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October 2015


Self-Insurance Institute of America, Inc.

35th Annual National





WHEN YOU CHOSE MIDLANDS PUBLIC ENTITY PROGRAM You choose a partner you can count on. You can count on our team of professionals to provide access for Individual & Pool Public Entity Risks that prefer to self-insure their exposures. Our relationships with industry partners, ensures you get the support you need and the coverages your clients require.

Questions? Get Answers: 800.800.4007 publicentity@midman.com midlandsmgt.com


The Self-Insurer (ISSN 10913815) is published monthly by Self-Insurers’ Publishing Corp. (SIPC)

October 6 2015

Postmaster: Send address changes to The Self-Insurer P.O. Box 1237 Simpsonville, SC 29681

Volume 84








Key to success lies in better PBM contracts, plan design tweaks


The New ABCs of SBCs


OUTside the Beltway Congressman’s Visit to HCC Life Illustrates “The Power of One”


Bundled Payments and Employer Direct Contracting Redefine Benefits Landscape

Bruce Shutan


Message from the Chairman Welcome

EDITORIAL ADVISORS Bruce Shutan Karrie Hyatt

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


2015 Self-Insurers’ Publishing Corp. Officers James A. Kinder, CEO/Chairman Erica M. Massey, President

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

Lynne Bolduc, Esq. Secretary



Liability to

Small Businesses Karrie Hyatt

PPACA, HIPAA and Federal Health Benefit Mandates The (Poorly Named) “Cadillac Tax” Part Two: IRS Provides Further Guidance in Notice 2015-52


The Value of Narrow Networks in Impacting Plan Costs


London Calling... SIEF Summit Imparts ‘Brilliant’ Lessons from Across the Pond


How to Decrease Your Health Care Costs for Employees with Diabetes


Top Eleven Criteria of an Expert Benefits Administration Partner


Are Health Networks Going to Jurassic Park? October 2015 | The Self-Insurer


We can’t We can’t stop the stop the unexpected.


We Wecan can stop stop loss. loss. Voya Employee Benefi tstscan Voya Employee Benefi canhelp helpemployers employers manage the risk of catastrophic manage the risk of catastrophichealth healthclaims. claims. Together, wewe can preserve Together, can preserveassets assetsand andprovide provide benefi ts that empower employees benefi ts that empower employeestotoprotect protect their retirement savings. their retirement savings.

•• Our Our 35 35 years yearsofofstop stoploss lossexperience experience makes makes us us 1 one of the top stop loss providers in the nation. 1 one of the top stop loss providers in the nation. •• Our Our consultative consultativeapproach approachmatches matches your unique needs. your unique needs. From our oursales salesrepresentatives representatives our underwriters to our claims From toto our underwriters to our claims analysts,we weevaluate evaluateevery everycase case ensure best solution. analysts, to to ensure thethe best solution. • Our Our flflexible exiblecontracts contractsoff off features that mirror or enhance ererfeatures that mirror or enhance virtually virtually any anyplan plandesign. design.

more informationon onstop stoploss loss insurance, insurance, contact Employee Benefi ts ts ForFor more information contactyour yourlocal localVoya Voya Employee Benefi sales representative or call 866-566-2316. sales representative or call 866-566-2316. information about Voya,visit visitVoya.com Voya.com ForFor information about Voya,



Ranking of top stop loss providers in the United States based on yearly premium as of 4/4/2015 by MyHealthGuide Newsletter: News for the Self-Funded Community,

and does notstop include providers. Ranking of top lossmanaged providershealth in thecare United States based on yearly premium as of 4/4/2015 by MyHealthGuide Newsletter: News for the Self-Funded Community, and does not include managed health care providers. 1

Voya Employee Benefits insurance products and services in the U.S. are provided by ReliaStar Life Insurance Company (Home and Administration Office: Minneapolis, MN) and

LifeBenefi Insurance Companyproducts of New York Offiince:the Woodbury, NY. Administration Office: MN). Within the State New York, onlyOffi ReliaStar Life Insurance VoyaReliaStar Employee ts insurance and(Home services U.S. are provided by ReliaStar LifeMinneapolis, Insurance Company (Home andofAdministration ce: Minneapolis, MN) and Company of New York is admitted, and its products are members of the Voya® family of Minneapolis, companies. Voya Benefi is New a division bothReliaStar companies. ReliaStar Life Insurance Company of New York (Homeissued. Office:Both Woodbury, NY. Administration Office: MN).Employee Within the Statetsof York,ofonly Life Insurance Product specific provisions may vary by state. Company ofavailability New York and is admitted, and its products issued. Both are members of the Voya® family of companies. Voya Employee Benefits is a division of both companies. Product availability and specifi c provisions vary by state. ©2015 Voya Services Company. All rightsmay reserved. CN-0615-14780-0616 172717 07/01/2015

©2015 Voya Services Company. All rights reserved. CN-0615-14780-0616 172717 07/01/2015


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Message from the Chairman



he Board of Directors welcomes you to our nation’s capital and the 35th Annual National Educational Conference & Expo. We are very excited about this year’s speakers and educational sessions.

We start our General Session with Chris Wallace, anchor of Fox News Sunday. We have also added a new session – The Rise of Private Equity and Venture Capital in the Self-Insurance Market Place. We are very enthusiastic about the number of returning attendees this year, as well as the addition of many newcomers, including those from other countries and industries. It is a perfect time to catch up and network either in the Exhibit Hall or during quiet meetings. SIIA continues to be the focal point of our industry as we defend and propose changes at both the State and National level. We have also begun a media campaign to increase public awareness of the many advantages of self-funded medical protective covers and their availability in the market. On a personal note, the honor of serving as Chair of SIIA has been rewarding. Aside from the strengthening of relationships, I developed a heightened sense of the importance of being proactive on the governmental level. Although my term is over at the end of the year, there is much work that needs to continue and I encourage all of you to become involved. We as a community have more to offer than the public and politicians know. We are, after all, collectively working to protect the best interests of employees. ■ God Bless America!

