Page 1

May 2013

www.sipconline.net

Obesity’s Risky Relationship

with Workers’

Compensation


2

May 2013

|

The Self-Insurer

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


www.sipconline.net

MAy 2013 | Volume 55

May 2013 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

Features

8

editorial staff PuBlIShINg DIreCTOr James A. Kinder MANAgINg eDITOr erica Massey

4

SeNIOr eDITOr gretchen grote

Obesity’s risky relationship with Workers’ Compensation by Mary Anne Hawrylak

DeSIgN/grAPhICS Indexx Printing CONTrIBuTINg eDITOr Mike Ferguson DIreCTOr OF OPerATIONS Justin Miller

2013 self-Insurers’ Publishing Corp. Officers James A. Kinder, CeO/Chairman erica M. Massey, President lynne Bolduc, esq. Secretary

24

From the Bench

14

ArT gallery: how to Win at the healthcare exchange game

16

PPACA, HIPAA and Federal Health Benefit Mandates: Cer Fees – Funding the PatientCentered Outcomes research Trust

34

Self-Insured health Plan executive Forum: Conference Wrap-up

40

uS Airways, Inc. v. McCutchen by Bryan Davenport

Industry LeadershIp

DIreCTOr OF ADverTISINg Shane Byars Editorial and Advertising Office P.O. 1237, Simpsonville, SC 29681 (888) 394-5688

artICLes

Less than appealing a review of external appeals, IrOs and the road ahead

44

SIIA President’s Message

by Ron E. Peck, Esq. with contributions from Jennifer McCormick, Esq. and West Chaplin

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

The Self-Insurer | May 2013

3


Obesity’s Risky Relationship with

Workers’ Compensation by Mary Anne Hawrylak

4

May 2013

|

The Self-Insurer

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


I

n May 2012, a group of researchers from Duke university, rTI International and The Centers for Disease Control and Prevention made an alarming prediction: By 2030, 42 percent of the adult American population will be obese. There are many reasons this statistic should worry everyone, but employers should take note. After all, the u.S. Department of health and human Services says the costs to u.S. businesses related to obesity exceed $13 billion each year. employees with pre-existing health conditions – prime among them obesity and other common comorbidities – drive up workers’ compensation costs with frequent claims.

Obesity endangersworkers Obesity has profound and, in some ways, surprising effects on workers’ health, safety and productivity. Though obesity does increase healthcare costs, it also has a strong impact on productivity at work, contributing to problems with concentration, fatigue and completing tasks. According to a 2010 Duke-led study on the costs of obesity in the workplace, the cost of lost productivity far exceeds healthcare costs. Workers’ compensation costs associated with so-called obesity and related conditions, such as smoking and diabetes, are also high. Consider workers’ compensation programs that cover medical costs, pain and suffering compensation and lost wages. Workers with obesity and related conditions are more likely to hurt themselves on the job. When they do get hurt, they take longer to heal from fractures, strains and sprains, and they are more likely to see complications in surgery. This means they take longer to get back to work or back to fully functional at their tasks. A 2007 Duke university study of its own employees found obese workers

were prone to injuries in lower extremities, wrists, hands or the back. The most common incidents to cause these injuries were slips, falls and lifting heavy items. The same study found: • Obese workers filed nearly twice as many workers’ compensation claims as non-obese workers. • These workers had about seven times higher medical costs and lost 13 times more days at work. • Average medical claims costs were $51,019 for workers with obesity, and $7,503 for those without. A 2010 Duke study estimated the total cost of obesity among full-time workers to be $73.1 billion.

Comorbidities and workers’ compensation claims About half of all workers’ compensation claims (for workers obese and nonobese) are appropriated to pay indemnity benefits, which are paid to an injured worker as compensation for lost income. A report released in 2012 by the National Council on Compensation Insurance (NCCI) provided results of a statistical analysis, which analyzed workers’ compensation claims to look specifically at obesity and workers’ compensation indemnity benefit payments. They found indemnity benefit duration was five times higher for claimants with an obesity comorbidity diagnosis, compared to workers without the indicator but with similar claims. Other comorbidities such as smoking and diabetes pose problems for workers’ compensation claims in their own right. Diabetes often affects people with obesity and contributes significantly to problems with wound healing. Smoking not only causes the chronic illnesses it is so infamous for, but also prevents fractured bones from knitting properly. Additionally, it can have such an effect on surgery that physicians will sometimes delay or avoid performing a surgical procedure on a heavy smoker because of increased risk of complications. These difficulties with healing can lead to increased time away from work, driving up the cost of a workers’ compensation claim. NCCI explored the relationship between various comorbidities and workers’ compensation medical costs. (A workers’ compensation claim is considered to be a comorbidity claim if the first diagnosis of the comorbidity occurs within the 12 months after an injury; the information in this study was provided by insurance carriers, based on diagnostic codes.) They examined a range of comorbidities, from pregnancy to hIv, and found some noteworthy results: • Claims with a cormorbidity have twice the medical costs of other claims, and these types of claims tripled in frequency from 2000 to 2009. • hypertension – which has a high comorbidity with obesity – was the most common comorbidity found in the investigation. • Claimants with comorbidity diagnoses tend to be older, particularly those with obesity, diabetes and hypertension. • Most claimants (65 percent) with comorbidity diagnoses are men. • This information is certainly noteworthy because of the rise in claims with a comorbidity diagnosis, and what it reveals about the complex relationship between comorbidities and claims. however, it also helps give risk managers and human resources managers an idea of risk factors associated with the comorbidities that raise the cost of claims. In addition to older workers and male workers, workers with high body mass index (BMI) are at risk for higher workers’ compensation claims.This is because BMI is the standard indicator for obesity.

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

The Self-Insurer

| May 2013

5


Controllingobesity-related workers’compensationcosts Clearly, workers’ health is not only a concern for the sake of employee well-being, but also for the health of the companies for which they work. high claims costs affect workers’ compensation costs and for self-insured employers, this has a direct impact on the bottom line. Though employers may look for immediate “triage” level results, the best way to fight obesity is to prevent it from happening in the first place. employers should carefully evaluate their employee population to determine if they might benefit from wellness programs as part of overall benefit package. Wellness programs vary in scope and focus, but human resources managers are in a good position to offer relevant advice. Case managers can also help identify potential wellness target goals around which to build a healthier employee base, with the goal of lowering costs across multiple coverage lines. using the example of obesity statistics for claims cost drivers, a simple target goal of getting employees moving more frequently can be addressed with a time-limited contest that groups employees into teams, wearing pedometers and measuring number of steps over this time frame. Positive results can help improve risk factors for comorbidity issues,

6

May 2013

|

The Self-Insurer

such as circulation, improved cardiac function, decrease in blood pressure and resting heart rate and lower BMI. The program options are numerous, but the key is to make employee participation voluntary and positive. Of course the ultimate benefit is a healthier employee base utilizing fewer medical services for chronic conditions and injury treatment. In many organizations, it is difficult for human resources and risk management to intersect because of separate budgets, focuses and approaches. But risk managers have a role in understanding and changing why the employee population is getting hurt, how badly they get hurt and the length of time it takes to recover. This means looking at preventative safety measures with an eye to comorbidities. For example, are workers with obesity being provided chairs of the correct size or ladders of appropriate weight load restrictions? Case management firms are increasingly becoming part of the workers’ compensation risk management team because they have unique insight into claim-driving problem areas. Though case managers have always been utilized to some narrow or piecemeal degree, their true strength lies in developing plans that mitigate costs associated with problem areas. Strategically utilized case management helps identify not only cost drivers for the claims, but

safety issues that can be taken into account by the overall safety initiatives to reduce future costs, prevent future claims and improve the bottom line. The intersection of employees’ health, workplace safety and workers’ compensation claims helps provide the understanding necessary for the early interventions that mitigate the risks of obesity and other comorbidities. n Mary Anne Hawrylak is the founder and president of The Kingstree Group Inc., a disability management firm serving clients in all 50 states that focuses on achieving positive outcomes and meaningful savings for its clients. Since its founding in 1998, The Kingstree Group has distinguished itself by offering early intervention and medical triage as standard practice, ensuring workers’ compensation costs are cut, programs are managed and loss ratios improved. More information about The Kingstree Group can be found at www.kingstree.net or by calling (610) 254-9050. references Duke university, rTI International and The Centers for Disease Control and Prevention [www.ajpmonline.org/article/S07493797(12)00146-8/fulltext] 2010 Duke-led study on the costs of obesity in the workplace [http://globalhealth.duke.edu/ news-events/featured-stories/obese-workerscost-workplace-more-than-medical-expensesabsenteeism] later Duke study [http://globalhealth.duke. edu/news-events/featured-stories/obeseworkers-cost-workplace-more-than-medicalexpenses-absenteeism] About half of all workers’ compensation claims (for workers obese and non-obese) are appropriated to pay indemnity benefits, which are paid to an injured worker as compensation for lost income. [http://blog. reduceyourworkerscomp.com/2010/10/ understanding-indemnity-benefits-lost-wages-inworkers-compensation/#axzz2eklz1Tgt] A report released earlier this year by the National Council on Compensation Insurance (NCCI). [www.ncci.com/nccimain/ industryinformation/researchoutlook/ pages/indemnitybenefitduration-obesity. aspx?s=Indemnity%20and%20Obesity] NCCI report on comorbidities and workers’ compensation [www.ncci.com/documents/ research-Brief-Comorbidities-in-WorkersCompensation-2012.pdf]

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


TAMMY IS A KEEPER OF CLIENTS.

Tammy Kraatz Excess Work Comp

NOT BEES. At Safety National, we believe in relationships built on long-term commitment to our clients. As a result, our personal interests tend to suffer. Thanks to the dedication of employees like Tammy, we are the longest-operating and leading provider of Excess Workers’ Compensation to self-insured employers nationwide. We have yet to build the same rapport with bees.

To find out more about our true talents, visit SafetyNational.com/trust.

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

The Self-Insurer

| May 2013

7


bench From the

by Thomas A. Croft, Esq.

MGu Liability in stop Loss Litigation

A

ccording to industry experts, roughly 25% of the $4-$6 billion annual stop loss market is sold through independent Managing general underwriters. Another unknown, but certainly hefty, share is sold through “captive Mgus” – Mgus wholly owned or controlled by carriers. Against this backdrop, it is not at all surprising that Mgus become litigation targets in stop loss claims-related litigation. When this occurs, and the Mgu is named as a co-defendant with the stop loss carrier, interesting legal issues can arise – issues on which the courts are not consistent, and predictability is difficult and uncertain.

MGu Liability on the stop Loss Contract Itself As a threshold and fundamental matter, the Mgu is not a party to

8

May 2013

|

The Self-Insurer

the stop loss contract, even though it likely had all the communication with the broker/TPA leading up to that relationship, made the underwriting decision, issued the carrier’s policy, adjudicated the disputed claim, and authored the denial letter. In other words, the Mgu did all the work and likely made most of the critical decisions. Many administrative agreements between carriers and Mgus do require consultation with the carrier if claims over a certain amount are going to be denied, but otherwise, the Mgu is given wide discretion to manage the policyholder-carrier relationship without close supervision. given that the affected group and its TPA/broker have had all their contact with the Mgu, it’s easy to see why

the Mgu gets named as a defendant along with the carrier. But, as for the claim that the Mgu is somehow liable in its own right for breach of the stop loss contract, most courts have acted favorably on an Mgu pretrial motion to get such claims dismissed. A relatively recent case illustrates this, World Shipping, Inc. v. rMTS, llC, et al., No. 1:12 Cv 3036, in the united States District Court for the Northern District of Ohio, Feb. 22, 2013 (note: all cases referred to herein are available at www.stoplosslaw.com). There, the court granted the Mgu’s motion to dismiss the group’s breach of contract claim against it on the grounds that an examination of the stop loss contract attached to the group’s Complaint revealed that the Mgu’s name nowhere

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


appeared. Thus, the stop loss contract showed on its face that it was solely between the group and the carrier. even though the Mgu acted as agent for the carrier in the underlying transaction, the universal legal principle that agents for “disclosed principals” (i.e., principals whose identity is known to all parties to the transaction up front) are not themselves liable for their principals’ breach of contract applied.

choice of law provision did not govern the question of which state’s law applied to determine whether rMTS and Trustmark were joint venturers.

