaign in defense of ERCs. “SIIA has accepted the challenge to defend the small captives industry because there is no other organization that can effectively and credibly explain the legitimate business benefits of ERCs,” says Jeff Simpson, chairman of SIIA’s Alternative Risk Transfer (ART) Committee. “This is an important risk management tool that is serving smaller

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Comprehensive Healthcare Cost Modeling Tools

businesses by providing coverages that previously could not be efficiently obtained,” Simpson says. “Anyone who believes in risk sharing through insurance of any form should be a supporter of ERCs.” Simpson, an attorney with Gordon, Fournaris & Mammarella, P.A. of Wilmington DE, lists targets of SIIA’s educational campaign as the general business community, members of the self-insurance industry, insurance regulators, tax agencies and Congress. “The great risk of not defending our industry is that we could win all the IRS audit battles but lose the war because of an overall negative impression of ERCs,” Simpson says. Along the way, perhaps wiser heads in Washington will agree that this is still America and that citizens conducting lawful business should be treated with respect and courtesy by agencies of our government. It’s not too much to ask. ■ Readers who wish to comment on this column or write their own article are invited to contact Editor Gretchen Grote at ggrote@sipconline.net. Dick Goff is managing member of The Taft Companies LLC, a captive insurance management firm. Email dick@taftcos.com and visit www.taftcos.com/blog.

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Cadillac Tax Contemplation

M

any employers and their TPAs are still working through the 26 USC § 4980H analysis (Shared Responsibility for Employers Regarding Health Coverage) and whether the coverage being offered is good enough so as to avoid excise taxes. However, it is already time to start contemplating and preparing for the Cadillac Tax and the analysis of whether the coverage being offered is too good so as to avoid excise taxes. Beginning January 1, 2018, the Patient Protection and Affordable Care Act (PPACA) will impose the Cadillac Tax. The Cadillac Tax is an excise tax on applicable employer-sponsored health coverage that provides benefits to employees (current and former employees) and other covered individuals that exceeds specific pre-determined thresholds (“excess benefits”.) The excise tax was intended to be a permanent, non-deductible tax touted to help slow the growth rate of health costs (particularly premium growth), reduce health care usage, encourage employers to offer cost-effective benefits, encourage employee engagement and practically speaking – to help finance the expansion of health coverage under PPACA.

Written by Cori M. Cook, J.D. CMC CONSULTING, LLC 16

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Final regulations have not been issued and we are anticipating further guidance on many unanswered questions. However, based on our current understanding the applicable coverage to be taken into account to determine if a plan meets the qualifications includes all applicable employer-sponsored health coverage including,


but not limited to, coverage provided for medical, prescription drugs, dental, vision, health FSA, HRA, HSA and on-site clinics. Dental and vision may be excluded if provided to employees under a separate plan, as well as “excepted benefits.” The Cadillac Tax will be imposed on the cost of the applicable employersponsored health coverage that exceeds the yearly allowable pre-determined threshold. The cost of coverage is the sum of the employee and employer shares, which includes premiums paid by the employee and employer, as well as the employee and employer contributions to health FSAs, HRAs, HSAs, on-site clinics and any other applicable coverage. To calculate the Cadillac Tax, all monthly excess benefit amounts must be aggregated to determine the yearly amount of excess benefits. The aggregated excess benefit amount is then multiplied by 40%. For planning purposes and for 2018, the threshold amounts are expected to be $10,200 for single coverage ($850 per month) and $27,500 for family coverage ($2,291.67 per month) which will likely increase each year based on increases in health care costs, cost-of-living adjustments, as well as age and gender adjustments. The annual threshold amounts will also be adjusted for high-risk professions and qualified retirees.

Example Company XYZ offers a comprehensive, self-funded medical plan to its full-time employees in 2018. The total cost of coverage (employee share and employer share) for each employee covered on the plan electing self-only coverage is $12,000 and the total cost of coverage for each employee covered on the plan electing family coverage is $30,000.

Self-only Coverage Annual Calculation $12,000 - $10,200 = $1,800 x 40% = $720 excise tax per covered employee Family Coverage Annual Calculation $30,000 - $27,500 = $2,500 x 40% = $1,000 excise tax per covered employee

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Employers are ultimately responsible for calculating the excise tax for the applicable employer-sponsored health coverage regardless if they are fully insured or self-funded and in either case, the employer and/or plan size is irrelevant. Although many observers are hoping for repeal, the Cadillac Tax is expected to be a significant source of revenue to assist in keeping the PPACA programs alive. Many of the funding mechanisms for PPACA have already been delayed or set aside and many argue that it may not survive another financial hit.

Is the Cadillac Tax a “tax” or is it simply the elimination of an existing tax break? Advocates contend that the excise tax is necessary due to the longstanding unequal tax benefit that has existed for decades. Employers receive a tax incentive for offering health benefits to their employees in lieu of wages

and the benefits are provided to the employee on a tax-free basis. Some advocates have argued that the higher paid employees receive a higher level of income due to the tax-free value of the health benefits provided to them. By excluding the full value of employer-sponsored health insurance from individuals’ taxable income, one estimate is that the federal government is currently providing Americans with more than $250 billion each year in tax subsidies. Since both employers and employees presently benefit from the tax incentives currently in place, any attempt to eliminate them has been met with significant opposition. Critics of the Cadillac Tax claim that employers, in their quest to obey the law but avoid an additional excise tax, may make changes resulting in decreased benefits provided to their employees and will likely attempt to impose significant changes in costsharing differentials. By increasing deductibles and co-payments, employers may shift a larger portion of the cost of health care on to the employee which may result in increased individual debt and/or deferred medical treatment. It is not too soon for TPAs to begin consulting with their respective clients in contemplation of developing a longterm deliberate health care strategy for the employer. Employers should be considering, at a minimum: 1. Will the current offering be subject to the Cadillac Tax? 2. What would the amount of the excise tax be? 3. What thresholds does the plan currently qualify for? 4. What are the current cost-drivers for the health plan? 5. What cost-containment strategies could be implemented now and over the next several years, to significantly impact claim costs. March 2015 | The Self-Insurer

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One method of managing excess benefits provided to employees is managing the cost of the health plan. Effective cost-containment strategies may allow employers to manage plan costs while continuing to provide high quality benefits. Some examples of these strategies include, but by no means are limited to: case management and disease management intervention opportunities for those individuals identified as having a chronic condition; travel benefits (domestically and internationally) to obtain high quality low cost treatment; referencebased pricing strategies; incentivized wellness programs; custom network arrangements with preferential rates; implementation of narrow networks; and detailed auditing programs. If it hasn’t already occurred, now is the time for TPAs to assist employers in exploring cost-containment strategies that are appropriate for a particular employer’s population.

The industry eagerly awaits regulations that will provide more specific information and guidance and whether the Cadillac Tax will survive is a hotly debated topic. In the meantime, it is important that employers and TPAs work together to control the cost of health coverage for their employees in order to minimize or avoid any excise tax that may apply. TPAs are perfectly positioned to assist their clients through this analysis, assist their clients with the calculation and with any subsequent reporting. Failure to properly plan ahead could significantly impact an employer and the viability of its benefit offering. ■

Please seek appropriate legal and/or professional counsel to obtain specific advice with respect to the subject matter contained herein. Cori M. Cook, J.D., is the founder of CMC Consulting, LLC, a boutique consulting and legal practice focused on providing specialized advisory and legal services to TPAs, employers, carriers, brokers, attorneys, associations and providers, specializing in health care, PPACA, HIPAA, ERISA, employment and regulatory matters. Cori may be reached at (406)647-3715, via email at cori@corimcook.com or at www.corimcook.com.

This article is intended for general informational purposes only. It is not intended as professional counsel and should not be used as such. This article is a high-level overview of regulations applicable to certain health plans.

We are an innovative underwriting management organization specializing in Employer Excess of Loss in Self-Insurance and Medical Excess of Loss in Managed Care as well as Personal Accident Products. We take the time to learn about your business, providing a consultative approach to achieve the best risk solution. At StarLine, the difference is in our people, our products and our passion. To learn more about our customized solutions, visit starlinegroup.com or call (508) 495-0882 today.

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PPACA, HIPAA and Federal Health Benefit Mandates:

Practical

Q&A

Agencies Issue New Proposed Rules for the Summary of Benefits and Coverage

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n December 30, 2014, the Departments of the U.S. Treasury (Treasury), Labor (DOL) and Health and Human Services (HHS) (the “agencies”) jointly published proposed rules (the “Proposed Rules”) that update and clarify the final regulations regarding the Summary of Benefits and Coverage (SBC) published in 2012.

