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November 2014

Missing the


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NOVEMBER 2014 | Volume 73

November 2014 The Self-Insurer



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

16 ART Gallery: Telehealth Brings New

18 From the Bench

Editorial Staff PUBLISHING DIRECTOR Erica Massey

26 TRIA Reauthorization and the



Missing the Boat?

by Mark Nelson

P.O. 1237, Simpsonville, SC 29681 (888) 394-5688

by Kevin McKenney

Health Benefit Mandates: IRS Notice 2014-55 Allows New Health Coverage Election Changes


Editorial and Advertising Office

Lame-Duck Session The Fate of TRIA Captives Hangs in the Balance

34 PPACA, HIPAA and Federal


EDITORIAL ADVISORS Bruce Shutan Karrie Hyatt

Efficiency, Savings to Health Plans

36 Grassroots: SIIA Members and Staff


A Closer Look at Life Insurance Captive Reinsurers by Karrie Hyatt

Make Important Connections with Key Members of Congress Ahead of Mid-Term Elections By David Kirby

40 Highlights from SIIA’s 34th Annual National Conference & Expo by Bruce Shutan

2014 Self-Insurers’ Publishing Corp. Officers James A. Kinder, CEO/Chairman

48 SIIA Annual National

Erica M. Massey, President

Conference Attendees Support Educational Foundation

Lynne Bolduc, Esq. Secretary


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The Self-Insurer | November 2014 3

SIIA CHAIRMAN’S MESSAGE Looking to the Future...


s I write this letter I continue to be energized from the recent National Educational Conference and EXPO in Phoenix. I want to personally thank the sponsors, exhibitors, speakers and attendees for making this the seminal event of the self-insurance/ alternative risk transfer industry. It is exciting to be part of such a dynamic growing association with a strong sense of purpose. Positioning SIIA for the future I encourage you to attend the SIIA International Conference April 13-15, 2015 at the Hilton Panama in Panama City, Panama. The globalization of the self-insurance/alternative risk transfer industry is increasing in momentum as effective solutions for the self-insurance needs of companies are adapted to local markets. I am currently in Cartagena, Columbia speaking to a group of energy companies about captives and self-insurance. There is considerable interest in the subject and SIIA is at the forefront of educating Latin American companies on the benefi ts. This is a unique business opportunity for you and your company to not only learn about this interesting market but to expand your business by meeting with executives from throughout the region. The SIIA International Committee is putting together a comprehensive program with top level speakers that will be sure to help you start or continue to take advantage of this growing market. There will also be plenty of networking opportunities throughout the conference. Panama City is considered a gateway to Latin America. It is very easy to get to from the United States and the US Dollar is an offi cial currency. Many people speak English, and we will also be providing translation services. We will be kicking the conference off with a guided tour of the Panama Canal, one of the greatest civil engineering achievements of the 20th century, which is something you do not want to miss! This is truly a lifetime event. Make sure you register early; tour reservations are limited and are on a fi rst come fi rst serve basis. Watch for more information on the SIIA International Conference coming soon. I look forward to seeing you in Panama, and at other future SIIA events.


November 2014 | The Self-Insurer

Les Boughner

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

The Self-Insurer | November 2014


Missing the Boat? by Mark Nelson


November 2014 | The Self-Insurer

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


ou would have to be a yak shepherd in Nepal or a roadie for the Grateful Dead to have not heard of consumer and patient engagement.

Employers, insurers and health plan sponsors across the U.S. are constantly implementing programs designed to help people become clinical participants in order to take control of their health in the effort to reduce claim costs. The Safeway, Kaiser Permanente and Aetna stories are well known. Similarly, hospital systems and physicians are always striving to enlist the patient as an engaged, or activated, member of his / her care team, rather than being a passive bystander, in order to improve the efficacy and cost effectiveness of the care provided. Mayo, Geisinger and Cleveland Clinic all have documented successes, to name just three. A frequently quoted 2012 article in Forbes Magazine suggested that “Patient Engagement Is the Blockbuster Drug of the Century,” and 2013 was believed to be “The Year of Patient Engagement” according to some in the health care IT professional association, HIMSS.1


Consumer and patient engagement has become one of the most publicized topics in health care. ______________________ The problem is, a lot of individuals still don’t seem to care. The National Institutes of Health has estimated that that 90% of Americans “may have problems with health literacy,” and that the average annual expense of a health illiterate person can be four times greater than that of a health literate person.2 It is also estimated that $1 trillion of the U.S. $2.8 trillion in annual health care expenditures may be due to a lack of knowledge or responsibility on the part of the individual.3 The American Heart Association, as an example, has concluded that non-compliance with post-discharge care directives and medications cause 40% of hospital readmissions.4 At the same time, medical science has continued to develop a financially crushing tsunami of new drugs, technologies and therapies that have made the last 50 years one of the most exciting periods in the history of medicine. Unfortunately, “excitement” is not a desired result of insurance industry underwriting and, as a result, payers don’t always view medical advancements with the same enthusiasm as providers. The good news is positive clinical outcomes often translate into positive financial outcomes, which is a goal upon which both can agree.

Why Examine Transplant Patient Engagement? Organ and bone marrow transplants continue to be leading edge, life-saving surgical procedures that still get a lot of attention - primarily because over half of all transplants cost $300,000 or more.5 But it is also interesting to note that transplant patient engagement could be one of the more highly evolved forms of patient participation models in use today and, as such, can serve as a reference point for payers and providers in assessing their own engagement efforts. Why? A medical center really has to rely on the patient to be the caretaker and steward of the transplanted organ following discharge from the hospital, so

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there is a heightened urgency for patient literacy and compliance that may not be as well-established in other clinical disciplines.6 Overall it’s a compelling engagement model to study because: • Transplant candidates and recipients are a fairly engaged bunch - typically aware of their health issues, usually receptive to learning about transplant protocols, generally supported by family members and understandably focused on achieving the best possible clinical outcomes. • They are also an easily defined group (you either had a transplant or you didn’t), and a statistically valid yet manageable sample size (about 48,000 each year when organ and HCT procedures are combined)7 with self-contained, accessible outcome data. • And lastly, transplant nurse coordinators are a good source of information regarding patient attributes. They are often personally familiar with their patients and are tracking dozens of them at any given time, maybe hundreds over several years.8 In many cases a medical center will monitor a transplant patient for life.

National Patient Engagement Survey To get a sense of current U.S. transplant patient activation strategies and the degree to which they might affect clinical outcomes a qualitative survey was conducted in 2013-2014 with the participation of 18 leading transplant centers representing 58 transplant programs that perform over 10,000 procedures a year. The survey was simple: 20 questions The Self-Insurer | November 2014


Fig. 1

by patient non-compliance with either their medications or other discharge instructions. (Fig. 1) Three centers indicated that over 90% of post-discharge complications are believed to be caused primarily by patient noncompliance.

Patient non -compliance with MEDICATIONS? (3 centers > 60%) 38% Patient non - compliance with discharge instructions OTHER than medications? 23% (4 centers > 40%)

To be clear, many different factors can contribute to organ rejection episodes, infections or other complications. Some can be very expensive.11 Determining how often patient non-compliance may have been the primary factor giving rise to a complication was the focus here.

Factors unrelated to compliance 39%

anonymously completed online by nurse transplant coordinators. None of the respondents or medical centers

patient education.9 2. Regarding patient compliance

were identified in the responses.

with post-discharge instructions

1. In terms of basic transplant

and medications:

patient attributes the coordinators reported that: • 25% of transplant patients have


• 10% are not receptive to

• 18% of transplant patients exhibit “low compliance,”10 and • On average, 61% of post-

below average awareness of their

discharge complications are

underlying health issues, and

believed to be caused primarily

November 2014 | The Self-Insurer

3. With respect to the degree of correlation that might exist between transplant patient engagement and clinical outcomes (Fig. 2), while trying to modestly account for case severity,12 the nurse coordinators reported that:

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______________________ Payers and providers have launched countless health, wellness and disease management programs in recent years designed to get people more involved in managing their own health to help reduce utilization and costs. ______________________ High compliance transplant patients • 78% of the high compliance patients with good underlying health and a positive transplant procedure had above average clinical outcomes. • 62% of such patients with poor underlying health and a complicated transplant had above average clinical outcomes.

Fig. 2 - Clinical Outcomes Above Average Average Below Average HIGH COMPLIANCE


GOOD HEALTH positive transplant

POOR HEALTH complex transplant

Low compliance transplant patients • 41% of the low compliance patients with good underlying health and a positive transplant procedure had above average clinical outcomes. • 11% of such patients with poor underlying health and a complicated transplant had above average clinical outcomes. Note: Academic researchers who use p-values and standard deviations should look into this.

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4. The most effective patient engagement strategies cited were:13 • Requiring a caregiver (close family or friend) to work with the patient long term • Providing constant RN education for patient and his/her support team • Facilitating patient access to his/ her EMR and providers • Coordinating with patient’s primary care physician, a key to long term compliance 5. In terms of the communication tools used to educate and engage transplant patients there was – curiously – a heavy reliance on printed text, which can be problematic for non-English speaking patients and their families. Additional tools included: • Anatomical graphics/visuals (44% of the surveyed transplant centers) • Narrated videos with graphics (40% of the centers) • Online tutorials/access to health library (29% of the centers) • Virtual education classes online (1 center) • 3D animated videos of the procedure (None) The types of eHealth (electronic health) technologies being deployed are: • Patient access to transplant information on center’s website (81% of the surveyed transplant centers) • Patient access to their electronic medical record, e.g., MyChart (35% of the centers) • Transplant educational videos on center’s website (27% of the centers) • Patient access to their PHR personal health record (1 center) • None of the above (3 centers) The Self-Insurer | November 2014



November 2014 | The Self-Insurer

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Only 39% of transplant patients were estimated to have used the eHealth tools offered by the medical center. Regarding mHealth (mobile health) technologies being used: • iPad/smart-phone educational programs (4 of the surveyed centers) • Social media (1 center) • Mobile access to patient’s own electronic medical record (1 center) • None of the above (72% of the centers) • Text messaging for patient communication (None) So, apparently, nearly three quarters of the leading U.S. transplant centers do not have a mobile patient engagement strategy, and none appear to be using text messaging.