Similarly, in evangelical Presbyterian Church v. American Fidelity Assurance Co., excess reinsurance underwriters Agency, Inc., et al., No. 08-116317 in the Circuit Court of Wayne County, Michigan, May 14, 2010, the Court held: “[excess re’s] role as agent for [American Fidelity] was fully disclosed in the communication of the offer [of coverage], which clearly identified [American Fidelity] as the ‘Proposed reinsurer.’ Thus, [excess re], as [American Fidelity’s] fully disclosed agent, is not liable on [American Fidelity’s] contract.”

under the law of most states, a joint venture requires an agreement between the parties to share profits and losses, and some degree of sharing of the rights of control over the operation of the joint enterprise. Many contractual arrangements between carriers and Mgus arguably encompass these features to some degree, so that such a claim may permit discovery into the financial dealings between the MGU and its carrier as to the sharing of profits/losses on their block of business and other sensitive matters. To the plaintiff in such a case, it matters little whether they can hold an Mgu to liability for breach of the stop loss contract if the carrier is solvent. however, there may be strategic reasons why a plaintiff might not want to sue the stop loss carrier at all (perhaps, e.g., to attempt to avoid the application of a forum selection clause in the stop loss contract requiring litigation to occur in an inconvenient forum, or an arbitration provision in the stop loss contract), in which case theories like the joint-venture theory may become relevant. None of these factors were present in the Majestic Star case, and the plaintiff ’s devotion to the joint-venture theory there seems to have been a largely academic exercise.

Instead, the Court looked to Illinois choice of law principles, and decided that the carrier and its Mgu’s statuses as “joint venturers” must be determined under either Illinois substantive law (Trustmark’s domicile) or New York substantive law (rMTS’ domicile). After examining the various requirements under each state’s law, the Court concluded that a trial would be necessary to determine if the alleged joint venture existed, and that the matter could not be resolved on summary judgment. (The case was later settled). This is the only stop loss case that I am aware of where a joint-venture theory was alleged by a plaintiff in an attempt to hold the Mgu liable for the carrier’s alleged breach of contract.

The matter is not always so clear cut, however. For example, in The Majestic Star Casino, llC v. Trustmark Ins. Co. and rMTS, llC, No. 07C2474, in the united States District Court for the Northern District of Illinois, October 8, 2009, the Court refused summary judgment to the Mgu on Plaintiff ’s claims for breach of contract and others, even though it concluded that the Mgu was not a party to the stop loss contract. Plaintiff had alleged that the Mgu and its carrier had a “joint venture” arrangement under Nevada law – essentially like a partnership – which would make them both liable if one of them was liable for breach of the stop loss contract. The Nevada law theory came from the choice of law provision in the Trustmark stop loss contract, but the Court concluded that, since the Mgu was not a party to that contract, that

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

The Self-Insurer

| May 2013

9


We can’t stop misfortune. We can stop loss.

Becoming a top tier Stop Loss carrier doesn’t just happen. For 35 years, our dedication to creative solutions has made us the top choice for our clients. Not all Stop Loss carriers are created equal. Today’s businesses have unique needs that demand expert-level service. That’s been the foundation of our Stop Loss offering from the beginning. We know it’s not just the plan; it’s the team behind it. Your business is unlike any other. It’s time for a Stop Loss carrier that’s unlike any other, too.

For more information, contact your local ING sales representative or call us at 866-566-2316.

EMPLOYEE BENEFITS

Your future. Made easier.® Stop Loss insurance products are issued by ReliaStar Life Insurance Company (Minneapolis, MN) and ReliaStar Life Insurance Company of New York (Woodbury, NY). Within the state of New York, only ReliaStar Life Insurance Company of New York is admitted, and its products issued. Both are members of the ING family of companies. Product availability and specific provisions may vary by state. © 2011 ING North America Insurance Corporation. LG9841 12/28/2011

10

May 2013

|

The Self-Insurer

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


MGu Liability for Bad Faith If, as is the usual case, the Mgu is successful in getting the breach of contract claim dismissed because it is not a party to the stop loss contract, what of its potential liability for bad faith? Is it possible that an Mgu adjudicated to have no contractual liability to the group can nevertheless be potentially liable for bad faith denial of a claim? The short answer is “yes, but not everywhere.” Illustrative is another part of the Court’s opinion in the World Shipping case, above. After observing that the Mgu was not a party to the insurance contract, the Court concluded the Mgu could not be liable for bad faith denial of the claim, because, under applicable Ohio law, “the duty to act in good faith ‘arises from the insurance contract.’ ” Since there was no insurer-insured relationship between the group and the Mgu, there was no “bad faith” conduct legally possible by the Mgu in Ohio. Compare, however, the result reached by a Connecticut federal court on the same issue under the law of that state in Citizens Communications Co. v. Trustmark Insurance, No. 3:01cv948 (D. Conn. 2004): “It is clear that the interaction between Citizens and rMTS occurred within the context of a contractual relationship, even if rMTS’ role in the relationship was not as a party but as the agent of a contracting party. As the agent of a party who had a duty of good faith based on a contract, rMTS also effectively had such a duty in its interactions in the contractual relationship.” Key to the Court’s holding was the Connecticut law principle that breach of the duty of good faith and fair dealing is a tort, not merely a breach of contract. under the law of most every state, agents are liable for torts committed in the course of their activities on behalf of their principals. Once classified as a tort, the Mgu’s alleged breach of the duty of good faith (i.e., bad faith) was actionable. Thus, a particular state’s view as to whether “bad faith” conduct is classified as a tort –

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

or simply a cause of action arising out of the parties’ insurer-insured relationship-may be determinative of the Mgu’s liability for it.

Other Bases for MGu Liability Apart from breach of contract and bad faith liability issues, the statutes of many states provide for remedies for unfair or deceptive trade or insurance practices. Sometimes, alleged conduct by an MGU can fit within the language of one or more of the “laundry list” of unfair practices in such statutes, and the statute is written so as to create ambiguity about whether a defendant must be an “insurer” or a contracting party to liable under them. Case law in this area is undeveloped, and necessarily very state-specific. n Known for his extensive writing on medical stop loss insurance issues, both in The Self-Insurer and on his comprehensive

The Self-Insurer

| May 2013

11


website, www.stoplosslaw.com, Tom has been practicing law for 34 years. Currently he practices through his own firm, CROFT LAW LLC, in Atlanta, GA. He regularly advises and represents stop loss carriers, MGUs, and occasionally TPAs, brokers, and self-insured groups, in connection with matters relating to stop loss insurance and the disputes that may arise among these entities regarding it. He currently serves on SIIA’s Healthcare Committee. He has been honored as a Georgia “Super-Lawyer” for the past six years running, and is listed as “Tier 1” in insurance by Best Lawyers. He is an honors graduate of Duke University and Duke University School of Law, where he formerly served as Senior Lecturer and Associate Dean.

PROVIDING SERVICE TO THE INSURANCE INDUSTRY FOR OVER 35 YEARS IN OVER 30 STATES Audits Tax Preparation, Compliance and Minimization NAIC Annual Statements, assistance and preparation Management Consultation Expert Witness Regulatory Matters

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

12

May 2013

|

The Self-Insurer

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


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 • Ancillary Healthcare Solutions such as vision and dental • Employer Risk Solutions including stop-loss and captive arrangements

Visit www.aigbenefits.com to learn more about what AIG Benefit Solutions can do for your business.

• Multi-Product Solutions like ProtectPak™ to simplify benefit offerings • Value-Added Solutions for superior benefits management and support

@AIGBenefits

AIG Benefit Solutions

+AIG Benefit Solutions

AIGBenefits

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 and National Union Fire Insurance Company of Pittsburgh, Pa., are authorized to conduct insurance business in New York. Not all policies are available in all states. © 2013. All rights reserved. AIGB100051 R01/13

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

The Self-Insurer

| May 2013

13


art gAllerY by Dick Goff

How to Win at the Healthcare Exchange Game

W

ith a salute to the old adage that no good deed goes unpunished, it has seemed lately that the world is conspiring against employers who try to do the right thing for their employees by providing healthcare plans that are self-insured.

the lie to the president’s claim during his last campaign that “If you like your current health plan, you can keep your current health plan.”

Considering first the latest developments, several states are working on laws to make life more difficult for self-insurers by raising stoploss insurance attachment points to unreasonable levels. A California bill would raise attachment points for individual claims to $95,000.

If the idea of a broad risk pool – such as the state exchanges – is valid, then why couldn’t employers keep their self-insured plans by establishing their own privately owned and operated exchanges with captives to assume all the risk, resulting in all the flexibility and benefits of self-funding?

I believe this is simply a backdoor attempt by states, possibly pressured by the feds, to strengthen the pools of the insurance exchanges that they will enact next year under Obamacare. By drawing as many relatively healthy workers and dependents away from employer plans, the states think they will lower the per capita risk of their pools. SIIA, of course, has been battling these bills with the logic that it makes no sense to drag people from successful, efficient self-insured employer health plans into a bloated, inefficient public program. And the government strategy clearly puts

14

May 2013

|

The Self-Insurer

A peek into the bureaucratic morass of Obamacare was provided when the draft application for the program was released, comprised of 15 pages for a family of three, and which analysts claim would be as difficult to file as a tax return. Ominously, the IrS will be among three federal agencies that will scrutinize each application when the enrollment period begins in October. So, if stop-loss insurance attachment points are legislated too high, employers may simply drop their plans, throwing their employees onto the tender mercies of the worst of frustrating government bureaucracy. Fear not, I wouldn’t have begun this diatribe if I couldn’t offer an approach to a solution.

Wouldn’t this solve the employers’ problem while also beating Obamacare at its own game? Of course, no one would sign off on the concept without concrete structural specifics. Our illustration in the flow chart provided as today’s ART Gallery exhibit could serve as a useful starting point for implementation. The private healthcare exchanges as I envision them would be memberowned insurance companies licensed state by state. Members of the exchanges would be employers who would separately self-insure their healthcare plans in a look-alike traditional way while maintaining all the benefits of their self-insured plans and their funding.

Reinsurance Tradi3onal Reinsurance Owns  SCU

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


But, wait, this just in! A multiinsurer and multi-distributor private health benefits exchange has been launched by an insurance intermediary in a Midwestern state, presented to serve small to midsize employers seeking affordable funding strategies for their group health benefit plans. underwriting in this case is being provided by nonprofit insurers but captives and fronting reinsurers could as easily be inserted in that role. This concept can go beyond the ordinary self-insured plan to provide access to a broad spectrum of health and voluntary benefits to include major medical, dental, vision, disability and even life insurance plans. I could see such private exchanges being pulled together by visionary managing general underwriters who work in the self-insurance corral, or even enterprising TPAs, brokers or captive managers. Think of this process as a reengineering of the selfinsurance funding design to enable small to midsize employers to stay in the game while fulfilling the spirit of Obamacare. The only difference is the addition of some fractional costs that won’t amount to the costs that would otherwise be assessed by the public exchanges. Such private healthcare exchanges, I predict, will continue to provide the most efficient coverage for employees while neatly circumventing both Obamacare and state stop-loss attachment point games. I welcome all feedback and opinions! Please feel free to comment to me personally via email or send in article form to our editor at ggrote@ sipconline.net. n Dick Goff is managing member of The Taft Companies LLC, a captive insurance management firm and Bermuda broker at dick@taftcos.com.