Practice Pointer: The new regulations are only proposed regulations, so some aspects could change before they are finalized. If finalized, however, the new SBC rules, template and glossary should be used for all SBCs issued on or after September 1, 2015. The Proposed Rules incorporate previous subregulatory guidance issued in the 20

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form of Frequently Asked Questions (FAQs), as well as make some new changes. The proposed template and the proposed glossary can be found on the DOL’s website.1

Changes to the SBC Template and Glossary

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A template and glossary for the SBC were issued in connection with the 2012 final regulations. The Proposed Rules make a number of additions and deletions to these form documents and the glossary. First, the Proposed Rules would require the SBC to state whether the coverage offers minimum essential coverage and minimum value. This would end the current safe harbor that allows this information to be delivered through a separate letter.2 The Proposed Rules would also require the SBC to add a third coverage example, an emergency room visit for a simple foot fracture, to the two previously required examples involving a routine delivery and the management of type 2 diabetes. Despite these new additions, the Proposed Rules actually shorten the completed SBC template to two and a half pages from the original four pages. This is accomplished by removing some information that is not required by statute. For example, references to annual limits for essential health benefits and pre-existing condition exclusions would be removed. Conversely, the glossary is expanded from four to six pages. The Proposed Rules will add definitions for several new terms, including “claim,” “cost sharing” and “individual responsibility requirement.” Several existing definitions are also changed slightly. Furthermore, changes are proposed to the SBC instruction sheet and the “Why This Matters” language. In addition, the continuation of coverage, minimum essential coverage

and minimum value disclosures are revised in an effort to provide more useful information.

In addition, the safe harbor allowing plan administrators to either synthesize information into a single SBC or provide multiple SBCs is left in place.7

Changes to the SBC Delivery Requirement

The antiduplication rules cover individual student health insurance plans as well.8 The Proposed Rules state that a higher education institution’s requirement to provide an SBC to an individual will be considered satisfied if another party, such as a health insurance issuer, provides a timely and complete SBC.

Plan and/or insurer’s requirement to provide SBCs to participants The Proposed Rules make several clarifications regarding the provision of the SBC to participants, all of which are discussed in previous FAQs issued by the agencies. For instance, the Proposed Rules state that an SBC must be provided to participants upon automatic re-issuance or reenrollment.3 They also codify the safe harbor providing for electronic delivery of SBCs in connections with online enrollment, renewal or online request from a participant or beneficiary.4 The Proposed Rules also extend previous safe harbors in an attempt to streamline the SBC delivery process to participants and reduce duplication issues that may arise when SBCs are delivered by a third party.5 A plan or issuer that contracts with a third party to provide an SBC will be considered to satisfy the requirement to provide an SBC if the plan or issuer monitors the performance of the contract, corrects noncompliance with the contract “as soon as practicable” and communicates with participants and beneficiaries affected by the noncompliance and takes “significant steps as soon as possible to avoid future violations.” Furthermore, if a group health plan contracts with more than one issuer to provide benefits for a single plan, the Proposed Rules require the plan administrator to provide a consolidated SBC for the plan.6 An issuer has no obligation to provide an SBC containing information for benefits that it does not insure, but a plan administrator may contract with an issuer to do so.

Insurer’s requirement to provide SBCs to a plan The Proposed Rules make several clarifications regarding the provision of the SBC to plans by insurers, all of which were discussed in previous FAQs. First, insurers will not be required to provide updated SBCs during coverage negotiations.9 If a plan sponsor is still negotiating coverage terms following the application for coverage, the issuer is not required to provide an updated SBC to the plan until the first day of coverage. However, a plan sponsor’s request for an updated SBC must otherwise be honored at any time. In addition, the rules reaffirm that insurers will not be required to provide new SBCs upon application if they were provided prior to application.10 If a plan or issuer provides an SBC prior to an application for coverage, such as part of its pre-enrollment materials, the plan or issuer is not required to provide another SBC upon application if there is no change to the information.

Summary for Plan Administrators The Proposed Rules codify many existing SBC practices that plan administrators are probably already taking to deliver the SBC to participants. No new proposed rules would change existing delivery March 2015 | The Self-Insurer

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practices. The biggest change for plan administrators will be the use of the new template and glossary, which should be used exclusively after September 1, 2015.

Practice Pointer: Many of the delivery practices discussed in the Proposed Rules simply codify delivery practices provided in previous agency FAQs. The FAQs can be found here. The Proposed Rules would make the FAQ guidance permanent.

Penalties for Noncompliance The 2012 regulations provided that a willful failure to provide an SBC can result in a fine of $1,000 for each such failure, which can be enforced by the DOL, HHS or IRS. The Proposed Rules provide some clarity about DOL and IRS enforcement. For instance, in assessing fines against plans, the Proposed Rules clarify that the DOL will use the same process and procedures it currently uses to enforce the Form 5500 filing rules. The Proposed Rules further clarify that the DOL is not authorized to assess this fine against a health insurance issuer, per ERISA § 502(b)(3). Furthermore, the Proposed Rules state that the IRS will enforce the SBC rules using a process consistent with Internal Revenue Code Section 4980D for failure to meet the Code’s group health plan requirements. The agencies are accepting comments through March 2, 2015, including through www.regulations.gov ■ The Affordable Care Act (ACA), the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and other federal health benefit mandates (e.g., the Mental Health Parity Act, the Newborns and Mothers Health Protection Act, and the Women’s Health and Cancer Rights Act) dramatically impact the administration of self-insured health plans. This monthly column provides practical answers to administration questions and current guidance on ACA, HIPAA and other federal benefit mandates. Attorneys John R. Hickman, Ashley Gillihan, Johann Lee, Carolyn Smith and Dan Taylor provide the answers in this column. Mr. Hickman is partner in charge of the Health

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Benefits Practice with Alston & Bird, LLP, an Atlanta, New York, Los Angeles, Charlotte and Washington, D.C. law firm. Ashley Gillihan, Carolyn Smith and Johann Lee are members of the Health Benefits Practice. Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner’s situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation. Readers are encouraged to send questions by email to Mr. Hickman at john.hickman@alston.com. References

The proposed template can be found at www.dol.gov/ebsa/pdf/sbctemplateproposed.pdf

1

The proposed glossary is at www.dol.gov/ebsa/pdf/sbcuniformglossaryproposed.pdf 2 As found in FAQ XIV, Q2. www.dol.gov/ebsa/faqs/faq-aca14.html 3 Codified from FAQ VIII, Q9. www.dol.gov/ebsa/faqs/faq-aca8.html 4 Codified from FAQ VIII, Q10. www.dol.gov/ebsa/faqs/faq-aca8.html and FAQ IX, Q1. www.dol.gov/ebsa/faqs/faq-aca9.html 5 Codified from FAQ VIII, Q5. www.dol.gov/ebsa/faqs/faq-aca8.html 6 Codified from FAQ IX. Q10. www.dol.gov/ebsa/faqs/faq-aca9.html 7 Codified FAQ IX, Q10. www.dol.gov/ebsa/faqs/faq-aca9.html. 8 Codified from FAQ XIV, Q7. www.dol.gov/ebsa/faqs/faq-aca14.html 9 Codified from FAQ IX, Q2. www.dol.gov/ebsa/faqs/faq-aca9.html 10 Codified from FAQ IX, Q3. www.dol.gov/ebsa/faqs/faq-aca9.html


March 2015 | The Self-Insurer

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


International Conference Self-Insurance Institute of America, Inc.

April 13-15, 2015 Panama City, Panama

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he US market for self-funded health plans, captives and all the services related to the development of this business has been nothing short of hectic for the past five years. At the same time, markets outside the US have been equally active and we’ve seen many carriers, brokers, reinsurers and service organizations expanding their reach to Central and Latin America. Your SIIA International Committee tracks this development and sees a greatly increased opportunity to build our business outside our borders. The economies of Central and Latin American countries are healthy and growing. With few exceptions, we’re seeing political stability, higher levels of education and broad-based business growth. In many cases, governments are actually investing in the business community to help and encourage growth.

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PANAMA | FEATURE Imagine that all this is happening within just a couple of hours travel time of major US airports. While health benefits in these countries are generally socialized, many corporations are increasing their health coverage for technical and managerial employees. In addition, they are adding dental, life and other ancillary benefits through private carriers or self-funding themselves. We’re seeing an active interest in Captives throughout these countries as well.