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

Donald K. Drelich

October 2015 | The Self-Insurer






Management Key to success lies in better PBM contracts, plan design tweaks


pecialty drugs have long shown promise as a prudent alternative to surgery for treating chronic and costly conditions, but they also come with a high price-tag that selfinsured employers have struggled to manage. One culprit, or course, is that they’re fueling skyrocketing health care expenses at a harrowing time of no benefit caps under the Affordable Care Act. While the nation’s specialty drug spend was $87 billion in 2012, or 3.1% of the overall U.S. health care tab, it’s expected to top $400 billion, or 9.1% of that spend, by Written by Bruce Shutan 6

The Self-Insurer | www.sipconline.net

Rx for SPECIALTY DRUG | FEATURE 2020, according to an American Pharmacists Association report. Some analysts predict that as many as 7 of the 10 best-selling drugs could be specialty products within 4 years. A recent survey by Aon plc found that specialty scripts are expected to climb 22.7% this year from 18.2% in 2014 – more than twice the hike in overall pharmacy costs, which could reach 10% from 6.3% within the past year. With specialty drugs averaging more than $3,000 a month and some scripts exceeding $20,000 a month, the Pharmacy Benefit Management Institute (PBMI) notes that it’s critical to understand how those costs can be managed in conjunction with maximizing clinical quality and outcomes. PBMI publishes an annual specialty drug benefit trend report that offers health care purchasers significant insight into this topic. But there’s a serious lack of knowledge about the way these medications are priced, as well as enough sophisticated expertise across the marketplace to help the self-insured community actually bend the specialty Rx cost curve.

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

Negotiating Meaningful Discounts Self-insured employers need to carefully review their contracts with a pharmacy benefits manager (PBM) to ensure that the right protections are in place so that they can better control their specialty drug benefits spend, explains Linda Cahn, president of Pharmacy Benefit Consultants and head of the National Prescription Coverage Coalition. She says every PBM client needs to ensure that it is receiving a “minimum guaranteed discount” for every existing specialty drug (currently more than 950+ drugs), as well as an automatic “default discount guarantee” for every new-to-market

specialty drug. These guarantees are based on average wholesale price (AWP). PBM clients also must have a contractual “right to renegotiate” every specialty drug discount, she notes, to prevent being locked into pricing that will undoubtedly become obsolete relatively soon after the three-year contract begins.

“specialty drug costs continue to be a growing concern for employers of all sizes and with all funding types.”

The thinking is that unless every specialty drug – including every new drug – has a guarantee, the PBM can charge what it wants for nonguaranteed drugs.

Industry consolidation could be troublesome for uneducated purchasers of specialty pharmacy benefits. “When you look at the mergers and acquisitions over the past decade with regard to the PBM space, look at the multiples they’re generating,” observes Rob Melillo, second VP and head of stop loss at the Guardian Life Insurance Company of America.

So-called spread pricing is one mechanism used in a traditional PBM model, according to Brian Ball, a broker and national VP of employee benefits strategy and solutions for USI Insurance. That’s when a PBM pockets a piece of each claim instead of charging fixed administrative fee. Noting that specialty drugs are expensive in their own right, he says there’s no governing body to rule whether the “up-charge” is excessive. Another issue Ball considers noteworthy is when PBMs negotiate a preferred price or rebate with drug manufacturers for scripts in competitive categories that may not necessarily be in the best interest of an employer client or patients. The PBM’s can then direct utilization through tiering co-pay benefits to drugs in which have the most financial benefit to the PBM. In many situations PBMs are making patient approvals of drugs where they make large sums of money, a true “conflict of interest.” The PBM makes more money if they approve the drug. “Philosophically, I have a major problem with that,” he says. Jane Lutz, executive director of PBMI, declined to address the contracting component of specialty drug benefits. “We don’t manage, monitor, write or even review PBM contracts,” she says, adding that

Lutz did, however, point to a lack of consensus on what needs to be done, as well as a largely reactive approach among employers with inadequate education that are unsure about the right questions to ask their PBMs.

His larger point is that selfinsured employers and their partners together must determine the way specialty scripts are priced and pinpoint where exactly their high-end Rx spend is leaking as part of a more transparent approach. Otherwise, they’ll never be able to negotiate any substantive impact on cost. The brokerage community could play a significant role by devoting more time to specialization of the health care spend and varying facets, Melillo believes. He says self-funded clients can use their assistance identifying volatile components within the specialty drug spend that they would like to better manage and getting PBMs to reveal “where the spread is on their charge-backs, or how their rebates are handled and managed.”

Stepping in the Right Direction There are several other substantive solutions at hand for self-funded health plans that want to track their specialty pharmacy benefits drug spend with greater October 2015 | The Self-Insurer


Rx for SPECIALTY DRUG | FEATURE precision. Ball says it’s critical to ensure health plans are getting the best possible price on each drug, as well as controlling utilization of those drugs by using prior authorization, step therapy, or alternative scripts to control the access and utilization of these costly specialty meds.

solution to reduce cost of specialty drugs. In many situations, specialty drug management is not always getting the attention it deserves.

He cites as an example the new once-monthly injectable to treat hyperlipidemia, or high cholesterol. “If Atorvastatin, the generic version of Lipitor, is working effectively and is costing $150 a year for the drug, a person shouldn’t be able to go directly to the $12,000-a-year injectable without having first tried the tablets,” Ball notes.

The next step is to make sure that the contract includes a mandated discount for each drug on the list, each time the drug is dispensed from the specialty pharmacy, she says. If employers are conducting a request for proposal, then they can compare the discounts each PBM is offering and tell those that are not providing competitive discounts to improve them if they want to win the contract.

Another strategy involves the work of sophisticated specialty carveout vendors that negotiate deals with specialty drug manufacturers. He describes the arrangement as a budding business and a possible

Cahn says the first step along the road to taming specialty drug costs is to replace the typical contract definition for “specialty drugs” with an “airtight” definition that typically states these scripts may be high-cost drugs or may require special handling, etc. An airtight definition will pin down exactly which meds are specialty drugs by cross-referencing to a list of all 950-plus drugs and including all new-to-market specialty drugs.

Another step Cahn suggests is that contracts enable employers to address any changes in pricing that might occur. Employers need a right to renegotiate, or improve upon, a particular drug’s discount guarantee. “Available pricing for specialty drugs is continuously changing,” she says, “and given that fact, everyone must be positioned to update and improve contract guarantees. You can’t lock yourself into the same discounts for the length of a contract.” In addition, she says it’s imperative for PBM clients or health plans to retain control of prior authorization, step therapy and quantity limit programs; otherwise, PBMs can secretly make deals with manufacturers to use these programs to favor certain high-cost products in exchange for being paid

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


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October 2015 | The Self-Insurer




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Rx for SPECIALTY DRUG | FEATURE financial benefits that might not even be passed through as rebates. Assuming a client obtains a “right to review and customize” all programs, she says the employer needs to exercise those rights to protect itself against inappropriate PBM decisions.