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

Would you climb a mountain without a guide?

Healthcare is complicated. As a risk management expert, Berkley Accident and Health, LLC 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 Berkley Accident and Health, LLC is the U.S.-based accident and health operating entity of the W.R. Berkley Corporation Member Companies. Coverages are underwritten by StarNet Insurance Company and/or Berkley Life and Health Insurance Company, both member companies of W.R. Berkley Corporation, and both A+ rated by A.M. Best. © 2012 Berkley Accident and Health, LLC BAH AD-20120100

www.BerkleyAH.com

The Self-Insurer

| May 2013

15


PPACA, HiPAA and Federal Health benefit Mandates:

Practical

The Patent Protection and Affordable Care Act (PPACA), 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 PPACA, HIPAA and other federal benefit mandates.

Q&A

Cer Fees – Funding the patient-Centered Outcomes Research Trust

T

he Patient Protection and Affordable Care Act (the “Act”) includes provisions that promote research to evaluate and compare health outcomes and the clinical effectiveness, risks and benefits of medical treatments, services, procedures, drugs and other strategies or items that treat, manage, diagnose or prevent illness or injury (“clinical effectiveness research” or Cer). One such provision relates to the establishment of the Patient-Centered Outcomes Research Institute (the “Institute”), a private, nonprofit corporation. The Institute is funded through the Patient-Centered Outcomes research Trust Fund (the “Trust”). The Trust, in turn, is funded through fees imposed on certain insurers and self-funded plan sponsors (the “Cer Fees” or “PCOrI Fees”). The rules governing the amount of the Cer Fees and the entities to which the Cer Fees apply were added to the Internal revenue Code (the “Code”) by Section 6301 of the Act, which added new Code Sections 4375, 4376 and 4377. Section 4375 applies to insurance policies, Section 4376 applies to self-insured plans and Section 4377 provides definitions and special rules applicable to the other sections.

Guidance Background In the spring of 2011, the IrS issued its initial guidance regarding the PCOrI Fees in the form of Notice 2011-35. On April 17, 2012, the IrS issued proposed

16

May 2013

|

The Self-Insurer

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


regulations that provided greater detail. Finally, on December 6, 2012, IrS issued final regulations.1 This article follows up on our prior article, which described the rules under the proposed regulations. This updated advisory includes changes and clarification made in the final regulations.

What policies and plans are subject to the CER Fees? Section 4375 imposes a fee on an issuer of a “specified health insurance policy” and Section 4376 imposes a fee on a plan sponsor of an “applicable self-insured plan” for each policy or plan year ending on or after October 1, 2012, but before October 1, 2019. A “specified health insurance policy” is defined as any accident or health insurance policy issued with respect to individuals residing in the united States. The united States, for this purpose, includes American Samoa, guam, the Northern Mariana Islands, Puerto rico, the virgin Islands and any other possessions of the united States. Policies issued primarily to cover employees who are working and residing outside the united States (i.e., expatriate policies) are not considered to be specified health insurance policies. In addition, stop-loss and indemnity reinsurance policies also are not specified health insurance policies. Finally, specified health insurance policies do not include certain excepted benefits under Code Section 9832(c), such as disability benefits, general liability policies, automobile liability coverage, workers’ compensation coverage, limited scope dental or vision coverage, long-term care coverage, specified disease or illness (e.g., cancer) coverage, hospital indemnity coverage, on-site medical clinics, employee assistance programs (eAPs) and disease management and wellness programs.

An “applicable self-insured plan” is defined as any plan providing “accident or health coverage” if any portion of the coverage is provided other than through an insurance policy, and the plan is established and maintained for the benefit of employees, former employees, (or members and former members) or other eligible individuals. “Accident or health coverage” is defined as any coverage that, if provided by an insurance policy, would cause the policy to be a specified health insurance policy. Practice Pointer: Retiree-only plans, while exempt from many other provisions of the Act, are considered applicable self-insured plans subject to the CER Fee. Like a specified health insurance policy, an applicable self-insured plan does not include certain excepted benefits under Section 9832(c), such as disability benefits, general liability policies, automobile liability coverage, workers’ compensation coverage, limited scope dental or vision coverage, long-term care coverage, specified disease or illness coverage, hospital indemnity or fixed indemnity insurance and on-site medical clinics. Finally, eAPs, as well as disease management and wellness programs, are not considered to be applicable self-insured plans if the programs do not provide significant benefits in the nature of medical care or treatment. Practice Pointer: Most, but not all, health FSAs will qualify as excepted benefits. Health FSAs are excepted benefits if (1) other group health plan coverage (e.g., medical coverage) is made available to the eligible participants; and (2) the arrangement is structured so that the maximum benefit payable to any eligible participant cannot exceed two times the participant’s salary reduction election (or, if greater, $500 plus the amount of the salary reduction election). If you’re not sure about your FSA, you should consult outside legal counsel for a determination. Practice Pointer: Self-funded medical coverage and a self-funded HRA may be treated as a single plan when determining the CER Fee. However, if the medical coverage is fully insured and the HRA is self-insured, they may not be treated as a single plan when calculating the CER Fees, and separate payment would be due under Code Sections 4375 and 4376, respectively.

How much is the CER Fee? The fee is $1 multiplied by the average number of lives covered under the policy or self-insured plan for policy years ending before October 1, 2013. Thereafter, the fee is $2 multiplied by the average number of lives covered. Thus, for calendar year plans, the Cer Fee is $1 in 2012 and $2 in 2013. For policy years ending after October 1, 2014, the $2 fee is increased based on increases in the projected per capita amount of National health expenditures. The Cer Fee is calculated based on the average number of lives covered. however, when making that determination, multiple self-insured plans established and maintained by the same plan sponsor and with the same plan year are subject to a single fee. For example, an hrA would not be subject to a separate fee if the hrA is integrated with another applicable self-insured plan that provides major medical coverage. If the medical coverage is fully insured, however, the insurer and plan sponsor must each pay a separate Cer Fee for the hrA and medical policy, respectively.

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

The Self-Insurer

| May 2013

17


Who is responsible for paying the CER Fee? The fee due under Section 4375 for insured plans is imposed on the issuer of the specified health insurance policy (i.e., the insurer). For self-insured plans, the fee due under Section 4376 is imposed on the “plan sponsor” of an applicable self-insured plan. The “plan sponsor” is the employer designated as such in the plan document, in the case of a plan established or maintained by a single employer; the employee organization, in the case of an applicable self-insured plan established and maintained by an employee organization; the joint board of trustees, in the case of a multi-employer plan; the committee, in the case of a multiple employer welfare arrangement (MeWA); or the trustee, in the case of a plan established and maintained by a voluntary employees’ beneficiary organization

.. .. .

(veBA). governmental employers are generally considered plan sponsors, but governmental entities sponsoring Medicare, Medicaid, Children’s health Insurance Program (ChIP), coverage for members of the Armed Forces of the united States and coverage for members of Indian tribes are specifically excluded. Practice Pointer: The reporting and payment of the CER Fees must be performed by the plan sponsor, and may not be delegated to a third party. In contrast, the transitional reinsurance contribution, which is calculated using similar rules to those for the CER Fee (and which is sometimes confused with the CER Fee) will be paid and reported by the plan’s TPA. Practice Pointer: Where the plan sponsor of a self-funded plan is a trustee or a

board of trustees that exists solely for the purpose of sponsoring and administering the plan and that has no source of funding independent of plan assets, e.g., a MEWA or VEBA), the CER Fees may be paid from plan assets. However, this rule does not apply to employers whose plans are funded through a VEBA when the employer holds any assets of its own outside the plan.

how is the Cer Fee calculated? As mentioned above, the Cer Fee is a dollar amount multiplied by the number of covered lives in the policy or plan. generally, covered lives include both participants and dependents, but a special rule applies for nonexempt FSAs and hrAs. Insurers and plan sponsors have several methods available for determining covered lives for purposes of the Cer Fee. Any of the methods discussed below may be

advancing the care, outcomes and cost management of kidney disease Single Patient Agreements Home Modalities Renal Data Management Expert & Effective Appeals Support Payment Based U&R Service

Now Featuring

Renalogic

A preventative, revolutionary approach to managing CKD in concert with associated diseases.

.. .

Targeted CKD management Improved quality of care Better outcomes

Call us today at 866.265.1719 18

May 2013

|

The Self-Insurer

. dccinc-us.com © Self-Insurers’ Publishing Corp. All rights reserved.


HELP YOUR CLIENTS

TO THE BENEFITS OF STOP-LOSS. He has a new heart. His employer has peace of mind. With stop-loss coverage from Sun Life, your clients are protected against catastrophic claims. And they get the benefit of an independent point of view from one of America’s leading stop-loss providers. In the past three years alone, we processed 68,000 claims —over $1.3 billion in payouts. Why not put our expertise to work for you? Ask your Sun Life rep how.

Life’s brighter under the sun

sunlife.com/wakeup Group insurance policies are underwritten by Sun Life Assurance Company of Canada (Wellesley Hills, MA) in all states, except New York, under Policy Form Series 02-SL and 07-SL. In New York, group insurance policies are underwritten by Sun Life Insurance and Annuity Company of New York (New York, NY) under Policy Form Series 02-NYSL and 07-NYSL. Product offerings may not be available in all states and may vary depending on state laws and regulations. © 2013 Sun Life Assurance Company of Canada, Wellesley Hills, MA 02481. All rights reserved. Sun Life Financial and the globe symbol are registered trademarks of Sun Life Assurance Company of Canada. PRODUCER USE ONLY.

SLPC 24842 04/13 (exp. 04/15)

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

The Self-Insurer

| May 2013

19


ECHO ANSWERS

CORE Questions

Will you be compliant with key CORE requirements by January 2014? ECHO Health, Inc., the leading provider of payment solutions for healthcare Payers, can help. We have developed a unique, single consolidation and electronic delivery payment process that not only improves processing efficiency and lowers administrative costs, but also meets key CORE mandates. As your specialized service partner, ECHO solves CORE compliance and more by: Consolidating statements and funds into one Delivering electronic statements faster and regulation compliant Rewarding your bottom line with cost-saving services Let ECHO solve your CORE concerns today 440.835.3511

||

info@ECHOHealthInc.com www.ECHOHealthInc.com

ECHO Health, Inc.

20

May 2013

|

The Self-Insurer

||

868 Corporate Way

||

Westlake, OH 44145

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


used; however, the issuer or plan sponsor must apply a single method for any given year. In addition, issuers must use the same method of counting lives for all policies reported on a single return. Issuers and plan sponsors may change the method used from year to year.