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

For years Panama has worked to be a destination for businesses looking to locate a Central American venture, service their Latin business or find tax breaks for developing business. Suffice it to say, all this development has our attention and we’ve decided to host this year’s SIIA International Conference in Panama City, Panama, the gateway to Central and Latin America. Panama is a beautiful country with a vibrant capital in Panama City, beautiful beaches, cool highlands and very friendly people. The new airport is easily accessible from Texas, Miami and New York airports. You’ll find a great variety of things to do including golf, sport fishing, touring, nightlife, great restaurants and entertainment, all of this reasonably priced using the American dollar. Panama has ports on both the Caribbean and Pacific coasts and the Panama Canal, one of the Seven Wonders of the World, generates significant economic activity and plenty of business opportunity. Be sure to join us early to participate in the optional add-on tour of the Canal Zone, hosted by The Self-Insurance Educational Foundation, Inc. (SIEF) and the newly opened third canal built to accommodate jumbo ships, followed by a tour of the beautiful city of Panama.

We’ll be staying at the new Panama Hilton. Be sure to call them for the special SIIA rate.

I would also like to take this opportunity to all of our sponsors

thank

Plan to come in on Sunday, April 12th, in time for our opening reception and the first activity on Monday morning. We’ll start with the Canal tour and end the day with a welcome reception on Monday evening, April 13th.

Complete Health Systems

We have worked very hard to line up a world-class group of presentations that will focus on developing business opportunities in Central and Latin America and are pleased to offer simultaneous translation services to accommodate all attendees. Our sessions will kick off on Tuesday with a thorough overview of the regulatory environment with recognized expert, John Rooney. Throughout the day, we’ll look at captive opportunities, multi-national pooling strategies and a great session on developing self-funding opportunities in Central America.

Hi-Tech Health, Inc.

We’ll finish the program on Tuesday with a presentation from a major Panama based carrier. Our friends from Willis will be hosting an off-site

Equian Fairmont Specialty, a Division of Crum & Forster Global Benefits Group, China Health Portal Solutions

Niki’s International Ltd. Nueterra PartnerRe America Insurance Co. Passport For Health, a Medical Travel Company Re-Solutions, LLC SIEF Willis North American Captive & Consulting Practice

group dinner and entertainment Tuesday evening that you won’t want to miss. On Wednesday, we’re privileged to hear from the Risk Manager of the March 2015 | The Self-Insurer

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PANAMA | FEATURE Panama Canal Zone, including an overview of the recently completed project. Our other sessions Wednesday include an update on self-funding and captives in the Caribbean, including one of the more active venues, Trinidad. We’ll finish the educational program with a look at self-insurance business in the Caribbean and an update on medical travel to Central America. All this with a great opportunity to share camaraderie with your fellow members and meet many of the people who are leaders in Central and Latin America. Make your reservations now to be sure you get a spot, as this conference will be well worth your time. ■

See you in Panama! Bob Repke International Committee Chair

SIIA’s International Conference would not be possible without the support and hard work from our International Committee Joseph Antonell Senior Vice President, Business Development Equian Greg Arms COO, Accident & Health Div. Chubb Group of Insurance Companies Stephen Barry Vice President, Strategic Relationship and Global Accounts Voya Financial, Inc. Jeff Gavlick Vice President, Product Development and Management - Stop Loss AIG Benefit Solutions Todd A. Hancock Executive Vice President and Chief Operating Officer International Medical Group, Inc. Dennis E. Heinzig President, Health PartnerRe Chacko Kurian President & CEO Complete Health Systems, LC John O’Connor President Global Benefits Group Matthew Smith Senior Vice President Re-Solutions, LLC Robb A. Suchecki VP, International Group Insurance Pan-American Life Insurance Group Michael Tuomey Business Development and Vendor Relations WLT Software Alejandro Vazquez External Consultant Cooperativa La Cruz Azul, S.C.L. Nigel Wallbank President New Horizons Insurance Solutions

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March 2015 | The Self-Insurer

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For Captive Reinsurers, is Transparency the Answer?

C

aptive reinsurance has been rapidly growing since the early 2000s and so far they have not been a source of financial instability, despite the warnings of critics. Both critics and supporters of captive reinsurers believe that more transparency in financial reporting would help improve reinsurance captive’s standing. Yet questions remain regarding how much transparency would be enough, how it should be regulated and, even more importantly, how to implement greater transparency nationally without sacrificing the captive model.

A Little Background

Written by Karrie Hyatt 28

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Investigations into captive reinsurers began in 2012 when the National Association of Insurance Commissioners (NAIC) Financial Condition (E) Committee formed a subgroup, the Captive and Special Purpose Vehicle Use (E), to examine reinsurance captives covering life insurance companies transferring risk that was not self-insured risk. The committee’s findings were released in mid2013 about the same time that the New York Department of Financial Services’ (DFS) white paper on the subject was released. The DFS’s report criticized these types of life insurance reinsurance captives as a “shadow industry” – a term used to describe a financial intermediary that is not subject to regulatory oversight. The DFS called for a moratorium on captive formation.


In December 2013, a Federal Insurance Office (FIO) report, titled “How to Modernize and Improve The System of Insurance Regulation in the United States,” recommended changes to the regulation of captive reinsurers. This paper was soon followed, in early 2014, by the NAIC Financial Regulation Standards and Accreditation (F) Committee’s proposed change to the definition of multi-state reinsurers that would include captive reinsurers. Also in 2014, several scholarly studies were published both in favor of and against these types of captives. Most recently, the Office of Financial Research (OFR), in its 2014 Annual Report to Congress, called for more transparency in the regulation of captive reinsurers.

What Is at Stake?

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Much of the criticism surrounding captive reinsurers is a fear that these companies, valued at $364 billion in 2012, could cause another financial crisis if they should begin to fail on a national level. That is where the idea of more financial transparency comes in. However, when proposals are made to increase transparency, they very often include a range of captive types and are not limited to captive reinsurers. “Requiring all size and shapes of captives to be equally transparent in practices is another thing. Regulation needs to fit the entity being regulated,” said Dana Hentges Sheridan, general counsel and chief compliance officer for Active Captive Management, LLC. “You’d hardly hold a captive that has less than a million dollars in net premium revenue annually to the same standardized set of rules as an AIG. Such a captive is very unlikely to have a big impact on the nationwide insurance market or the U.S. economy.”

According to Mark E. Morris, senior vice president of Risk Finance, Lockton Companies, “Captive structures are unique and I can see a lot of harm coming from developing broad measures that are trying to address a fairly minor area of the greater captive reinsurance market.”

What the Reports Have to Say The FIO’s December 2013 report on modernizing the insurance industry includes suggestions for the reinsurance captive marketplace. The report lists as one of its findings that “States should develop a uniform and transparent solvency oversight regime for the transfer of risk to reinsurance captives.” It suggests that states should implement consistent disclosures and oversight standards for captives, which should include public disclosure of financial statements. The complete suggested changes break down as follows: • States should develop and adopt a uniform standard for transparency policies for captive reinsurers that includes both liabilities and assets. • States should develop and adopt uniform capital requirements for reinsurance captives. • These requirements should prohibit transactions that do not provide the protections intended by the Credit for Reinsurance Model Law. Any such transactions should be disclosed in financial statements. • States should develop and adopt national standards for oversight of captive reinsurance marketplace which would include public disclosure of financial statements for both captive reinsurance and captive insurance companies. • The standards developed should be part of the NAIC’s accreditation program.

In the 2014 annual report from the Treasury Departments’ Office of Financial Research, the department found that captive reinsurance, along with nonbank mortgage servicers and single-family rental securitizations, could pose financial stability risks and should be monitored accordingly. The report contends that captive reinsurance is an innovative financial model that appears to be helping the insurance sector meet the needs of its policyholders. However, because it is an evolving entity it can also pose a threat to financial stability if not “subject to prudential regulation.” Citing both the DFS and the FIO papers, the OFR report concluded that “While the growing use of captive reinsurance could be driven by factors such as differences in tax and regulatory regimes, it remains difficult not only for policyholders and investors, but also in some cases for state regulators, to determine the capital adequacy and financial strength of captive reinsurers.” The report suggested that further investigation and monitoring of the sector was needed. While these recommendations in both the FIO and the OFR reports are ostensibly pertaining to a small slice of the captive insurance industry – reinsurance captives, particularly life insurance captive reinsurers – implementation of any transparency measures could have unintended consequences industry-wide. The main concerns are that increased transparency and regulation could cause harm to a growing industry, could send business to offshore domiciles – where regulation is even less transparent, or could unintentionally include all captives. An additional concern is how new standards would be implemented – through the NAIC or a federal institution. March 2015 | The Self-Insurer

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Changes are almost certainly forthcoming for the industry, but what those changes will be and how long it will take to implement them are still a long way off.