In addition, she says employers are dealing with promising new therapies in the area of hep C and super-statins called PCSK9 inhibitors.

Two major problems, Cahn cautions, are the industry-wide absence of expertise for drafting specialty drug contract terms and a similar lack of expertise for following up to address continuous marketplace changes. However, if enough employers wrest control of the process by implementing appropriate contract terms, then it stands to reason that consulting firms will develop expertise to take advantage of those terms and thus better control specialty drug costs for their clients. Without such changes, she notes the potential for perilous consequences for employers.

“What we’re hearing is that many of these are coming to market mid-year after benefit budgets have already been set and really leaving employers facing tough decisions around the benefits and very big concerns around being able to offer sustainable and affordable benefits to their employees,” Lutz observes. ■ Bruce Shutan is a Los Angeles freelance writer who has closely covered the employee benefits industry for more than 25 years.

There’s an App for That

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

Thankfully, technology has advanced to a point where price-estimator tools are now available to help manage pharmacy prescriptions and save money. Ball mentions the availability of apps that can be downloaded to assist the member in finding the cheapest alternatives. “If you put in Harvoni, which is a hep C drug and you put in what is the cost of Harvoni with insurance, it’s going to say something like $32,000 per script,” he says. “If I’m a member who needs Harvoni and I don’t have insurance and there’s a coupon associated with it, the cost is somewhere around $4,000. There’s a $27,000 or so difference on whether or not I have insurance. Something is fundamentally wrong with that if the employer is left paying that huge bill. Because the employer has money, they’re going to charge them that much. That, to me, is the fundamental flawed. Lutz reports that the specialty drug spend on cancer treatments has reached “an all-time high and the drug pipeline would indicate that category is going to continue to grow.” But she also points to improvements in cancer care and overall survival rates that are worth noting, albeit at “very large price tags.” October 2015 | The Self-Insurer


The New ABCs of SBCs


he Affordable Care Act requires group health plans, including both grandfathered and non-grandfathered self-funded plans, to provide their plan participants with a summary of benefits and coverage (SBC) that details the benefits offered by the plan. This past June, the Department of Health and Human Services, the Department of Labor and the Department of the Treasury combined to issue new rules amending and finalizing prior proposed regulations governing the provision of SBCs. (Published in the Federal Register at 80 FR 34292 (June 16, 2015)). These final rules are designed to make plan information more accessible to participants and beneficiaries and to make the compliance process easier for plans to follow. By making such information easier to access, participants will be able to make better-informed decisions when considering their coverage choices. For group health plans, the new rules apply to plan years beginning on or after September 1, 2015. Notably, however, the final rules did not include a new SBC template, which is now expected to be released in January 2016 and will apply to plan years beginning on or after January 1, 2017. Altogether, SBCs issued to plan participants by self-funded plans must now contain the following information:

Written by Sean Donnelly 12

The Self-Insurer | www.sipconline.net

1. Uniform definitions of standard insurance and medical terms, intended to help participants better understand their coverage;

2. A description of the coverage offered by the plan; 3. The exceptions, reductions and limitations of the coverage offered by the plan; 4. The cost-sharing provisions of the coverage (e.g., deductible, copay and coinsurance amounts); 5. Renewability and continuation of coverage provisions; 6. Coverage examples for common benefits scenarios; 7. A statement about whether the plan provides minimum essential coverage and meets minimum value requirements; 8. A statement that the SBC is only a summary and that the actual plan document should be consulted to determine the full extent of coverage and other plan requirements;

1. The plan administrator monitors the performance of the TPA providing the SBCs;

9. An internet address or similar contact information for each of the following: (a) participant inquiries; (b) obtaining a copy of the plan document; (c) obtaining a list of network providers; and (d) obtaining information on prescription drug coverage from plans that use a formulary; and

2. If the plan administrator has knowledge that the SBC is not being provided in accordance with the requirements and has all of the information necessary to correct the noncompliance, the plan administrator must correct the noncompliance as soon as practicable; and

10. An internet address for obtaining the uniform glossary, contact information for obtaining a paper copy of the uniform glossary and a disclosure that paper copies of the uniform glossary are available.

Providing the SBC In accordance with the February 2012 final regulations, a group health plan must provide an SBC to plan participants for each benefit package offered by the plan for which the participant is eligible. The new final rules now clarify that if a group health plan provides a participant with the SBC upon request prior to application for coverage, the plan is not thereafter required to provide another SBC to the same participant when the actual application for coverage is made. However, if a change to the SBC was made after the participant received the SBC but before the participant applied for coverage, the participant must be provided with an updated SBC as soon as practicable following receipt of the application, but in no event later than seven business days following receipt of the application.

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

for ensuring that the SBCs are drafted and dispensed in compliance with the applicable regulations. Nonetheless, as provided for in the new final rules, where a group health plan enters into a binding contract with a TPA for the provision of SBCs, the plan administrator will have fulfilled its requirement to provide plan participants with the SBC so long as:

Additionally, the February 2012 final regulations require that group health plans must provide the SBC to individuals who enroll during a special enrollment period, known as “special enrollees.” Special enrollees must be provided with an SBC no later than 90 days from the enrollment date. The new final rules now clarify that, in the event an individual eligible for special enrollment requests the SBC before the 90-day deadline, the plan must provide the SBC as soon as practicable, but in no event later than seven business days following receipt of the individual’s request.

Using Third Party Administrators to Handle SBCs Many self-insured group health plans utilize the services of third party administrators (TPAs) to create and distribute SBCs to plan participants on behalf of the plan administrator. However, even where a plan administrator outsources its SBC duties to a TPA, the plan administrator remains responsible

3. If the plan administrator has knowledge that the SBC is not being provided in accordance with the requirements but does not have all the information necessary to correct the noncompliance, the plan administrator must communicate with the plan participants and beneficiaries who are affected by the noncompliance and take significant steps to avoid future violations as soon as practicable. During the commenting phase leading up to the publication of the new final rules, some plan administrators pushed back against the imposition of the duty to monitor the TPA in providing the SBCs, claiming that overseeing the TPA’s performance would place an unnecessary and unduly burdensome added responsibility on the shoulders of the plan administrator. However, the agencies responded that such an extra October 2015 | The Self-Insurer


information will be subject to a penalty of up to $1,000 for each failure. Plans that fail to provide a compliant SBC may also be subject to an excise tax of $100 per participant for each day of noncompliance. While these penalties are steep, the agencies have communicated in prior guidance that their initial approach towards enforcing these regulations will be to assist those plans that are working diligently and in good faith to comply with the new rules rather than rushing to impose penalties for missteps.


safeguard was necessary to ensure that participants receive all of the information to which they are entitled.