Insurer Issuing Specified Health Insurance Policies The IrS has provided four different methods to calculate the average number of covered lives under a specified health insurance policy. • Actual Count Method: The actual count method formula is the sum of actual covered lives2 each day during the policy year divided by the total number of days in the policy year. • Snapshot Method: The snapshot method formula is the sum of covered lives on one or more dates in each quarter divided by the applicable number of dates used. So, for example, if you use the first day of each quarter as your benchmark, then you will add the total number of lives on the first day of each quarter and then divide that number by four. The final regulations require the benchmark dates for the second, third and fourth quarters to be within three days of the date used in the first quarter. For example, if January 7 is the benchmark date for the first quarter, the second quarter benchmark date must be between April 4 and April 10 (inclusive). • Member Months Method: The member months method formula is the number of member months reported on the National Association of Insurance Commissioners (NAIC) Supplemental health Care exhibit (the “exhibit”)3 divided by 12. • State Form Method: The state form method is the number of covered lives reported on a state form that reports lives covered in the same manner as member months reported on the exhibit. Covered lives include individuals who are extended coverage through COBrA continuation. The actual count and snapshot methods count lives covered on a policy-bypolicy basis for each policy having a policy year that ends in the reporting period (i.e., calendar year), while the member months and state form methods count all lives covered during the calendar year for all policies in effect during the calendar year, irrespective of when actual policy years end. The taxes due apply only to policy years ending after October 1, 2012, and before October 1, 2019. Practice Pointer: Plans with a calendar year policy year will file for each year beginning with 2012 and ending in 2018, since the 2019 policy year ends after October 1, 2019.

self-Funded health plan and plan sponsors The IrS has provided four different methods to calculate the average number of covered lives under a self- insured plan. NOTe: The IrS has provided a special rule for hrAs/health FSAs. In the case of hrAs/FSAs, you will consider only participants in your calculation of covered lives. This appears to be the rule even if your hrA offers self-only and other-than-self-only coverage. Actual Count Method: This is a simple formula in theory – perhaps not simple in application. The actual count method formula is the sum of actual covered lives each day during the plan year divided by the total number of days in the plan year.

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

Snapshot Method #1: The snapshot method #1 formula is the sum of covered lives on one or more dates in each quarter divided by the applicable number of dates used. For example, if you use the first day of each quarter as your benchmark, then you will add the total number of lives on the first day of each quarter and then divide that number by four. Snapshot Method #2: This is the same as #1, except that the number of covered lives on your benchmark date(s) in a quarter is the sum of participants with self-only coverage and (participants with other than self-only multiplied by 2.35). You would not likely use this to determine hrA/FSA fees. The final regulations require the benchmark dates for the second, third and fourth quarters to be within three days of the date used in the first quarter. For example, if January 7 is the benchmark date for the first quarter, the second quarter benchmark date must be between April 4 and April 10 (inclusive). Form 5500 Method: The Form 5500 method formula for a self-insured plan that offers only self-only coverage is the sum of total participants identified on Form 5500 at the beginning of the plan year and total participants identified on Form 5500 at end of the plan year divided by two. The Form 5500 method formula for a self-insured plan that offers both self-only and other-thanself-only is simply the sum of the total participants identified on Form 5500 at the beginning of the plan year and the total participants identified on Form 5500 at the end of the plan year. Practice Pointer: The Form 5500 Method will not be available to calendar year plans that file an extension for the plan’s 5500 filing. The filing is due on July 31 without extension, and therefore, coincides with the CER Fee filing date. If the plan requests a filing extension, there will be no Form 5500 on which to base the count.

The Self-Insurer

| May 2013

21


23bn DOLLARS IN ASSETS

This changes everything. And nothing. Presidio is proud to now be the health division of PartnerRe. The three core principles Presidio was founded on – excellence of service, continuous innovation and client financial peace of mind – are as much a part of who we are as ever. Our management team and our employees remain in place and continue to offer you the innovative solutions you expect. But some changes will be big. Very big. PartnerRe’s $23 billion in assets gives Presidio stability that is unsurpassed by others in the Accident & Health market. Our truly global reach allows us to provide financial peace of mind worldwide. For almost 20 years, we’ve brought you the best rated carriers. Now we are one. Contact us to discuss your health risk needs at 1 415 354 1551 or PresidioRe.com.

22

May 2013

|

The Self-Insurer

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


Covered lives include individuals who are extendedcoveragethrough COBRA continuation. Self-insured plans that provide coverage through fully-insured and self-insured options may disregard lives that are covered solely under the fully insured option(s) under the Actual Count, Snapshot and Form 5500 Methods. As mentioned above, the taxes due apply only to plan years ending after October 1, 2012, and before October 1, 2019. Plan sponsors may use any reasonable method to determine the average number of lives covered under the plan for purposes of calculating the fee under Code Section 4376 for the 2012 plan year.

Attorneys John R. Hickman, Ashley Gillihan, Johann Lee, and Carolyn Smith provide the answers in this column. Mr. Hickman is partner in charge of the Health Benefits Practice with Alston & Bird, LLP, an Atlanta, New York, Los Angeles, Charlotte and Washington, D.C. law firm. Ashley Gillihan, Carolyn Smith and Johann Lee are members of the Health Benefits Practice. Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner’s situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation. Readers are encouraged to send questions by E-MAIL to Mr. Hickman at john.hickman@alston.com. 1

You can find the final regulations at www.gpo.gov/fdsys/pkg/FR-2012-12-06/pdf/2012-29325.pdf.

The guidance defines “covered lives” to mean the total number of lives insured, including dependents, at any time during the reporting period. This includes all covered lives without regard to how long the coverage lasted.

2

The guidance defines “member months” as the sum of the number of lives covered on a single day in every month.

3

Practice Pointer: Plans with a calendar year plan year will file for each year beginning with 2012 and ending in 2018, since the 2019 plan year ends after October 1, 2019.

When is payment of the CER Fee due? The Cer Fee is calculated for each calendar year, even if the policy or plan operates under a fiscal year. The CER Fee is paid by filing IRS Form 720. For purposes of paying the applicable Cer Fee, the IrS has suggested that the IrS Form 720 may not be required to be filed quarterly. Only an annual filing may be necessary. The filing is due by the July 31 immediately following the end of the policy/plan year. For example, the Cer Fee for the 2013 calendar year would be due no later than July 31, 2014. Practice Pointer: The first CER Fee for the 2012 calendar year is due by July 31, 2013. IRS is expected to update Form 720 to accommodate CER Fees in the near future. n

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

AssistAnce for stop Loss coverAge At BenefitMall, we know that some employer groups benefit most from treating their medical plan as an investment rather than an expense. Our self funded team of experts represents numerous direct writers of medical stop-loss. We pride ourselves on our buying power, services provided, and partnerships with our brokers and carriers. We can help you succeed by offering you the following services: • Marketing • Billing & Premium Collection • Licensing, Commission & Bonus Programs • Claims Expedition • Compliance Services Benefit from our experience as the leader in stop-loss and reinsurance markets.

Contact us today at

888-248-8952 www.benefitmall.com ©2013 BenefitMall. All rights reserved. BenefitMall, the circle “b” logo and the corporate logo are registered trademarks of Centerstone Insurance and Financial Services, Inc. California license #063979.

The Self-Insurer

| May 2013

23


Less than

appeaLInG A Review of External Appeals, IROs and the Road Ahead by Ron E. Peck, Esq. with contributions from Jennifer McCormick, Esq. and West Chaplin

24

May 2013

|

The Self-Insurer

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


T

he Patient Protection and Affordable Care Act (“PPACA”) requires certain health plans – including selffunded plans – to provide an external review process. This process must meet the standards set by regulation, pursuant to PPACA.

decision only if it was arbitrary or capricious (meaning without any evidence to support it whatsoever).

These standards, amongst other rules, require plans to:

When shopping for IrOs, the wise plan will ensure that the IrO has access to medical and legal experts. Set forth deadlines, outlining dates and responsibilities of each party to the agreement. last but not least, if new evidence (that the plan hadn’t received) is provided to the IrO, the plan should be given an opportunity to reassess the claim(s) in-house, before incurring additional costs from the IrO.

• give participants at least four months to file a request for external review after receiving a notice of a final (internal) adverse benefit determination; • Complete a preliminary review of an external review request within five days after receipt; • respond to the request within a day thereafter; • Contract with at least three (3) urAC accredited independent review organizations (“IrO”); • Assign an accredited IrO to conduct the external review via a rotating basis; • Immediately provide coverage or payment if the IrO overturns the applicable adverse determination; and, • expedite external review if the regular timeframes would seriously jeopardize the life or health of the claimant. The IrO, meanwhile, must review claims “de novo” and provide notice of the final external review decision to the claimant and plan within 45 days. What does de novo mean? It means “with fresh eyes;” the IrO reviews the facts without considering the benefit plan’s mentality, theory, or interpretation. In other words, IrOs show zero deference to the plan’s previous determination. This is major shift from the prior scenario, whereby courts of law are required – by law and precedent – to show maximum legal deference to the plan’s prior determination; overturning the plan’s

Third party administrators (“TPAs”) are usually ready, willing, and able to assist benefit plan clients of theirs with identifying and selecting IROs. That being said, however, the IrO is exposed to protected health information (“PhI”) in the process of providing their services. As such, it behooves every plan administrator to ensure a hIPAA compliant business associate and/or subcontractor agreement is executed by the IrOs.

“New evidence?” you wonder... What “new evidence” do I speak of? Among other nasty surprises, the rule does state that the participant may introduce new evidence to the IRO, after the deadline to file the claim has expired, which the IRO may consider during its review – even though the plan never saw it, or considered it. “Courage is not the absence of fear, but action despite fear.” This saying has been used by many (in one form or another), including Ambrose redmoon, rev. Mary harvey, Stuart Walker, and rabbi earl grollman. In the spirit of such a noble idea, our industry bravely charged into a post-PPACA era, despite a fear of external appeals. looking at the requirements of the law, and comparing them to established doctrine and keystones of self-funding, we can envision many potential issues that may arise. When word of this rule reached our ears, members of our industry were quick to paint an apocalyptic image. Issues ranged from a lack of faith in IrOs (the inability of external agents to understand self-funding and applicable plan provisions), to excessive requests for external appeal. Issues that our team and others in the industry brought up, which I believe are still worth considering may be a little more theoretical in nature. Please allow me to share a few of those worries now... Judicial review – For the longest time, after a plan participant exhausts their administrative remedies, they would then be required to appeal for judicial review. This means that the plan’s decision would eventually appear before a court, which would assess the facts and determine whether the plan’s decision would be overturned. A private self-funded plan governed by the employee Income retirement Security Act of 1974, (“erISA”), reserving for itself discretionary authority, would then have its decisions reviewed by a court of law under an arbitrary and capricious standard of review. This means that the court would show deference to the plan administrator’s decision to deny; Firestone Tire & rubber Co. v. Bruch, 489 u.S. 101; 109 S. Ct. 948 (1989). In a claim brought under erISA, where the underlying decision by a plan administrator is subject to the arbitrary and capricious standard of review, judicial review involves an inquiry into whether the aggregate evidence would support a determination that the plan administrator acted arbitrarily in denying the claim for benefits. While a court may determine that the evidence before the plan may not compel the conclusion the plan administrator has come to, if it is of such a nature as to render the conclusion a permissible exercise of the plan’s discretion the decision will remain intact.

