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March 2016


Engineering a Healthier


Onsite clinics, coupled with ownership culture, lead the way at Schweitzer Engineering Laboratories


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


4 Engineering a Healthier


Onsite clinics, coupled with ownership culture, lead the way at Schweitzer Engineering Laboratories

Volume 89


Captives No Longer Eligible for FHLB System Membership


INside the Beltway ERC Group Initiates Campaign to Address Federal, State Issues


OUTside the Beltway SIIA Members Learn Practice Pays in Effective Government Relations


How to Leverage Health Benefits Supplemental Plans, HSAs Fill Coverage Gaps, Incent Patients

Bruce Shutan

EDITORIAL ADVISORS Bruce Shutan Karrie Hyatt

March 2016

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All’s Fair in Love & Subro...


PPACA, HIPAA and Federal Health Benefit Mandates IRS Notice 2015-87 Provides Much Needed Guidance for Account-Based Plans and ACA Employer Shared Responsibility Requirement (IRC 4980H)


Winds of Change Blowing Strong in 2016


SIIA Endeavors 2016 International Conference in San José is the Center of All That is Costa Rica

The Supreme Cour t

CHALLENGES Our Current Understanding of

“Fairness” Christopher Aguiar

March 2016 | The Self-Insurer


HEALTHIER WORKPLACE | FEATURE Adds Keith Gautreaux, M.D., medical director of the company’s two onsite clinics: “The holy grail of medicine is to have healthy people, not to treat illness. At SEL, we take the long view that if we can achieve that, then we end up saving money.” Examples include increasing influenza vaccination rates and sending home employees who are diagnosed with the flu with guidelines about when to return to work. He says this policy will protect co-workers from an epidemiologic standpoint and prevent more absences.

we’re a pretty young workforce,” she reports, noting the average age of covered employees is 39 and the total number of covered lives is 28. “We’re a growing organization and we didn’t have any large, specific demographics that we were trying to necessarily address.” SEL has 104 sales and support offices worldwide, with slightly more than half located in the U.S. The company has doubled in size within the past five years, with a large percentage of employees joining since then. Of 3,167 U.S. employees, 98% are eligible for health insurance through SEL’s self-insured plan. When factoring family members into the mix, there are roughly 6,300 covered lives.

Moving the Needle It was during the company’s 2012 transition from a fully insured to selffunded health plan that management developed a better understanding of health care and insurance. Accompanying that vision was a growing appreciation for the benefits of having onsite clinics to elevate health outcomes and cost containment.

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SEL saw a 25% cost savings during that transitional year alone. Overall health care savings traced to the first onsite health clinic are $998,545, including more than $142,700 saved in terms of avoiding absences and more than $150,230 saved in employee copays. These estimates are deemed on the conservative side. While onsite clinics weren’t built to solve a specific problem per se, Beehler says employee ownership fosters an innovative spirit that has been bottled and applied to this area. SEL has an employee stock ownership plan with a 100% contribution from the company, a 401(k) plan without a company match, onsite fitness facility and childcare center. All of these benefits are credited with helping drive the ongoing quest for better health and deeper savings. “From a corporate perspective,

The Convenience of Clinics The company’s first onsite clinic opened in a spare office in a manufacturing facility in Pullman, Wash., in 2013, before moving and expanding to SEL’s Family Center in March 2015, to keep up with demand and accommodate dependents. The clinic is staffed by one physician, three nurse practitioners, two registered nurses, a certified medical assistant, a receptionist and interns who assist nurses and the reception area. “We were booking appointments one to two weeks out and seeing patients constantly between 7 a.m. to 7 p.m. all day,” Beehler reports. “The addition of two more patient rooms just for employees would double our amount of patients we could see and if we were going to build, why not make it open to families too? We had been receiving requests for families since the day we opened.” There have been more than 5,000 patient visits to the clinic so far. Services include physical examinations, vaccinations, weight management, health screenings and laboratory testing. It also features an electronic medical record system. A second onsite clinic was about to open in the company’s Lewiston, Idaho, facility as this issue went to press. While space was included for the 1,225 squarefoot clinic when construction of an addition to the Lewiston facility began in 2012, management delayed its opening until the number of employees and family members reached critical mass. There are now nearly 300 employees in Lewiston, which is about 40 miles from the company’s main campus in Pullman. A provider from the Pullman clinic will rotate at the Lewiston clinic two days March 2016 | The Self-Insurer


HEALTHIER WORKPLACE | FEATURE a week, while a full-time registered nurse will be available as the facility increases its capacity. Plans are also in the works to offer the Lewiston site telemedicine visits. “Our Pullman clinic has been an overwhelming success and we’ve received so much positive feedback from our employees, including many from Lewiston who’ve made the 32 mile drive to visit the doctor and nurses here,” according to Beehler. While many onsite health clinics began emerging 15 to 20 years ago as a means of dealing with occupational health and workers’ compensation, Beehler says SEL’s facilities address these areas, but it’s not a primary focus. Instead, a decision was made to spotlight the health and wellbeing of employees and later on, their family members. When SEL began researching onsite health clinics, the company


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approached various vendors but decided to run its own operation. “I think that’s pretty unique to the industry,” Beehler observes. The influence of employee ownership is inescapable. “Being 100% employeeowned, our providers are also employee owners, which gives them the ability to really engage in what they’re doing and take control of managing the health clinic in a whole new way that other providers at other community clinics can’t do,” she explains. “They want to use our dollars wisely and treat patients quickly” so they can return to work faster. In fact, she quips about the patient waiting room being the smallest space in the entire clinic. Employees are thought to save about an hour by visiting the onsite health clinic vs. another facility in the community.

“Everybody knows happy, healthy employees are more productive and more engaged in the organization,” Beehler notes. In just its first 10 months of operation, the health clinic paid for itself and was 100% sustainable in that first year. For 2016, we’re projecting a 2:1 ROI. So ultimately, for every dollar we spend, we’re saving two.”

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The Freedom of Free Care Perhaps the most surprising or noteworthy aspect of SEL’s onsite clinics is that they’re completely free to employees and their dependents. The thinking is that every dollar saved for one of SEL’s employees also benefits the company. “They just have to be on our health plan to utilize the health clinic,” Beehler explains. “There’s no co-pay, so I would say that’s an incentive.” Having access to free onsite health care reiterates the prevailing sense of employee ownership and pride that people take in working at SEL by returning the savings it generates, but she says it also helps attract and retain top talent.

Bruce Shutan is a Los Angeles freelance writer who has closely covered the employee benefits industry for 28 years.

As SEL devotes additional resources to its onsite health clinics and cements its commitment to population health, she says the objective is to retain a healthy workforce “that is going to grow with us” as the employee population ages. Gautreaux is proud of the more systematic clinical approach SEL has adopted. “What I like about the freedom of an onsite health clinic, particularly at SEL, is that we can do those innovative things without being beholden to traditional pay structures” or office visits, he explains. He’s sanguine about the prospect of telemedicine and additional avenues of care delivery that have yet to be fully explored.

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There’s no doubt that dialogue is a linchpin for success on a number of levels, whether it’s delivered in person, on the phone or through devices. Beehler believes the importance of communication is sometimes overlooked when addressing employee health and wellbeing, which can spark confusion and fear. “There are always questions when you do new things and having people understand the separation of confidentiality within the health clinic vs. your employer” is critical “so that people can immediately trust the providers they’re going to,” she explains. One obvious correlation between better employee engagement and lower costs is the convenience of onsite clinics. “The nice thing about the SEL health clinic is that they offer same-day appointments, you don’t have to leave campus or be away from work long and there’s no co-pay,” according to Karen Hess, a business coordinator in SEL Information Services. ■ March 2016 | The Self-Insurer


Captives No Longer Eligible for FHLB System Membership


n early January, the Federal Housing Finance Agency (FHFA) released official changes to the rules governing membership in the Federal Home Loan Bank (FHLB) system. The new rule bars captive insurance companies from membership eligibility in FHLBs. It took effect in February.

About the FHLB System The types of captives that are affected by the rule change are those owned by real estate investment trusts (REITs) – private or publicly held companies that own or finance income producing real estate. By themselves, REITs are not allowed membership into the FHLB system, but they can access the system through their captives. As FHLBs can generally offer better terms than traditional banks and bond markets for dependable funding, it can be an important source of liquidity for the alternative risk transfer market.