Fig. 3 -National Perspective: Annual number of organ transplants basically flat over the past 10 years (, 35000


















In fact, the annual number of organ transplants has been flat for over a decade14 and 1-year to 5-year survival rates (the primary metrics of success or quality) have remained basically unchanged during the same time period.15 (Fig. 3 and Fig. 4)

6. Strategies and tools that the nurse coordinators felt could improve transplant patient activation at their center included: • More patient internet access for online education • Utilization of mobile apps • Mobile phone text reminders for appointments and medications • Improved transplant website coordination with outreach programs • Using interpreters more effectively • Establish a patient care contract or covenant to ensure patient compliance with post-transplant instructions

The National Perspective: Why Payers and Providers Have a Vested Interest in Transplant (and Specialty Care) Patient Engagement The reality for most transplant centers is that transplantation is a mature market. Limited organ availability continues to be an issue.

It is, therefore, difficult for providers to deliver growth or value without further advancements in organ donation and immunosuppressant technology. Most transplant centers of excellence have essentially achieved “excellence” as defined within the current context. One of the few remaining cost / quality improvement strategies for transplant providers is to increase patient compliance and commitment to post-discharge success.

______________________ But many individuals, either by indifference or choice, privacy concerns or lack of self-confidence are still not on board, so it is sometimes difficult to assess the progress of such initiatives. ______________________ From the insurer perspective, transplant costs continue to rise.16 In terms of catastrophic claim experience (say, excess of $50,000 any one member in a contract year) the aggregated costs might represent 15% of a reinsurer’s overall loss history.17 Benefit design and the Affordable Care Act suggest that organ transplantation will be a significant ongoing claim exposure for the foreseeable future. At the same time, most of the available contractual savings and the costefficiencies of RN case management are already represented in current transplant financial patterns. In terms of claims cost containment the one addressable area where ROI gains could still be made is patient activation that results in

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The Self-Insurer | November 2014


Fig. 4 -National survival rates have leveled off

receptive” to health education or compliant with medications and care directives. Medication side effects, depression and factors other than patient reticence may play a role in these responses.

(, and Milliman & Robertson)

One year survival rates by type of tx 100 90 80 70 60 50 40 30 20 10 0







better survival rates, fewer hospital readmissions and fewer re-transplants.18 When it comes to insuring transplants and similar high cost medical treatments – in a broader, industrywide sense – favorable loss ratios may become increasingly dependent upon improved clinical outcomes vs. traditional underwriting strategies.

Takeaways: Perseverance, Precision Engagement and Privacy A number of studies have examined the extent to which a patient’s specific health risk factors and socioeconomic status can influence clinical outcomes.19 Their findings would obviously be helpful for this analysis of transplant patient engagement, but such a comprehensive discussion cannot be included here. The transplant survey responses, although limited, from front line clinicians with considerable personal knowledge about a large, well-defined patient group with an evolved history of activation can, however, offer the following: 1. Problem Parameters • Non-compliance with medications and care directives


November 2014 | The Self-Insurer






cause roughly half of all complications and unnecessary readmissions to the hospital. The associated costs for even one individual can run into the hundreds of thousands of dollars. • High compliance patients might be two to six times more likely to experience above average clinical outcomes than low compliance patients with similar health profiles. • Conservatively speaking, about 25% of the population is not aware of the extent of their health issues. • Approximately 10% to 30% of the population is either “not

2. Perseverance and Privacy • A caregiver/partner is key for establishing an individual’s long term compliance with care directives. Ideally, it would be a close, trusted friend or family member, who is by definition supportive but who also implicitly represents privacy. (One might compare this to the AA “anonymous” model of individual sponsorship: one-on-one support for a frequently addressed life-long health condition that is carried out with unwavering respect for the individual’s privacy.) • Coordination with an individual’s primary care physician is also key for maintaining an individual’s ongoing engagement and compliance, again operating within the confidentiality of the patient-doctor relationship as an extension of the patient’s care team confidentiality at the transplant center. • Frequent follow ups, monitoring and ongoing education for the individual and his/her caregiver(s)

______________________ One highly visible patient group that can provide some insight into engagement strategies and their effectiveness is transplant recipients. A recent national survey of 18 leading transplant centers demonstrates how. ______________________ © Self-Insurers’ Publishing Corp. All rights reserved.

are core components of effective engagement. There is a rededication to clinical goals that transplant patients, like many people managing chronic conditions, find useful for maintaining their personal commitment. 3. Precision Engagement • Technology, when appropriate, can be a cost effective engagement tool customized for each individual’s needs and delivered through a personal handheld device. (The 2013 HIMSS-commissioned book Engage: Transforming Healthcare Through Digital Patient Engagement leads the discussion in this regard.)20 Mobile diabetes management apps, online weight loss programs, WebMD symptom checking and remote heart monitoring technologies, for example, are achieving wider acceptance. Within the transplant field, unfortunately, certain technologies are probably not being used to their full advantage, but the discipline of addressing the specific needs of each patient has been honed by years of experience. • Language barriers can be an impediment to the communication needed for achieving effective engagement. Translation services obviously personalize the entire experience. (These barriers, however, can also pertain to knowing how to talk to insured members and consumers so the message does not come across as invasive or contains cumbersome clinical terminology.)

Observations As it has often been pointed out, we are witnessing a major shift in health culture. Hundreds of health care start-ups, major hospital systems, integrated payer-

provider networks, health industry associations, Federal Government agencies, venture funds, national and regional payers, managed care companies, telecommunication companies, app developers, IT vendors and health care consulting firms are all getting involved. The engagement movement encompasses chronic health conditions, critical care, remote monitoring, electronic medical records, CDHPs, the quantified self, disease management programs, population health, CMS provider Meaningful Use requirements, patient and member website portals, dietary and nutritional sciences, patient relationship management, fitness and exercise, IT software development, accountable care organizations and telemedicine. It has generated thousands of health apps and websites plus an endless stream of industry analysis, white papers, academic

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research, public policy debate, digital health strategy blogs and articles like this one. Moreover, it’s all interrelated and there’s a lot of cross-talk, so trying to cover the waterfront can be a challenging. Maybe that’s part of the problem: engagement doesn’t speak with one voice. Consumer apathy notwithstanding, if “advanced payers,” possibly with synced-up providers, can execute precision engagement strategies focused on the individual as an informed, active clinical participant while maintaining his/her privacy – similar to the strategies developed by transplant centers over the years – a dose of personally meaningful clarity and responsibility can be added to the claims cost equation. For now, the widespread adoption of engagement principles and practice by consumers and patients might best be described as uneven, sometimes elusive. Payers and providers may need to constantly heed the advice that Jonathan Winters once offered when he said, “If your ship doesn’t come in, swim out it.” n Mark Nelson, MA, MBA, is managing partner of LOOK Alliance, LLC in Minneapolis, MN and Medical Avatar, LLC in New York, NY, specializing in best-practice precision engagement strategies for payers and providers seeking improved financial and clinical outcomes. He was previously an officer/AVP with Allianz Life Insurance Company, founded the LifeTrac Transplant Network and Protocol Networks. References

Forbes Magazine, “Patient Engagement Is The Blockbuster Drug of the Century,” by Dave Chase, September 2012, citing Leonard Kish, Principal and Co-Founder of VivaPhi, and “Is There A Business Case For Engaging Patient?” by Dave Chase, October 2012. “Engagement” in some contexts refers to initiatives like CDHPs and member/patient website portals. In this context it usually refers to the process of establishing the individual as an active clinical participant vs. an administrative participant and co-insurer. 2 “Health Literacy: What Is Health Literacy?” MedLinePlus “Health Literacy,” and www. , U.S. Department of Health and Human Services. 3 and Towers Watson NGBH Employer Survey 2011. 4 American Heart Association research and OptumRx study, May 2012. 5 Protocol Networks and InterLink Health claims data 2005-2012. 6 The immunosuppressant drug regimen alone is critical for the long term viability of the transplanted organ or tissue, and maintaining one’s overall health is necessary for optimal patient survival rates - which are reported annually to CMS, UNOS, FACT, and half a dozen centers of excellence networks. 7,, Center for International Blood and Marrow Transplant Research, “Current Uses and Outcomes of Hematopoietic Stem Cell Transplantation 2013”, and Foundation for the Accreditation of Cellular Therapy 1


November 2014 | The Self-Insurer

8 At any given time, according to one leading transplant center in the Midwest, a senior nurse coordinator can be managing 10 to 20 patients being evaluated as transplant candidates, 50 or more that are on the organ wait list, two or three who are inpatient for the procedure and 20 or more who are being monitored post-discharge for medication management, testing, biopsies, etc. 9 On the high end of the response range, five centers reported that 20% of their transplant patients were not receptive to patient education. 10 Four centers reported that 30% of their transplant patients exhibited “low compliance.” 11 Hospital readmissions overall are believed to cost the U.S. health care system $25 billion a year, American Journal of Transplantation, October 2012, and a re-transplant can cost 50% to 100% of the original procedure depending on the re-transplant payment provision of a COE contract. 12 High compliance patients were divided into Above Average, Average and Below Average in two categories: Good underlying health and a positive transplant experience, and poor underlying health with a complicated transplant. Low compliance patients were categorized in the same manner. The coordinators were then asked to indicate what percentage of each group experienced an Above Average, Average or Below Average clinical outcome in terms of post-discharge complications (readmissions, medication tolerance issues, infections and rejection episodes). 13 Paragraphs 4 and 6 in this section were free text responses from the nurse coordinators. 14, 15 Hematopoietic stem cell transplant (HCT) volume, growth and survival rates do not follow the same patterns as solid organ procedures, and should be analyzed separately. 16 Milliman & Robertson, Research Report “2011 U.S. Organ and Tissue Transplant Cost Estimates,” 2008 and 2005. www. 17 Claims data, two leading stop loss/reinsurance carriers 1997-2007. 18 Approximately 10% of all transplants are re-transplants due to organ rejection or failure. 19 E.g., Scientific Registry of Transplant Recipients www.srtr. org and the United Network of Organ Sharing www.unos. org provide conference resources and presentations on this topic. 20 HIMSS - Healthcare Information and Management Systems Society, 2013, Engage! Transforming Healthcare Through Digital Patient Engagement, edited by Jan Oldenburg (Aetna), Kate Christiansen, MD (Kaiser), Brad Tritle (HIMSS) and Dave Chase.

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4/24/14 4:54 PM

ART GALLERY by Dick Goff

Telehealth Brings New Efficiency, Savings to Health Plans


herlock Holmes would say “it’s elementary!” that a major fi nancial benefi t of self-insured health plans or health captives is the ability to restrain healthcare costs while providing excellent benefi ts. That’s because every dollar saved fl ows right through the books to the bottom line. A variety of strategies have served this goal, including wellness programs, disease prevention and management systems and various onsite services including full-scale clinics. Now the fast-developing field of telehealth can make these and other cost-restraint methods more effective and go far beyond them to bring significant cost savings along with high employee acceptance, reduced absenteeism and improved medical outcomes.