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

The Self-Insurer

| May 2013

25


In other words, the issue is not which side the court believes is right, but whether the plan has evidentiary grounds for its decision. If so, it remains. In Conkright v. Frommert, 2010 u.S. leXIS 3479 (April 21, 2010), the Supreme Court of the united States concluded that erISA’s “guiding principles,” as discussed in its prior Firestone and Metropolitan life Insurance Company v. glenn decisions, dictate that where the plan document gives the plan administrator discretion to interpret its terms, the administrator’s interpretation should be given deference by the courts. The court found that deference to a plan administrator helps protect the “careful balancing between ensuring fair and prompt enforcement of rights under a plan and the encouragement of the creation of such plans.” The court determined that deference promotes efficiency and

26

May 2013

|

The Self-Insurer

predictability by encouraging resolution of benefit-related disputes internally and by allowing an experienced plan administrator to decide interpretive issues as opposed to an unacquainted judge sitting de novo. The court also found that deference further supports the interest of uniformity by avoiding a multitude of interpretations of the same plan terms by judges sitting in different jurisdictions across the Country. While we personally agree with the courts in these cases, apparently the powers-that-be did not. As mentioned, unlike judicial review, external examination by an IrO involves de novo review. This means that no deference is shown to the plan, and all of the facts are looked at as if it were for the first time; with the IRO making a decision based on what it thinks is correct. The purpose of the review, unlike judicial review, is not to determine whether the plan had an

evidentiary basis for its decision. We believe that an IrO’s decision may be appealed to a court of law. That being said, however, a court is not required to show deference to an IrO’s decision the way it was required to show deference to a plan’s decision. The potential (and horrifying) result may be that if an IrO actually concurs and agrees with the plan, and the participant subsequently appeals the IrO’s decision to a court of law, will the court review the IrO’s decision de novo – without the deference it would have shown, had the participant appealed the plan’s decision to a court of law pre-IrO? Furthermore, if an IrO overturns a plan’s decision, the plan – by law – is required to immediately make payment. let’s say that, hypothetically speaking, this occurs and the plan then appeals the IrO’s decision to a court of law, and the court agrees with the plan

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


Call Us: (888) 838-4422 www.ethicareadvisors.com info@ethicareadvisors.com Š Self-Insurers’ Publishing Corp. All rights reserved.

The Self-Insurer

| May 2013

27


(overturning the IrO’s decision), does this mean that the payment made by the plan in accordance with the IrO’s decision is an “overpayment?” have you ever tried to recover an overpayment from a provider? The provider will argue that regardless of whether the IrO is correct (and the claims are covered by the plan), or the court and plan are right (the claims are not covered by the plan), the provider provided valuable services in good faith, and is entitled to compensation. As such, absent fraud or misrepresentation, the provider hasn’t been overpaid. Instead, the participant – who should have been responsible for the claims – was unjustly enriched by the plan, and it is the participant who owes the plan compensation. good luck getting that money back! Another concern we have relates to fiduciary status. Under ERISA, [§ 3(21)(A); see also 29 C.F.R. § 2509.75-8], a plan administrator is deemed to be the fiduciary of the plan – assigned a duty to administer the plan in strict accordance with its terms and prudently manage plan assets. This duty comes with the discretionary authority to make binding claims decisions. If the plan administrator mismanages plan assets, paying claims in excess of the plan allowance, the plan participants could take action against the fiduciary for breaching their fiduciary duty. Yet, if an IRO can overturn the plan administrator’s decision, and has the “final say” regarding how claims are paid, in those instances doesn’t the IrO have discretionary authority? If so, shouldn’t the IRO be the fiduciary? We are concerned that an IrO may require a plan to make payment in an instance with the terms of the plan clearly exclude coverage. If that occurs, might not plan participants – angered by the misuse of their funds – file a claim against their fiduciary? Of course this can happen; it has happened many times. Who, then, in this instance do they file the claim against?

Can you measure the results of your wellness services?

how can we explain this? More importantly, is this indicative of the system in a permanent sense, or might these numbers change?

visit attunelife.com to learn more Attune Health Management, Inc. 3608 Preston Rd, Suite 220 Plano, Texas 75093

May 2013

|

The Self-Insurer

Of that minority of claims (claims that are denied) a surprisingly low percentage of denials are then appealed. More than three-quarters of respondents reported that less than 15% of denials re subsequently appealed. This, then, is further trimming down the pool of potential claims eligible for external appeal. The survey also revealed that of those appealed claims, very few denials are reversed.

To illustrate, this means that if I process 1,000 claims, less than 100 are denied. Of those, only 15 are appealed. As for external appeals; maybe a couple claims are taken to that level.

Let us show you how Call: 866-756-5434 E-mail: info@attunelife.com

SIIA-DisplayAd-2013-v4.indd 1

More than a third of the respondents reported that less than 10% of claims coming through the door are denied. Since the issue of external appeals only applies to denied claims, this already cuts down on the number of claims that may be impacted. Of the other two-thirds, almost all remaining respondents limited denials to between 10% and 20%. So, at worst, this topic applies only to 20% or less of claims processed.

last but not least, the survey went on to tell us that of those claims which were denied, appealed, and not reversed, less than 15% of that already tiny pool is subsequently externally appealed.

WE CAN!

28

Our firm recently surveyed nearly 50 high ranking members of the self-funded and claims processing community. The purpose of the survey was to determine what elements of external appeal requirements had industry members most concerned, what issues they have actually dealt with since the law was passed, and whether they have any new concerns moving forward. The results were very interesting.

let’s now shift away from statistics 3/1/2013 3:36:34 PM

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


and predictions, and look at what our survey respondents had to say about their real-life IrO experiences. Many people have reportedly been concerned that IrO’s will overturn plan decisions. The reasons why an IrO would likely do something like that can be captured under two umbrellas: (1) The IrO disagrees with the plan based on the evidence that was available to the plan, or, (2) the IrO disagrees with the plan based on evidence that was not available to the plan. The first umbrella would either happen because the plan simply did a poor job of assessing (inadequate review of) the situation or, the IrO simply has a differing opinion despite an adequate review by the plan. For most respondents, the second possibility is much scarier than the first.

The second umbrella, however, is the one that is apparently more disconcerting. The fact that a benefit plan and its claims processor is limited to the facts and evidence submitted by a certain date (based upon deadlines set by contract and law), but the IrO can review new evidence supplied quite some time after the fact, results in the IrO essentially reviewing an entirely different claim than that which was presented to the plan days, weeks, or months prior. In the face of these fears, however, as of the first quarter of 2013, more than half of respondents reported that IrOs agreed with the plan between 75% and 100% of the time, and another quarter of respondents reported that IrOs agreed with the

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

plan every single time. Apparently plans and their claims processors are doing a good job of assessing claims, and additional evidence – if any exists – doesn’t seem to sway decisions as strongly as we feared. Similarly, less than 10% of respondents reported that they dealt with an IRO conflict during the process. Of the few externally appealed denials that were overturned by an IrO, the clear majority related to instances where additional evidence changed the way the claim was handled. In other words, the great majority of reversals occur not because of an error on the part of the plan, and rather occur because the IrO is presented with a different claim than that which was provided to the plan.

The Self-Insurer

| May 2013

29


RISK MANAGEMENT SOLUTIONS REQUIRE COORDINATED PRECISION

Client centric solutions are the building blocks of our business. Advising our clients since 1994, Elite Underwriting Services is one of the country’s most prominent Managing General Underwriters. Entrusted with managing premium, we are partnered with A+ and A rated carriers. Creating a culture of innovation and service, we leverage our expertise and industry relationships – enabling us to offer a wide array of products and services, as well as superior stop loss custom solutions for our clients.

E L I T E U W.C O M • 8 8 8 . 3 0 3 . 3 3 7 9 30

May 2013

|

The Self-Insurer

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


Finally, more than half of respondents select their own IrOs via in-house procedures. The rest utilize outside firms, except for a small group of third party administrators whose benefit plan sponsor clients actually select their own IrOs. The remainder of plan sponsors rely upon their TPA to do it either via in-house methods, or through the use of an outside firm. What’s the bottom line? Our survey demonstrates that more than three quarters of respondents have not experienced any issue or seen their concerns come to fruition. This represents a majority, but doesn’t represent everyone... as you shall soon see. Of those that responded to our survey, the vast majority of concerns regarding external appeals and IrOs related to stop-loss. In a nutshell, plan administrators and TPAs are worried that if they are ordered to pay claims that they otherwise feel the plan document excludes, will the stop-loss carrier be required to comply with the IrO’s determination as well? Or, may the stop-loss carrier interpret the facts independently of the IrO? If the stoploss carrier bases its determination on the plan’s original assessment, or on an independent review, it seems likely that the stop-loss carrier will deem a claim to be excluded, even in the face of an IrO mandate to pay. In addition to this concern, many are also worried that stop-loss policies, which include deadlines by which paid claims must be submitted for reimbursement consideration, will not extend deadlines in recognition of IrO payment mandates. In other words, if a claim is denied by the plan, the deadline passes, and then an IrO orders payment, after the plan pays the claims, stop-loss won’t be available. Yet, once again these concerns may be unfounded. More than two-thirds of

respondents stated that their stop-loss carrier will ignore deadlines if “late payment” is solely due to IrO mandate. Of those who responded, almost no one reported instances where late payments or additional payments, made due to an IrO mandate, were denied by stop-loss. Yet, of the stop-loss representatives who took the survey, more than half stated that no explicit language has been added to their policies addressing these issues. It appears, therefore, that while very few claims reach external appeal, even fewer are overturned, and almost none are large enough to warrant submission to stop-loss, carriers are willing to work with plans and TPAs to deal with the natural concerns discussed above. Yet, if the appealed claims grow in number, IrOs overturn plan decisions with more frequency, or the size of the claims trends upward, will this goodfaith approach continue to work? Or, should plans and carriers sit down and start memorializing agreements in writing? As an attorney, I of course trend toward the latter option. Many industry members’ fears proved to be unfounded; many industry members are now relaxing, restful in the belief that there is nothing to fear. We believe, however, that as 2014 and the yet-to-be implemented portions of PPACA go into effect, external appeals may become a bigger issue than any of us thought. Clinical trials – Starting in 2014 a qualified individual (defined by law) will be allowed to participate in approved clinical trials that treat cancer or other life-threatening diseases. however, there are a few exclusions that allow the plan or issuer the option not to pay for the cost of the investigational item, device or service, the cost of items and services provided solely to satisfy data collection and analysis needs and that are not used in direct clinical

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

management and the cost for a service that is clearly inconsistent with widely accepted and established standards of care for a particular diagnosis. It is important to note that the new federal requirements will not be applied to grandfathered plans. So in short the plan will have to pay for the clinical trial but will not have to pay for the equipment and/or drugs that are involved with it. The application of this regulation to plans could create confusion and ambiguity if a clinical trial claim was sent to an IrO for review, as the Plan and IrO will likely have varying views as to the extent of coverage the Plan should provide. elimination of pre-existing conditions – This is going to open the flood gates of eligibility and allow many more employees to participate in the health plan without exception or limitation on coverage. No lifetime to annual limits – This is going to pose more of a problem with stop loss than the actual plan. even though the plan cannot impose a limit, there is nothing to prevent stop loss from having one. Plans must be cognizant of this mandate and its application not only on the plans financial statement, but also in relation to its stop loss coverage. Waiting period of no more than 90 days – This will allow many more employees to participate in the health plan with fewer limitations. The combination of these mandates will ensure that more employees are eligible for coverage, but also eligible for a broader scope of coverage. This broader scope of coverage presents additional opportunities for claim denials. So, all things considered, you still think external appeals are no big deal? Allow us, then, to conclude this article by sharing some stories we’ve actually dealt with.

The Self-Insurer

| May 2013

31


A client of ours recently received claims arising from the use of an FDA approved drug, for off label purposes. Their plan document “experimental & investigational” exclusion was somewhat vague, but upon applying the plan administrator’s discretionary authority, could reasonably be read – in light of the facts – as excluding coverage. To be safe, the plan actually called upon a professional who, it turns out, is URAC certified to perform reviews as an IRO, and asked the professional to review their decision. The third party reviewer agreed with the assessment, and the claims were subsequently denied. upon appeal, they were denied again. upon external review, the IrO (which differed from the professional that assisted with the initial assessment), declared that the claims must be paid. Troubling is the fact that the IrO actually stated, in their opinion, that the plan language does indicate that the claims should be excluded – however – the treatment was medically necessary and based on industry standards, the services should be covered. upon reviewing the matter to appeal it to a court of law, the plan was advised that their exclusion language may be read, due to some ambiguity, as allowing payment if no deference is shown to the plan. Due to the fact that this appeal would not be for a review of the plan’s decision (which is shown deference), but the IRO’s decision, the final decision was that litigation would be too costly and risky – all things considered. The bottom line? had the plan been shown deference, there was enough evidence to determine that their application of the exclusion wasn’t arbitrary. De novo, however, enough outside factors came into play, sinking their chances and ruining the benefit of judicial review. Stories such as these illustrate clearly defined lines between the players in the IrO process. The plan participant is emotionally involved; at the end of the day they want to get better and have the plan pay whatever it costs for whatever treatment it takes.