Where Should the Changes Come From? While those working in the industry believe that changes to need to be made in order to improve the sector’s reputation, they are cautious about how to go about making those changes. “A major shift in reinsurance captive regulation is likely to have unintended consequences,” said Morris. “There is a risk that public policy and protectionist measures could be blended here into a mix that creates unnecessary friction in the market.” As more states become domiciles for captives, getting the states to agree on standards and implementing them accordingly could be a “herculean

effort,” said Sheridan. “I’m not against the idea of model or uniform regulation, it’s just that I am not sure it’s feasible given how many states are currently new to the business of regulating captives, how each of the states have very different local reasons to regulate as they do... and that there are so many states now that would need to be involved.” The FIO report did not exclude the idea that standards be implemented nationally on a federal level. Yet most people would prefer that the federal government not involve itself in captive regulation. “We are concerned that federal action can lead to overreach and create legislation that has unintended and potentially very negative consequences,” said Lockton’s Morris. He continued, “The NAIC is effective in driving standards on state consistency. When, necessary, state support and consolidation is preferred to federal statutes. Federal acts often miss matters of local importance or have an impact that was not intended as federal agencies are further removed from the issue.” Sheridan could see a hybridized version of a state and federal system of insurance regulation, but would prefer to leave the regulation to states. “Generally speaking, I cannot think of one area pertaining to captives where it makes sense that federal involvement in regulation is warranted. It seems that the FIO has come to the same conclusion as their recommendations relative to captives are that the states should get on the same regulatory page, not that any federal entity should regulate or ‘modernize’ rules applicable to captives.” She sees the NAIC’s involvement as “crucial” to any nationally adopted standards. “The NAIC is at the center of efforts to study and standardize state regulation through, among other efforts, the promulgation of model legislation,

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but could any outside entity – whether it is the FIO or the NAIC – really obtain quick, coordinated and cohesive action from the states? Transparency between the states is perhaps more easily achieved and perhaps should be the goal.” Morris agreed that “focused regulatory responses seem to be most effective.”

“After all, so much of the insurance industry remains local in nature yet this consideration needs to be weighed against the fact that we have a much different insurance environment today than ever before in the past,” added Sheridan. “The insurance industry is a multi-trillion dollar a year industry. Nowadays, a strike to the insurance industry can be a shot heard round the world from an economic perspective.”

Karrie Hyatt is a freelance writer who has been involved in the captive industry for nearly ten years. More information about her work can be found at: www.karriehyatt.com.

Even while industry supporters and critics, captive administrators and captive regulators, agree that changes need to be made, additional transparency for reinsurance captives and nationally-consistent standards will take time and effort to achieve. Over the next few years this will continue to be a hot topic for the captive industry. ■

It’s all about you at Meritain Health Client-centric, customized healthcare plans Your employee population has unique needs. We get it.

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

That’s why Meritain Health works with you for custom-fit benefits. You can pick and choose from our product suite, or opt for your own preferred vendors. And you can rest easy that you’ve chosen the benefits your workforce needs for good health.

To learn more about our customized benefit plans, contact Meritain Health at 1.800.242.6226. Or visit us online at www.meritain.com.

© 2015 Meritain Health, Inc. For self-funded accounts, benefits coverage is offered by your employer, with administrative services only provided by Meritain Health, a subsidiary of Aetna Life Insurance Company (Aetna). 2014285

March 2015 | The Self-Insurer

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SIIA Endeavors Understanding Taft-Hartley Health Plans

T

he majority of Taft-Hartley health plans operate on a self-insured basis, which provides certain advantages over fully-insured arrangements. SIIA is pleased to present a new educational event to help plan trustees and administrators maximize these advantages though educational sessions led by top industry experts. The inaugural Self-Insured Taft-Hartley Plan Executive Forum will be held April 29-30th at the Marriott Metro Center in Washington, DC.

Sessions Include... Understanding the Value of Your Self-Insured Plan While most trustees and administrators of self-insured Taft-Hartley plans recognize this is a good option for their members, they may not fully understand how valuable this plan funding strategy is given the rapidly changing health care environment. To help you understand “just how good you have it,” Edward Kaplan, Senior VP & National Health Practice Leader, The Segal Company will explain why there has never been a better time to be self-insured.

Plan Design Strategies to Control Costs Perhaps the greatest advantage of being self-insured is the ability to customize benefit offerings to best meet specific workforce needs and incorporate cost containment strategies. Michael Jordan, President, Labor and Strategic Accounts Division of MagnaCare, Kim Wood, Consultant, American Benefit Corporation and Jim Conlon, Principal & Consulting Actuary at Milliman will highlight some of the most innovative plan design strategies that Taft-Hartley plans may want to consider. Included as part of their discussion will be guidance on how to start preparing for the “Cadillac” tax in 2018.

Knowing Your Provider Payment Options Mike Flammini, Head of Strategy and Business Development at Brighton Health Partners will explore emerging trends in health care, including provider payment reform, public and private exchanges and consumer engagement and new opportunities that every plan administrator should consider in developing new strategies for contracting and partnering with providers.

The Stop-Loss Insurance Carrier Perspective Stop-loss insurance has become an increasingly important risk tool for Taft34

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Hartley plans given the removal of annual limits on claims. A panel of executives including Dan Wolak, President of Ullico, Mike Remeika, Vice President at HCC Life Insurance Company, Carolyn M. Coleman, Regional Sales VP of HM Insurance Group and Tom Costello, Vice President, Benefits Division of Symetra will discuss the value of stop-loss, market trends and what plans should consider when purchasing policies.

Self-Insurance Legislative/ Regulatory Update Learn the latest about important legislative/regulatory developments at the federal and state level affecting self-insured Taft Hartley plans. Randy DeFrehn, Executive Director of National Coordinating Committee for Multiemployer Plans and Ed Smith, CEO of Ullico will discuss Labor’s response to the changing health care reform environment.

Approaches for Providing Coverage for Early Retirees With an increasing number of Taft-Hartley plan participants approaching retirement, the time is now to make sure your fund’s selfinsured plan is properly structured to ensure there is no disruption in benefit delivery and important cost


control components are incorporated. Dan Cunningham, President of Integrity Underwriters & Brokers will also address issues related to a plan’s decision to move some or all participants to the ACA exchanges. The Forum will conclude with a re-cap and wrap-up session led by Leo Garneau, Senior Vice President of PHX. He will review everything you learned and discuss how this information can be best applied when you return to your offices. ■ As with all SIIA educational events, there will also be several unique networking opportunities. For more information, including registration forms, hotel information and sponsorship opportunities, please visit www.siia.org or call (800)851-7789. We look forward to your participation!

Mind over risk.

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

Staying confident in a world where change is constant.

For firms with self-funded health plans, it’s never been more important to understand potential risks and choose quality stop loss coverage. HCC Life brings you over 35 years of medical stop loss experience, industry-leading financial ratings and experts who know what to do with it all. Intelligence beats the odds every time. We call it Mind over risk. For more information, visit us online at hcc.com/life. A subsidiary of HCC Insurance Holdings, Inc.

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March 2015 | The Self-Insurer

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The

Fiduciary

HOT POTATO

Written by Andrew Silverio, Esq. THE PHIA GROUP, LLC 36

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T

he Employee Retirement Income Security Act (“ERISA”), enacted in 1974, provides the federal regulatory framework for private sector employee benefit plans. As one of the primary goals of ERISA is to establish a uniform statutory framework for employee benefit plans, a major feature of ERISA is the preemption of most state regulation which touches on employee benefit plans falling within its scope. It is because of this that a self funded employee benefit plan under ERISA is essentially immune to most forms of state regulation and must look primarily to ERISA (and of course, the Affordable Care Act in the case of health and welfare plans) for regulatory guidance. ERISA establishes standards of conduct for plan fiduciaries, those exercising discretionary authority over plan assets, plan management, or both. ERISA holds these plan fiduciaries to a high standard; such fiduciaries have significant duties toward their respective benefit plans and their participants and must carry out these duties prudently, faithfully adhere to the applicable plan document (unless it conflicts with ERISA) and always act in the best interests of the plan and its participants. A significant aspect of this fiduciary status and the reason it is so important to know whether one is acting as a fiduciary, is the personal liability imposed on fiduciaries for breaches of their duties. In the context of a health plan, a breach of fiduciary duty can result in enormous damage to the plan, damages which can then be claimed from the responsible fiduciary’s personal assets. So, what can one do ensure that they are not held to this fiduciary standard and subject to its corresponding liabilities?