Written by Karrie Hyatt 10

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Insurance companies have been accepted as members in the FHLB system since it was established in 1932 by Congress. It was created to be a steady source of funding in the housing market through good and bad economies and is a cooperative system made up of eleven regional lending institutions that are owned by their members – more than 7,500 financial institutions in the United States – and is regulated by the federal government. FHLB regulating has been

governed by the FHFA since 2008 when that agency was created through the Housing and Economic Recovery Act of 2008. The eleven FHLBs are conservatively managed with a longterm view of financial investments. Because they are cooperatives, they reinvest any profits, keeping costs low. Small financial institutions and community banks rely on loans from FHLBs to help maintain liquidity. The FHLB system is worth over $800 billion and, after the U.S. Treasury, is the biggest U.S. bond borrower. According to a speech made by the FHFA director, Mel Watt, in May 2014, loans made by FHLBs to insurance company members increased from one percent in 2000 to 14 percent in 2013. While insurance companies have always members been in the FHLB system, they now accounted for a larger portion of the loans awarded. The growth in member insurance companies receiving loans is reflected in the growth of the insurance sector in the overall financial marketplace. Watts cited lingering concerns about the health of the insurance marketplace after the financial fallout in 2008. When the changes were first proposed, Watts indicated that the new rules were meant to make sure that FHLBs can continue to safely support the housing financing marketplace.

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Membership Rule Changes The changes that were proposed on September 2, 2014 included establishing a “quantitative test” requiring all members to hold at least one percent of the assets in home mortgage loans on an on-going basis; required certain members subject to ten percent residential mortgage loans adhere to the requirement on an ongoing basis; clarified the definition of

an insurance company’s primary place of business to determine regional membership; and defined “insurance company” as a company that primarily underwrites insurance for nonaffiliated third parties. When the proposed changes were released, a 60 day comment period opened. However, the comment period was extended and closed in early January 2015. The FHFA received more than 1,300 responses both for and against the proposed changes. The captive industry rallied to oppose the changes with several captive associations weighing in on the topic and encouraging their members to comment. After a full year the FHFA finally released its update to the membership rules for the FHLB on January 12, 2016. Two parts of the proposed rule that are being implemented is the section concerning captive insurance companies and defining an insurer’s primary place of business to determine regional membership. FHLB membership rules now include a definition that explicitly excludes captive insurers. Not implemented were the sections pertaining to members retaining minimum levels of investment in specified residential mortgage assets. Captives that were members prior to September 2, 2014 have five years in which to withdraw from the FHLB system. Captives that were admitted after that date have one year in which to terminate FHLB activity. In a FAQ issued by the FHFA on the same day as the ruling was announced, it was indicated that captive insurers could be circumventing the “Bank Act.” The statement went on to explain, “The number of entities that are otherwise ineligible for membership in a FHLBank establishing captive insurance

subsidiaries as conduits to get low-cost FHL Bank funding for the ineligible entity has increased considerably in recent years... FHFA is concerned that this practice will continue to grow and there is no reason to believe it will not grow to include entities other than REITs, such as hedge funds, investment banks and finance companies, some of which have already inquired about establishing captives to gain access to the FHLBank System.”

More Than 1,000 Comment Letters In the comment letters received by the agency, banks, credit unions, insurers and housing associations were primarily concerned with the parts of the proposed rules not implemented – the financial requirements. The argument being that the requirement would be a hardship to small banks, limiting liquidity at a time when it is more necessary than ever. Insurance companies, such as life or health insurance companies, argued against the requirement that the majority of a company’s interests be in home loans. Community housing associations were also very vocal, arguing that while they themselves are not members, imposing such rules would impact their ability to provide affordable housing. Besides the consistent argument against investment requirements, many commenters supported the continued membership of captives. Overall, the letters decried the idea of limiting membership at a time when liquidity in the housing market seems to be drying up. One letter, submitted by Professor Elliot A. Spoon, a former independent director for the Indianapolis FHLB and a professor at Michigan State University College of Law, summed up the opposition to the proposed rule succinctly, “This proposal is truly a solution in search March 2016 | The Self-Insurer


of a problem. While I am sure the proposal was made with the best intentions, it is theoretically-driven without regard to the facts on the ground. This proposal will not solve any particular problem, but has the capacity to do great harm to a Home Loan Bank System that continues to flourish precisely because it has proven to be flexible to meet the changing liquidity needs of its members and the mortgage market. No proposal that will reduce membership, reduce liquidity access and create uncertainty should be adopted.”

FHLB Bank Presidents’ Conference The Bank Presidents’ Conference (BPC) of the eleven Federal Home Loan Banks put together a working group late last spring to define membership parameters for captive insurers in the FHLB system in direct contrast to the proposal set forth by the FHFA. The working group came up with a framework that would establish criteria for captive insurance companies seeking membership. In July 2015, each of the eleven regions submitted to the FHFA letters in support of captive insurance company membership into the system along with the framework that was developed. The letters submitted by the presidents use much of the same boilerplate text and each regional president included the following statement in their letter : “The BPC believes that continuing to permit captive insurance companies to access the FHLBs is important to support the evolving housing finance market and fulfill the FHLB’s mission... [REITs], particularly those investing in mortgage assets [MREITs]... are increasingly important participants in the mortgage market. Permitting continued access to captives sponsored by REITs, including MREITs and other housing-related entities, would assist in fulfilling the statutory mandate of the FHLBs and supporting the expansion of housing opportunity and liquidity in the United States.”

Legislative Action In opposition to the FHFA’s proposed membership rules, Rep. Blaine Luetkemeyer (R-MO) introduced into Congress last October H.R.3808 (To require the withdrawal and study of the Federal Housing Finance Agency’s proposed rule on Federal Home Loan Bank membership and for other purposes). By January, the bill had 45 cosponsors. The Bill is simple enough. It requires only that the FHFA withdraw its proposed membership rule change and requires that the Government Accountability Office report to Congressional committees on the impact the rule would have on the FHLB system. The bill was introduced on October 22, 2015 and was then referred to the House Committee on Financial Services. No further action on the bill has been taken at this time. On the day that the FHFA’s released the rule changes, Rep. Luetkemeyer issued a statement on his official website. “While I am pleased with parts of the final rule, I am disappointed that it forces captive insurers out of the Federal Home Loan Bank system. It is Congress, not FHFA, which has the authority to set membership standards for the system. Not only is this a blatant violation of the rule of law but it is a decision based on little evidence or analysis,” he says in the statement. “We must ensure that decisions impacting our housing system are made in a thoughtful and educated manner and make sure that entire segments of industry are not exiled from participation in the Federal Home Loan Bank system.” 12

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Recourses Other reactions have been equally dissatisfied with the FHFA’s ruling. According to Mike Teichman, a partner with the law firm of Parkowski, Guerke & Swayze, P.A, “Notwithstanding the 1,000 or so comment letters opposing the rule change, the FHFA was unpersuaded b the many arguments against the rule. We don’t know why they have dug in their heels, but we understand that they are expecting litigation over the new rule and have decided not to grandfather existing captives in order that they are not accused of taking inconsistent positions with different captives and captive owners.” At this time it is unknown if or from which quarter legal action will come. In all likelihood, legal action will come directly from REITs themselves, with the support of the larger captive community. Any legislative intervention by Congress will likely be stalled due to the current election cycle. ■ Karrie Hyatt is a freelance writer who has been involved in the captive industry for more than ten years. More information about her work can be found at www.karriehyatt.com.


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the Beltway Written by Dave Kirby

ERC Group Initiates Campaign to Address Federal, State Issues


broad-based campaign to support enterprise risk captives (ERC) across the spectrum of federal and states-based legislation and regulation was initiated in a special meeting of SIIA’s ERC Working Group in Washington, DC. ERCs are those captive insurance companies formed primarily by owners of small to medium-sized businesses to protect against unusual – but potentially devastating – risks for which traditional insurance is not available or inordinately expensive. Many ERCs make an election under Internal Revenue Service code section 831(b), recently amended in legislation that becomes effective in 2017, that allows an insurance company to receive annual premiums up to $2.2 million free of federal taxation. The ERC Working Group was first organized in late 2014 to serve as an advocate for ERCs. In February 2015, when the Senate Finance Committee drafted legislative language that SIIA believed would damage the ability of smaller businesses to use ERCs to protect against potential risks, the ERC Working Group mobilized. SIIA then submitted to Congress several drafts of suggested language. While the 2015 end-of-year “tax 14

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extender” bill ultimately included language that will impact captive formation and operation in its limitations on familial ownership, new asset valuation reporting and other definitional changes, it also includes other opportunities for the industry to better evolve, including increasing the allowable annual premium to $2.2 million from $1.2 million. “We set out both short- and longer-term objectives for our ERC support campaign,” said Jeff Simpson, chairman of SIIA’s Alternative Risk Transfer Committee and of the ERC Working Group. “Our immediate urgency this year will be to gain clarification from Congress and the IRS in how the new small captive rules will be interpreted and implemented. Clarity will be needed for operation of all ERCs beginning next January 1.” The Working Group sketched out an approach to Congress and the IRS that will become tactical and more proactive in the coming months. “We have successfully facilitated meetings for our ERC group with the Senate Finance Committee and other Congressional venues, as well as with key members of the Treasury Department and IRS and we look forward to continuing to do that,” said Ryan Work, SIIA’s Vice President of Government Relations, who organized the ERC Working Group meeting. Another point of urgency for supporting ERCs is the current tax court case, Avrahami vs. Commissioner. This is the first court case that tests IRS interpretation of rules governing ERCs. Testimony has been completed and briefs filed – including an amicus brief by SIIA – and a decision is anticipated by summer.