“Right Rate”

Medicare Pricing

We have the “Right Rate” option to fit your clients’ needs. • All Medicare Covered Claims* • All Out-of-Network Medicare Covered Claims • Specialty Claims (e.g. ESRD Dialysis) And we’ll negotiate/ reprice your clients’ claims for services not covered by Medicare. To learn more or to have us start repricing your clients’ claims, contact your H.H.C. Group Sales Representative or Bob Serber at 301-963-0762 ext. 163 – rserber@hhcgroup.com * Leveraged provider contracting available in selected markets

H.H.C. Group

Health Insurance Consultants

32

May 2013

|

The Self-Insurer

ACCREDITED INDEPENDENT REVIEW ORGANIZATION

The plan participant is not looking at this from a financial perspective, but emotionally. The plan is financially involved; the plan must abide by the terms of the plan document and ensure it is not paying ineligible and/or irresponsible claims. The plan must make a decision that is in line with the plan document, but at the same time ensuring to prudently manage the assets of the plan. The doctors are medical experts; the doctors must ensure they are following standard medical procedures and guidelines.The doctor is not first reviewing the plan to ensure a procedure is covered; they are making a decision that abides by the standard of care. Ultimately these three conflicting views will create an unavoidable gap in what claims are payable, and to the extent they must be paid. however, it is the IrO (and their doctors) who will ultimately prevail. n Ron Peck, Sr. Vice President and General Counsel, has been a member of The Phia Group’s team since 2006. As an attorney with The Phia Group, Ron has been an innovative force in the drafting of improved benefit plan provisions, handled complex subrogation and third party recovery disputes, and spearheaded efforts to combat the steadily increasing costs of healthcare. In addition to his duties as counsel for The Phia Group, Ron leads the company’s consulting, marketing, and legal departments. Ron is also frequently called upon to educate plan administrators and stop-loss carriers regarding changing laws and strategies. Ron’s theories regarding benefit plan administration and healthcare have been published in many industry periodicals, and have received much acclaim. Prior to joining The Phia Group, Ron was a member of a major pharmaceutical company’s in-house legal team, a general practitioner’s law office, and served as a judicial clerk. Ron is also currently of-counsel with The Law Offices of Russo & Minchoff.

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


Mind over risk.

The secret weapon of businesses that dare to venture.

For firms with self-funded health plans, the potential risk of a catastrophic loss can shatter an enterprise. For nearly 35 years, HCC Life has been providing medical stop loss products — allowing our clients to take on opportunity with confidence. Our experience, underwriting talent and industry-leading financial ratings prove our strength, stability and commitment to our clients. We call it Mind over risk.

HCC Life Insurance Company hcc.com/life

For more information, visit us online at hcc.com/life. A subsidiary of HCC Insurance Holdings, Inc.

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

msl2162 - 03/13

The Self-Insurer

| May 2013

33


Self-InSurance InStItute of amerIca, Inc.

Self-InSured HealtH Plan

ExEcutivE Forum

J W M A r r i o t t D es ert sp r in gs H o t e l • pA l M De sert, C A

Conference Wrap-Up

Adam Russo presented the first thought starter, “Commonwealth healthcare & PPACA – The Same?” he started by stating that the architect for the Massachusetts healthcare bill and PPACA is the same. The goal of the law was to achieve universal coverage, access to care, and cost containment. There was a decrease in uninsured residents;

S

IIA held its Annual Self-Insured health Plan executive Forum (formerly known as the TPA/Mgu excess Insurer Forum) March 20-21 at the JW Marriott Desert Springs hotel in Palm Desert, California. This year’s forum had a unique new interactive format for asking questions during sessions.

been as successful. There have been serious access issues. Mr. russo gave the example of having a Ferrari in the

Participants were encouraged to text questions to the moderators. This new format

driveway, but no keys. he also used The

prompted many discussions in each session.

Phia group’s personal experiences for the failures in cost containment, stating

The opening session, “Six Big Thought-Starters for Self-Insurance Industry

34

however the other two goals have not

Stakeholders,” was presented by ernie Clevenger, President, Carehere llC, Adam

that not only did the cost of care go

Russo, Chief Executive Officer, The Phia Group, and Larry Thompson, President, BSI

up, but the types of care to be covered

Strategic Consulting.

also increased. each year mandated

May 2013

|

The Self-Insurer

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


benefits to be offered by participating carriers increased. ernie Clevenger continued with the second thought starter, “Medicare/ Cost-Plus Arrangements,” providing an overview of current PPO arrangements and the proposed Medicare/Cost-Plus, stressing the importance of employee education and employers need to stand firm. larry Thompson presented the third thought starter, “Accountable Care Organizations,” explaining that ACO’s were developed in PPACA to try to curb Medicare spending. Providers take the risk for a defined Medicare population and share in the gain from reaching quality coordinated care objectives. This Medicare definition has now morphed into various new private models, and there are now multiple types of ACO’s, with private ACO’s (Insurer ACO, Insurer Provider ACO, Single Provider ACO, Multi Provider ACO) having the most growth. he stated all private ACO’s will have a large admin component, and will provide admin services, leadership, data analytics and integration, which are all roles TPA’s can fill. Private ACO’s are now 47 states but stressed that you should keep in mind insurers are just as interested in this space, and community based ACO’s are probably a TPA’s best shot initially. In the fourth thought starter of the session, “Migration of Smaller Firms to exchanges,” Adam russo stated that in Massachusetts less than 5% jumped into the exchanges. he provided results of a Business Insurance Survey which found 82% of employers will continue to offer coverage, 17% will explore terminating coverage and increasing salaries, and 1% said they would terminate coverage. employers will

Ernie Clevenger want to continue to offer coverage for loyalty, morale, and as a tool to attract and keep good employees.

to Mr. gillihan’s regular feature hIPAA articles in the February and March issues of The Self-Insurer.

The session continued with the fifth thought starter, a focus on Data Analytics from ernie Clevenger discussing whether or not wellness actually works, regression analysis and data analysis, and concluded with the sixth thought starter, “Insurers PPACA Challenges” from larry Thompson, which was an overview of what will happen to your competition, focusing on taxes, executive compensation, ratings, and coverage.

Ms. levy gave an overview on what the uS Treasury Department is currently working on, and what is on the horizon, such as providing transition relief where they can, the 6055 and 6056 regulations, wellness regulations, policy concerns, and non-discrimination rules. She emphasized they are aware of the increasing role of self-insurance, stressing that rule making is still underway, and they would like to hear from people as much as possible. She stated that “what we tried to do with our regulations to date is to offer as much flexibility to employers as we possibly can.”

The second session, “ACA Implementation – Perspective & guidance for Self-Insured employers from the uS Treasury Department” gave attendees a unique opportunity to hear from Rachel Leiser Levy, Office of Tax Policy in the uS Department of Treasury. Ashley gillihan, esq., Attorney at Alston & Bird, llP, started the session by providing an overview of new 4980h Pay or Play rules, such as the Safe harbor, Sledgehammer and Tackhammer penalties. For a full explanation of these rules, please refer

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

The program on March 21st kicked off with “The Times They Are A-Changin,” presented by Trudi Sharpsteen, Senior Consultant, Towers Watson, robert Madden, vice President/Account executive, First Niagara Benefits Consulting, and Douglas hayden, Senior vice President, Captive resources, llC. Ms. Sharpsteen shared her

The Self-Insurer

| May 2013

35


knowledge and practical experiences with employers. She started the session by stressing that we are in an unprecedented time. “There will be significant change in the industry, including the emergence of not just public exchanges, but private exchanges.” She discussed the expansion of Medicaid, and stated that although Medicare eligibility will stay the same, there will be payment reform. As far as the debate of Pay or Play, Ms. Sharpsteen explained that “the math is not as black and white as you may think. Additionally, employers are not required to provide coverage today; it’s part of the employee value proposition, and total rewards package.” high margin, low turnover fields (such as technology companies) are likely to play, while low margin, high turnover, low wage fields (such as retail) are likely to pay. One point that she stressed was to take into consideration the changing marketplace, and the impact of narrow networks, which could be a growth opportunity for self-insurance. Pre-65 retirees that are essentially working for benefits may exit the workforce, risk pools could change with the expanded public plans, and insurance tax could drive employers to become self-funded. She stated that employers are keeping an eye on what competitors are doing. robert Madden continued the session by sharing his experience with employers that are considering migrating to self-insurance. he gave an overview of the advantages of moving from a fully insured plan to self-insurance, highlighting the specific advantages of knowing where healthcare costs are coming from and using data to better manage and control costs, State mandated benefits eliminated or reduced, ability to manage risk, access 36

May 2013

|

The Self-Insurer

Diane Oliver, Steve McGilvery, and G. Keith Smith, MD to data, single plan across all states, State premium taxes lowered, better cash flow, groups with better risk profiles can realize savings, and employer bearing the cost of their own risks. he also discussed why most large employers are self-funded, citing transparency, control, flexibility, stop loss pricing, retaining carrier profit, and cash flow advantage. Mr. Madden continued by going over operational considerations, how to manage costs, and how health and wellness programs affect premiums. he concluded his portion of the session with trends in the self-funding world; benefit captives, PBM pharmacy services, wellness with patient activation measures, urgent Care initiatives (such as steering towards a particular urgent care network), health care risk management, and predictive data analysis. Douglas hayden dove into captives and the alternative solutions they can provide for stop loss and benefits areas. He discussed group captives of memberowned and controlled programs, emphasizing the success of grouping like-minded companies together. employers are able to share what is working, and what is not working, and are able to come up with ideas together. he stressed that “ownership equals control. You will take much better care of something that you own, versus something that you just tap into, or in this case, purchase.” In “Wellness Promotion/Prevention – Overcoming legal and Compliance hurdles” Ashley gillihan, esq. gave practical and legal compliance issues that may arise with disease management and health risk assessment under the ACA and other federal laws. he provided practical guidance on how to navigate these hurdles so that self-insured employers can maximize the effectiveness and efficiency of important wellness/disease management programs, discussing the five proposed requirements of “Standard Based” Wellness programs, implications for hIPAA Nondiscrimination, ADA, gINA, ADeA, hIPAA (Privacy, eDI, and Security), COBrA, erISA, IrC, State law and plan design/integration issues. “emerging Trend #1: Deeper Dive on rising health Care Costs,” presented by Christopher Koehler, President, DW van Dyke & Co. and Stacy Borans, MD, Chief Medical Officer, Advanced Medical Strategies, was a discussion on how much large

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


claims are driving experience. Mr.

of hemophilia. Although rare, it is

“emerging Trend #2: To PPO or

Koehler went over data from the

typically inherited, so you can see

Not To PPO? That Is The Question”

2013 D.W. van Dyke Self-Insured

multiple patients within a given family

was a panel discussion with g. Keith

large Claims Survey, which had 37

with the disorder. While hemophilia

Smith, MD of The Surgery Center of

participants with a total of $7.85 billion

was the specific condition discussed,

Oklahoma, Steve Mcgilvery, Senior

in annual premium, focusing on large

the overlying theme of Dr. Borans’

vice President, elAP Services, llC and

claim frequency trends, plan maximums

presentation applies to all conditions;

Diane Oliver, r.Ph., Director of Sales,

and large claim correlations.

she stressed the importance confirming

healthSpan, llC. The session began

the correct drugs and correct dosages

with a video profile of The Surgery

dollar claims, stating that pretty much

are given, as drug costs can drive high

Center of Oklahoma, a facility started

anything has potential for a million

claims, citing several specific claim

by Dr. Smith and a colleague. The

dollar claim. She used the example

examples of one patient.