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

Just about any contract between a plan and a TPA, a TPA and a vendor or indeed any agreement the subject of which touches on a plan’s operation, will contain numerous disclaimers and indemnifications, purporting to evade any fiduciary liability and adamantly denying fiduciary status. These provisions, perhaps out of trust in their effectiveness or perhaps merely out of caution, are ubiquitous in just about any agreement within the self funded sphere. However, many plans, TPAs and vendors focus far too much on contractual disclaimers and indemnifications and too little on the nature of their actual activities. While it is required that an ERISA plan have at least one “named” fiduciary pursuant to its plan document, this is by no means the only way to attain fiduciary status. “An entity’s status as a fiduciary hinges not solely on whether it is named as such in a benefit plan, but also on whether it ‘exercises discretionary control over the plan’s management, administration, or assets.’” Hartsfield, Titus & Donnelly v. Loomis Co., 2010 WL 596466, 2 (Dist. N.J. 2010), citing Mertens v. Hewitt Assocs., 508 U.S. 248, 252 (1993). In Hartsfield, the plan’s TPA, Loomis Co., was found to be a fiduciary despite expressly disclaiming fiduciary status in its contract with the plan. Loomis Co. was then found to have negligently made overpayments and was held liable to the plan for breaching its fiduciary duty in doing so. To make this case even more frightening for TPAs, the fact that Loomis made overpayments in contradiction to the terms of the plan was sufficient to establish negligence, with essentially no further evidentiary showing.

In addition to precluding any attemptto disclaim fiduciary status, ERISA also does not allow one to disclaim fiduciary liability. See 29 U.S. Code §1110(a),

“Any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation or duty under this part shall be void as against public policy.” So, What Can a TPA or Vendor (which exercises some discretionary control over plan assets or management) Do to Avoid Fiduciary Status or Lliability? Unfortunately (or fortunately for plans), the answer is not much. However, although this liability cannot be “extinguished”, it can be allocated, by one who understands the nature of the fiduciary status and its corresponding duties and liabilities. Pursuant to 29 U.S. Code § 1105(c), the “instrument under which a plan is maintained” may expressly provide for an allocation of fiduciary responsibilities (other than those of a trustee) among named fiduciaries. Additionally, the instrument may allow such named fiduciaries to designate persons or entities other than named fiduciaries to carry out fiduciary responsibilities. More importantly, if a fiduciary allocates such a responsibility to another person, “...then such named fiduciary shall not be liable for an act or omission of such person in carrying out such responsibility...” 29 U.S. Code § 1105(c)(2). In other words, once a named fiduciary properly delegates away a fiduciary duty, they are released from liability to the extent of the scope of the duty delegated. They are not released from all liability, however. The original fiduciary still has fiduciary duties in prudently selecting a party to appoint as a fiduciary, as well as following the proper plan procedure for doing so and reasonably monitoring the actions of the appointed fiduciary. Once a fiduciary duty is properly allocated, the original fiduciary can be held liable for a breach of that duty only through ERISA’s rules on liability between co-fiduciaries (or through his own breach in imprudently selecting or failing to monitor the designated fiduciary). Under these rules, one is liable for the actions of a co-fiduciary only if he knowingly participates in or conceals the co-fiduciary’s breach, enables the co-fiduciary’s breach through his own breach of fiduciary duties of prudence and diligence, or has knowledge of the co-fiduciary’s breach and makes no effort to cure the breach. 29 U.S. Code § 1105(a).

What can a TPA or Vendor Do with This Knowledge? A threshold question should be whether your company’s activities render it a plan fiduciary, subjecting it to liability as such. Interpreting the plan document in order to approve or deny claims, without consulting the employer on each specific decision, conducting appeals, providing subrogation and reimbursement services for the plan, making amendments to the plan document or summary plan description... all of these are activities commonly undertaken by TPAs or contracted out to vendors which can subject one to fiduciary liability. Once an examination of an entity’s activities in relation to the plan is complete, the next question is of course what to do about this liability. An option, perhaps March 2015 | The Self-Insurer

37


unwise but the most commonly utilized option nonetheless, is to continue business as usual and hope for the best. Fiduciary liability is of no concern so long as your organization never makes a mistake on a claim, botches an appeal or contracts with a vendor which may put its own interests before those of the plan. Another option is to identify activities which subject your company to fiduciary liability and manage this liability by delegating them out to another party as discussed above, making sure to follow proper plan procedure in doing so. A third option is to acknowledge this responsibility and ensure adequate protections are in place. Fiduciary liability insurance is available and can protect a company and its employees from damages resulting from fiduciary breaches, including the costs of defending against such claims. Other common forms of commercial insurance such as directors and officers liability, commercial general

38

The Self-Insurer | www.sipconline.net

liability, or errors and omissions policies can also protect your company from fiduciary liability, although alteration to the policy is probably necessary, as most insurance policies not aimed specifically toward fiduciary liability will disclaim it. It is important to note that the “fidelity bond” required by ERISA will not protect a fiduciary from personal liability. This bond, required for any person who handles plan funds, is in place to protect the plan in the event of dishonest conduct which damages the plan. It will not help the responsible party in the event of a breach. No matter which course of action is undertaken, a thorough understanding of one’s responsibilities and liabilities in any given situation gives crucial insight into the true value of the services being provided. There is a good reason agreements which openly assume fiduciary status and liability come with higher fees than those which

disclaim such status. If the activities to be performed under an agreement will subject one to fiduciary liability regardless of contract language, why not assume that liability in the agreement? If assuming additional liability in the agreement, this risk and its potential costs should be taken into account in calculating the TPA’s fee. Additionally, an entity armed with this knowledge is better equipped to assess the extent of the liability it truly wishes to take on. ■ Andrew Silverio, Esq. 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. Andrew is licensed to practice in the Commonwealth of Massachusetts and can be reached at asilverio@phiagroup.com.


March 2015 | The Self-Insurer

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


RRGs Report Financially Stable Results Through Third Quarter 2014 This article originally appeared in “Analysis of Risk Retention Groups – Third Quarter 2014”

Written by Douglas A Powell Senior Financial Analyst, DEMOTECH, INC . 40

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A

review of the reported financial results of risk retention groups (RRGs) reveals insurers that continue to collectively provide specialized coverage to their insureds. Based on third quarter 2014 reported financial information, RRGs have a great deal of financial stability and remain committed to maintaining adequate capital to handle losses. It is important to note that ownership of RRGs is restricted to the policyholders of the RRG. This unique ownership structure required of RRGs may be a driving force in their strengthened capital position. The financial metrics and ratios presented below have been materially impacted by a Contribution Agreement and a merger made by separate companies. First, a Contribution Agreement of an RRG that transpired in the first quarter 2014. On January 1, 2014, Attorney’s Liability Assurance Society Inc., RRG (ALAS) entered into a Contribution Agreement with its parent, ALAS Investment Services Limited (AISL). ALAS assumed significant assets and liabilities of the parent. According to the filed first quarter 2014 statement of ALAS, as a result of the transaction, “loss reserves historically ceded by (ALAS) to the parent... were reassumed by the company.” More than $2 billion in total assets and more than $1.5 billion in total liabilities were contributed to ALAS. The most significant liability assumed by ALAS was $1.2 billion of loss reserves. The net capital


contribution of this transaction was more than $513 million. The second transaction materially impacting the financial metric and ratios of RRGs was a series of mergers. On May 1, 2014, MCIC Vermont Inc. (A Risk Retention Group) executed two mergers. The parent of MCIC Vermont Inc., MCIC Vermont Holdings Inc., was merged into MCIC Vermont Inc. Also on May 1, 2014, 2014, The Medical Centre Insurance Company, Ltd. was merged into MCIC Vermont Inc. Then MCIC Vermont Inc. converted from a risk retention company to a reciprocal risk retention company, thus changing its name to MCIC Vermont (A Reciprocal Risk Retention Group).