The evolving specialty of telehealth brings new kinds of services that now can be based on advanced communications technologies that have become nearly universal. Just like the fact that your smart phone is far more than a phone, telehealth is far more than a phone consulting service. Dr. Steven Meyer, M.D., J.D., founder of CMDNow of Los Angeles, speaks for his industry in citing utilization by employee health plans that was a nascent one percent in 2011, now estimated at 22 percent and to reach 68 percent by 2017 with savings to U.S. employers of more than $6 billion, according to Towers Watson research. “Changes like this occur very rarely,” Dr. Meyer says. “They bring great opportunities when they pass the ‘tipping point’ and the floodgates open.” As an example of the new telehealth industry, the CMDNow network is available 24/7 with total connectivity via desktop, mobile phone, wireless devices as well as conventional landlines. Primary care physicians and specialists in a variety of fields provide healthcare services to clients in all 50 states.


November 2014 | The Self-Insurer

“Just like the Internet began as a purely academic exercise, telehealth originated within recent decades as a system to provide university medical center expertise to doctors everywhere, particularly in rural areas remote from advanced healthcare technologies,” Dr. Meyer says. As an updated example of that, a builder of onsite employee clinics in, say, a Rocky Mountain state could partner with a telehealth provider able to bring advanced specialty care to the remote area via electronic technologies. “Telehealth can offer a variety of platforms designed to serve specific needs of clients of any organizational size and in any location,” Dr. Meyer notes. Some key features of telehealth programs include zero co-pay, no deductibles and continuing employee education. During normal business hours average wait times to contact a physician are under five minutes and even on a 24-hour basis they average less than 20 minutes. The greatest volume of telehealth services occur in the 80 percent of cases that can be considered minor illnesses (unless they’re happening to you and seem anything but “minor”). These include common ailments like colds, sore throats, pinkeye, stomach flu and others. Through telehealth services, these can be treated and solved often without an employee losing any time off the job. Telehealth services can be accessed from work or home without the time-consuming trips to a central health service location.

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As employees or dependents register for telehealth services they will fill out health questionnaires that may include identifying pharmacies to which telehealth doctors can email prescriptions. Dr. Meyer says: “Patients can relay to the doctor their own vitals such as temperature or blood pressure, or even transmit a photo of a rash, sprain or sore throat by cell phone.” That’s a new one on me: a health condition “selfie.” “It’s widely reported that up to 70 percent of emergency room visits are unnecessary,” Dr. Meyer relates. “Now, if just half of those visits could be eliminated within a population of 750,000 people, that would represent savings to that community in the area of $200 million.” Dr. Meyer cites the experience of a Midwestern manufacturer that decreased its employee healthcare

costs by 14 percent during a recent two-year period – while also increasing employment by 22 percent. “Companies that have the greatest utilization of telehealth services among their employees experience the greatest savings,” Dr. Meyer says. As telehealth services become more familiar, utilization among employee groups continues to rise, he says: “When employees are given the choice between more expensive major medical plans or high deductible plans coupled with a telehealth program, the number of people choosing the more expensive program drop from the high 80 percentiles to just over 50 percent resulting in a huge savings for employers.” Satisfaction surveys that follow telehealth service incidents are Dr. Meyer’s proof of the pudding. “While less than 70 percent of people are typically satisfied with their in-person

visit to a medical provider, telehealth satisfaction rates are consistently in the mid-90 percentile,” he says. For me, saving people’s time and trouble to cure their illnesses can mean successful long-term operation of a self-insured health plan or a healthcare stop-loss captive. Saving significant money along the way is the icing on the cake. Readers who wish to comment on this column or write their own article are invited to contact Editor Gretchen Grote at n Dick Goff is managing member of The Taft Companies LLC, a captive insurance management firm at


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The Self-Insurer | November 2014


Bench From the

by Thomas A. Croft, Esq.


here are two cases of note this month, one which addresses the novel issue of whether an insured group must continually pay claims in respect of a claimant during the policy period after a disclosure-based denial to preserve its rights, and another reiterating some fundamentally important principles regarding the effect of stop loss insurance in general, and advance funding in particular, on the self-insured character of a Plan.

1. Ohio Federal Court Holds Payment Outside the Policy Period Does Not Necessarily Relieve Stop Loss Carrier from Liability Where There was a Previous Disclosure-Based Denial (Florida Keys Electrical Cooperative Association v. Nationwide Life ins. Co., et al., No. 2:14-cv-372, S.D. Ohio, October 16, 2014). This case decides an issue of first impression in the stop loss arena, and is significant for carriers, MGUs, TPAs and self-insured groups. Essentially, it holds that, once a carrier denies a claim on disclosure grounds, it is no longer necessary for the group to pay future claims for the claimant at issue in order to preserve its rights to sue the carrier for claims incurred but not paid during the coverage period set forth in the stop loss policy. This general statement is subject to various qualifications, as the discussion below shows.

Facts (as set forth in the Court’s opinion and as taken from the allegations of the Group’s Complaint)1: The group, Florida Keys Electrical Cooperative Association (“Florida Co-op”), was insured under a Nationwide Life Insurance Company (“Nationwide”) 18

November 2014 | The Self-Insurer

stop loss policy issued through its MGU, RMTS, LLC (“RMTS”). This was 24/12 policy, providing coverage above the specific deductible for claims incurred between January 1, 2009 – December 31, 2010, and paid by the group between January 1, 2010 – December 31, 2010. The group’s Complaint alleged that it sought reimbursement for claims of $534,394.67, apparently incurred and paid by the group during the policy periods set forth in the stop loss policy, for claimant “TC,” a dependent spouse, which were denied for disclosure reasons by RMTS on September 23, 2010 on behalf of Nationwide. Florida Co-op appealed the denial.The Court’s opinion is silent on what response RMTS made to the appeal, although Florida Co-op’s Complaint alleged neither RMTS nor Nationwide ever “formally” denied it, though they did not pay the claims.

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In any event, Florida Co-op’s Complaint also alleged that additional amounts were incurred with respect to “TC” during the policy period, including a claim from a provider for more than $715,000, but that Florida-Co-op was able to negotiate a reduction of this amount to approximately $501,000.2 The problem: Florida Co-op did not actually pay the reduced hospital bill of $501,000 until sometime in 2012 – well outside the policy benefit period. Florida Co-op filed suit against Nationwide and RMTS in April 2014, alleging, among other things, that Nationwide breached its stop loss contract, not only as to the original $534,394.97 which it had paid during the policy period, but also as to the additional amounts that were not paid until 2012, after the policy period expired (hereinafter the “Late-Paid Claims”). Florida Co-op sought damages from Nationwide for breach of contract and under other theories. The claim against RMTS was based on alleged tortious interference with Florida-Co-op’s rights under the stop loss policy.3

The Motion and the Court’s Analysis: Both Nationwide and RMTS filed a motion for judgment on the pleadings as to the “Late-Paid Claims” – the claims paid in 2012. It is important to understand that this motion was not addressed to merits, vel non, of the disclosure issue itself, but was simply based on the fact that the approximately half a million dollars of the total of claims at issue were not paid within the policy window. In other words, Nationwide/RMTS wanted these amounts excluded from the lawsuit up front, based on the express terms of the stop loss policy, which required payment before December 31, 2010 for coverage to apply.

Florida-Co-op responded to Defendants’ motion by arguing that the previous denial of the claims relating to “TC” on disclosure grounds excused it from complying with the policy terms as to the “Late-Paid Claims.” Indeed, Florida Co-op’s Complaint alleges that it did not even file a claim for reimbursement with Nationwide/RMTS for the “Late-Paid Claims,” but nevertheless is entitled to reimbursement of them. This brings us to the doctrine of anticipatory repudiation, or anticipatory breach of contract, which was determinative of the outcome of Nationwide/RMTS’s motion. Under Florida law as interpreted by the Court (there was likely a Florida choice of law provision in the stop loss policy), “[a]n anticipatory breach of contract is one committed before the time when there is a present duty of performance, and is the outcome of words or acts evincing an intention to refuse performance in the future.”The Court observed that “disavowing a contractual duty before the time specified in a contract for performing that duty has arrived is the very definition of an anticipatory breach.” The Court interpreted Florida Co-op’s Complaint to allege that the denial of the first claims for “TC” on disclosure grounds constituted an advance notice that all claims relating to “TC” in the future would be denied on these same grounds. As a practical matter, that seems sensible – once a stop loss claim has been denied on disclosure grounds, it is highly unlikely that future claims would be honored, as the disclosure issue that lead to the initial denial cannot be “cured” by subsequent action on the part of the insured. The Court reviewed the options of a party to a contract upon an anticipatory repudiation by the opposite party, and concluded that one of them is for that party “to treat the repudiation as a breach by making some change in

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

position.” Here, the Court concluded that Florid-Co-op’s decision to treat the denial of the first claims as a breach of Nationwide’s obligations to reimburse for all claims related to “TC” and its decision not to pay within the policy period and pursue negotiations with the provider was a legitimate response: “[Florida Co-op] did not have to engage in futile pursuit of reimbursement, including meeting its contractual obligation to pay under the policy. Rather, when an anticipatory breach occurs, the nondefaulting party is relieved of its obligations under the contract.” The Court went on to add an important qualification to Florida Coop’s rights in this situation. Essentially, the Court held that Florida Co-op must be able to prove that it could have performed – that is, pay the Late-Paid Claims within the policy period--but simply elected not to do so in light of the anticipatory repudiation by Nationwide. While the Complaint did not expressly allege that Florida Co-op was ready, willing, and able to pay the Late-Paid Claims within the policy period, the Court concluded that such allegations could be inferred from the allegations of the Complaint, based on what the Court termed “judicial experience and common sense.” In summary, then, the Court decided that the fact that the Late-Paid Claims were not paid within the policy period was not alone fatal to FloridaCo-op’s rights to reimbursement under the stop loss contract. The Court stated: “Whether this inference…that [Florida-Co-op] was ready, willing and able to pay remain[s] correct in light of the actual development of facts in this case remains just as open as the issue of whether Defendants indeed breached the contract [by denying the initial claims on disclosure grounds] does.” In short, Florida-Co-op was not tossed out on its ear just because the claims at issue were paid late. The The Self-Insurer | November 2014


propriety of the denial of all the claims on disclosure grounds remains an issue for trial, as does Florida Co-op’s ability to have paid the Late-Paid Claims within the policy period. Author’s note: The “change of position” requirement appears to have been satisfied in this case by the group’s choice not to pay the Late-Paid Claims within the policy period and its pursuit of a discount with the provider instead. One wonders whether the result might have been different if Florida Co-op had simply waited until 2012 and not pursued negotiations with the provider. As a practical matter, a stop loss carrier’s denial of a claim on disclosure grounds should not automatically give an indefinite extension to a group to pay subsequent claims, or excuse even filing a stop loss claim for them. The safest course in these kinds of situations for the group, obviously, is to pay all potentially eligible claims within


November 2014 | The Self-Insurer

the policy period, file timely claims for them in spite of the earlier disclosure-based denial, and eliminate the need for an “anticipatory breach” type argument. Note also that this case applied Florida law. The law on anticipatory repudiation can vary significantly from state to state.