Surgery Center has the unique feature

Dr. Borans discussed multimillion

“Don’t Die Waiting in the ER!” By Sabriya Rice, CNN Medical producer January 13, 2011 4:45 p.m. EST

Teladoc can help your members employees get the care they need without the cost and inconvenience of the ER in many cases. Pay Yourself First can waive the copay for the member and employer

How could avoiding the cost of the ER or Clinic help your clients and their members? Contact: (855) 793-2582 ext 50 or josh@payyourselffirst.com

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

The Self-Insurer

| May 2013

37


readmission rates, er visits, and had a projected savings of approximately $2200$3000 per high risk patient. The session turned lively in the question and answer portion, with Dr. Smith’s discussion on Medicare based pricing, and he received a round of applause when he stated that “the medical industry has got to endure the same market discipline that every other industry does, and that is transparent pricing and a free market.” “emerging Trend #3: Deeper Dive Into the Provider Perspective” was a panel presentation from h. Bard Coats, MD, MBA, vice President Clinical Operations, healthCare Partners of Nevada, Abdul Kassir, Senior vice President of Managed Care, Community Medical Center, and Patrick gallagher, FCAS, Chief Actuary, reSource Intermediaries. The presentation started with Dr. h. Bard Coats discussing his experiences in population management plans and moving business to risk or gain-sharing. Abdul Kassir continued the session by discussing the practices, strategies and developments of Community Medical Center. he stressed that “we need to become more efficient. We need to develop a way to be transparent with our pricing and to work with both plan partners, administrator partners and physician partners to deliver a higher quality product at a more affordable price.”

Trudi Sharpsteen of posting a list of their prices on their

to assert what a plan will pay, rather

website.

than using a top down approach.

Steve Mcgilvery, who works directly

38

Diane Oliver compared the

with plan sponsors, explained how most

current payment system, which is

business owners are looking at the

volume driven, to a proposed care

cost of insurance, not the actual health

driven system, focused on wellness

care costs. he suggested that business

and prevention, care coordination,

owners purchase health care in the

clinical integration, care management,

same manor that they purchase anything

IT connectivity, and aligned incentives.

else. There is no way to articulate how

She discussed a Patient Center Medical

the charges relate to cost, so they

homes, one year beta test with four groups.

suggest using ground up methodologies

They found a decrease in admission rates,

May 2013

|

The Self-Insurer

The session concluded with Patrick gallagher discussing the pricing pressures on providers. he stated that PPACA is expected to result in a large increase in the Medicaid population, which is a lower margin product for most hospitals. In the last three months three changes in CMS compensation are expected to put additional revenue pressure on providers that may spillover as an

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


increase in commercial market rates. healthcare market reform has resulted in providers increasingly assuming financial risk that had previously been held by CMS, commercial payers, and employers. he discussed drivers of growth in the medical excess markets and the consequences of provider risk assumption, explaining that large providers look increasingly like insurers, and that if providers are already assuming risk and are clinically integrated with outside providers, they may seek to disintermediate the insurers. The conference concluded with the “SIIA Situation room,” an interactive review of highlights from each session, including video commentary from speakers. SIIA would like to thank all speakers and attendees for a successful event. We look forward to seeing you at future SIIA events! n

upcomingeVents Self-Insured Workers’ Comp Executive Forum May 29-30, 2013 • Chase Park Plaza Hotel • St. Louis, MO SIIA’s Annual Self-Insured Workers’ Compensation executive Forum is the country’s premier association sponsored conference dedicated exclusively to self-insured Workers’ Compensation funds. In addition to a strong educational program focusing on such topics as excess insurance and risk management strategies, this event will offer tremendous networking opportunities that are specifically designed to help you strengthen your business relationships within the self-insured/alternative risk transfer industry.

International Conference June 10-12, 2013 • Newport Beach Marriott Hotel & Spa • Newport Beach, CA Beyond Emerging: Innovations in Self-Insurance Around the Pacific Rim SIIA’s International Conference provides a unique opportunity for attendees to learn how companies are utilizing self-insurance/alternative risk transfer strategies on a global basis. The conference will also highlight self-insurance/ ArT business opportunities in key international markets. Participation is expected from countries all over the world.

33rd Annual National Educational Conference & Expo October 21-23, 2013 • Sheraton Chicago Hotel & Towers • Chicago, IL SIIA’s National educational Conference & expo is the world’s largest event dedicated exclusively to the self-insurance/alternative risk transfer industry. registrants will enjoy a cutting-edge educational program combined with unique networking opportunities, and a world-class tradeshow of industry product and service providers guaranteed to provide exceptional value in four fastpaced, activity-packed days.

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

The Self-Insurer

| May 2013

39


US Airways, Inc. v. McCutchen by Bryan Davenport

O

n April 16th, 2013, the united States Supreme Court issued its ruling in uS AIrWAYS, INC. v. MCCuTCheN, 569 u.S. (2013). This is the fourth ruling on the issue of whether a plan can enforce the terms and conditions of its subrogation or reimbursement provision. It represents another victory for selfinsured erISA plans. Historically, the first case regarding subrogation or reimbursement was the case of FMC COrP. v hOllIDAY, 498 u.S. 52, (1990). In this case, holliday argued that the Pennsylvania Motor vehicle responsibility Act’s anti-subrogation provision applied to a self-insured erISA plan. The Supreme Court held that erISA pre-empted the Act from being applied to a selfinsured erISA plan.

40

May 2013

|

The Self-Insurer

After FMC, there was a period of judicial calm during which plans were able to make recoveries pursuant to their terms and conditions. Post FMC, the Federal Courts developed the gap filler rule. This rule held that if a plan was silent on either the issue of the Common Fund Doctrine or the Made Whole rule, a Court of law could add the missing rule to the plan in order to fill the gap. If a plan specifically addressed the Common Fund Doctrine and/or the Made Whole rule, the plan could avoid these rules operating to reduce the plan’s interest. In the middle 1990s, a series of cases, mainly out of the Ninth Circuit, challenged whether plans could enforce their subrogation and reimbursement provisions.The focus of these cases was whether a plan, seeking to enforce the terms of a subrogation or reimbursement provision, was actually seeking “other appropriate equitable relief ” under erISA.These cases effectively held that enforcing the terms of a subrogation or reimbursement provision of a plan, where the outcome was the payment of money by a plan participant to a plan, was not “other appropriate equitable” relief. Courts outside of the Ninth Circuit disagreed with this rationale.The united States Supreme Court, in an effort to unify the law, granted Certiorari in the case of greAT-WeST lIFe & ANNuITY INS. CO. v. KNuDSON, 534 u.S. 204, (2002). Justice Scalia’s ruling in KNuDSON did little to settle the issue as the ruling was subject to two different readings. read one way, there was a way for a plan to make a recovery consistent with its terms. read another way, plans could not enforce

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


their terms and conditions. This ruling caused another split in the Circuits and the Supreme Court granted Certiorari in the case of SereBOFF v. MID ATlANTIC MeDICAl ServICeS, INC., 547 u.S. 356, (2006). In SereBOFF, Justice roberts ruled that plans may, under the concept of equitable lien by agreement, enforce their subrogation/reimbursement provisions as they are written. The SEREBOFF case both clarified and simplified Knudson. However, SereBOFF also guaranteed that there would be one more sequel in the world of Supreme Court subrogation decisions. In SereBOFF, Justice roberts inserted a foot note that read as follows; “The Sereboffs argue that, even if the relief Mid Atlantic sought was “equitable” under 502(a)(3), it was not “appropriate” under that provision in that it contravened principles like the make-whole doctrine… from our examination of the record it does not appear that the Sereboffs raised this distinct assertion below. We decline to consider it for the first time here.” Thus, Justice roberts set the stage for what should be the final chapter in the subrogation drama. The question being, could the Made Whole or Common Fund doctrines be applied to a plan that explicitly repudiates these doctrines? The MCCuTCheN case answers this question. The MCCuTCheN case started out as a run of the mill subrogation matter where the u.S. Airways plan expended approximately $66,000.00 and Mr. McCutchen recovered $110,000.00. u.S. Airways demanded repayment of its $66,000.00 expenditures pursuant to the terms of the plan. McCutchen refused to repay the plan. The plan brought suit in the Federal District Court and the plan prevailed. McCutchen appealed to the Third Circuit Court of Appeals. The Third Circuit ruled that the u.S. Airways plan’s terms were sufficiently

specific to repudiate both the Made Whole rule and the Common Fund doctrine. In all prior cases out of this Circuit, this would have ended the day with the plan recovering its interest. But the Court ruled that even with plan language repudiating the Made Whole rule and the Common Fund doctrine, these doctrines still applied because they were appropriate under erISA. In other words, the Court held that these two doctrines would be imposed upon a plan even when the plan language is clearly to the contrary. The Supreme Court of the united States granted Certiorari in MCCuTCheN because the Third Circuit’s decision, along with a subsequent decision out of the Ninth Circuit created a split in the Circuits. The Court held that neither the Common Fund nor Made Whole doctrines, which are equitable rules, can override the clear terms of the plan. The MCCuTCheN decision clearly supports the proposition that in erISA, the plan language is key to any enforcement action. Justice Kagan writing for a unanimous Court, cited from the restatement (Third) of restitution and unjust enrichment stating; “A valid contract defines the obligations of the parties as to matters within its scope, displacing to that extent any inquiry into unjust enrichment.” She went on to say; “In those circumstances, hewing to the parties’ exchange yields “appropriate” as well as “equitable” relief.” Justice Kagan said, “The plan, in short, is at the center of erISA. And precluding McCutchen’s equitable defenses from overriding plain contract terms helps it to remain there…The statutory scheme, we have often noted, is built around reliance on the face of written plan documents.” relative to the issue of the subrogation/reimbursement section of the plan, Justice Kagan specifically stated; “The agreement itself becomes the measure of the parties’ equities; so

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

if a contract abrogates the Common Fund doctrine, the insurer is not unjustly enriched by claiming the benefit of its bargain…. even in equity, when a party sought to enforce a lien by agreement, all provisions of that agreement controlled. So too, then, in a suit like this one.” The clear message is that plans will be allowed to enforce their terms and conditions as written. The Court also codified the applicability of the gap filler rule relative to reimbursement provisions. While this portion of the ruling drew the ire, and dissent, of four justices; in reality there is nothing newsworthy regarding this portion of the decision. Suffice it to say that if there remains a plan document that does not clearly repudiate the Made Whole rule or the Common Fund doctrine, these doctrines will operate to reduce the plan’s lien interest. The Court also added clarity to one other significant issue in the world of subrogation/reimbursement. During the oral arguments in MCCuTCheN, Justice Kagan posed a question to McCutchen’s counsel. She asked counsel if uS Airways had a subrogation claim or an equitable lien by agreement? Counsel, sensing where Justice Kagan was heading, danced around the issue. Not to be deterred, Justice Kagan kept pressing for a direct answer. Counsel finally said that uS Airways had “an equitable lien by agreement in the context of subrogation.” While, this represented a valiant attempt, for which counsel deserves an “A” for effort; it is also an oxymoronic answer. Justice Kagan’s point in asking counsel the subrogation versus equitable lien by agreement question was that they are two different things that lead to two different outcomes. One either has an equitable lien by agreement which means that the terms of that agreement control the conduct and obligations of the parties, or one has a subrogation interest which would