Balance Sheet Analysis

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

During the last five years, cash and invested assets, total admitted assets and policyholders’ surplus have increased at a faster rate than total liabilities. The level of policyholders’ surplus becomes increasingly important in times of difficult economic conditions by allowing an insurer to remain solvent when facing uncertain economic conditions. Since third quarter 2010, cash and invested assets increased 83 percent and total admitted assets increased 64.8 percent. More importantly, over a five year period from third quarter 2010 through third quarter 2014, RRGs collectively increased policyholders’ surplus 72.5 percent. This increase represents the addition of over $2 billion to policyholders’ surplus. During this same time period, liabilities have increased 59.7 percent. These reported results indicate that RRGs are adequately capitalized in aggregate and able to remain solvent if faced with adverse economic conditions or increased losses. Liquidity, as measured by liabilities to cash and invested assets, for third

Short‐term Assets

$12

Net Admitted Assets Liabilities Policyholders Surplus

$10

$8

$6

$4

$2

$‐ 2010 Q3

2011 Q3

2012 Q3

2013 Q3

2014 Q3

quarter 2014 was approximately 65.7 percent. A value less than 100 percent is considered favorable as it indicates that there was more than a dollar of net liquid assets for each dollar of total liabilities. This also indicates an improvement for RRGs collectively as liquidity was reported at 66.6 percent at third quarter 2013. This ratio has improved steadily each of the last five years. Loss and loss adjustment expense (LAE) reserves represent the total reserves for unpaid losses and LAE. This includes reserves for any incurred but not reported losses as well as supplemental reserves established by the company. The cash and invested assets to loss and LAE reserves ratio measures liquidity in terms of the carried reserves. The cash and invested assets to loss and LAE reserves ratio for third quarter 2014 was 219.2 percent and indicates an improvement over third quarter 2013, as this ratio was 238.1 percent. These results indicate that RRGs remain conservative in terms of liquidity. In evaluating individual RRGs, Demotech, Inc. prefers companies to report leverage of less than 300 percent. Leverage for all RRGs combined, as measured by total liabilities to policyholders’ surplus, for third quarter 2014 was 142.8 percent and indicates a diminishment compared to third quarter 2013, as this ratio was 127.8 percent. The loss and LAE reserves to policyholders’ surplus ratio for third quarter 2014 was 99.1 percent and indicates a diminishment compared to third quarter 2013, as this ratio was 80.6 percent. The higher the ratio of loss reserves to surplus, the more an insurer’s stability is dependent on having and maintaining reserve adequacy. Regarding RRGs collectively, the ratios pertaining to the balance sheet appear to be appropriate and conservative.

Premium Written Analysis Since RRGs are restricted to liability coverage, they tend to insure medical providers, product manufacturers, law enforcement officials and contractors, as well as other professional industries. RRGs reported direct premium written in eleven lines of business through third quarter 2014. RRGs collectively reported nearly $2.5 billion of direct premium written (DPW) through third quarter 2014, an increase of 2.1 percent over third quarter 2013. RRGs reported over $1.5 billion of net premium written (NPW) through third quarter 2014, an increase of 32.4 percent over third quarter 2013. March 2015 | The Self-Insurer

41


The DPW to policyholders’ surplus ratio for RRGs collectively through third quarter 2014 was 68.1 percent, down from 91.5 percent at third quarter 2013. The NPW to policyholders’ surplus ratio for RRGs through third quarter 2014 was 42.8 percent and indicates a decrease over 2013, as this ratio was 44.4 percent. Please note that these ratios have been adjusted to reflect projected annual DPW and NPW based on results through the third quarter. An insurer’s DPW to surplus ratio is indicative of its policyholders’ surplus leverage on a direct basis, without consideration for the effect of reinsurance. An insurer’s NPW to surplus ratio is indicative of its policyholders’ surplus leverage on a net basis. An insurer relying heavily on reinsurance will have a large disparity in these two ratios. A DPW to surplus ratio in excess of 600 percent would subject an

individual RRG to greater scrutiny during the financial review process. Likewise, a NPW to surplus ratio greater than 300 percent would subject an individual RRG to greater scrutiny. In certain cases, premium to surplus ratios in excess of those listed would be deemed appropriate if the RRG had demonstrated that a contributing factor to the higher ratio is relative improvement in rate adequacy. In regards to RRGs collectively, the ratios pertaining to premium written appear to be conservative.

Income Statement Analysis RRGs collectively reported a $63.8 million underwriting loss through third quarter 2014. The third quarter result was impacted heavily by the underwriting loss reported by ALAS due to the Contribution Agreement the company entered into. The

collective underwriting losses were offset by strong investment gains and other sources of income. RRGs reported an aggregate net investment gain of $209.4 million and a net income of $134.9 million. The loss ratio for RRGs collectively, as measured by losses and loss adjustment expenses incurred to net premiums earned, through third quarter 2014 was 80.2 percent, an increase over 2013, as the loss ratio was 68.5 percent. This ratio is a measure of an insurer’s underlying profitability on its book of business. The expense ratio, as measured by other underwriting expenses incurred to net premiums written, through third quarter 2014 was 20.6 percent and indicates an improvement compared to 2013, as the expense ratio was reported at 23.7 percent. This ratio measurers an insurer’s operational efficiency in underwriting its book of business.

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To learn more abouT eCHo H ea lT H , InC. , C o nTaC T m Ik e H Indo Today. moreabouT abouT eeCHo H ea lT H , InC. nTaC T mmIke Ik e HHI Indo ToTolelearn ar n more C Ho HealTH, InC .,, CCoonTaCT nd oToday. Tod ay. 440.249.0863 | info@ec hohe a lt hi nc . c om | ec hohe a lt hi nc . c om 440.249.0863 hohe a lt hi nc . c om | | ec hohe a lt hi ncnc.com . c om 440.2 4 9 . 0 8 6 3868| | Corporat ininfo@ec fo@e chohealthi chohealthi e Wa y, Wenc.com st la ke , oH e44145 Wa y, We st la ke , oH 8868 6 8 CCorporat orpora tee Way, Westlake, o H 44145 44145

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Combined Ratio

Loss Ratio

120%

Expense Ratio

100% 80% 60% 40% 20% 0% 2010 Q3

2011 Q3

2012 Q3

2013 Q3

2014 Q3

The combined ratio, loss ratio plus expense ratio, through third quarter 2014 was 100.8 percent and indicates a diminishment compared to 2013, as the combined ratio was reported at 92.2 percent. This ratio measures an insurer’s overall underwriting profitability. A combined ratio of less than 100 percent indicates an underwriting profit. Regarding RRGs collectively, the ratios pertaining to income statement analysis appear to be appropriate. Moreover, these ratios have remained fairly stable for each of the last five years and within a profitable range.

continue to provide specialized coverage to their insureds. The financial ratios calculated based on the reported results of RRGs appear to be reasonable, keeping in mind that it is typical and expected that insurers’ financial ratios tend to fluctuate over time. The results of RRGs indicate that these specialty insurers continue to exhibit financial stability. It is important to note again that while RRGs have reported net income, they have also continued to maintain adequate loss reserves while increasing premium written year over year. RRGs continue to exhibit a great deal of financial stability. ■ Douglas A Powell is a Sr. Financial Analyst at Demotech, Inc. Email your questions or comments to dpowell@demotech.com. For more information about Demotech visit www.demotech.com.

Conclusions Based on Third Quarter 2014 Results Despite political and economic uncertainty, RRGs remain financially stable and

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Prepare for the unexpected. Limit risk to your bottom line from unexpected insurance claims with our stop loss insurance. Please visit www.indigo-insurance.com/stop-loss for more information.

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45


SIIA

State Government Relations

SIIA Engaged at State Level to Protect Self-Insurance Marketplace The Self-Insurance Institute of America, Inc. (SIIA) prepares and disseminates to its members a weekly update on state government relations developments. We are publishing a recent report here to showcase the information provided for those association members who may not have taken the opportunity to read these updates and to show non-members what they are missing.

46

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MARYLAND

New Legislation Would Limit Employer Self-Insurance Options

S

IIA has mobilized to kill new legislation in Maryland that would harm the self-insurance marketplace in that state. This mobilization includes activating grassroots member advocacy and retaining a contract lobbyist with close ties to Maryland Legislature. Companion legislation introduced last week, House Bill (HB) 552 and Senate Bill (SB) 703, would dramatically increase minimum stop-loss attachment points and introduce new carrier reporting and disclosure requirements. Both bills propose increasing the minimum attachment point to $40,000 ($10,000 currently) and aggregate attachment to 125% (115% currently) for all stop-loss policies, making it extremely difficult for smaller businesses to self-insure. There is a provision allowing stop-loss policies written before January 1, 2015, to renew indefinitely under the current law. However, there are a few concerns. First, it is unclear what policy changes, if any, can be made at renewal. Second, since policies can only be renewed, a business cannot seek stop-loss coverage with another carrier without being required to buy coverage with potentially higher individual and aggregate attachment points. There are a number of new consumer protections in the proposed legislation. Stop-loss carriers would be lawfully required to: • Guarantee rates for 12 months without adjustment unless there is a benefit change in the health plan; • Pay claims submitted within 12 months of the contract’s expiration; • Disclose to the small employer: - The total costs of the contract - Provisions for contract renewal - The aggregate and individual attachment points - Any coverage limitations • File a form with the Maryland Insurance Administration every year by April 1st certifying company compliance with the law Members interested in supporting the association’s lobbying effort are encouraged to contact SIIA Director of State Government Relations, Adam Brackemyre at abrackemyre@siia.org right away. Both bills will be heard in hearings relatively soon. HB 552 will be heard on February 26th. SB 300 will be heard on March 4th so this is extremely time sensitive.