“That case will have a great bearing on both operation and regulation of ERCs in the future and it will provide focal points for SIIA advocacy of additional protective legislation or regulatory relief,” said ERC Working Group chairman Simpson.

Jarid Beck


A longer-term objective of the ERC support campaign will be to strengthen the standing of ERCs among the insurance industry, the business community and the general public. “If we can raise the level of appreciation for the many positive aspects of ERCs, that will go a long way in making them better understood by lawmakers and regulators,” Simpson said.

Risk Management Associates

Bill Buechler Crowe Horwath

Doug Butler MIJS

John Capasso

Captive Planning Associates

Kevin Doherty Nelson Mullins

Park Eddy

Active Captive Management

Rick Eldridge

The Intuitive Companies

Martin Eveleigh Atlas Captives

Sandra Fenters

Capterra Risk Solutions

Adam Forstot USA Risk

Matt Holycross The Taft Companies

The ERC Working Group also addressed the importance of extending support for small captives to state legislators and regulators. States collectively present a highly complex environment that includes those which serve as captive domiciles, those that appear uninterested in the captive industry and those that actively oppose captives. The wild card in dealing with state insurance regulation is the National Association of Insurance Commissioners which has exhibited resistance to captives.

Matthew Howard

“Think of our job in supporting captives in the federal government and multiply that by 50 states, plus the District of Columbia and U.S. territories,” said Adam Brackemyre, SIIA’s Vice President of State Government Relations.

Bingham, Greenbaum, Doll LLP

The ERC Working Group also discussed a potential initiative between SIIA and state regulators to establish “best practices” for regulating ERCs. “The more that industry and the states coalesce around sound ERC operational standards, the better it will be for all parties, including the IRS, which has been skeptical that sound practices are being applied to ERC operation and regulation,” Simpson said.

Josh Miller

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A publicity campaign will also be undertaken by SIIA to create more positive coverage for ERCs in order to better tell the positive story of how 831(b) and the industry in general are making a difference. “This campaign demonstrates the fact that SIIA is the only industry organization that offers members the capability and willingness to support small business captives with government at all levels,” Simpson said. ■ SIIA member inquiries about this or other federal government relations issues are welcome to contact Ryan Work at rwork@siia.org or (202) 595-0642.


Jeremy Huish Artex

Keith Langlands

Synergy Captive Strategies

Chaz Lavelle Jerry Messick Elevate Captives KeyState

Kevin Myers Oxford

Michael O’Malley Strategic Risk Solutions

Kerrie Riker-Keller The Intuitive Companies

Mathew Robinson Wilmington Trust

Dana Sheridan

Active Captive Management

Jeff Simpson

Gordon, Founaris & Mammarella, PA

Robert Vogel ProGroup

March 2016 | The Self-Insurer



the Beltway Written by Dave Kirby

SIIA Members Learn Practice Pays in Effective Government Relations


uring college basketball’s “March Madness” tournaments success usually rewards the teams whose performance is peaking during the final days of the season. That usually means the teams that have continued to improve through their grueling schedule, applying the benefits of their game experience and practice sessions. A similar process could apply to many endeavors that don’t require sneakers and baggy shorts – things like cultivating good relations with government bodies whose decisions can affect one’s business. Many SIIA members have sharpened their focus

on government processes and learned how to effectively advocate for favorable decisions about issues that affect self-insurance.


“We are seeing a notable improvement

in members’ abilities to conduct grassroots advocacy, particularly in states that are grappling with issues such as stop-loss insurance, which is an absolute necessity to many employersponsored benefit plans,” said Adam Brackemyre, Vice President of State Government Relations in SIIA’s Washington, DC, office.

“In some instances we’re getting spontaneous reports of emerging state issues along with members’ contacts with their involved elected officials,” Adam noted. “This means to us that members’ continuing efforts in government relations are making them more effective advocates.” One recent example was that of an Oklahoma bill which appeared to lower the minimum aggregate attachment point of stop-loss policies from the current 120% to 110% of expected claims. That puzzled many observers because it would run counter to the usual attempt by some states to raise minimum attachment points. SIIA’s State Legislative/Regulatory News bulletin of February 1, reported the introduction of that bill to members. Some members responded immediately with their intentions to follow up on the bill just two days later a member passed along a report citing a responsible regulatory staff member to say that the phrase about aggregate stop-loss attachment points was a drafting error and would be addressed. “This quick response initiated by a SIIA member was indicative of a smoother, more effective government relations process,” Brackemyre said. “It gave us confidence that our members


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March 2016 | The Self-Insurer


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are following the advice to make friends in government before we need them.” One SIIA member who followed up on the stop-loss bill was Barry Koonce in American Fidelity’s Oklahoma City office. He said that government relations involvement activities are an ongoing practice in his company. “We feel we have good relations with the Oklahoma House and Senate as well as the Insurance Commissioner’s office,” Koonce told The Self-Insurer. “We have taken time to get to know the key people and we feel we can have a dialogue with them about important issues.”

“In our state it appears that the legislators, regulators and industry all work together on the objectives of protecting consumers and maintaining a fair and business friendly environment. As a result, we enjoy a degree of market freedom that serves the economy and taxpayers,” he added.

Oklahoma is just one current example of the stop-loss industry’s ability to effectively advocate for its interests. “Over time we have been gratified to see improved government outreach among SIIA members in many states,” Brackemyre said. ■ SIIA members who wish to join the state government relations team are invited to contact Adam Brackemyre at the Washington, DC, office, (202) 463-8161 or abrackemyre@siia.org.

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How to Leverage Health Benefits Supplemental Plans, HSAs Fill Coverage Gaps, Incent Patients


ignificant medical advances mean more Americans are surviving catastrophic illnesses or episodes such as cancer, heart disease, heart attack and stroke. But rising out-of-pocket costs are complicating recovery – and life – as more people enroll in high deductible health plans (HDHPs). Fortunately, there are solutions at hand for self-insured employers seeking to forge more of a partnership approach to health plan management with employees and their families. A core buy-up approach involving supplemental healthcare benefits such as critical-illness and accident policies ensures that employees have a baseline financial protection moving forward. It also provides them with a vested interest in and better understanding of, self-insurance. Moreover, having access to nurses and claims staff associated with these plans can help employees make better decisions and therefore, potentially mitigate costs or claims.

Written by Bruce Shutan 20

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“People need to make tradeoffs to cover their out-of-pocket expenses, whether it’s putting off a vacation or a major purchase, such as a new roof on their house or a new car,” observes Bryan Burke, director of product management and development at Sun Life Financial. Other unfortunate scenarios or outcomes include incurring debt, draining life savings, filing for personal bankruptcy, experiencing a foreclosure, or borrowing money from family or friends.

Self-insured employers can help their employees avoid these pitfalls by offering supplemental or ancillary insurance products to offset these expenses and add a critical layer of financial protection. This strategy also can shield health savings account (HSA) balances from catastrophic events and enable employees to leverage the power of these accounts over time.