Formatting and Content Requirements Earlier legislation established that SBCs must be presented in a uniform format and in a culturally and linguistically appropriate manner utilizing terminology understandable by the average plan participant. (See Section 2715 of the Public Health Service Act). Additionally, the text of SBCs must be no smaller than 12-point font. Section 2715 also restricted the length of SBCs to four pages, but the February 2012, final regulations construed this limitation to mean four double-sided pages. The new final rules reinforce this interpretation and permit SBCs to be four double-sided pages. Still, plan administrators have expressed their frustrations that even four doublesided pages is insufficient to capture all of the necessary information they are charged with supplying to plan participants. To assuage their concerns, the new final rules indicate 14

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that the agencies will address this issue when the new SBC template language is finalized in January 2016. The new rules also reinforce that SBCs may be provided to participants electronically in connection with their online enrollment or their online renewal of coverage under the plan. SBCs may likewise be provided electronically to participants and beneficiaries who request an SBC online. Nonetheless, in either case, the participant must still retain the option to receive a paper copy upon request. Furthermore, the new rules indicate that until the new SBC template is finalized in January 2016, the agencies will not take enforcement action against a group health plan that provides an SBC with a cover letter or similar disclosure with the required minimum essential coverage and minimum value statements in lieu of providing such statements directly within the SBC.

Penalties for Noncompliance A group health plan that willfully fails to provide an SBC to a participant with the required

Group health plans and their administrators should review these new final rules with their compliance teams promptly to ensure their SBCs are being issued in accordance with the latest requirements. Remember – these new SBC requirements apply to plan years beginning on or after September 1, 2015. Plans should also remain cognizant that additional changes will undoubtedly be on the horizon when the new SBC template and sample language is finally issued in January 2016. ■ Sean Donnelly currently serves as Corporate Counsel for The Phia Group. In addition to providing internal counsel to the firm’s management, Sean also serves as a consultant helping The Phia Group’s clients successfully resolve compliance matters and navigate through the regulatory maze. Sean attended the University of Michigan and Boston College Law School and is admitted to practice in the Commonwealth of Massachusetts. Resources Summary of Benefits and Coverage and Uniform Glossary, 80 Fed. Reg. 34292 (June 16, 2015) Public Health Service Act, 42 U.S.C. § 300gg-15 (2011)

October 2015 | The Self-Insurer


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


the Beltway Written by Dave Kirby

Congressman’s Visit to HCC Life Illustrates “The Power of One” This report combines elements both “inside” and “outside” the Washington, DC, Beltway with a Congressman’s home district visit to a SIIA member.


he old joke poses the question “How do you eat an elephant?” The answer: one bite at a time.

longtime member of Georgia’s General Assembly who is now serving his first term in Congress. Rep. Loudermilk didn’t just “stop by” HCC, which is located about a halfhour northwest of Atlanta. “He demonstrated how important he considered the meeting by including his Washington chief of staff as well as the head of his district office,” Ritchie noted.

The lesson can be applied to almost any kind of large, seemingly daunting problem. For us it provides a procedure to answer the question, “How do you gain good relations with Congress?” The answer: one member at a time.

A case in point is provided by the visit during the summer Congressional break of Rep. Barry Loudermilk (R-GA 11th) to the Kennesaw, Georgia, headquarters of HCC Life, a SIIA member company specializing in medical stop-loss insurance for self-insured employer groups. Rep. Loudermilk was hosted by HCC staff including Dan Strusz, president and CEO and Jay Ritchie, senior vicepresident and a SIIA director. “We were gratified that Congressman Loudermilk chose to visit us,” Ritchie said. “And we appreciate the work of SIIA’s Washington office in initiating the meeting.” Rep. Loudermilk was a 16

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Rep. Barry Loudermilk (R-GA) (center) is welcomed to HCC Life headquarters by President and CEO Dan Strusz, (right) and Senior Vice President Jay Ritchie, (left).

“This meeting illustrated ‘The Power of One,’” Ritchie said. “Members of Congress enact laws one at a time, with each vote counting equally. And each SIIA member has the ability to acquaint their representatives with issues that are important to their constituents and to the overall economy.”


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Life’s brighter under the sun

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October 2015 | The Self-Insurer


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The Congressman admitted to HCC leaders that his awareness of employer self-insured health plans and stop-loss insurance had been low prior to his briefing there. But both sides found common ground in Rep. Loudermilk’s expressed strategy of working to reduce government regulatory burdens in general. Strusz and Ritchie provided a summary of HCC’s work with its client base of approximately 3,000 employers from its offices in Kennesaw, Boston, Dallas and Minneapolis. “It seemed to be an eye-opener to the Congressman that we provide stop-loss insurance to employers who provide health plans covering about five million lives, with our 185 employees here at headquarters and about 100 in our other offices,” Ritchie said. HCC executives briefed Rep. Loudermilk on the Self-Insurance Protection Act (SIPA) which is now pending in Congress. Its objective is to prevent stop-loss insurance from being defined as health insurance for federal regulatory purposes. “The Congressman appeared to grasp the importance of that when he learned that stop-loss insurance does not pay for any individual medical benefits but protects employer plans against disastrous claims,” Ritchie said.

where most policymakers create their positions and listen to feedback. With so many issues demanding their attention in Congress, now is the time to talk to them, tell them about your business, your employees and your work to help the community.” ■ SIIA members who are interested in meeting with a Member of Congress in Washington or in their home districts are invited to contact Ryan Work at rwork@siia.org or (202) 595-0642.

HCC also provided an example of seemingly misguided government regulation in the so-called “Cadillac tax” that is part of the Affordable Care Act (ACA). “This tax on TPAs is actually an income tax inside an excise tax that doesn’t make any more sense than a mortgage broker being taxed on the value of a real estate transaction,” Ritchie said. HCC’s meeting with Rep. Loudermilk is part of SIIA’s ongoing campaign to increase Congressional engagement opportunities for its members. “Opportunities for members to visit their Congressional representatives in Washington – or at home like HCC has been actively engaged in – are critical to addressing and understanding the issues we face,” said Ryan Work, senior director of government relations.