2. Wisconsin Federal Court Reiterates Principle That Plan Established By Employer With Stop Loss Coverage Still Retains Self-Insured Status Under ERISA Despite Advance Funding Feature (Wausau Supply Co. v. Murphy, No. 13-cv-698-wmc, W.D. Wis., September 22, 2014). This recurring issue came up again recently in a subrogation case. In Wisconsin, the “make whole doctrine” generally applies to subrogation recoveries, essentially meaning that before an insurer is entitled to any subrogation recovery, the injured party is entitled to be compensated, i.e., “made whole,” for all his injuries. That doctrine, however, does not apply if ERISA pre-empts it, as in the case of a self-insured Plan. In the above-cited case, the employer/Plan Administrator maintained medical stop loss coverage from American National Insurance Company (“ANIC”). A minor Plan beneficiary was seriously injured while at a child care center. The employer paid out a total of more than $525,000 in medical benefits for the child. Through the parents, the child filed a personal injury action against the owners of the child care center, and entered into a substantial settlement. The Plan contained a subrogation provision giving it a right to first reimbursement and an automatic lien if the beneficiary recovered, by settlement or judgment, for his injuries from a third party. Following the settlement with the child care center, the parents refused to honor

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Life’s brighter under the sun Stop-loss insurance policies are underwritten by Sun Life Assurance Company of Canada (Wellesley Hills, MA) in all states, except New York, under Policy Form Series 07-SL. In New York, stop-loss insurance policies are underwritten by Sun Life and Health Insurance Company (U.S.) (Windsor, CT) under Policy Form Series 07-NYSL REV 7-12. Product offerings may be subject to state variations. © 2014 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.

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The Self-Insurer | November 2014


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the Plan’s subrogation rights, advancing two arguments of relevance here: first, that the stop loss coverage maintained by the employer stripped the Plan of its self-insured status so that the “make whole” doctrine applied; and, second, that if the mere existence of stop loss coverage did not have this effect, then the advance funding feature of that policy did. The advanced funding mechanism, apparently termed “simultaneous reimbursement” in the ANIC policy, provided for an expedited claims review and reimbursement procedure whereby the stop loss carrier would forward specific claim reimbursement to the group’s TPA, and the TPA would simultaneously release payment to the providers. The federal court disposed of parents’ argument that the mere existence of stop loss coverage rendered the Plan subject to the

“make whole” state law doctrine, citing a previous Wisconsin state court case and a long line of federal cases holding that the existence of stop loss insurance does not deprive an otherwise self-insured Plan of status as such. I quote the Court’s review of these cases at length, inasmuch as they are the anchors for this extremely important article of faith in the self-insured arena: “While the Seventh Circuit has not considered this issue, as far as the court can discern, all circuit courts considering it have held that stop-loss insurance does not strip a self-funded, employee benefit plan of its uninsured status. See Bill Gray Enters., Inc. Emp. Health & Welfare Plan v. Gourley, 248 F.3d 206, 209 (3rd Cir. 2001) (“We join our sister circuits in holding a self-funded employee benefit plan with stop-loss insurance is not deemed an insurance provider under the Employee

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Retirement Income Security Act.”), abrogation recognized on other ground, U.S. Airways, Inc. v. McCutchen, 663 F.3d 671 (3rd Cir. 2011), rev’d, 133 S. Ct. 1537 (2013); see also Thompson v. Talquin Bldg. Prods. Co., 928 F.2d 649, 653 (4th Cir. 1991) (holding that “stop-loss insurance does not convert Talquin’s self-funded employee benefit plan into an insured plan”); Brown v. Granatelli, 897 F.2d 1351, 1354 (5th Cir. 1990) (holding that “under Texas law stop-loss insurance is not accident and sickness insurance”); United Food & Commercial Workers & Emp’rs Ariz. Health & Welfare Trust v. Pacyga, 801 F.2d 1157, 1161-62 (9th Cir. 1986) (“The stop-loss insurance does not pay benefits directly to participants, nor does the insurance company take over administration of the Plan at the point when the aggregate amount is reached. Thus, no insurance is provided to the participants, and the Plan should

The Self-Insurer | November 2014


properly be termed a non-insured plan, protected by the redeemer [sic] clause and preemptive of the Arizona anti-subrogation law.”).” Also rejecting the parents’ argument that the “simultaneous reimbursement” feature of the stop loss policy affected the analysis of the Plan’s self-funded status, the Court noted that the payment from the carrier still went through the employer/ Plan Administrator for reimbursement to the medical providers and did not go directly to any Plan Participants or their medical providers. Thus, this case stands as comforting reassurance that fundamental principles on which our industry daily relies – totally outside the narrow subrogation context – remain good law. n Tom Croft is a magna cum laude graduate of Duke University (1976) and an honors graduate of Duke University School of Law (1979), where he earned membership in the Order of the Coif, reserved for graduates in the top 10% of their class. He returned to Duke Law in 1980 as Lecturer and Assistant Dean (1980-1982) and as Senior Lecturer and Associate Dean for Administration (1982-1984). He also taught at the University of Arkansas-Little Rock law school, where he was an Associate Professor of Law (1990-91), earning teacher of the year honors.

Employer Groups informally, as well as in litigated and arbitrated proceedings, and has mediated as an advocate in many stop-loss related mediations. Tom can be reached at Resources Because of the procedural posture of the motion at issue, the Court was required to assume that the plausible allegations of the Complaint were true. See Fed.R.Civ.P. 12(c); 12(b)(6); Bell Atlantic Corp. v. Twombly, 550 U.S. 554, 570 (2007).


2 It is unclear from the Complaint or the Court’s opinion whether an additional $47,000 in claims relating to “TC” were paid during the policy’s benefit period or not. 3 The author questions the viability of this theory under the general proposition that an agent, an MGU such as RMTS, cannot tortiously interfere with its principal’s contract under the law of many states. Typically, while not a party to the stop loss contract, the MGU is not a “stranger to the contract” legally capable of tortiously interfering with it. Florida law may or may not have different features.

Tom currently consults extensively on medical stop loss claims and related issues, as well as with respect to HMO Excess Reinsurance, Medical Excess of Loss Reinsurance, and Provider Excess Loss Insurance. He maintains an extensive website analyzing more than one hundred cases and containing more than fifty articles published in the Self-Insurer Magazine over many years. See He regularly represents and negotiates on behalf of stop loss carriers, MGUs, Brokers, TPAs, and

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The Self-Insurer | November 2014


TRIA Reauthorization and the Lame-Duck Session The Fate of TRIA Captives Hangs in the Balance


by Kevin McKenney, SIIA Government Relations Coordinator

fter the midterm elections take place in November, all the buzz surrounding closely contended races will quiet, and Congress will pack legislation into the short “lame-duck” session. The reauthorization of the TRIA program is one undertaking that

from 15 percent to 20 percent and the recoupment amount from $27.5 billion to $37.5 billion, over a five year period. The $100 million trigger, referenced in

stakeholders are heavily pushing for before its expiration. SIIA’s Government

the House bill, remains the same. SIIA

Relations team has been working in a variety of areas to ensure this program’s

believes the changes in the Senate bill

survival and that captive insurers are able to continue to write coverage.

are palatable and would accept them

Inside sources close to SIIA indicate that the House of Representatives is

in a final conference committee bill in

sharply divided on how to continue the TRIA program. Chairman Jeb Hensarling (R-TX) passed his version of the bill through the Financial Services Committee,

SIIA believes that TRIA will be

but is not supportive of the Senate bill, so a conference committee may not

reauthorized by the end of the lame

take place until late December, just days before expiration. The bill, H.R. 4871,

duck session, but is concerned about

would increase the program trigger for all non-nuclear, biological, radiological, and

the program trigger and length of

chemical events, currently at $100 million to $500 million by 2019, which SIIA

the extension. As we have seen from

believes would effectively put coverage out of reach for all non-NBCR events.

Congress, deals are made to pass

House Democrats have stated support for the program,

something in the short term, with

The Senate bill has already been passed through the Senate with only four Senators voting against the bill. The Senate version changed the insurer co-pay


exchange for a quick passage.

November 2014 | The Self-Insurer

the intention of revisiting a program at a later date. A possible but unlikely

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

scenario is a six month extension. With the Senate expected to shift to GOP control, the House may see an opportunity to pass reforms to the program with support from the upper chamber. While the length of extension remains to be seen, top Republicans are clear in their intention to change the current program structure. In August, SIIA President and CEO Mike Ferguson sent a letter to each House member urging them to support the immediate reauthorization of TRIA, and SIIA has joined the Coalition to Insure Against Terrorism (CIAT). SIIA and other stakeholders have helped to generate over 100 cosponsors for the program’s extension and is continuing to work for immediate extension. Watch for additional real-time reporting from SIIA as Congress gets closer to adjournment for the year. n

Kevin McKenney serves as government relations coordinator for the Self-Insurance Institute of America, Inc. He can be reached at


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The Self-Insurer | November 2014




Look at

Life Insurance Captive

REINSURERS by Karrie Hyatt


November 2014 | The Self-Insurer

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


aptives and special purpose vehicles offering reinsurance for life insurance policies have come under increased scrutiny in the last two years – from the National Association of Insurance Commissioners (NAIC) to the New York Department of Financial Services (NYDFS) to independent researchers and the Federal Insurance Offi ce. Much of the inquiry is due to their rapid growth over the last 12 years. Growing from $11 billion in 2002 to $364 billion in 2012, according to an independent study published last April. For the purpose of this article, and to avoid any confusion with pure captives (i.e. single parent captives or association captives), these types of insurance vehicles that reinsure life insurance companies will be referred to as special purpose reinsurance vehicles (SPRVs).