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Eyeing Fixed Costs Helping employees leverage their benefits portfolio to help plug medical coverage gaps is considered a recruitment and retention tool at Siddons-Martin Emergency Group, which sells ambulances, fire trucks, police cars and command vehicles across Texas, Louisiana and New Mexico where 14 service centers also do repairs on those vehicles. “The majority of our customers are governmental entities – fire departments, police departments, cities and towns – so we end up recruiting mechanics and technicians” from those avenues, says Jeff Keiser, EVP of Siddons-Martin Emergency Group, which has grown over the years and is actively hiring. “One of the things we found was that we had to be a little more aggressive on what we did from a benefits standpoint.” To help boost participation in its HDHP, which is 45% compared to 55% in the PPO, Siddons-Martin pays 100% of the coverage once employees meet their annual deductible, whereas it’s 90% for the PPO, whose total out-of-pocket costs exceed the HDHP. The company also kicks in more money on HDHP monthly premiums, which average just $45 per employee compared to about $120 for the PPO. “I’m a personal proponent of the high deductible plan and an HSA because I feel like it gives a lot more finality to exactly what you are going to spend in health care dollars,” Keiser says.

Plugging Holes The Great Recession of 2008 and the Affordable Care Act have driven interest in supplemental insurance products, which Burke reports are trickling down market to smaller groups. While they’re increasingly being offered on an employee-pay-all voluntary basis, he says employers can help boost plan participation by making a modest contribution toward criticalillness or accident insurance premiums as companies shift to HDHPs. It’s a worthy investment, Burke believes, considering premiums for these supplemental health products are only about $200 to $300 a year – at least in the case of critical illness. And with $10,000 or more of benefits, depending on the plan design, he says “it really gets employers a big bang for their buck.” Employees, of course, always have the option of buying up more supplemental benefits coverage as their needs change over time, which is relatively easy to do when premiums are so low. From a strategic business standpoint, any corporate willingness to subsidize part of these product premiums can foster goodwill and loyalty, raise morale and help recruit and retain top talent. “In a lot of ways, going to a high deductible health plan can feel like they’re taking something away,” Burke explains. He believes offering supplemental insurance to offset rising medical expenses and communicating the importance of filling coverage gaps can help ease this transition as more employees shoulder greater health care costs. At Siddons-Martin, 215 employees and an estimated 165 dependents can choose between a PPO and HDHP, while the company matches up to $750 of each employee’s annual contribution to an HSA, whose account balances average about $1,280. Annual deductibles are

$2,500 for employee-only coverage and $5,000 for family coverage. In addition, dental and vision plans are offered on a 100% voluntary basis and life insurance that’s one times base salary, as well as short- and long-term disability policies. When Keiser was hired, one of his first was to re-evaluate the fully insured health plan, which predated a 2011 merger between two separate companies. A decision was made to self-insure through a Cigna administrative services only arrangement featuring a fixed cap each month, regardless of the firm’s claims history, which became a fully selfinsured plan in 2012 with Sun Life as the reinsurer. “We were responsible in the first year for claims up to $25,000 and currently we have coverage up to $35,000,” Keiser reports.

Sharing Responsibility The number of workers in selffunded, high-deductible HDHPs climbed to 68% from 60% in the past year, according to the Kaiser Family Foundation. That tie-in is significant in explaining how self-insurance matches up well with HDHPs in an era of shared responsibility between employers and employees when it comes to paying medical bills and containing costs. “The same employers that have stop-loss insurance that are selffunding are also the same employers that are introducing the high deductible health plans,” notes Dan Sirois, director of stop-loss product development at Sun Life Financial. Moreover, he says the number of employees enrolling in HDHPs has generally increased over time. Stop-loss is going to provide protection on many different levels against all types of conditions, particularly cancer, which he says have represented roughly 25% of all Sun Life reimbursements on a dollar March 2016 | The Self-Insurer


plans if they’re thinking about making a change. And it can even help them if they’re having a discrepancy with one of their bills.” An added benefit is that it helps grant peace of mind to people who are diagnosed with catastrophic illnesses, which he says can be not only physically draining, but also take a harsh emotional and financial toll.

Preserving HSA Balances

standpoint over a four-year span. Such activity is also “very high frequency,” he adds, noting that more than half the carrier’s stop-loss policyholders in any given year will experience a cancer claim. Nurse involvement with supplemental insurance policies can be critical in terms of early detection and treatment options, which can lead to a better prognosis and save money. Sun Life builds support services into its critical-illness product, which Burke says helps policyholders “navigate the differences in health

Another conduit to this peaceful path is undoubtedly through HSAs. Whereas most HSA accountholders take advantage of the pretax contributions and tax-free withdrawals on qualified medical expenses, Burke explains that savers also benefit from tax-free investment gains. This will help them grow their account balance to pay for out-of-pocket medical expenses for themselves or a family member during their working years or even into retirement.

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SLPC 26354 01/15 (exp. 01/17)

“For them,” he says, “it’s not about using the HSA to cover routine office visits. But with that said, HSA balances, on average, remain around $2,000 and there are certainly a number of factors contributing to that.” Four out of five HSAs have been open since 2011, he reports, which means accounts haven’t had much time to grow. “But considering the annual maximum contribution is north of $6,000 for a family, we would expect to see the average account balance to be a lot higher than that at this point” Burke says. “It’s possible the 17 million Americans who are enrolled in an HSA eligible health plan simply don’t understand that HSA is not use-it-or-lose-it like an FSA and that it’s fully portable. Or people simply don’t have enough money to fund their HSA.”

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These statistics elevate the case for having a safety net in place to finance critical illnesses or accidents, according

to Burke. That level of protection will prevent HSA account holders from depleting their savings, which can be leveraged over time to pay for unanticipated expenses. One interesting comparison is that there are roughly the same number of HSAs and Section 529 college-saving plans – roughly 14 million accounts apiece, he explains. However, he says “the average account balance for an HSA is nearly 10 times less than that for a 529 plan.” The cost of education is obviously significant and 529 plan participants expect the children they enroll will attend college. But working Americans “aren’t doing that same kind of diligence when it comes to retirement other than maybe a 401(k),” Burke observes. So while there’s more of a focus on paying for a college education, he says there’s no such planning for a catastrophic health event, which can deplete retirement savings. “There’s such a strong correlation between HSAs and supplemental health all the way through disability and certainly self-funded insurance,” he says. In a post-health care reform climate, Burke thinks “it’s only a matter of time before consumers become very well educated on these products. That’s probably not too far down the road. All it’s going to take is a couple people who have used the benefit and then word of mouth is going to spread pretty quickly across the employer and they’re going to realize the real value of it because these products are intended to really help when people need it most.” ■ Bruce Shutan is a Los Angeles freelance writer who has closely covered the employee benefits industry for 28 years.

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March 2016 | The Self-Insurer


All’s Fair in Love & Subro...

The Supreme Court

CHALLENGES Our Current Understanding of

“Fairness” L

egal writing in statutes and case law, alike, can be difficult to understand. Phrases like ‘heretofore’ and ‘notwithstanding’ often make it quite the headache to read for those with an untrained eye. Many, including much of legal academia, argue that the law is better served with clarity. With that in mind, allow me to state this as clearly as possible: on January 20th, 2016, The Supreme Court of the United States ruled that a plan participant who receives benefits from its health plan due to injuries caused by a third party and later receives a settlement from any third party related to those injuries, may avoid reimbursing the benefit plan by simply spending the settlement money. This is true even when that plan participant knows that some or all of those settlement funds are to be reimbursed to the benefit

Written by Christopher Aguiar 26

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“FAIRNESS” | FEATURE plan, in full. And this, the Supreme Court opines, is equitable?