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

“SIIA members are well aware that we are facing more regulatory and legislative activities than ever before in the self-insurance and risk management industry,” Work noted in a recent message to SIIA members. “Meeting with Members of Congress back home is a great way to tell your story. Beyond just protecting our industry, these meetings help promote it on the local level

October 2015 | The Self-Insurer


Bundled Payments and Employer Direct Contracting Redefine Benefits Landscape


mployers and their brokers, Third Party Administrators (TPAs) and other intermediaries increasingly recognize the opportunity to contract directly with providers and negotiate payments based upon bundled pricing for a growing number of surgeries, treatments and episodes of care. Some of the largest employers are paving the way: in 2013, Wal-Mart, Lowe’s and other large employers joined the Pacific Business Group on Health (PBGH) Negotiating Alliance (PBGH-NA) to launch a national Employers Centers of Excellence Network (ECEN), which offers no-cost knee and hip-replacement surgeries for employees at four hospital systems in the United States.1 The goal of this organization is to ensure that their employees get higher quality care and incur lower costs. ECEN is designed to serve as a model for delivering high quality healthcare with transparent and predictable costs. With more employers of every size now recognizing the potential for using this strategy, there’s growth opportunity for providers and organizations that are experimenting with private sector bundled payments as a tactic to grow market share. As this industry matures and travel becomes easier, employers will have more options than ever before.

Understanding the Impact of Bundled Payments Written by Laura Carabello 20

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Medical travel programs are designed around bundled payments and

the reimbursement of healthcare providers is based on expected costs for clinically defined episodes of care. Providers are paid a single fee for a set of evidenced-based services related to a diagnosis, with payments typically linked to outcomes, as well as other quality measures.2 This strategy incents providers to collaborate in order to ensure the best outcomes, because any additional cost incurred beyond the fixed price comes out of the provider’s pockets. As a result, Geisinger Health System, for example, has seen a 21% reduction in complications, a 25% reduction in surgical infections and a 44% drop in readmissions.3 Testimony to the potential power of this approach is the government’s newly announced commitment to integrated care delivery. The Centers for Medicare and Medicaid Services (CMS) recently announced a proposal, “Comprehensive Care for Joint Replacement Model,” mandating bundled payments for hip and knee replacements in 75 geographic areas. As a mandatory payment reform, the proposal seeks to shift 50% of Medicare payments to alternate forms like accountable care organizations (ACOs) and bundle payments by 2018. The need for a new payment model for such procedures stems from the huge variation in medical costs. For instance, the price for knee and hip replacements – which are the two fastest-growing medical treatments in the country – can differ by more than $20,000 from one place to another.4 This means that Medicare will now pay providers who perform hip and knee replacement surgeries based on their ability to deliver high-quality, low-cost care under a five-year initiative. This model will target Medicare fee-for-service beneficiaries as they transition from surgery through recovery.5 As a result, CMS stands to reap a discount on what it currently pays for hip and knee replacements, which would translate to real savings, given that in 2013, Medicare spent more than $7 billion on hospitalizations for hip and knee replacement surgeries alone. What’s more, the CMS proposal pushes the work of Peer Review Organizations (PROs), a move that will impact the market. PROS are independent groups of physicians who conduct pre-admission, continued stay and service reviews for Medicare. They also review activities and records of a particular healthcare provider, institution or group.

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Significantly, when Medicare/CMS – by far the largest payer in the U.S. – enacts this type of regulation, the commercial market tends to quickly follow. It is expected that a bundling model is one that third party administrators (TPAs) and self-insured employers should take into serious consideration.

Centers of Excellence: Payment Reform Undergoing a Domino Effect For the most part, the nation’s TPAs and other stakeholders are deep into the process of finding solutions that not only lower costs, but also ensure quality. While the large employers pioneered the opportunity, more recently, mid-size and smaller employers are now implementing direct contracting arrangements with targeted Centers of Excellence (COEs) with an eye on aggregating their purchasing power through coalitions and other multiple employer welfare arrangements (MEWAs).

Direct contracting, often characterized as “U.S. domestic travel,” is the practice of traveling out of one’s hometown or home state to a care provider or COE located in another part of the country. Some purchasing groups are limiting travel time to under two hours, while others are not setting strict parameters and may even be exploring options for international medical travel. It’s a trend that has also spawned a new breed of health management. Health Design Plus (HDP; www. hdplus.com), a healthcare management company with experience administering travel surgery programs, enables its clients to control the spiraling costs of healthcare by giving employers access to the country’s top hospitals and doctors – at a predictable cost. The select hospitals involved in the HDP program had to meet strict benchmarks for positive outcomes, low hospital-acquired infection rates, high patient satisfaction, advanced staff training and skills, thorough patient data capture and other factors. Doctor’s costs, hospital expenses and fees are part of a single, transparent price.6 Ruth Coleman, CEO of HDP, anticipates growing interest in the regional model that they rolled out with the nation’s largest retailer – patients traveling for care within a smaller geographic region. The appeal with the regional model is that plan members travel within their own geographic region. The company also expects to see more regional programs that will go beyond surgical procedures to include programs for conditions that are difficult to manage, such as diabetes. Currently, the company is focused on domestic programs, but anticipates that ongoing trends will gradually make international travel more attractive for employers and plan members. October 2015 | The Self-Insurer


Transparent Costs, High Quality Care COEs offer the potential for better outcomes and cost-efficiencies, representing high value for all parties. Wal-Mar t, for example, launched a COE travel surgery program for cardiac and spine and suggested that this type of program could have a stronger impact moving the market if multiple employers joined together. Employers want a travel surgery program that offers high quality surgical care at affordable rates, not just an arrangement that provides the “best deal.” Similarly, in Wisconsin, the not-forprofit, employer-owned cooperative, The Alliance®, has launched a new initiative, QualityPath, which works to identify physicians and hospitals that – when working together – meet proven standards for delivering costeffective, high quality care. The cooperative aims to


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provide access to information and user-friendly tools to enable beneficiaries to “shop” for and schedule common, non-emergency surgical procedures, including: • Total hip replacements • Total knee replacements • Coronary artery bypass grafts It’s been shown that patients prefer to be included in the shared decisionmaking process and a number of these programs work to keep patients abreast of potential quality and cost measures, with documentation provided in advanced directives.