SPRVs – What’s Going On? What exactly are the SPRVs under scrutiny? In the report issued by the NYDFS in June 2013, they label these “set-ups” as shadow insurance and make worrying correlations between them and the sub-prime mortgage crisis. Yet the SPRVs in question are a widely used mechanism that are often created by commercial insurance companies for reinsurance purposes. They are generally formed under captive law and are most often formed to “facilitate the securitization of one or more ceding insurers’ risks as a means of accessing alternative sources of capital and achieving the benefits of securitization,” according the NAIC white paper “Captives and Special Purpose Vehicles.” Inquiry into the operation of SPRVs began in 2012 when the Financial Condition (E) Committee of the NAIC formed a subgroup, the Captive and Special Purpose Vehicle Use (E), charged to examine SPRVs transferring risk that was not self-insured risk. The goal of the

subcommittee was to “Study insurers’ use of captives and special purpose vehicles to transfer insurance risk, other than self-insured risk, in relation to existing state laws and regulations and establish appropriate regulatory requirements to address concerns identified in this study.” Their results were published in the previously mentioned report in July 2013. The NYDFS published a report about the same time titled “Shining a Light on Shadow Insurance,” which was highly critical of the use of SPRVs and called for a moratorium on the licensing of all types of captives. This year two white papers by separate independent researchers were published – one criticizing SPVs and one supporting them. The first, titled “Shadow Insurance” by Ralph S.J. Koijen and Motohiro Yogo and published by the Federal Reserve Bank of Minneapolis, was highly critical of SPRVs, although it recognized that SPRVs allowed life insurance companies to grow where otherwise they would be hindered by capital requirements. The second titled, “The Use of Captive Reinsurance in Life Insurance,” by Scott E. Harrington, a professor at the Wharton School, University of Pennsylvania, is decidedly in favor of the use of SPRVs and refutes the arguments made in the previous paper. The latest concern, as reported in The Self-Insurer September 2014 issue, was the NAIC’s Financial Regulation Standards and Accreditation (F) Committee’s proposed change to the definition of multi-state reinsurance companies aimed specifically at life insurance SPRV/captive reinsurers, but ostensibly casting a much wider net to include all captives.

Background In an effort to stem strategies being used by some insurers to reduce statutory reserves for certain level

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

premium term life insurance policies, in 2000 the NAIC adopted Model Regulation 830, known as Regulation XXX, which required substantially higher reserves for companies writing those policies. This was followed in 2003 by Regulation AXXX which adopted new reserve requirements for some universal life policies with secondary guarantees. Both of these regulations were adopted and put into practice by most states. Due to the higher statutory reserve requirements many life insurance companies looked to alternate ways of securing additional capital. Unaffiliated reinsurance has a limited supply and it can be quite expensive, so looking to special purpose financial vehicles was an obvious route for commercial insurers to take. According to the paper “Shadow Insurance,” by 2012 reinsurance provided by SPRVs exceeded that provided by third-party reinsurance – growing from $11 billion in 2002 to $364 billion in 2012. In 2012, companies moved 25 cents of every dollar insured to SPRVs, as opposed to two cents per dollar insured in 2002. The subsector has grown so quickly because life insurers are operating in a “flawed system,” according to David Provost, deputy commissioner of the Captive Insurance Division, Vermont Department of Financial Regulation, “The reserve requirements for these products are so onerous that many companies are faced with a choice of finding alternative reserve financing or discontinuing products that consumers want. Regulators are granting credit for reinsurance to [SPRVs] within the provisions of the model credit for reinsurance laws, but probably not in ways that anyone anticipated.” Some life insurance products have statutory reserve requirements that are many times higher than the reserves most actuaries would find necessary. The discrepancy between The Self-Insurer | November 2014


product pricing and product reserves are so out of sync that life insurance companies must either raise the price or discontinue the product. SPRVs offer an alternative.

“Shadow” Insurers After more than a decade of solid growth, SPRVs are poised to still grow further. It is because of such fast growth that some parties have begun to look more closely at them. The NYDFS was the first to label SPRVs as a “shadow” financial company – a term used to describe a financial intermediary that is not subject to regulatory oversight. In the paper issued by the department, it states that “Shadow insurance... could potentially put the stability of the broader financial system at greater risk. Indeed, in a number of ways, shadow insurance is reminiscent of certain practices used in the run up to the financial crisis.” It is the fear of another financial crisis caused by SPRVs that is feeding a lot of the current scrutiny. Koigen and Yogo, the authors of “Shadow Insurance,” are highly critical of SPRVs, saying that “The fundamental motive for shadow insurance is the same agency problems that lead to higher leverage, higher dividend rates, and increased risk taking in regulated financial institutions [in the early 2000s].” The authors go on to reiterate another prevalent concern about SPRVs, that they are loosely regulated – whether on-shore or off-shore. New York’s paper declared it a “regulatory race to the bottom” as more domiciles pass legislation allowing for their formation. In summary, the main criticisms aimed at SPRVs are lack of transparency; using letters of credit or parental guarantees as assets; lower capital requirements than traditional insurers; and lack of regulation. Yet all these concerns point to the pervading fear that an insurance bubble is being


November 2014 | The Self-Insurer

created that could collapse with more far-reaching effects. If, in a short period of time, a number of SPRVs become insolvent or their parent companies become insolvent, it is argued that there could be a chain reaction in the financial markets. As life insurers are the biggest institutional investors of corporate bonds, according to Koigen and Yogo, there could be a larger financial impact on investment and economic activity. As the 2008 financial crisis showed, financial markets are so closely connected that a seemingly small crisis could have global impact.

In Favor of SPRVs Yet, even Koigen and Yogo find that if SPRVs were suddenly banned, “the average company currently using shadow insurance would raise its price by 12 percent in response to a 21 percent increase in marginal cost. Higher prices mean that some potential customers would stay out of the life insurance market. Consequently, annual life insurance underwritten would fall by $9.6 billion for the industry, or by 11 percent relative to the current size of the market.” SPRVs are serving a need within the life insurance marketplace. According to Harrington, as written in his research paper, “In contrast to alarmist analyses with inappropriate analogies to the subprime mortgage fiasco and attendant financial crisis, the development and oversight of captive reinsurance arrangements have not taken place in the shadows.” Vermont’s Provost commented that, “As U.S. insurance regulators have struggled to point out to the federal government, insurance and banking are different institutions that need different regulations. These transactions have not been conducted in the shadows – there are many eyes on them.” Because captives and special purpose vehicles are little understood within the insurance and financial sectors, they often fall under heavier criticism than traditional insurance. According to Provost, “I’m sure part of the bad rap on captives is a combination of a history of some tax avoidance issues, an offshore mystique, and the fact that much of the information about a captive is, or was, confidential. The issue of confidentiality is pervasive in the world of financial institutions.” As SPRVs are beholden to their parent company, they are not required to make their financial transactions public. However, they are required to file financial information with their domicile’s regulator. In many cases, specific financial transactions must be approved prior to implementation. SPRVs are not less regulated than their traditional counterparts, only differently regulated, and in many cases they are regulated more strictly. Provost gives an example of how it works under Vermont law: “For a single [SPRV] transaction to take place in Vermont, it will require review and/or approval by Vermont, our consulting actuary, the ceding state regulator and their actuary, the financer’s actuary, and more. Each transaction undergoes a very detailed level of scrutiny.” In his research, Harrington concluded that the financial arrangements of SPRVs have not “led to substantial and hidden risks. There is likewise no credible evidence that the arrangements have been overlooked by regulators and rating agencies or that they significantly increase insolvency risk.” Harrington also found that “diverse captive reinsurance arrangements are an important tool for efficiently managing capital and the gap between statutory and economic reserves, which are closely monitored by regulators and rating agencies, thus facilitating lower prices and more insurance protection without excessive insolvency risk.”

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

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Improving the Reputation of SPRVs Education about SPRVs, as it is with the entire captive industry, is a key factor to creating more positive opinions. Despite the accusations of limited regulation and shadowy transaction, SPRVs are, in fact, highly regulated by their domicile’s regulator and their transactions, while not available for public scrutiny, are being monitored and analyzed. The subsector has grown quickly and steadily, but it is also serving a need for life insurers. According to Provost, states which allow for SPRV formation are working to change the way reserves are calculated. Currently, life insurance product reserves are calculated using a formula-based approach – a one-size fits all calculation. However, states are working on implementing a principles-based reserving (PBR) approach that make it “more like the P&C business – companies will be allowed to factor their own experience into setting their reserves,” said Provost. The goal would be to have “a ‘right-sized’ reserve that will match the economics of the policy and provide a degree of conservatism.” The reserve requirements for life insurers would be customizable to the needs of their business, which could eliminate the need for alternate financing. Several committees at the NAIC are working on guidelines that would add more transparency to SPRV financial transactions. While more transparency may improve their reputation, Harrington is critical of how it may play out. In an email exchange, he said, “The challenge is in the details, to advance disclosure in a cost effective manner and not just pursue greater disclosure for the sake of disclosure.” There is also an Risk 1 committees to more broadly regulate SPRVs, as evidenced by effortMitigation in many NAIC the (F) Committee’s proposed change to the definition of multi-state reinsurance

companies. Again, Harrington cautiously agrees that more regulation may help. “I am concerned that there may be a rush to more regulation with potentially adverse and unintended consequences. I regard the case for significantly more regulation as less than compelling.” While SPRVs have many detractors, they do have the support of the captive and alternative risk transfer communities. If the response to the (F) Committee’s proposed change is any indicator – more than 30 comments against the change submitted in less than two months – captives and SPRVs have a large base of support. These alternative risk vehicles serve as an important stop-gap for life insurers, so detractors and supporters need to find a common ground to work together. n

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The Self-Insurer | November 2014


PPACA, HIPAA and Federal Health Benefit Mandates:


The Affordable Care Act (ACA), the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and other federal health benefit mandates (e.g., the Mental Health Parity Act, the Newborns and Mothers Health Protection Act, and the Women’s Health and Cancer Rights Act) dramatically impact the administration of self-insured health plans. This monthly column provides practical answers to administration questions and current guidance on ACA, HIPAA and other federal benefit mandates.


IRS Notice 2014-55 Allows New Health Coverage Election Changes


n September 18, 2014, the IRS issued several pieces of guidance on pressing Affordable Care Act issues, including Notice 201455. Notice 2014-55 provides for two new permissible, mid-year cafeteria plan election changes. The fi rst change is intended to allow employees who were expected to average 30 hours of service per week to revoke their election and elect other minimum essential coverage if they experience a change in employment status after which they are not expected to average 30 hours of service, even if they do not lose eligibility under the plan. The second change is designed to allow employees enrolled in a group health plan and eligible to enroll in the Marketplace to elect Marketplace coverage, either during a special enrollment period or during the Marketplace’s annual enrollment period (e.g., when the group health plan year is not the calendar year). Employers may immediately rely on this guidance.