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In the interest of keeping this article as simple as possible, the term “equitable” is really just a fancy word for “fair.” Any health subrogation representative recognizes this notion of “equity” or “fairness” all too well; they have been contending against members and their representatives with it for years. In fact, over the past few years, the concept has been interpreted overwhelmingly in favor of benefit plans. The typical scenario goes something like this: a plan participant’s attorney calls the plan’s subrogation representative and demands that the benefit plan reduce its right to reimbursement from the third party settlement the plan participant just received. And so the chess match begins! The attorney goes down the checklist of arguments that was likely pulled from a form letter distributed at the latest conference for personal injury attorneys. First, the attorney claims that under the Employee Retirement Income Security Act of 1974 (“ERISA”), if the plan cannot produce every document ever even contemplated on behalf of the plan since its inception, the participant has no obligation to comply with the terms of said plan. Then, the attorney cites decisions like Cigna Corp. v. Amara, Ark. Dep’t of Human Servs. v. Ahlborn, Wurtz v. Rawlings and others, regardless of whether the attorney’s arguments are actually supported by the court’s opinion – which they are often not. Baffled by the insistence of the plan that it is entitled to be reimbursed in full (despite the plan’s clear language to that effect), the attorney resorts to the notion that the plan participant was not “made whole,” and so the plan is not entitled to anything. Finally, he’s left with the

argument that regardless of the plan’s ability to emerge victorious on any of those issues, surely the benefit plan understands that it has an obligation to reduce its lien in accordance with its “fair” share of the costs of pursuing the recovery – because, naturally – the plan could certainly not have recovered without the attorneys efforts! Once these arguments have been defeated with the long list of cases provided to us by the Supreme Court that unequivocally state that Plan’s terms control the arrangement for benefits between the plan and its beneficiaries, many lawyers will concede that the law leans in favor of the Plan and accept that the most prudent approach is to come to an amicable settlement or face federal litigation. After all, there is considerable value in avoiding the delays and costs of trial on these issues especially when the outcome is reasonably certain. A select few attorneys, however, frantically seeking just one more argument, resort to one of the most basic concepts there is. That concept is fairness. Quite simply, these attorneys argue that it is not fair for a benefit plan to be able to sit back and recover the money of the injured participant and their attorney. They wonder, “why should a benefit plan be able to get a free ride off the actions of the Plan participant? No fair!” Frankly, until now, the answer to that question has been quite simple; the Supreme Court has very clearly stated that the terms of the plan define what it means to be equitable. Put more simply, by virtue of the understanding between the plan participant and the benefit plan as set forth in the terms of the plan, the plan is allowed to decide what is “fair.” In most cases, then, guided by the language of an effective subrogation and recovery provision, “fair” was determined to mean that the plan was entitled to 100% recovery, up to the total amount received by the plan participant, even if that meant (practical ramifications aside) that the plan participant received none of the settlement as a result of its obligation to reimburse the plan. Regardless of the participant’s damages or losses as a result of the accident, every penny of the settlement was considered the property of the plan until the plan was fully reimbursed. In Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, however, the Supreme Court established a new idea of what “fair” actually means. Mr. Montanile was the victim of an accident with a third party who was driving under the influence of alcohol. Mr. Montanile’s benefit plan paid approximately $120,000.00 in medical claims arising from the accident. Following the accident, Mr. Montanile sued the driver of the vehicle and was able to obtain a settlement in the amount of $500,000.00. The Plan and Montanile’s attorney engaged in negotiations for some time, but after discussions broke down, Montanile’s attorney warned the Plan that he was going to remove the funds from his trust account and disburse them to Mr. Montanile. The Plan did not respond until almost seven months later, when it filed a lawsuit in which the Plan argued that even though Mr. Montanile had spent some or all of the settlement funds, the Plan still had a right to any of the funds whether Montanile actually had them or not. The Supreme Court disagreed, stating that the Plan would have had an equitable right if it had “immediately sued to enforce the lien against the settlement fund then in Montanile’s possession.” Further elaborating on the effects of delayed action by the Plan, the Court expressed no pity for the steps that a Plan might be required to take to protect its right. March 2016 | The Self-Insurer


“FAIRNESS” | FEATURE The Court stated: “...

The Board protests that tracking and participating in legal proceedings is hard and costly and that settlements are often shrouded in secrecy. The facts of this case undercut that argument. The Board had sufficient notice of Montanile’s settlement to have taken various steps to preserve those funds. Most notably, when negotiations broke down and Montanile’s lawyer expressed his intent to disburse the remaining settlement funds... unless the Plan objected... . The Boar could have – but did not – object. Moreover, the Board could have filed suit immediately, rather than waiting half a year.” Given all the above, it is clear that the Supreme Court disapproved of the Plan’s failure to protect itself in a timely manner. Did the Court, however, give

any consideration to whether it was appropriate for Mr. Montanile to spend money he knew was not his? Not only did the Supreme Court comment on the appropriateness of Mr. Montanile’s actions, its opinion all but endorsed the strategy, providing a plan participant with plenty of fodder to rely on to avoid its reimbursement obligation. According to the Supreme Court, “Even though the defendant’s conduct was wrongful, the plaintiff could not attach the defendant’s general assets.” Despite all of the negative rhetoric pervading the health subrogation industry following this case and the Supreme Court’s decision that it is “fair” for a plan participant to simply spend settlement funds that do not belong to the participant, all hope is not lost. The fact remains that strong and clear plan language prevails in circumstances where a

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self funded benefit plan takes all the steps necessary to actually preserve the settlement funds - although this case reinforces the notion that strong plan language alone is not enough. In order to ensure that benefit plans recoup all funds that were advanced on behalf of a plan participant despite those damages being the responsibility of a third party, benefit plans must have a comprehensive recovery process that ensures early identification, intervention in and constant oversight over those subrogation opportunities. Gone are the days where a benefit plan can take its time to decide whether it is willing to reduce its interest rather than file suit. No longer can subrogation claims be handled as though they are the least important aspect of a claims administration process; instead, they must now be treated with care and extreme urgency. Legal resources must be available from the outset so threats to settlement funds can be handled with creative legal arguments and assertions of ethical obligations that may force an attorney to hold settlement funds pending resolution and most importantly, so that legal

action can be taken, as the Supreme Court put it, “immediately.” Make no mistake: attorneys who have been expressing righteous indignation over how “unfairly” selffunded benefit plans have treated their clients over the years will now argue that it is perfectly “fair” for their clients to avoid their obligation by spending the settlement funds received. Can you blame them? We’ve been beating the drum of the Supreme Court’s interpretation of fairness proudly since the pendulum shifted in favor of benefit plans sometime after the Supreme Court’s decision in Great-West Life and Annuity Ins. Co. v. Knudson in 2002. The difference here, though, is that in all the cases since Knudson, the Supreme Court has made it clear that a health plan can establish an ownership right over those funds and with this decision the Supreme Court has now seemingly provided plan participants with an incentive to do like the Steve Miller Band did in the 70’s and “take the money and run.” Luckily, we in the self-funded industry have the luxury of having resources at our disposal to ensure that the plan’s assets are protected

and that the plan’s rights are not lost. The only question is, do you have the plan language and recovery process to make sure the clock doesn’t run out on your subrogation rights? ■ Christopher Aguiar is an attorney with The Phia Group, LLC. Beginning his career in 2005 and specializing primarily in subrogation recovery, Chris has managed thousands of cases nationwide and spearheaded negotiations between plan participants, plaintiffs’ counsel and plan administrators on matters of State and Federal Law as well as ERISA Preemption, recovering millions of dollars on behalf of benefit plans. Since receiving his license to practice law in the State of Massachusetts in 2014, Chris has also handled plan drafting and plan consulting matters ranging from plan language analysis, claims appeal assistance, balance billing defense, pre-payment claim negotiations, overpayment recovery, stop loss, PPO, and administrative service agreements.

March 2016 | The Self-Insurer


PPACA, HIPAA and Federal Health Benefit Mandates:



IRS Notice 2015-87 Provides Much Needed Guidance for Account-Based Plans and ACA Employer Shared Responsibility Requirement (IRC 4980H)1


n IRS Notice 2015-87, the agencies provided further clarification on the impact of the Affordable Care Act (ACA) group health plan market reform provisions on account-based plans and much needed guidance on the Section 4980H employer shared responsibility requirements. In many cases, common benefit design practices for employer credits and opt-outs must be revisited prior to the next annual enrollment. In this two part article we cover this important IRS guidance. Part I will cover the impact of Notice 2915-87 on HRAs, FSAs and HSAs. Part II will cover guidance related to the IRC 4980H excise tax and FSA carryover provisions.


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Health Reimbursement Arrangements (HRAs) and ACA Market Reform Provisions


Retiree-only HRAs; Exempt Retiree-only HRAs

In prior guidance, the agencies made it clear that HRAs subject to the group market reform rules cannot use the HRA to purchase individual market medical coverage. The IRS reiterates that an HRA that covers less than two current employees, such as a retiree-only HRA, is not subject to the ACA’s group market reforms. The ACA’s group market requirements that require plans to provide no-cost preventive care and prohibit annual or lifetime dollar limits (the “market reforms”) on essential health benefits do not apply. The IRS concluded that a retireeonly HRA can base balances in whole or in part on amounts credited to the HRA as an active employee covered by an HRA integrated with major medical coverage. That said, the IRS cautions that former employees are not eligible for premium tax credits in the Marketplace for any month HRA funds are available to them.

Q2 © Self-Insurers’ Publishing Corp. All rights reserved.

HRAs Cannot be Used to Purchase Individual Market Coverage for Current Employees... They Really Mean It! Once again, the IRS makes it clear that an HRA cannot be used by current employees to purchase individual market major medical coverage. An HRA that can be used to purchase individual market major medical coverage will not be considered integrated with ACA compliant group health coverage. As a result, the HRA would violate the ACA’s group market reforms.