THOSE WHO IDENTIFY A POINT OF CERTAINTY

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FIND IT EASIER TO EXPLORE WHAT IS POSSIBLE.

It took a visionary company like HM Insurance Group to demonstrate stability and smart risk assessment for producers guiding their self-funded clients. We anticipate what others don’t see, and craft Stop Loss policies with the highest attention to detail. Because once a client is grounded in certainty, it inspires confidence and opens a world of possibilities. Learn more about our innovative approach to Stop Loss at hmig.com/InSights

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March 2015 | The Self-Insurer

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AIG Benefit Solutions

Bring on experience The benefits landscape is constantly changing. For generations, AIG Benefit Solutions has offered innovative solutions to help our clients meet their challenges and prepare for tomorrow.

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

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

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NEW YORK

Stop-Loss Legislation and Albany Day on the Hill

SIIA Continues to recruit members and other stakeholders to participate in a lobby day on March 11th in Albany, NY to push for passage of legislation (A. 1154/S. 2366) that will protect the state’s small group self-insurance market. All SIIA members are invited to participate, but we are particularly interested in those who do business in the state. The day will begin with a breakfast and briefing near the Capitol at the Albany Hilton. The bill sponsors have been invited as breakfast speakers. After breakfast, SIIA members and other interested parties will meet with influential Assembly Members, Senators, administrative staff and regulators. Meetings should conclude by early afternoon. SIIA will share additional details of the day’s schedule as they are available.

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

As previously reported, New York State prohibits insurance carriers from writing stop-loss coverage for “small groups.” Under current law, the largest “small employer” will increase from 50 to 100 effective January 1st, 2016, and employers of 51-100 will lose access to stop-loss insurance. This stop-loss ban can affect individual employers as well as employers insured through a captive. What A.1154/S.2366 will do is maintain the current state law and ensure no business loses access to stop-loss coverage. If you are interested in participating as part of this lobby day or would like more information, please contact Adam Brackemyre, SIIA’s Director of State Government Relations, at abrackemyre@siia.org.

MINNESOTA Stop-Loss

Legislation New stop-loss legislation has been introduced in Minnesota.

The two bills are House File (HF) 294 and Senate File (SF) 300. The legislation proposes to change the state’s law to require an individual attachment point that is the greater of $6,500 or twice the individual plan deductible and harmonize the minimum aggregate of 110% for all group sizes. SIIA has been in contact with the individuals who wrote the legislation, provided advice and the SIIA Government Relations Committee is now reviewing the legislation.

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

Stop-Loss FLORIDA Legislation

an article to The Self-Insurer!

On February 12th another stop-loss bill was introduced.

distributed in a digital and

House Bill (HB) 731 is legislation that contains a small provision changing the state’s aggregate attachment point minimum to the greatest of:

10,000 readers around the

SIIA’s official magazine is print format to reach over world. The Self-Insurer has been delivering information to the self-insurance/alternative

• Two thousand dollars times the number of employees;

risk transfer community since

• One hundred twenty percent of expected claims; or

TPAs, MGUs, reinsurers,

• Ten thousand dollars.

other service providers.

SIIA is working with contacts in Florida to urge the House Banking and Insurance Subcommittee of the Regulatory Affairs Committee to move the legislation. ■

1984 to self-funded employers, stop-loss carriers, PBMs and

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

The Self-Insurer also has advertising opportunities available. Please contact Shane Byars at sbyars@sipconline.net for advertising information. March 2015 | The Self-Insurer

49


Hospital Claim Payments – Due Diligence for Payers

H

ospital claims are typically the largest and most challenging risk for health plans and payers. Although clinical outcomes may be favorable, inappropriate billing practices and errors, significant inflation of charge and non-covered services may not be identified, resulting in excessive claim payments. Negotiated contract terms should be applied to correctly billed charges and using discounts alone is not an effective strategy to mitigate risk. Ensuring claim payment integrity either prospectively or retrospectively is a necessity which can be challenging due to the complexity and high level of detail inherent in hospital claims. Recent healthcare reform changes resulting in unlimited benefits increase the risk threshold from hospital claims. According to a 2011 report by the consulting firm Milliman, the average cost of health care for American families doubled from 2002 through 2011. Costs will continue to escalate, adding increased risks to payers and their insureds. In a recent Time Magazine article, journalist and author Steven Brill presented his very timely and provocative 11-page cover story, Bitter Pill. In his article, Steven Brill gives numerous examples of hospital charges:

Written by Jakki Lynch 50

The Self-Insurer | www.sipconline.net

“What are the reasons, good or bad, that cancer means a half-million- or million-dollar tab? Why should a trip to the emergency room for chest pains that turn out to be indigestion bring a bill that can exceed the cost of a semester of


college? What makes a single dose of even the most wonderful wonder drug cost thousands of dollars? Why does simple lab work done during a few days in a hospital cost more than a car? And what is so different about the medical ecosystem that causes technology advances to drive bills up instead of down? When we debate health care policy in America, we seem to jump right to the issue of who should pay the bills, blowing past what should be the first question: Why exactly are the bills so high?” This is a key point because if the chargemaster rates are significantly inflated, payers, even with the most leverage due to volume, are negotiating contractual discounts from potentially inflated chargemaster rates. The inflation of charge cannot be ignored as this can be as important as the accurate billing for the services received. Both impact the cost significantly. Hospitals should receive a reasonable margin over the cost of their services and payers should understand and monitor charge levels as well as billing practices.

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

What can be done to address these issues? By dissecting the medical bills, Brill says we can understand how and why we are potentially overspending and where the dollars are going.

Key considerations for payers include the following: Hospital charges – the financial significance According to the Centers for Medicare and Medicaid Services, hospitals are the largest segment of U.S. health expenditures at 31%. Payments to U.S. hospitals are expected to increase over 76% from $794 billion in 2010 to $1.4 trillion dollars annually in 2020.

Industry guidelines for hospital claims Hospitals submit claims using the UB-04 form which contains a summary of charges in categories and record formats defined by the National Uniform Billing Committee (NUBC). The NUBC was established to develop a single billing form and standard data set that could be used nationwide by institutional providers and payers for handling health care claims. The NUBC was formed by the American Hospital Association (AHA) in 1975 and it includes the participation of all the major national provider and payer organizations. The UB-04 form is summary data only. Hospital claims are typically paid based on the two or three page UB04 form only. The itemized detail of charges comprising the summary data is generally not requested or reviewed by payers. However, this is a critical piece. Often a series of errors can be uncovered by going beyond the summary data and doing a “deep dive” for details. In addition to the NUBC Guidelines, payers may also have their own supplemental guidelines for hospital claim payments including claim review policies, provider manuals, the definitions of covered and noncovered services and payment policies for distinct medical services.

Claim Reviews and Due Diligence An effective review of facility claims requires a flexible yet thorough process including coding and regulatory compliance as well as clinical expertise. Payers typically do not have these skill sets available as internal staff resources nor do they have the ability to devote the time

necessary for an in-depth review. The payer’s provider agreements should also be considered to ensure that payment guidelines are specified and payment integrity practices confirm the right to review claims based on industry standard and plan specific references. The selection of claims for review should be based on recognition of the amount of the requested contracted payable and the financial risk. In and out of network claims should be considered for review prior to payment based on the pre-audit payable amount of $150,000 or more.