Reduction in Hours of Service The first of the two new election changes applies to an employee who is originally expected to average at least 30 hours of service per week but experiences a change in employment status such that the employee is no


November 2014 | The Self-Insurer

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longer expected to average 30 hours of service per week AND does not lose eligibility under the plan as a result of the status change (e.g., if the status change occurs during a month in a stability period during which the employee qualified as full-time).

Practice Pointer: Generally, losing eligibility under the plan is a cornerstone requirement of the election change rules applicable to change-in-status events. However, if this event occurs and the additional elements described below are satisfied, this new guidance will allow an election change in this particular situation even though eligibility under the plan has not been lost. If such an event occurs, the employee will be permitted to prospectively revoke his or her election under the plan so long as the election change corresponds to the employee’s (and related individuals’) intended enrollment in another plan that provides minimum essential coverage that is effective no later than the first day of the second month following the date the coverage is revoked (e.g., if the coverage is revoked in June, coverage under the new plan must begin on August 1).

Practice Pointer: Minimum essential coverage is broadly defined and includes coverage in an “eligible employer sponsored plan” (i.e., a group health plan that provides other than excepted benefits) and a qualified heath plan in the Marketplace. That being said, there are limited opportunities to enroll in the Marketplace following a change in employment status that does not cause a loss of coverage under the plan.

Enrollment in a Marketplace QHP The second new election change applies to an employee who qualifies for either a special or annual enrollment period in the Marketplace. If this occurs, the employee will be permitted to prospectively revoke his or her election under the plan to enroll in the Marketplace, so long as the election change corresponds to the intended enrollment of the employee (and related individuals) in Marketplace coverage that is effective no later than the day following the last day of the original plan coverage. Under both options, the plan may rely on the “reasonable representation” of the employee that the relevant criteria are met.

plans may not allow retroactive revocations of coverage elections.

Practice Pointer: While the plan amendment may be made before the end of the 2015 plan year, it is important to communicate this change to employees and record the date in your files if you intend to incorporate these changes into your plan. n Attorneys John R. Hickman, Ashley Gillihan, Johann Lee, Carolyn Smith, and Dan Taylor provide the answers in this column. Mr. Hickman is partner in charge of the Health Benefits Practice with Alston & Bird, LLP, an Atlanta, New York, Los Angeles, Charlotte and Washington, D.C. law firm. Ashley Gillihan, Carolyn Smith and Johann Lee are members of the Health Benefits Practice. Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner’s situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation. Readers are encouraged to send questions by email to Mr. Hickman at

Implementing the Guidance This new guidance is effective immediately and the IRS intends to amend the cafeteria plan regulations under Treas. Reg. § 1.125-4 to reflect these changes. Like other cafeteria plan election changes under Treas. Reg. § 1.125-4, these changes are permissible, not required. To take advantage of this guidance, the cafeteria plan must be amended on or before the last day of the plan year in which elections are allowed (although it may be amended for a 2014 plan year any time on or before the last day of the 2015 plan year). The amendment can be effective retroactively to the first day of the plan year if the plan operates in accordance with this guidance and the employer informs participants of the change. However,

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The Self-Insurer | November 2014


GRASSROOTS by David Kirby

SIIA Members and Staff Make Important Connections with Key Members of Congress Ahead of Mid-Term Elections Two important components of SIIA’s integrated political advocacy strategy is to connect its members with their elected representative in Congress, either as part of grassroots lobbying meetings or having them represent the association’s political action committee (PAC) at fundraising events. This article highlights the latest activities. Please contact Kevin McKenney at if you would like to get involved.


IIA’s politically-active members and lobbying staff took advantage of Congress’ legislative lull this fall – as all members of the House of Representatives and many senators campaigned for reelection – to set the stage for a strategically-based effort to protect selfinsurance when the 114th Congress convenes in January. “This has been the perfect time to make direct, face-to-face impressions on members of the House and Senate during the hotly competitive campaign,” said SIIA CEO Mike Ferguson. SIIA members and staff have held meetings on Capitol Hill and represented the self-insurance industry at a variety of campaign fund-raising events supported by the Self-Insurance Political Action Committee (SIIA PAC). SIIA is working to establish a broad-based, bipartisan effort to support reintroduction of the Self-Insurance Protection Act (SIPA) which was first introduced during the current Congress. Because of many competing legislative interests, that bill did not advance to a floor vote in either chamber. SIPA would amend the definition of “health insurance coverage” under the Public Health Services Act (PHSA) and parallel sections of ERISA and the Tax Code to clarify that stop-loss insurance is not health insurance. The legislation would have no bearing on the Affordable Care Act (ACA). This is an issue of important not only to the private employer marketplace, but also to self-insured Taft Hartley Plans and to those involved with stop-loss captive group programs. SIIA initiated support for SIPA because it believes that the Obama Administration is contemplating ways to restrict the availability of stop-loss insurance in order to drive more people into the state healthcare insurance exchanges formed under the ACA. Restricting stop-loss insurance could cripple the ability of many employers to self-insure health benefits for their employees and dependents and jeopardize coverage for millions. “SIPA will have a much better chance of passage if it has the support of Congressional leaders on both sides of the aisles,” Ferguson said. “After the election clarifies membership of the House and Senate the relationships we have already established will strengthen our efforts to encourage introduction and passage of SIPA.”


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Ferguson participated in a fund-raising dinner on behalf of the Self-Insurance PAC for Rep. Marsha Blackburn (R-TN), a pivotal member of the House of Representatives. Rep. Blackburn is vice chair of the Energy and Commerce Committee which is very important to SIIA because of its jurisdiction over the ACA and issues relating to self-insurance, such as stop-loss insurance. “As part of our plan to create broad bipartisan Congressional support for SIPA, this was a valuable opportunity for face time with a very influential member,” Ferguson reported. Both Democrat and Republican members of the House Energy and Commerce Committee received support from SIIA PAC in their reelection bids. SIIA member Matthew Rhenish, president and COO of HM Insurance Group of Pittsburgh and a member of SIIA’s Government Relations

John Foley (left) and Rep. Bill Cassidy (R-LA)

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The Self-Insurer | November 2014


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November 2014 | The Self-Insurer

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Bob Shupe (left) and Senator Lamar Alexander (R-TN) Committee, had the opportunity to meet with his headquarters city Congressman Mike Doyle (D-PA), a member of the House Energy and Commerce Committee, during a campaign fundraising event. “This was a good opportunity to meet with Representative Doyle and members of his staff in a very positive atmosphere and be able to let them know how self-insurance is different from traditional fully-insured plans,” Rhenish reported. “We had time to discuss issues they’re concerned about and clarify that our effort to protect self-insurance doesn’t require any change to the Affordable Care Act. We’ll have another chance to meet with Rep. Doyle when he is in his district office for a conversation specifically on the Self-Insurance Protection Act. “I would encourage all SIIA members to be in touch with their representatives and senators.You always hope that providing good information can create an ally who can be important to us down the road,” Rhenish said. A fundraising event for Rep. Anna Eshoo (D-CA) drew support from SIIA PAC and participation by SIIA’s Washington legal counsel and lobbyist

Chris Condeluci. Congresswoman Eshoo is in line to become the “ranking member” on the House Energy and Commerce Committee. “Rep. Eschoo responded positively to our remarks about the importance of stop-loss insurance to self-insuring employers,” Condeluci noted. “We were encouraged to hear her say that she would not support administration efforts to issue regulations directly impacting stop-loss insurance. She also expressed concern about the regulation of stop-loss insurance at the state level. This was welcome news for SIIA.” Tom Dolsak, president of Healthcare Strategies of Columbia, Maryland, had an eye-opening meeting in the office of his Congressman John Sarbanes (D-MD), who is also a member of the Energy and Commerce Committee. It was illuminating for both sides as Dolsak explained how many of the Congressman’s constituents are covered by self-insured employer health plans. “The Congressman’s top staff members for healthcare issues attended and seemed to be surprised at the great numbers of people in their district who are covered by self-insured plans,” he reported.

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“I was also surprised at their lack of understanding of self-insurance,” he said. “I sensed that they welcomed the information and that the meeting could set the stage for continuing dialogue. These kinds of meetings are absolutely the right first step to gaining bipartisan support for the Self-Insurance Protection Act.” SIIA member Bob Shupe, president of ESP, Inc of Brentwood, Tennessee, participated in a SIIA PAC-supported fundraising event for Senator Lamar Alexander (R-TN), the ranking Republican on the pivotal Committee on Health, Education, Labor and Pensions (HELP). “I had the opportunity to thank the Senator for supporting the SIPA bill with the hope that he would continue to do so,” Shupe reported. “This was a meeting heavily attended by people involved with the Oak Ridge laboratories in Tennessee, most of them worried about their projects’ funding,” Shupe noted. “Interestingly, the Senator emphasized that for them to get their funding there has to be a control on health care spending and social programs, which brought a smile to my face.” SIIA member John Foley, Senior Vice President of Pan American Life Insurance, participated in a fundraising event for Rep. Bill Cassidy (R-LA) during his campaign for the Senate. “The candidate was adamant about how business owners should have the right to manage their employee health plans without restriction by the government,” Foley reported. “Our company will absolutely continue to contact our elected officials to support the Self-Insurance Protection Act. Opportunities such as our meeting with Congressman Cassidy would be impossible without SIIA’s organization work – this was a perfect example of getting out the best message for our members.” n The Self-Insurer | November 2014



from SIIA’s 34th Annual National Conference & Expo by Bruce Shutan

Keynoter’s Talk Proves Memorable


hen Dale Carnegie penned “How to Win Friends and Infl uence People” in 1937, the former traveling salesman noted two important facts: that everyone’s favorite subject is his or herself and the sweetness sound to someone is their name. The message was conveyed by Ron White, a memory expert and sales trainer who gave the opening keynote address at SIIA’s 34th annual national conference in Phoenix, Ariz. He said names are easily forgotten because people aren’t focused enough to listen during an introduction. Carnegie clearly was onto


November 2014 | The Self-Insurer

something. While, who for two years held the record for memorizing a shuffled deck of card in only 1 minute and 27 seconds, said networking and building relationships are the key difference between simply earning a living and “making a fortune.” White shared with attendees various techniques on processing information to improve business performance and also be more organized in their personal life. He has appeared on “Good Morning America,” “Fox and Friends,” “CBS Early Show” and the History Channel’s “Super Humans.” At age 23, White was a telemarketer who one day tried to sell a chimney cleaning service to a prospective customer. The man on the other end of the telephone declined

his sales pitch, but mentioned that he needed to hire a memory salesman. White landed the job and it turned out to be a life-altering event. His new boss never asked him whether he could recall information, believing it can be taught to anyone. White noted that the five keys to improving memory are: 1. Focus – Nutrition is critical to achieving this goal. Memory is improved by eating plenty of blueberries, spinach, walnuts, Omega-3 supplements and pumpkin seed oil, as well as drinking plenty of water. 2. File – One key to memorizing information is assigning the data to a special spot, such as a piece of furniture, which serves as the equivalent of a file in a cabinet.