Building on that premise, the IRS adds that an integrated HRA cannot be used to purchase individual market major medical coverage even if integrated with ACA compliant group health coverage.

Notice 2015-87 closes the door on HRAs that reimburse individual market major medical coverage.

Practice Pointer:


Transition Relief for Spend-down HRAs for Some Amounts Credited Before 2014 In 2013 FAQ guidance, the agencies provided transition relief for certain pre-existing HRAs. Notice 2015-87 clarifies that after December 31, 2013, HRAs can reimburse medical expenses without violating the ACA’s market reforms if: 1. The amounts were credited before January 1, 2013; or 2. The amounts were credited during 2013 under the terms of an HRA in effect on January 1, 2013. However, if the HRA in effect on January 1, 2013, did not set the amounts to be credited during 2013 or the timing of the credits, the amounts credited during 2013 cannot exceed the amounts credited during 2012 and be credited on an earlier schedule or at a faster rate than the 2012 crediting schedule or rate.


HRAs Integrated with Employee-only Coverage Cannot Reimburse Expenses of Spouse or Dependents In a significant clarification, the IRS concluded that an HRA that is integrated with employee-only

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

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

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

March 2016 | The Self-Insurer


coverage cannot be used to reimburse expenses of an employee’s spouse and/or dependents. The HRA only satisfies the ACA’s group market reforms if it is limited to individuals who are enrolled in both the HRA and the employer’s ACA compliant group health plan. However, the IRS recognized that many HRAs do not currently restrict HRA reimbursements to those covered by the employer’s ACA compliant group health plan. An HRA will not fail to be treated as integrated with an employer’s ACA compliant group health plan for plan years beginning before January 1, 2016, solely because there is not an overlap in coverage category. In addition, an HRA and group health plan that otherwise would be integrated based on the plan’s terms on December 16, 2015, will be treated as integrated for

plan years beginning before January 1, 2017, even if it reimburses expenses of family members not enrolled in the employer’s other group health plan. Practice Pointer : Notice

2015-87 is not clear whether the family members must be enrolled in an ACA compliant plan of the same employer or whether enrollment in an ACA compliant plan of another employer would suffice. The Notice seems to say that coverage in the ACA compliant plan must be provided by the same employer; however, the final regulations issued prior to the Notice indicate that an HRA can be integrated with another employer’s group health plan.

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March 2016 | The Self-Insurer


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Practice Pointer :

The IRS says that the employer must report each individual whose medical expenses are reimbursable as having received minimum essential coverage under Section 6055 (i.e., for 1095 reporting). In some cases, an employer might not know whose expenses are reimbursable under the HRA if the employee has never received group health plan coverage through the employer and/or the employee never filed a claim for that dependent’s expenses. Further guidance would be welcome.

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HRA or Employer Payment Plan Can Reimburse Individual Market Coverage for Excepted Benefits Like Dental and Vision

The IRS clarified that an HRA or employer payment plan can reimburse individual coverage that is restricted to excepted benefits only. Typically, such excepted benefits include standalone dental and vision coverage.

When funded through an HRA (as opposed to salary reduction through a cafeteria plan), such coverage should not include specified disease or other fixed indemnity coverage.

Practice Pointer : The

IRS examples indicate that HRAs that reimburse individual market coverage must have terms limiting reimbursement to coverage for excepted benefits. If the terms of the HRA do not limit reimbursement of individual market coverage to excepted benefits, then the HRA violates the ACA’s market reforms. Plan sponsors should review their HRA plan documents and amend them if needed.


An Employer Payment Plan Offered Under a Cafeteria Plan Cannot be Used to Purchase Individual Market Major Medical Coverage... Again, They Really Mean It!

The IRS confirms that a cafeteria plan that allows employees to purchase individual market major medical coverage with pre-tax dollars would also be considered an employer payment plan and thus would be prohibited from funding individual market major medical coverage.

How HRAs, Flex Credits, Opt-outs and Service Contract Act/Davis-Bacon Act Fringe Benefits Affect Affordability The IRS also provided guidance on how HRA contributions, flex credits and opt-outs affect the affordability and minimum value calculations for employers subject to the ACA’s employer mandate. March 2016 | The Self-Insurer



Certain HRA Contributions Reduce Employees’ Required Contribution for Affordability Purposes

Based on the premium tax credit and affordability regulations, amounts made available under an integrated HRA that employees can use to pay premiums for the employer’s plan in the current plan year reduce the employee’s required contribution for affordability purposes, even if the employee can also use those amounts to pay cost sharing or other benefits. However, HRA contributions only reduce the employee’s required contribution for affordability purposes to the extent the HRA’s terms require the employer’s contribution or the amount is determinable within a reasonable time before the employee must decide whether to enroll in the employer’s group health plan. For purposes of excise taxes for

unaffordable coverage under Section 4980H(b) (the “tackhammer” penalty), as well as Section 6056 reporting (IRS Form 1095-C), the employer contribution is treated as made ratably for each month of the period it relates to.


Certain “Health Flex Contributions” Reduce an Employee’s Required Contribution for Affordability Purposes. Cashable Credits and Unrestricted Credits will Not Reduce Required Contributions.

Certain flex credits reduce the employee’s required contribution for affordability purposes when they are “health flex contributions.” Health flex contributions are employer contributions that the employee: 1. Cannot opt to receive as a taxable benefit;

2. May use to pay for minimum essential coverage; and 3. May use exclusively for Section 213 medical care. For purposes of excise taxes for unaffordable coverage under Section 4980H(b)(the tackhammer penalty), as well as Section 6056 reporting (IRS Form 1095-C), a health flex contribution is treated as made ratably for each month of the period it relates to. Flex contributions that are not health flex contributions do not reduce the employee’s required contribution for affordability purposes. Thus, if an employee can use a flex credit to pay for non-health care benefits (for example, dependent care or life insurance), then the flex credit will not reduce the amount the employee pays toward the employer’s group health plan for affordability purposes even if the employee ultimately uses the credit for health coverage.

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The IRS based the distinction between health flex contributions and nonhealth flex contributions on the final Section 5000A regulations. Those regulations state that the employee’s required contribution is the amount of compensation that the employee could use for something other than health-related expenses that the employee must forgo to obtain the employer’s health plan coverage.


An employee who elects self-only health plan coverage must pay $200 per month toward the cost of coverage. The employer offers flex contributions of $600 per year that can only be applied toward the employee share of health plan coverage or contributed to a health FSA. In this case, the flex contribution is a health flex contribution regardless of whether the employee applies it to the employee share of health plan coverage or contributes it to the health FSA. For Section 4980H(b) and its reporting under Section 6056, the employee’s monthly required contribution for group health coverage is $150 ($200 – $50). – Note that the amounts above are based on the example in Notice 2015-87. However, if more than $500 of the health flex credit can be contributed to a health FSA, then the health FSA would not be an excepted benefit, which means that the health FSA would be subject to the ACA’s market reforms. Plan sponsors should use caution when applying this example.


An employee who elects self-only heath plan coverage must pay $200 per month toward the cost of coverage. The employer offers flex contributions of $600 for the plan year that can be used for any cafeteria plan benefit, including non-health benefits like dependent care. The flex credit is not available as cash. In this case, the flex contribution is not a health flex contribution and does not reduce the employee’s required contribution because it can be used for purposes other than medical care. – Again, note that a flex credit of more than $500 that cannot be cashed out would prevent a health FSA from being considered an excepted benefit, which would violate the ACA’s market reforms.