The following case studies demonstrate the importance and financial significance of performing facility claim reviews: Case Study – Claim Review #1 • Prospective Payment Review • Payable Charges without Review: $2,005,998 • Payable Charges After Review: $1,611,191 • Claim Review Savings: $394,807 – 19.7% Claims were incurred for twin preterm babies with 4 month inpatient NICU stays. The health plan received the medical records prior to claim payments. The specialty clinical and coding compliance teams identified significant room and board acuity adjustments based on the NUBC Guidelines. The billed room charges were not consistently supported by documented nursing resources received by the babies. The claim payments were prospectively adjusted to address the overstatement of patient acuity and related daily room and board charges for selected dates of service. The facility agreed with the recommended payment adjustments. March 2015 | The Self-Insurer

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Case Study – Claim Review #2 • Retrospective Payment Review • Payable Charges Without Review: $2,366,414 • Payable Charges After Review: $1,039,742 • Claim Review Savings: $1,326,672 – 56.1% An adult was admitted to the ICU for transplant evaluation and surgery. Pharmacy charges comprised 54% of the claim. The claim review team clinicians evaluated the reasonableness of units charged for a pulmonary vasodilator which was administered throughout the stay. Based on the prescribed dosage and a daily assessment of medication administration, the clinicians identified a billing error of $1.3 million which the facility agreed to refund since the claim had already been paid by the health plan. The refund was obtained even though the payer waived the right to audit as a condition for a 50% discount under the terms of the single case agreement.

Case Study – Claim Review #3 • Prospective Payment Review • Payable Charges Without Review: $135,159 • Payable Charges After Review: $95,042 • Claim Review Savings: $40,117 - 29.7% An adult with a genetic metabolic disorder received outpatient specialty drug infusions. The payer had access to a 50% contractual discount. The unit price of the drug was evaluated based on estimated facility cost and margin benchmarking.

The pre review contracted amount payable resulted in a markup of approximately 422% over the facility’s cost. A case specific carve out rate was negotiated for this patient based on a reasonable margin for the facility as well as recognition of ongoing health plan exposure for the treatment. Annual claim savings from the review were approximately $321,000. Although the payer had a significant contractual discount, it did not reasonably address the high charge level for this specialty drug. These case studies demonstrate that an effective claim review process needs to be thorough, supported by experts with a broad range of subject matter and clinical expertise with the results communicated effectively and professionally to providers. The reviews should be based on a claim specific risk management perspective rather than a standardized formula

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Would you climb a mountain without a guide?

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

Healthcare is complicated. As a risk management expert, Berkley Accident and Health can guide you in the right direction. Our creative, nimble approach to risk, backed by the strength of a Fortune 500 company, gives us a unique perspective. Count on Berkley to show you the way. Stop Loss | Group Captives | Managed Care | Specialty Accident Insurance coverages are underwritten by Berkley Life and Health Insurance Company and/or StarNet Insurance Company, both member companies of W. R. Berkley Corporation and both rated A+ (Superior) by A. M. Best. Coverage and availability may vary by state. ©2015 Berkley Accident and Health, Hamilton Square, NJ 08690. All rights reserved. BAH AD-2014-0140

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based approach. References to support claim review adjustments should be transparent and based on accepted industry standards.

Resources for Hospital Claims Due Diligence Some companies may utilize a partner to implement effective claim reviews with optimal financial outcomes. Successful resolution of the review findings with a facility is an important detail to highlight as this process requires a special skill set to address the discoveries as well as time to come to an agreement. It is important that during this course, payers hold firm as successful settlements are about patience and persistence for a positive mutual outcome. ■

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

Jakki Lynch BSN, RN, CCM, CMAS is Vice President, Clinical Director, Critical Response Team, PULSE + Plus™, the medical management program for PartnerRe Health. Jakki developed PULSE + Plus™ - a unique program to assist health plans with the complex tools and expert resources needed. The PULSE + Plus™ resources are customized for each payer’s needs to achieve significant savings with no impact on provider relationships, patient balance billing or additional staffing requirements. The PULSE + Plus™ team has significant experience supporting health plans providing collaborative and consultative solutions.

March 2015 | The Self-Insurer

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Knowing Whether an Enterprise Risk Captive Makes Sense for Your Company

E

nterprise Risk Captives (ERCs) have become increasingly popular self-insurance solutions for smaller and mid-sized, closely-held companies. Also known as Micro-captives or 831(b) captives, ERCs are small insurance companies (up to 1.2 million in annual premium) that are used to insure a variety of risks, including deductibles for self-insured and fully-insured arrangements. These captives can offer risk management, estate planning and tax advantages. But like all other major business decisions, undertaking appropriate due diligence is critical to determine whether establishing an ERC makes sense for your company. Since most companies considering ERCs typically work with captive managers and/ or other consultants as part of the evaluation process, it is important to know what questions to ask. In this regard, the Self-Insurance Institute of America, Inc. (SIIA) Alternative Risk Transfer Committee developed the following questions, divided by category, which companies are encouraged to ask their captive manager and/or other business consultant as part of any ERC evaluation process. This committee is comprised of recognized experts involved in captive insurance marketplace. Please note that this list of questions should be not considered exhaustive, but simply offered as a resource for companies assessing this self-insurance solution. Learn more about SIIA at www.siia.org.

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Suggested Questions Feasibility ? What makes our company a good candidate? ? How does this help our company manage risk? ? Will there be an initial feasibility study, and is there a separate fee for it? ? What is the capital requirement? ? Can you provide a financial model with all projected fees and expenses?

Insurance Program ? How will we select/underwrite risks? ? Who sets premium and how is this done?

Annual Underwriting Review with Re-Rating ? What kind of claims activity do you expect and what will the process be for managing them?

Risk Distribution ? How will our company achieve risk distribution/what mechanism? ? How is our company protected from excessive pool losses? ? What amount of third party risk do you deem acceptable and why? ? Do you own/operate/manage your own pool? ? How does your risk pool operate? (the basic terms and provisions)

Relationship with Captive Manager ? How long have you been in the business and how many captives do you manage? ? Can I see the engagement agreement in advance? ? Are you supporting professionals in-house or independent?

Exit Strategy ? Do you help design my exit strategy?

Domicile Issues ? What domiciles do you recommend and why?

Insurance Program ? Do you restrict or manage the risks in the program? ? Will there be any third party liability exposures?

Underwriting or Costs ? What factors will be most important on underwriting and what are their related cost factors? ? How does this break down and compare with other options?

Relationship with Captive Manager ? What is the role, responsibility, experience of the captive manger?

Exit Strategy ? What issues should I be considering now that may affect the difficulty or ease of transitioning to a different risk management solution? ? Are there any particular timing issues I should be aware of? ? Are there any program details or structure criteria I should consider now for ease of exiting the program in the future? ? What considerations should be given to developing an exit strategy?

Transparency for Participants and Claims ? Is pooled risk compatible with my risk? ? Is there a tax opinion letter? ? How much information will I receive on claims filed by others? ? What information will I receive on the other pool participants? â&#x2013;

? How are the insurance policies structured (the basic terms and provisions)

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Other Comments from ART Committee Members Feasibility ? How does this compare with other risk management options that I may consider?

Insurance Program ? How do I make sure this program will have all criteria necessary for me to comply with applicable law? ? Are there any nuances or issues I should consider for the insurance program based on the states I am doing business?

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

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

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

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

Committee Chairs ART COMMITTEE Jeffrey K. Simpson Attorney Gordon, Fournaris & Mammarella, PA Wilmington, DE GOVERNMENT RELATIONS COMMITTEE Jerry Castelloe Castelloe Partners, LLC Charlotte, NC HEALTH CARE COMMITTEE Robert J. Melillo 2nd VP & Head of Stop Loss Guardian Life Insurance Company Meriden, CT INTERNATIONAL COMMITTEE Robert Repke President Global Medical Conexions, Inc. Novato, CA WORKERS’ COMP COMMITTEE Stu Thompson Fund Manager The Builders Group Eagan, MN *Also serves as Director

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SIIA New Members Regular Members Company Name/ Voting Representative Tiana Brajkovich Business Development Specialist Avalon Insurance Company Harrisburg, PA Lauren Metsig Senior Director of Marketing Maestro Health Highland Park, IL Sawyer Clark Senior Marketing Specialist MaxorPlus Ltd. Amarillo, TX Regis Bernardi National Sales Director Pharmacy Benefit Dimensions Buffalo, NY Nancy Lee Medical Stop Loss Specialist Physicians Insurance Seattle, WA Norman Chandler, CPA TaylorChandler LLC Montgomery, AL Todd Heiserman Exec. Director Reseller & TPA Sales Teladoc Dallas, TX Troy Cook VP-Sales/Business Development Telligen West Des Moines, IA

Silver Members Andrew Kuykendall Alt. Funding Strategy Consultant Neovia Integrated Ins. Services Pasadena, CA David Miller President Nueterra Global Alliance Nueterra Leawood, KS

Employer Members Stan Harris, President & CEO Louisiana Restaurant Association Self-Insurer’s Fund Metairie, LA Gaston Reinoso Executive Director Louisiana State University Baton Rouge, LA


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