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3. Picture – Visualizing a person’s name and equating it with another word that sounds similar or conjures up a related image is another way to retain the information. One such example is to think of jewelry in order to recall the name Julie or Peter Cottontail for a man named Pete who sports a beard (the latter was how White remembered the name of one particular SIIA attendee). 4. Glue – Action and emotion both serve as traction in helping individuals memorize information. White remembered seeing the Facebook profile of a girl from grade school he had a crush on, noting how dozens of minor details about her life easily resurfaced through his mind all those years later. 5. Review – Repetition, the most widely used technique, eventually will bear fruit – particularly if it’s used in conjunction with the four previous steps. Referencing a deadly tour of duty in 2007 as a U.S. Navy reservist after 9/11, White ended his motivational talk by sharing a deeply personal project about using his memory techniques to recall all 2,200 of the U.S. service members killed in combat in Afghanistan and recreate their names on a wall that resembles the famous Vietnam Wall on the mall in Washington, D.C. He took the 50-foot-long dry-erase-board, which listed the dead in chronological order, to several U.S. cities to pay homage to his fallen comrades.

TPA Panel Reminded Customer is King In a fiercely competitive TPA marketplace, it’s easy to focus on the low-hanging fruit associated with securing deep discounts on behalf of self-funded clients and maximizing profit wherever possible. But is it being

Keynote speaker Ron White done at the expense of paying closer attention to data and outcomes, which in some cases could actually steer clients away from self-insurance? It’s a fair question that was posed during a spirited panel discussion of senior executives from several leading TPAs who was passionate about putting the employer’s needs first. A panelist’s reaction even raised the prospect of larger peril, which is the industry risking tighter government regulation if it strays from this mission. “We’re sitting in the heat of the battle right now on self-funding and see a lot of groups that come across our desk that shouldn’t be self-funded,” admitted Mark Stadler, EVP of Healthsmart, Inc., which considers itself the nation’s largest independent administrator of health plans for self-funded employers. “Self-funding is a concept and shouldn’t always be compared to fully funded plans. You need to help employers understand the upside and the downside, and we’ve had a few cases where we walked away from self-funding. “We are the experts,” he continued, “and we need to guide employers properly, not get too caught up in what’s best for our business. A lot of legislatures are looking at this and will take punitive action if we don’t take this approach.” Where the rubber meets the road on advisory services is “who can do what the client needs done the best, and then you check off what’s the fairest price – not who can best sell client services,” observed Jerry Castelloe, VP of strategic relationships for CoreSource, Inc. He said the ultimate customer is the plan participant, whose needs need to be addressed first and foremost. However, a big problem is that “transparency is the least transparent at the consumer level,” according to Castelloe. “You can give employees all sorts of information, but you have to teach them how to use it. Health care is the only retail industry that you don’t know what you’re buying until you use the service.” Making cost data available much sooner than the point of service is critical in this post-health care reform environment, he explained. Stadler added that transparency, along with the population health model, are critical tools that the TPA industry will need to “work extra hard on” during the next few years on behalf of their employer clients to help improve employee engagement. Castelloe described his thinking about the defined-contribution health care model as evolving from a defensive posture to offensive strategy, but that it remains

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The Self-Insurer | November 2014


TPA Panel at the 34th Annual National Conference & Expo to be seen whether it will serve as the latest fad in health plan management or have staying power. “It’s a more intensive, consulting opportunity and you really have to have an astute intermediary, whether it’s a broker or consultant, to help see employer clients through the process,” he said. Castelloe referenced a chat about on-site clinics, which he said employee benefit consultants and advisers increasingly want access to for a more aggressive approach to health plan management. Tom Partlow, CEO of Employee Benefit Management Services, Inc., suggested a need for greater use of evidence-based guidelines – particularly for highly volatile categories of care. He also said reference-based pricing offers a great opportunity for TPAs to compete with the PPO and BUCA models, though he’s unsure whether it will be “a mega trend.”

Panelists Address Industry Pitfalls, Concerns Mindful of the price-sensitive stop-loss environment, brokers, TPAs and stop-loss carriers often have to block and tackle their way across a landscape that’s littered with landmines. Beata A. Madey, senior VP of underwriting for HM Insurance Group, led an expert panel discussion that examined how they can avoid being the weakest link in their respective category. The stop-loss business has been commoditized to a point where there’s a too much focus on the lowest possible cost over other critical issues, such as the stop-loss deductible and exclusionary wording in contracts, warned Steve Touché, president of Lovitt & Touché, one of the nation’s largest insurance brokerages. “I’m surprised by the things that show up,” he said, referencing a $125,000 run-in limit on a $250,000 spend and recommending that self-insured employers carefully read the fine print in vendor contracts. Matt Leming, VP/sales leader at Swiss Re Corporate Solutions, whose parent company is a leading wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer, said it’s important to request that stop-loss carriers make certain exceptions in contractual wording if it best serves the client. Client education also is a critical concern. Darren Reynolds, CEO and president of Consociate-Dansig, a smaller independent TPA, believes there’s a need to guide


November 2014 | The Self-Insurer

the small-group conversion market through all the nuances that come with self-funding or risk deeper government intervention. He said it’s also important to prequalify prospects in the smallgroup market so that there’s a longterm commitment to serving the client with proper contacts in place rather than providing short-term fixes to lower rate increases. “The TPA needs to step up and share all the nuances concerning legal disputes and summary plan document issues in terms of their exposure,” he said. Lovitt & Touché’s E&O policy prohibits doing business with anyone other than an A- carrier, firmly believing that size matters and it’s important to partner only with a trusted source. “We have tended to gravitate toward the top five to 10 direct writers in the insurance marketplace,” Touché reported, noting attempts to establish relationships with local, regional and national players within those carriers in hopes that all claims will be paid. Reynolds agreed with his assessment about scale. “We’ve had quotes from MGUs that have had less premium volume than we had as a TPA and that’s scary,” he said, noting battles with carriers that did not like to pay claims. Beware of bait-and-switch scenarios, cautioned Touché, noting how a 30% to 50% differential showed up between one carrier’s surprisingly low bid and a subsequent discussion at the negotiating table about underwriting claims. “It drives us crazy,” he said. But there also are some bright spots and progress to report. Touché, for example, believes the Affordable Care Act (ACA) has elevated the relevance and value of brokers and TPAs in terms of their advisory capacity. He likened it to tax reform for CPAs in the 1980s, which as with the ACA, triggered concerns about their professional survival. To the BUCA’s credit, Touché said they’re more forthcoming about

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providing transparent information rather than having to obtain it through a third party. “The question is can you get the important information at the point of underwriting?” he asked. Not necessarily. Just ask Reynolds, who noted “that from our perspective at the time of underwriting, there’s a very reluctant acceptance that the BUCAs are going to submit information, and we have to find a way to work with that.” His TPA emphasizes customer service as a key differentiator when competing with his state’s leading BUCA. The panelists also addressed captive arrangements. About 20 to 30 years ago, Touché remembered how critical it was for reinsurers to evaluate an employer’s financials when self-insurance was being considered because of the potential for cash-flow fluctuations. But he said the only time in five years that he has seen reinsurers ask for this data was when a captive was being considered. The caveat is managing expectations about being able

“to afford a bad month” when entering into any such contracts, he added.

Roundtables Mull Ways to Promote SIGs The issues surrounding self-insured groups (SIGs) are so expansive that three roundtable discussions were scheduled not only to educate as many SIIA members as possible, but also develop strategies to promote these groups and their business partners. David G. Johnson, an attorney and managing partner with Self Insured Solutions, LLC, sought the input of fellow industry practitioners in hopes of helping key decision-makers at the administrative level better understand SIGs. The consensus was to provide enough basic and sophisticated knowledge to avoid any unintentional consequences of state legislation that would undermine these arrangements. Among the major takeaways: Profile SIG failures so that the industry learns

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what not to do (perhaps in the form of a SIIA white paper that also extols the virtues of SIGs), as well as institute trustee training and a national SIG manager accreditation program. Some of the most noteworthy observations, including paraphrasing and direct quotes, were: • Every time a SIG goes down, it becomes fuel for a fire that intensifies the insurance industry’s arguments against this business model. • “The problem for us is how do we maintain the financial position that keeps our regulator happy, while at the same time offering our members affordable rates?” • A troubling trend has swept across Illinois, Oregon and New York that makes it more difficult for SIGs to operate with rules that tighten standards, force groups to build a surplus or face assessments. • There were 27 workers’ comp insurance company bankruptcies

The Self-Insurer | November 2014


© 2013 Helmsman Management Services LLC.


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


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in California as a result of escalating costs across the state, which continues to tighten its legislative and regulatory grip on self-insurance. And whenever legislation is rushed through as it has been in California, there are unintended consequences. • There are just three excess carriers – a frightening proposition to have a market so critical to the success of selfinsurance shrink that small. • Is joint and several liability still a viable solution for SIGs? • The federal government hires hackers to better understand and ultimately stop hacking, so why not attempt to do the same at the regulatory level, which would help preserve the self-insurance model? • One related suggestion was to establish national standards of conduct for brokers, administrators and members of boards of directors with

meaningful consequences for violations. “California is not far away from having a set of standards,” someone noted, hastening to add that he didn’t see a need to pursue this action as long as there’s already good self-regulation in place across the marketplace. “If you’re going to have the state regulate you, be careful what you wish for.” • Why not offer better incentives to adequately compensate people for time they devote to various governing boards in order to attract a higher quality of decision-makers who have the power to make or break SIGs, among other innovative industry solutions? • The best argument in favor of SIGs is without that option they’d be seeking assistance from state funds, which would prove far more costly to the community.