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An employee who elects self-only heath plan coverage must pay $200 per month toward the cost of coverage. The employer offers flex contributions of $600 for the plan year that can be used for any cafeteria plan benefit, including non-health benefits like dependent care and is available as taxable cash. In this case, the flex contribution is not a health flex contribution and does not reduce the employee’s required contribution because it can be used for purposes other than medical care or taken as cash. – Note, however, that the flex credit is payable as taxable cash, so the health FSA could still be considered an excepted benefit. Solely for purposes of the Section 4980H(b) tackhammer penalty and for plan years beginning before January 1, 2017, employer flex contributions that are not health flex contributions, but that can be applied toward health coverage, will be

treated as reducing the employee’s required contribution for health plan coverage. However, these flex contributions must be made under an arrangement adopted before December 17, 2015. Flex contribution arrangements adopted after December 16, 2015, or arrangements that substantially increase the flex contribution after that date, are not eligible for this relief. A flex contribution arrangement is treated as adopted before December 17, 2015, if: 1. The employer offered the flex contribution arrangement (or a substantially similar flex contribution arrangement) for a plan year that included December 16, 2015; 2. A board, committee or similar body or an authorized officer of the employer specifically adopted the flex contribution arrangement before December 16¸ 2015; or 3. The employer had provided written communications to employees on or before December 16, 2015, indicating that the flex contribution arrangement would be offered to employees at some time in the future. Additionally, for plan years beginning before January 1, 2017 (i.e., 2015 and 2016), an employer may reduce the amount of the employee’s required contribution by the amount of a non-health flex contribution on line 15 of Form 1095-C even if the flex credit qualifies for the above relief. However, the IRS encourages employers not to reduce the amount of the employee’s required contribution by the amount of non-health flex contributions on Form 1095-C because the reduction might affect the employee’s eligibility for premium tax credits. As a result, March 2016 | The Self-Insurer


if the employer does not reduce the employee’s required contribution on line 15 and is contacted by the IRS regarding excise taxes under Section 4980H(b), the employer can respond to the IRS by showing that: 1. The employee would not have been entitled to the premium tax credit if it had reduced line 15 by the non-health flex contribution amount; or 2. The employer would have qualified for an affordability safe harbor if the employee contribution had been reduced. In this situation, both the employer and the employee win, as the employer will be relieved from the 4980H(b) penalty, but the non-health flex contribution will not reduce the employee’s required contribution when determining eligibility for the premium tax credit. Practice Pointer : Notice

2015-87 reminds employers that flex credits an employee can elect to receive as cash or a taxable benefit are counted toward the limit on salary reduction contributions to health FSAs under Section 125(i).

health coverage. The IRS clarified its position regarding unconditional opt-out payments, which are payments when an employer offers an amount that cannot be used for coverage under its health plan and is only available if the employee declines or waives coverage. An opt-out payment is “unconditional” if it is conditioned solely on the employee declining coverage and not on the employee satisfying other meaningful requirements, such as providing proof of coverage through a spouse’s employer. The IRS stated that the choice between cash and coverage for an unconditional opt-out payment is the same as the cash or coverage choice employees make with salary reductions. In both cases, the employee can purchase health coverage only by giving up a specified amount of cash that he or she would otherwise receive (in other words, salary for salary reductions, or other compensation for the opt-out payment). For example, an employee who must reduce his or her compensation by $1,000 to pay for employer-provided health coverage is making a choice similar to the employee who is not required to pay anything for coverage, but who receives an additional $1,000 in compensation for declining coverage. In both cases, the employee must give up $1,000 in compensation that otherwise would be available.


An employer requires employees who elect self-only coverage to contribute $200 per month through its cafeteria plan. However, the employer offers an additional $100 per month in taxable wages if the employee declines coverage. The offer of $100 in additional compensation has the effect of increasing the employee’s contribution to $300 per month because he or she must forgo $100 per month in compensation in addition to the $200 per month salary reduction for coverage. The IRS intends to issue proposed regulations regarding this rule. However, the IRS anticipates amounts offered or provided under an unconditional optout arrangement that is adopted after December 16, 2015, will increase the employee’s contribution for affordability purposes. An opt-out arrangement is treated as adopted after December 16, 2015, if: 1. The employer offered the opt-out arrangement (or a substantially similar flex contribution arrangement) for a plan year including December 16, 2015; 2. A board, committee or similar body or an authorized officer of the employer specifically adopted the opt-out arrangement before December 16, 2015; or 3. The employer had provided written communications to employees on or before December 16, 2015, indicating that the opt-out arrangement would be offered to employees at some time in the future.

Availability of Unconditional “Opt-out” Arrangements Increase the Employee’s Required Contribution for Affordability Determinations

Before the applicability date of regulations, employers are not required to increase the amount of an employee’s required contribution for Section 6056 (Form 1095-C) reporting purposes if the opt-out is eligible for this relief. In addition, an opt-out payment that is eligible for relief will not increase an employee’s required contribution for purposes of determining the tackhammer excise tax under Section 4980H(b).

Many employers provide “opt-out credits” for employees who decline

Again, both the employer and the employee win under this guidance because until the applicability date of any further guidance and at least for plan years that



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begin before January 1, 2017, individuals can treat unconditional opt-out payments as increasing their required contribution for purposes of determining premium tax credits. Also, an individual who can demonstrate that he or she meets a condition that must be satisfied to receive an opt-out payment (e.g., coverage under a spouse’s plan) in addition to declining an employer’s health coverage may treat the opt-out as increasing his or her required contribution for premium tax credit purposes.

Deadline Delayed for 2015 Forms 1094-C and 1095-C Finally, the IRS noted that it provided delayed deadlines to submit Forms 1094C and 1095-C. Employers now have until March 31, 2016, to provide employees with the 1095-C (it was due February 1, 2016). It also extends the due date for electronic filing of the 2015 Forms 1094-C and 1095-C with the IRS from March 31, 2016, to June 30, 2016 (paper submissions by employers filing less than 250 Forms 1095-C are now due May 31, 2016). The good news for employees is that they can file their income tax return before they receive their 1095-C and will not need to amend their returns if they rely on coverage information they received from their employer previously.

D.C. law firm. Ashley Gillihan, Carolyn Smith and Dan Taylor are members of the Health Benefits Practice. Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner’s situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation. Readers are encouraged to send questions by email to Mr. Hickman at john.hickman@alston.com. Steven Mindy, Esq. a senior associate in the Washington, DC office of Alston & Bird, LLP assisted with this article.


The IRS will not allow additional extensions. Employers must show a goodfaith effort to comply, as well as file and furnish the statements by applicable deadlines, to qualify for relief from accuracy penalties. Otherwise, the employer must satisfy the IRS’s standards for reasonable cause to receive relief. The IRS provided more information on this relief in Notice 2016-4. ■ 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.

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Attorneys John R. Hickman, Ashley Gillihan, Carolyn Smith and Dan Taylor provide the answers in this column. Mr. Hickman is partner in charge of the Health Benefits Practice with Alston & Bird, LLP, an Atlanta, New York, Los Angeles, Charlotte and Washington,

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Winds of Change Blowing Strong in 2016


f all the phenomena that can affect the weather in North America, one of the most intense is known as El Ni単o. Strong winds, unseasonably warm temperatures in much of the country, excessive precipitation in some areas with excessive dry spells in others are just some of the changes to normal weather patterns it drives during the winter. The world of health payers is experiencing its own ongoing El Ni単o in the form of the Affordable Care Act (ACA). By making tens of millions more Americans1 eligible for health insurance, the ACA has had a profound effect on payer operations. Health insurance is no longer primarily a business-to-business (B2B) transaction between insurance companies and employers. Instead, payers must now be prepared to meet the needs of individual consumers on a massive scale. Here is how the winds of change are likely to play out for health payers in 2016.

Use of Telehealth Grows Three elements are required for telehealth to become part of the mainstream of healthcare: 1) Payers need to see if it can hold healthcare costs down (and get behind it), 2) providers must be reimbursed for the time spent on telehealth and 3) patients must be comfortable with a remote visit instead of in-person visit. Written by Anand Natampalli, MBA 44

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The first and second requirements are being taken care of by the Centers for Medicare and Medicaid Services (CMS) and its use of the 99490 code that

began in January 2015. This code pays providers roughly $42 per member per month to deliver remote care management services2 to patients with two or more chronic conditions. The goal is to help those patients get better and stay well. With more than 100 million members, CMS has the ability to create changes that also affect commercial payers. As for the third requirement, there are more telecommuters than ever.3 Applications such as Skype, Facetime and business teleconferencing are making consumers comfortable communicating electronically. The ability to visit a physician via a smartphone, tablet, kiosk or other technology creates convenience, especially after normal business hours and in more rural areas where access to quality care is more limited. For many, 10 minutes via video conference versus long waits in waiting rooms for a 10 minute visit will become the preferred method of interaction for many simple healthcare encounters.