Patient Buy-In: Multiple Factors Impact Decision-making While quality of care has traditionally been the primary deciding factor in choosing a hospital or physician for a specific treatment or procedure, the cost of healthcare

has become an increasingly important factor for consideration. As patients have been asked to pay a greater proportion of the cost of their care – through higher co-pays, deductibles and other plan cost-sharing features – they are becoming more comfortable with the notion of leaving home to access better care that is easier on the pocketbook. Employers are also incenting patients to make the journey: offering full coverage for the procedure, eliminating deductibles and out-of-pocket costs and covering the travel costs of a companion or family member. Having access to geographically specific healthcare cost information will also be key to empowering patients to make more informed decisions regarding whether to travel for care and how to plan for it financially. But transparency of information on the costs and quality

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of healthcare remains elusive, despite the efforts of the CMS and private sector organizations that are starting to report this information. In turn, hospitals and providers increasingly mimic the practices of successful retailers and are continually updating their offerings to lure corporate customers. In their quest to become recognized COEs, they seek to attract patients from all parts of the country and in many cases from throughout the world. For the most part, however, these care providers are unsure about how to approach corporate audiences, market their capabilities and leverage the opportunities that now exist throughout the country. Implementation of a medical travel program is a complex undertaking and the majority of health systems need guidance. Achieving clinical excellence is just one piece of the puzzle and while most institutions like to point to their accomplishments in this area, they are missing many of the components for truly delivering an excellent, start-tofinish patient experience.

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Positioned for Success: COEs Strategize to Compete Current market forces have created a perfect storm for the introduction of new services, which will work to ensure patientcentric care that focuses on better outcomes for every individual. Innovative services, however, must never lose sight of the importance of first meeting patient needs and expectations and then guiding employers and care providers to execute on their commitments to each and every person.

the “matching” programs for other industries such as dating, leisure travel and business networking to accomplish these goals: • Empower employers of all sizes with information and resources to pursue a medical travel program that generates the highest quality care at the greatest value • Position hospitals and care providers to serve employers and their workforces • Offer Web and event platforms to connect the audiences Today, the marketplace has forced health systems to compare themselves to institutions in a five-state radius or on another coast. The need to travel is no longer a major concern for those seeking the best care at the best price. As plan members take on a greater share of their own healthcare costs, they are beginning to distinguish between low prices and high quality. At the same time, employers are playing a more aggressive role by contracting directly with healthcare providers and COEs in order to find the best value for their employees and opting for bundled, fixed price procedures. This has created a new dynamic in the world of health benefits that plays out as a win-win for all stakeholders. ■ Laura Carabello has been an entrepreneur and a strategy consultant in both domestic and international businesses related to health care and technology since 1985. She is the publisher/managing editor of Medical Travel Today, the authoritative, online business-to-business international newsletter of the medical tourism industr y (www.medicaltraveltoday.com), as well as US Domestic Medical Travel (www.usdomesticmedicaltravel.com), the newsletter dedicated to U.S. intra-state and inbound medical travel. Resources The Free Library;Walmart, Lowe’s and Pacific Business Group on Health Announce a First of its Kind National Employers Centers of Excellence Network; www.thefreelibrary.com/Walmart%2c+Lowe%27s+and+Pacific+Business+Group+on+Health +Announce+a+First+a0345042183;accessed August 4, 2015.


2 Satin, David J. & Miles, Justin; Performance-Based Bundled Payments; Minnesota Medicine; October 2009; www.minnesotamedicine.com/Past-Issues/Past-Issues-2009/October-2009/Special-Report-Oct2009; accessed January 9, 2015 3 Champion, Wes; How Bundled Pricing Just Might Save Healthcare From Itself; Healthcare Blog; Oct. 26, 2012; http://thehealthcareblog. com/blog/2012/10/26/how-bundled-payments-just-might-save-health-care-from-itself/; accessed January 9, 2015 4 Overland, Dina; BCBS: Huge variation in medical costs shows need for price transparency; FierceHealthPayer; January 22, 2015; www.fiercehealthpayer.com/story/bcbs-huge-variation-medical-costs-shows-need-price-transparency/2015-01-22?utm_ medium=nl&utm_source=internal; accessed August 4, 2015

Zweig, Dori; CMS to transform hip and knee replacement payment model; FierceHealthFinance; July 10, 2015; www.fiercehealthfinance.com/story/cms-transform-hip-and-knee-replacement-payment-model/2015-07-10; accessed August 4, 2015 5

Featherly, Kevin; Paying Less for the Best; Delta Sky; pg. 81; February 2014


Carabello, Laura; U.S. Domestic Medical Travel; to be published: Vol. 1, Issue 21; March 2014


What is needed is a single intersection for the healthcare medical travel industry, parallel to October 2015 | The Self-Insurer


PPACA, HIPAA and Federal Health Benefit Mandates:



The (Poorly Named) “Cadillac Tax” Part Two: IRS Provides Further Guidance in Notice 2015-52


he so-called “Cadillac Tax” (Internal Revenue Code 4980I) applies starting in 2018 and was intended to provide a means to address what were perceived as overly rich employer-provided health benefit plan designs, as well as to provide a revenue source to finance other objectives of the Affordable Care Act (ACA). The Cadillac Tax imposes a nondeductible 40% excise tax on health benefit coverage provided for or arranged by an employer (even if paid for 100% by the employee) in excess of a statutorily determined amount. These amounts are initially set at $10,200 for single coverage and $27,500 for family coverage2 (with higher thresholds in certain situations, such as high risk occupations). Despite the fact that health care inflation (health care trend) has far outstripped general inflation, future increases in the Cadillac Tax thresholds are


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generally limited to the consumer price index (CPI). Recent studies confirm that for most employers the issue is not whether the tax will apply, but how soon will it apply. Studies also confirm that health flexible spending arrangement (FSA) participation will likely cause far more employers to face the tax immediately in 2018 (or much sooner than it would otherwise apply).3 Given the broad impact the tax is expected to have, it is now widely recognized that the term “Cadillac tax,” with its implication of luxury, is a misnomer. Accordingly, for the remainder of this article, we refer to simply the “excise tax”. The IRS first addressed issues under the excise tax in February of this year, in IRS Notice 2015-16. That notice provided insight as to the IRS views and requested comments on the following topics: (i) the definition of coverage subject to the tax (“applicable coverage”); (ii) how the cost of that coverage is determined; and (iii) the application of the statutory dollar limit to the cost of coverage. Notice 2015-16 is covered in more detail in our prior advisory.4

Notice 2015-52 On July 30, 2015, the IRS issued Notice 2015-52 (the “Notice”), which provides important insight (and requests public comment) on who is liable for paying the excise tax, how the tax is paid, how the tax is allocated among coverage providers and employers, additional information regarding the calculation of applicable coverage and issues regarding employer aggregation. The IRS also proposed a special “smoothing” rule for determining the cost of coverage under account based plans (such as FSAs, HRAs and HSAs).