The Self-Insurer

| May 2013

41


be subject to the plethora of equitable defenses to repayment of the subrogee’s interest including the Common Fund and Made Whole doctrines. given that the Court has now clearly distinguished the doctrines of subrogation versus reimbursement, or equitable lien by agreement, plans would be wise to review their language to make sure that they are not muddling the doctrines together. There is nothing wrong with a plan giving itself both the right to subrogate and giving itself an equitable lien by agreement. There are clearly instances where both are valuable. There will be a temptation for the recovery community to use the MCCuTCheN decision in a heavy handed fashion. The decision is a license to collect 100% on every case as long as plan language is properly in place. The self-insured industry would be wise to resist the temptation and exercise temperance. That is not to say that the industry should go soft on the issue. history amply displays that when plan fiduciaries, or those who are hired to enforce plan interests, fail to take the facts and circumstances of a particular case into account; courts find ways to rectify what they tend to view as injustices. Additionally, if the industry insists on full recovery on every case, the probability that the plaintiff ’s bar will not prosecute cases may be substantial. The MCCuTCheN case is powerful medicine that is best used with a measure of discretion. The MCCUTCHEN decision is a substantial affirmation of the primacy of plan language. It settles the law regarding enforcement of equitable liens by agreement. All in all it was a good day for plans during a time of significant difficulties. Many thanks are due to SIIA, the National Association of Subrogation Professionals, the skilled attorneys at Wiley Rein in Washington D.C., and various SIIA members for their fine work in drafting Amicus Briefs in support of the self-insurance industry. Now, on to the next challenge. n

Bryan Davenport is a lawyer whose practice focuses on subrogation and recovery of equitable liens by agreement. He is the founder of the Law Office of Bryan B. Davenport, P.C. Mr. Davenport’s law practice primarily focuses upon ERISA issues with specific concentration in the area of subrogation recovery. He represents employers, Third Party Administrators, Managing General Underwriters and Medical Stop Loss Carriers, assisting them in subrogation recovery and consultation on various other ERISA and compliance issues. He is a nationally recognized expert in the area of subrogation recovery and is often hired to consult on complex subrogation matters. He is also a nationally recognized expert on medical stop loss insurance issues. Mr. Davenport has served as an expert witness in Federal District Court. He held the office of Vice President of Governmental Relations Public Affairs for the Self-Insurance Institute of America from 1996 through 1999 and is a past board member of the Self-Insurance Institute of America and past C.F.O. and Corporate Secretary for the Institute.

We Don’t Just Talk About Successful Teams: Just Talk About Successful Teams: Build Them We Don’t We Build Them Teamwork is the foundation of any success story. With the right partner, collaboration and Teamwork is the foundation of any success support, you can achieve lasting results. story. With the right partner, collaboration and When you team up with Meritain Health, you support, you can achieve lasting results. gain the experience of our 30 plus years in When you team up with Meritain Health, you the healthcare benefits industry, for a gain the experience of our 30 plus years in partnership you can rely on. the healthcare benefits industry, for a partnership you can rely on. For more information, contact us today. For more information, contact us today.

1.800.242.6226

www.meritain.com

© 2013. For self-funded accounts, benefits coverage is offered www.meritain.com by your employer, 1.800.242.6226 with administrative services only provided by Meritain Health, an independent subsidiary of Aetna Life © 2013. For self-funded accounts, benefits coverage is offered Insurance Company. by your employer, with administrative services only provided by 2013006 Meritain Health, an independent subsidiary of Aetna Life Insurance Company. 2013006

42

May 2013

|

The Self-Insurer

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


Providing Excess Workers’ Compensation Since 1990 For Single Entities, Groups & Public Entities

Provided by an A.M. Best “A” (Excellent) IX Rated Carrier:

Risk Control Services Available:

• Aggregate Coverage Available

• Technical Safety Documentation

• Installment Schedule Available

• Ergonomic Evaluation & Training

• Minimum Premiums: • Individual: $50,000 • Groups: $100,000

• Disaster Protection & Recovery Planning Toolkit

• SIRs starting at $300,000

• Industrial Hygiene Services

• Claims Management Available

• Loss History Analysis / Accident Investigation

• Webinars

• Safety Training

• Program Evaluation • Risk Improvement

For submission requirements & applications please visit our website: midlandsmgt.com

ExcessWorkersComp@midman.com 800.800.4007 midlandsmgt.com

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

The Self-Insurer

| May 2013

43


SIIA PreSIDeNT’S MeSSAge Les Boughner

A

s the World shrinks due to technology, one of the most significant business trends over the past several years has been globalization. Self-insurance and alternative risk transfer techniques for self insurance have been pioneered in the united Sates. SIIA is eminently positioned to assist the global self insured needs of companies whose operations reach beyond specific geographic borders. There are enormous opportunities in the global market. SIIA’s International Conference June 10-12 in Newport Beach, California has been able to attract several of the industry’s top experts who will share their knowledge on helping companies with international risk management needs understand the self-insurance solutions available to them. This event will also provide terrific networking opportunities for companies interested in establishing strategic partnerships with global partners.

provide an overview of major reform developments, preview what’s next and explain what it means for those with a vested interest in the future of health care delivery and financing in the U.S. • Employee Benefits and Risk Management in Chile, presented by Jonathan Callund, Managing Director, Callund y Compania, ltd. • growing Demand for Dental Treatment and Insurance – Developments in Asia and latin America, presented by Jiong Du, Chief Actuary, Chubb Accident & Health, Asia Pacific and Donald R. Lawrenz, President, Best Re, Inc. • Self-Insured and Global Workers’ Compensation Benefits in Mexico, presented by Noé Calvo Morales, human resources Director, Apolinar Ortiz Hernández, Workers’ Compensation & Benefits Manager, and gilberto Oscoy, Corporate Manager of Claims Management of Cooperativo la Cruz Asul, S.C.l. • Trends and Opportunities in Personal lines of Insurance: latin America and Caribbean, presented by robb A. Suchecki, vP, International group Insurance, Pan-American life Insurance group • health Care Distribution, longevity, and Its Wellness Initiatives in Japan, presented by Mario Fukuda, Principal, Mercer - Asia Client Services • 2011 - The Year of the Cat; A retrospective look at how Catastrophic events Impacted the reinsurance Market, presented by Kimiko Jarrett, Director, Patrick Malloy, Managing Director, and ellsworth P. Whiteman, Executive Managing Director, of AHL Reinsurance, Aon Benfield • Employee Benefits and Self-Insurance Trends for Asia-based Employers, presented by Jim Peiffer, Senior Vice President, Global Employee Benefits, MetLife Global Employee Benefits • The Chinese Approach to health Care reform, presented by hanson li, Co-Founder and Managing Director, huatone Sage strategic Solutions, Inc. and Secretary general, China Commercial health Insurance Forum I look forward to seeing you in Newport Beach! n

Some highlights of this year’s agenda include: • health Management Options for employers in Japan’s universal healthcare Model, presented by K. Andrew Crighton, MD, Chief Medical Officer, Prudential Financial • u.S. health Care reform – What’s Next and What Does it Mean? SIIA’s Chief Operating Officer Mike Ferguson will

44

May 2013

|

The Self-Insurer

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


Trusted Partners, Ensuring Your Success.

Successful employee benefit sales requires a team effort. As one of the nation’s l argest d irect w riters o f m edical stop-loss, IHCRS is a business partner you can count on.

Find us at www.ihcrisksolutions.com.

Policies underwritten by Standard Security Life Insurance Company of New York . IHCRS 2-13

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

The Self-Insurer

| May 2013

45


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

2013 Board of Directors

Committee Chairs

ChAIrMAN OF The BOArD* John T. Jones, Partner Moulton Bellingham PC Billings, MT

ChAIrMAN, AlTerNATIve rISK TrANSFer COMMITTee Andrew Cavenagh President Pareto Captive Services, llC Conshohocken, PA

PreSIDeNT* les Boughner executive vP & Managing Director Willis North American Captive + Consulting Practice Burlington, vT vICe PreSIDeNT OPerATIONS* Donald K. Drelich, Chairman & CeO D.W. van Dyke & Co. Wilton, CT vICe PreSIDeNT FINANCe/ChIeF FINANCIAl OFFICer/COrPOrATe SeCreTArY* Steven J. link executive vice President Midwest employers Casualty Company Chesterfield, MO

Directors ernie A. Clevenger, President Carehere, llC Brentwood, TN ronald K. Dewsnup President & general Manager Allegiance Benefit Plan Management, Inc. Missoula, MT

46

ChAIrMAN, gOverNMeNT relATIONS COMMITTee Horace Garfield vice President Transamerica Employee Benefits louisville, KY ChAIrWOMAN, heAlTh CAre COMMITTee elizabeth Midtlien Senior vice President, Sales Starline uSA, llC Minneapolis, MN ChAIrMAN, INTerNATIONAl COMMITTee greg Arms Co-Leader Mercer Marsh Benefits global leader, employee health & Benefits Practice Marsh, Inc. New York, NY ChAIrMAN, WOrKerS’ COMPeNSATION COMMITTee Duke Niedringhaus vice President J.W. Terrill, Inc. St louis, MO

SIIA New Members regular Members Company name/ Voting representative David vizzini, President & CFO, 6 Degrees health, Inc., Beaverton, Or Berni Bussell, Senior Managing Director, Beecher Carlson holdings, Boston, MA Dudley Bain, Principal, Benefit Consultants Northwest, Spokane, WA richard Fleder, elMC, llC, New York, NY Bruce Tyler, Chief Operating Officer, MedWise, houston, TX Barbara Fairchild, v.P. Business Development, NuQuest/Bridge Pointe, longwood, Fl

employer Members Kevin Davis, President/Owner, ClS landscape Management, Inc., Chino, CA Dennis Ochs, vice President – Finance and Administration, Paulo Products Company, St. louis, MO Jeff ranew, Administrator, SC home Builders Self Insurers Fund, Columbia, SC

elizabeth D. Mariner executive vice President re-Solutions, llC Wellington, Fl

Contribution Members

Jay ritchie Senior vice President hCC life Insurance Company Kennesaw, gA

richard Fidei, Shareholder, Colodny, Fass, Talenfeld, Karlinsky, Abate & Webb, P.A., Fort lauderdale, Fl

| Self-Insurer The Self-Insurer May 2013 | The

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


Confidence to thrive in ever-changing conditions

Grow with proven insights in risk management. Success comes from nurturing what’s possible. It takes a balanced approach to risk management, along with confidence to act on the guidance from trusted partners with demonstrated expertise. Your clients rely on you. And at HM Insurance Group, we help you deliver. As a national leader in Stop Loss, HM helps you achieve results through smart innovations and decades of experience in the growing field of self-funding. Grow with confidence. Find out if self-funding with HM Stop Loss makes sense for your growth-focused clients at hmig.com/confidence/7 HM PRODUCT PORTFOLIO:

STOP LOSS

WORKERS’ COMPENSATION | CRITICAL ILLNESS | ACCIDENT | DISABILITY INCOME | TERM LIFE

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

MTG-2492 (3/13)

The Self-Insurer

| May 2013

47


48

May 2013

|

The Self-Insurer

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

Self-Insurer May 2013  
Self-Insurer May 2013  
Advertisement