HRAs to recommend Patient A to join a general health club to increase exercise intensity while suggesting Pilates for Patient B. It will all be very personalized, increase the likelihood that the patient will agree to the wellness plan – and then actively follow it. This targeted approach of wellness is possible with analytics resulting in higher adoption rates compared to a traditional outreach

More Attention to the Customer Experience The individual member experience wasn’t a focus for payers when most of their transactions were B2B. Now that they are working directly with millions of individual consumers, the customer experience becomes very important. Members purchasing health insurance on the exchanges will be faced with a choice each year and those choices will be right in front of them for them to compare. A poor customer experience this year will

increase the likelihood of finding a new payer next year. Additionally, members will be comparing their payer customer experience with those they have with retailers such as Walmart and Amazon.com, technology companies, telco providers, credit card companies and others. Again, if the payer’s service doesn’t meet their expectations, such as having a self-service portal available, they will likely seek one that does. Based on the 2014-2015 data4 38% of members changed their health plans in state exchanges with in one year. With price points remaining comparable customers will continue to look to service and experience as key differentiators when choosing a health plan.

Build Relationships with PCPs Primary care providers (PCPs) are viewed as being central to the drive toward value-based care that

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Data and Analytics Become More Critical The crux of health insurance is the ability to manage risk. Yet as the ACA does not allow payers to exclude anyone with pre-existing conditions as members anymore, the ability to manage those members’ conditions effectively is critical to success. This has led to higher adoption of health risk assessments (HRAs) and a need for more precise analytics to slice and dice all the data being accumulated through various sources. It has also changed the payer focus. Previously, payers used analytics to look for ways to reduce operational costs. In 2016 and beyond, the focus will be on creating highly targeted products, channels and service offerings that keep patients healthier. For example, payers may use behavioral data and

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focuses on keeping patients healthy rather than treating the sick. This model aligns very closely with the payers’ need to manage risk. Rather than continuing the old, adversarial model, payer/provider collaboration will increase in 2016 for their mutual benefit – and the benefits of member populations.

The key to surviving and even thriving with, these changes is to recognize them, prepare for them and start adjusting the business accordingly. Here’s to a prosperous 2016! ■

Increased Adoption of Automation With millions more members creating hundreds of millions more transactions each month, payers can no longer afford to “throw bodies” at issues. Robotic process automation will bring new efficiencies in 2016, helping reduce the number of steps required for a process in order to improve the bottom line. In addition, automating elements of processes such as claims will enable payers to manage by exception rather than reviewing each claim manually, reducing costs while delivering reimbursements to Providers faster.

Anand Natampalli, MBA, is Vice President, Global Business Development, for HGS, a provider of end-to-end business process services for numerous Fortune 100 health insurance companies and large provider organizations. He can be reached at anandmn@teamhgs.com.

More Use of Business Process Outsourcing (BPO)


Rather than attempting to fix their own processes, more payers will look to outsource that work entirely so they can focus more internal efforts on managing risk and delivering an outstanding customer experience. It makes sense, especially as more employers encourage employees to seek out their own health plans, creating even more individual members. The ability to manage processes efficiently will quickly become a lower-value contribution to the bottom line. In addition, BPO organizations that work across multiple verticals are able to bring the best practices from each, improving the level of quality and service overall. This winter’s El Niño is forecast to be one of the most severe5 on record. But that’s still nothing compared to the changes that the ACA has brought to health payers.


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2 www.cms.gov/Outreach-and-Education/MedicareLearning-Network-MLN/MLNProducts/Downloads/ ChronicCareManagement.pdf





5 https://weather.com/forecast/national/news/winter-20152016-what-to-expect

March 2016 | The Self-Insurer


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SIIAEndeavors 2016 International Conference in San José is the Center of All That is Costa Rica


IIA’s will hold its annual International Conference at the Costa Rica Marriott Hotel San José April 5th-7th. This event will be focused on helping U.S.-based companies identify and understand potential business opportunities related to self-insurance/captive insurance in key countries throughout Latin America and the Caribbean. In addition, the event will provide a truly unique networking environment designed to connect U.S. attendees with attendees from Latin America for purposes of exploring partnerships and/or business development opportunities.

The educational program begins Wednesday April 6th, with welcome remarks from SIIA President Mike Ferguson and Costa Rican Ambassador Roman Macaya, Ph.D. There will be a full day of sessions, covering topics such as Latin American Business Culture – Do’s, Don’ts and Other Essential Tips, SelfInsurance Business Opportunities in the Caribbean, a Carrier/General Managers Session and Latin America Medical Travel Trends. The program continues Thursday, April 7th with sessions discussing Captive Insurance Opportunities in Latin America and Self-Insurance Business Opportunities in South America.

Join us early and participate in the pre-conference excursion to the La Paz Waterfall Gardens on April 5th. The Gardens are the #1 most visited, privatelyowned ecological attraction in Costa Rica and features the best hiking trails near San José, the most famous waterfalls in Costa Rica, rescued wildlife preserve with more than 100 species of animals and an environmental education program. There will be a networking welcome reception to kick off the conference upon returning to the host hotel. 48

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At the conclusion of the conference attendees have the option of participating in a tour of local medical travel facilities. Costa Rica has established itself as a leading international hub for medical travel. This hosted tour will show what the country has to offer by visiting of some of its top medical facilities that cater to international patients. ■ For more information on the program, tours, sponsorship opportunities and registration, please visit www.siia.org.

The SelfInsurance Educational Foundation, Inc. (SIEF) is a 501(c)(3) non-profit organization affiliated with the Self-Insurance Institute of America, Inc. (SIIA). Its mission is to raise the awareness and understanding of self-insurance among the business community, policy-makers, consumers, the media and other interested parties. SIEF has been very active in promoting their mission over the last few years. SIEF has launched a new website, www.siefonline.org, held their always popular golf tournament during SIIA’s Self-Insured Health Plan Executive Forum, hosted an educational summit in London, and held numerous briefings on Capitol Hill to educate Hill staffers on the benefits of self-insurance. None of these projects would be possible without the generous contributions received from people like you. At this time, the SIEF Board of Directors, comprised of Heidi Leenay, (based in London UK) and several SIIA

past-Presidents, including Freda Bacon, Alex Giordano, Les Boughner and current SIEF Chairman, Nigel Wallbank, would like to thank the following people who recently made important contributions: Cathy Dunn President Dunn & Associates Chuck Osborne President Excess Risk Solutions Mary Claire Goff Senior Vice President The Taft Companies Andrew Cavanagh Managing Director Pareto Captive Services

Dana Driscoll, FLMI Executive Vice President National Underwriting Services, Inc. Jim Hoitt Vice President, Sales Berkley Accident and Health Jim Kinder Chairman/CEO Kinder Family Foundation

Brooks Goodison President Diversified Group Brokerage Corporation

Kevin Larson President Employee Benefit Management

>>> There are many exciting opportunities coming in 2016 for you to help support this great organization, including a pub crawl at the SIIA National Educational Conference & Expo, a raffle of vacation home, producing a self-insured video with ART emphasis and holding more briefings on Capitol Hill. Look for more information soon on how you can participate!

INNOVATIVE STOP LOSS AND ANCILLARY SOLUTIONS At BenefitMall, we know that employer groups benefit most from treating their health plan as an investment rather than an expense. Our team of self funded consultants can help you succeed by offering: • Unbiased Expertise and Review • Initial Placement, Implementation and Renewal of Coverage • Claims Audit, Submission, Tracking, and Resolution Services • Reporting, Compliance Services and Plan Document Review © Self-Insurers’ Publishing Corp. All rights reserved.

• Billing and Premium Collection • Ancillary Products and Services

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SIIA would like to Recognize our Leadership and Welcome New Members Full SIIA Committee listings can be found at www.siia.org

2016 Board of Directors CHAIRMAN * Steven J. Link Executive Vice President, Midwest Employers Casualty Co. Chesterfield, MO CHAIRMAN-ELECT Jay Ritchie Senior Vice President, HCC Life Insurance Company Kennesaw, GA PRESIDENT & CEO Mike Ferguson SIIA, Simpsonville, SC TREASURER & CORPORATE SECRETARY* Duke Niedringhaus Senior Vice President, J.W. Terrill, Inc. Chesterfield, MO


Committee Chairs

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

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

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


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

SIIA New Members Regular Members Company Name/ Voting Representative

Kari Niblack Vice President of Operations Apex Benefits Indianapolis, IN Ben Jenkins Regional Vice President Sales Apta Health Englewood, CO Stephen Kurkul Corporate Benefit Audits North Andover, MA Ruth Gillan Director of Employee Benefits & Taft Hartley Division Knight International Insurance Agency Inc. Braintree, MA Richard Henriksen President Nokomis Health Inc. Minneapolis, MN

Employer Members Gary Patureau Louisiana Association of Self Insured Employers Baton Rouge, LA

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

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