Practice Pointer: Notice 2015-52 does not provide guidance on which employers or others may rely, but provides valuable insight as what the IRS is thinking and offers opportunity for comment. Comments on the Notice should be submitted no later than October 1, 2015. After the IRS has reviewed all the comments, the next step in the regulatory process is expected to be issuance of proposed regulations. There will be an opportunity to comment on the proposed regulations.

Who Will Be Responsible for Paying the Tax?

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The statute provides that the “coverage provider” is responsible for paying the excise tax. Who the “coverage provider” is depends on the type of coverage provided. If the coverage is through a... :

...then the coverage provider is the:

Fully-insured group health plan

Health insurance issuer

HSA or Archer MSA to which the employer makes contributions


All other coverage

“[P]erson that administers the plan benefits” (see discussion below).

Currently, there is no definition for “the person that administers the plan benefits.” The IRS is proposing two possible definitions. Under the first, the “person that administers the plan benefits” would be the entity responsible for performing day-to-day administrative functions. Generally, this will be a third-

party administrator, although it may in some instances be the employer or other plan sponsor, depending on how benefits are administered. Under the second proposed definition, the “person that administers the plan benefits” will be the entity that has the ultimate authority with respect to administration of the plan. Generally, this will be the employer in the case of a single employer self-funded plan In the case of multiemployer plans, this would generally be the plan sponsor, i.e., the joint board of trustees. In all cases, IRS expects that the person liable for the tax will generally be an entity, rather than an individual. For self-funded plans, the ultimate decision regarding the entity that is liable for the tax could have a number of implications beyond merely who must send the check to the IRS, including both administrative issues and potentially the amount of tax paid. For example, under the first approach (i.e., the person with day-to-day responsibility is liable for the tax), it is likely that there will be multiple coverage providers for a single plan. This could occur, for example, if prescription drug benefits are administered by a pharmacy benefit manager (PBM) and major medical benefits are administered by a different TPA. This could make determination of the tax more difficult.

Practice Pointer: Regardless of which entity is liable for the tax as the “coverage provider”, the employer is responsible for determining the amount of “excess benefit” (i.e. the amount in excess of the dollar thresholds) and notifying coverage providers and the IRS of the amount of excess benefit and the share of the October 2015 | The Self-Insurer


excess allocated to each coverage provider. This task may be more difficult the more coverage providers there are.

plans. Note, for fully-insured plans, the coverage provider is the health insurer, so these pass through issues will arise in that context.

If a third party is liable for the tax, it can be expected that they will look to pass the tax back to the employer/ plan sponsor. Because the tax is nondeductible, any such pass through will also likely include a gross up to reflect any additional income tax estimated by the coverage provider to be owed as a result of the excise tax. As discussed further below, the IRS proposes to adjust the cost of coverage for determining the excise tax so that cost excludes both the tax itself and any gross up; however this may be a cumbersome process and might still result in tax being calculated on the tax. If the employer is the “coverage provider” this issue may be minimized for self-funded

How Will the Tax Be Calculated and Paid?

required to calculate the excess benefit and provide the notification. The IRS is considering both the form and timing for the notification and is seeking comments on issues associated with this process.

Monthly Calculation; Annual Payment

Determination of the “Excess Benefit” A first step in determining the amount of the tax is determining the “excess benefit,” meaning the excess of the cost of the applicable coverage over the dollar threshold. Regardless of what entity or entities are responsible for paying the tax, it is the employer’s responsibility to determine the excess benefit and notify each coverage provider and the IRS of the amount of excess benefit attributable to each coverage provider. In the case of multiemployer plan coverage, the plan sponsor is

The tax will be paid once for each “taxable period.” The IRS anticipates that the taxable period will be the calendar year. Although the tax is only paid once for each year, it is determined on a monthly basis. As noted above, it is the employer’s responsibility to determine the amount of excess benefit for each month in the taxable period. The IRS is considering how much time will be needed for health insurance issuers, third party administrators and employers to accurately report and submit the

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indicates that the excise tax and any related income tax adjustment would be excluded only if such amounts are separately billed and identified by the coverage provider. Comments are requested on these issues. Note, it may be possible to avoid these pass-through issues for selffunded coverage if the employer or other plan sponsor is liable for the tax. However, because the statute states that insurers are the coverage provider for fully-insured coverage, the pass through questions will arise for such coverage.

amount of tax due over the taxable 4 period. In some cases (such as when a plan year ends after the end of a calendar year) this determination may be difficult.

Submission of the Tax The IRS anticipates that coverage providers will remit any excise tax due by filing Form 720. Although this form is called the Quarterly Federal Excise Tax Return, it would be used only once a year for the 4980I excise tax. The IRS anticipates designating a particular quarter during the calendar year during which Form 720 will be used by the coverage provider to pay the excise tax. This is similar to the process being used currently for the Patient Centered Outcomes Research Institute (or PCORI) fee.

How Does the IRS Propose to Make Sure that the Cost of Applicable Coverage Excludes the Excise Tax? Section 4980I explicitly provides that the cost of applicable coverage does not include “any portion of the cost of such coverage which is applicable to the tax imposed under [Section 4980I]”. As described above, the tax may be paid by a “coverage provider” entity that is not the employer, such as the health insurance issuer or a third party administrator. In these instances, it is expected that the coverage provider will pass the cost of the tax through to the employer acting as plan sponsor. If this occurs, the Notice states that the reimbursement of the excise tax costs from the employer to the coverage provider will trigger additional taxable income to the coverage provider. Further, the excise tax is not deductible to the coverage provider. Thus, the coverage provider may also seek reimbursement from the plan sponsor to cover the increased amount of taxes due to the excise tax reimbursement. The Notice indicates that the IRS is considering excluding from the cost of coverage not only the excise tax itself but also any related income tax gross up that is passed through. The Notice includes possible alternative ways to determine the amount of any gross up, including a standard formula. The Notice 30

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How Will the Cost of Applicable Coverage be Calculated? The Notice expands on the information provided earlier in Notice 2015-16 regarding how the cost of “applicable coverage” subject to the excise tax is calculated in certain situations.