SIIA Steps Up Legal Defense Strategy A panelist of industry leaders gave special reports from the front lines explaining how SIIA is stepping up its legal strategy to defend self-insurance, which is under increasing fire at both the state and federal level from legislators, regulators and other policy-makers. Mike Ferguson, SIIA’s president and CEO, noted in a keynote address that it’s no longer enough just to have federal lobbyists involved – though he referenced an expansion of those efforts to include two new industry insiders. One specializes in state legislation and regulation, while the other handles growing scrutiny of stop-loss insurance, which he described as “a tier-one issue for us that affect many of our members.” His point was that a major focus of SIIA’s political strategy now includes pairing its members with their local representatives in the U.S. House and Senate ads part

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The Self-Insurer | November 2014


of a grassroots campaign. “Don’t be afraid” to approach them, he suggested. “These people work for you, and you know more about the subject matter than they do.” Horace Garfield, chairman of SIIA’s Government Relations Committee, agreed that the best approach is to have SIIA members talk with their elected officials. His remarks were echoed by Bob Tierney, chairman of SIIA’s PAC Board of Trustees, who suggested that SIIA members to become involved by making contributions and attending or hosting fundraisers for people running for office, as well as hosting a golf outing. There are various categories of contributions, including a President’s Club and Executive Club level. He reported that about $40,000 in SIIA contributions were made to various U.S. representatives and senators. Ferguson also briefly spoke about the Self-Insurance Defense Organization, which was formed to leverage the involvement of bigger business groups, such as the U.S. Chamber of Commerce, which has about $15 million in PAC funds. SIIA hopes that partnering with those who have greater influence on Capitol Hill will strengthen its quest to extol the value of self-insurance. One high-profile battle has been brewing in Michigan, which changed the way it raises funds for Medicaid. The Health Insurance Claims Assessment Act of 2011 imposed a 1% tax on all health care services performed in the state on behalf of Michigan residents beginning January 1, 2012 to finance state health care initiatives. It also has sparked a fierce legal battle to exempt self-insured group health plans from the tax on ERISA pre-emption grounds. SIIA plans to appeal to the U.S. Supreme Court its loss in an appellate court on the Michigan assessment. John Eggertsen, an attorney with Eggertsen Consulting, P.C., has taken the lead in SIIA’s challenge of this assessment on self-funded plans, which account for at

least half the revenue that’s generated. He said district courts nationwide increasingly are adopting a narrow view of ERISA pre-emption to justify similar attempts to tax health care services. “It’s really a bad precedent,” he said, noting that it extends to pension plans as well as Taft-Hartley funds. Another major concern Eggertsen addressed is that self-funding and ERISA pre-emption are seen in political and regulatory circles as running contrary to the goal of uniformity in the nation’s risk pool under the Affordable Care Act. On the positive side, however, he noted that the ACA has helped self-funding trickle down market to small and midsize employers – a trend is driven by exemptions from assessments and restrictions on fully insured arrangements. Garfield referenced two troubling pieces of legislation, one of which involves an effort by the District of

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Columbia to ban stop-loss insurance for self-insured plans to protect the local health insurance exchange. “If we don’t fight this precedent there, other states are going to start adopting the exact same thing, and we’re going to have a lot more fights down the road,” he warned. There’s also a proposal in New York that would limit stop-loss coverage to groups of more than 100 lives by 2016. Another development Garfield reported on is that the National Association of Insurance Commissioners is working on a white paper about the role of stop-loss insurance in the marketplace that SIIA has weighed in on, along with about seven other organizations.

Stop-Loss Captives Under the Microscope Realizing that regulatory considerations for stop-loss captive programs have created a climate that has become inhospitable to such arrangements, a panel of experts convened to address a host of hot topics from prohibited transactions and stop-loss insurance restrictions to securities issues and domicile licensure requirements. The U.S. Treasury Dept. invited public comments on how stop-loss insurance fits into the Affordable Care Act (ACA), seeking clarity on how it differs from traditional insurance coverage, according to Mike Ferguson, SIIA’s president and CEO. A request for information was sought from three federal agencies in 2012, signifying an interest in regulating stop-loss insurance. “Since that time, there has been a lot of conversation about this,” he said. SIIA insiders have learned that these agencies want to limit the abilities of stop-loss insurance with lower attachment points, which would deem carriers a health insurance issuer and categorize self-insured plans as fully

insured arrangements for the purpose of the ACA. SIIA also was “tipped off ” that a member of Congress approached the Congressional Budget Office to further examine this issue. In anticipation of these developments, SIIA has introduced legislation to clarify the definition and purpose of stop-loss insurance in hopes of avoiding another restrictive lawyer of regulation that would undermine self-insurance. Tess Ferrera, a partner with Schiff Hardin, said a provision of the ACA makes it more difficult for smaller employers such as association plans, MEWAs and those managed by professional employer organizations to operate because of the push to disaggregate these groups. “There’s a lot of concern out there among the regulators that because of the health care reform act there will be efforts to band small employers so that they have more purchasing power to buy stop-loss coverage,” she said, citing groups of fewer than 25 lives as a red flag. One panelist who was on the hot seat to some extent was David F. Provost, deputy commissioner of captive insurance for the Vermont Department of Financial Regulation, who admitted to needing more education on this topic. Regulators will take note if they determine that a plan was structured in a way to simply avoid taxes, he said. In contrast, Provost cited a Texas Credit Union plan featured in another educational workshop as a model program. To wit: Similar employers of similar sizes forming a group plan with a captive and insurance layer on top of it with a board of governors “is exactly what we want to see,” he said. His public policy concerns involve plans that operate in a vacuum with so much separation between the employee benefit and captive and stop-loss sides of the equation that the former isn’t even aware of the ladder’s

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existence – not realizing they’re even participating in a captive. From a more strategic standpoint, Provost said fellow regulators worry about employerprovided coverage undermining the goals of health care reform as a whole and self-insurance shrinking the fully insured market. Ferguson asked Provost if he thought setting lower attachment points on stop-loss insurance was a fair criterion, to which he replied: “When you’re looking at smaller employers with a lower attachment point that are getting into stop loss, we have to pay closer attention” because of concerns about the captive’s solvency, admitting that there’s also political pressure from other states to closely examine this issue. Otherwise, he said it changes the complexion of such coverage in the small-group market. Since stop-loss coverage isn’t considered an employee benefit, there aren’t the same worries that arise within the context of ERISA, according to Ferrera. There are no ERISA concerns as long as the stop-loss coverage is not a plan asset. But as soon as employee money flows into a captive, “you’re in trouble,” she cautioned. TPAs must painstakingly track employee money that’s being collected and segregate it into a trust fund to pay claims, Ferrera said, adding that the inevitable employee trust fund audit is an unavoidable, yet necessary cost of doing business. The DOL’s Advisory Opinion from 1992 established “a nice framework” for adding clarity to ERISA coverage, she said, also referencing a key Ninth Circuit District Court ruling on a TPA crossing the line and becoming a plan fiduciary. n Bruce Shutan is a Los Angeles freelance writer who has closely covered the employee benefits industry for more than 25 years. The Self-Insurer | November 2014


SIIA Annual National Conference Attendees Support Educational Foundation


he Self-Insurance Educational Foundation, Inc. (SIEF) is a 501(c)(3) non-profit organization affiliated with the Self-Insurance Institute of America, Inc. (SIIA). Its mission is to raise the awareness and understanding of self-insurance among the business community, policy-makers, consumers, the media and other interested parties. SIEF recently announced the launch of their new website SIEF held its always popular golf tournament at the Wildfire Golf Course at the JW Marriott Desert Ridge during SIIA’s National Education Conference and Expo.

Top 5 Teams 1st place – Tom Weniger, Ernie Clevenger, Denise Doyle and Wayne Krupicka 2nd place (3-way Tie) – Tom Davis, Roy Mordhorst, Ryan Stevens, and Tetachuk

– Steve Grunewald, Alison Krogan and Heather Zick – Freda Bacon, Mike Zucco, Duke Niedringhaus and Jeff Frater

5th place – Jay Ritchie, Steve Bohannon, Thomas Byrd and Jerry Castelloe Congratulations to the longest drive winner Tom Davis and the closest to the pin winner Tom Belding! Look for more information coming soon on the next SIEF Golf Tournament which will be held during the SIIA SelfInsured Health Plan Executive Forum at the J.W. Marriott Camelback in Scottsdale, AZ March 4-6, 2015. The SIEF Board of Directors would like to extend a special thank you to all sponsors. None of this would be possible without your support. n


November 2014 | The Self-Insurer

Ernie Clevenger, Wayne Krupica, Denise Doyle and Tom Weniger

Jay Ritchie, Thomas Byrd, Jerry Castelloe and Steve Bohannon

Jeff Frater, Duke Niedringhaus, Freda Bacon and Mike Zucco

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

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

Directors Jerry Castelloe Vice President CoreSource, Inc. Charlotte, NC Robert A. Clemente CEO Specialty Care Management LLC Bridgewater, NJ Ronald K. Dewsnup President & General Manager Allegiance Benefi t Plan Management, Inc. Missoula, MT


November 2014 | The Self-Insurer

SIIA New Members Regular Members Company Name/ Voting Representative

James Cox, General Manager Continental Benefi ts Brandon, FL

Elizabeth D. Mariner Executive Vice President Re-Solutions, LLC Wellington, FL

Eugenio Chinchilla, CEO Dakoda Miami, FL

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

Diann Bilderback CMO Discovery Health Partners Itasca, IL Elisabeth Wasson, CEO MBMC Laramie, WY

Committee Chairs

William Megna Megna Law Firm Princeton Junction, NJ

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

Todd Rosenbaum, Partner Mountjoy Chilton Medley LLP Louisville, KY

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

Francine Young, Exec. VP & COO Nippon Life Insurance Co. of America New York, NY

CHAIRMAN, HEALTH CARE COMMITTEE Robert J. Melillo 2nd VP & Head of Stop Loss Guardian Life Insurance Company Meriden, CT

Jeffrey Parrish, President Resolution Reinsurance Intermediaries, LLC Columbia, SC

CHAIRMAN, INTERNATIONAL COMMITTEE Greg Arms, Chief Operating Offi cer Accident & Health Division Chubb Group of Insurance Companies Warren, NJ

Jennifer Lawrence, VP Business Dev. Selah Genomics Greenville, SC

CHAIRMAN, WORKERS’ COMPENSATION COMMITTEE Duke Niedringhaus, Vice President J.W. Terrill, Inc. St Louis, MO

Michael Parker, COO Qmedtrix Portland, OR

Steven Baker, President RxEDO, Inc. Plano, TX

Silver Member

Keith Langlands, CPA Synergy Captive Strategies, LLC Las Vegas, NV

Gold Member

Philip Healy, Executive Director AWANE Peterborough, NH

Employer Member Gene Wittorf, VP of Benefi ts Employer Flexible Houston, TX

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