Contributions to Account-Based Plans The IRS is considering providing that contributions to account-based plans, such as HSAs, Archer MSAs, FSAs and HRAs will be allocated on a pro-rata basis over the plan year, regardless of when the contributions actually are made to the account. This should help smooth out annual accruals under account based plans.

Practice Pointer: The extent to which employer contributions to HSAs are taken into account under the excise tax is not yet clear. Notice 2015-16 indicated that the IRS was anticipating that such contributions would be subject to the tax. However, the statute requires that

“applicable coverage” must a “group health plan.” HSAs are generally NOT group health plans. Thus, the statute indicates that only in the rare case that an HSA is a group health plan should the tax apply. Numerous comments on Notice 2015-16 made this point and, in the alternative, argued that if the IRS persists in subjecting HSAs to the tax, at least salary reduction contributions should be excluded. It is expected that the IRS will address this issue in proposed regulations.

Contributions to FSAs with Employer Flex Credits Generally, the amount of applicable coverage of a non-elective flex credit would be the amount that is actually reimbursed in excess of the

employee’s salary reduction election for the year. The IRS is considering a safe harbor to avoid double counting salary deferral amounts that are carried over from one plan year to another. The safe harbor varies depending on whether there are non-elective flex credits available. Under the safe harbor in which non-elective flex credits are not available, the employee’s salary reduction for the plan year without regard to carryover amounts would be the cost of applicable coverage. This means that while unused amounts will be taken into account one year, they will be disregarded for the year into which they are carried over. When non-elective flex credits are available, the safe harbor would provide that an FSA could be treated as funded solely by salary reduction if the amount elected by the employee

for the FSA is less than or equal to the ACA cap on salary reduction contributions ($2,550 for 2016).

Self-insured Coverage Includible in Income Code § 105 excludes reimbursements from an employer-provided accident or health plan from an employee’s income, unless the reimbursements are paid to a highly-compensated individual (“HCI”) under a selfinsured plan that discriminates in favor of HCIs. This means that HCIs pay income tax on this reimbursement. The Notice indicates that although this reimbursement is already being taxed at the individual level, the excess reimbursements will still need to be included in the cost of applicable coverage when determining any excise tax liability. The IRS anticipates that W-2 reporting will eventually be required

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October 2015 | The Self-Insurer


for these amounts as well (contrary to transitional guidance provided in Notice 2012-9).

Practice Pointer: – Multiemployer plans: Multiemployer plans have a different structure than single employer plans and often present different issues. Code Section 4980I and IRS Notice 2015-52 address some, but not all, of these issues. For example, in the case of coverage under a multiemployer plan, the plan sponsor is responsible for providing the notice of excess benefits to coverage providers and the IRS, rather than the contributing employer. Notice 2015-52 specially requests comments on issues relating to multiemployer plan.

Age and Gender Adjustments to the Applicable Dollar Limit The excise tax is 40% of the excess of the aggregate cost of the applicable coverage over the applicable dollar limit. Code § 4980I defines the 2018 applicable dollar limits as $10,200 for self-only coverage and $27,500 for coverage other than self-only coverage. Various adjustments may apply to these

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limits. As noted in the earlier Notice 2015-16, the IRS intends to promulgate rules regarding adjustments that employers can make to these limits and seeks comments on these issues. The current Notice provides additional discussion of the adjustments permitted based on the age and gender characteristics of the employees of the employer. On average, older employees and female employees have higher healthcare costs than younger employees and male employees, respectively. Employers with a higher than average concentration of older or female employees may be able to raise their applicable dollar limit amount and thus avoid some or all of the excise tax. In order to take advantage of the adjustment, employers will need to compare their employee population to the population of the national workforce. The IRS is considering a requirement that employers must use the first day of the plan year as a snapshot date for determining the composition of its employee population. The IRS is seeking comment as to whether this date would be a representative date. Finally, it is anticipated that the IRS will publish adjustment tables to facilitate the employer’s calculation of the age and gender adjustment.

Conclusion The Section 4980I excise tax will present challenges for all plan sponsors. Sponsors should be considering now what plan design changes may be appropriate to try to reduce plan costs and avoid the excise tax. ■ The Affordable Care Act (ACA), the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and other federal health benefit mandates (e.g., the Mental Health Parity Act, the Newborns and Mothers Health Protection Act and the Women’s Health and Cancer Rights Act) dramatically impact the administration of self-insured health plans. This monthly column provides practical answers to administration questions and current guidance on ACA, HIPAA and other federal benefit mandates.

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

Meredith Gage, Esq. an associate in Alston & Bird’s Atlanta office assisted with the preparation of this article.


Section 4980I provides that all coverage under a multiemployer plan is treated as family coverage.

See, for example, Kaiser Family Foundation article “How Many Employers Could be Affected by the Cadillac Plan Tax”, August 26,2015 at http://kff.org/health-costs/issue-brief/how-many-employers-could-be-affected-by-the-cadillac-plan-tax/


The A&B advisory on Notice 2015-16 may be found at www.alston.com/advisories/cadillac-plan-tax/


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

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

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

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

October 2015 | The Self-Insurer




Liability to

Small Businesses


arlier this year, a risk purchasing group (RPG) was formed to provide cyber liability protection to the restaurant and hotel industries. In the last few years, several RPGs have begun providing cyber liability to small businesses and franchises, as well as for insurance professionals, real estate agents and educators. The exibility of RPGs in set-up and management is proving to be a unique and effective way to reach entities which may not have access to cyber liability coverage.

Written by Karrie Hyatt 34

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Small Businesses Facing Cybercrimes As cybercrimes become more commonplace, the need for cyber security liability insurance increases. While many large and national companies have been taking advantage of the cyber liability products that are increasingly becoming available in the marketplace, most medium and small companies are being left behind.

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According to Daniel V. O’Leary, of counsel with Chicago-based law firm Mandell Menkes, LLC who has been responsible for dozens of RPG formations, “Large capitalized corporations with in-house risk management personnel can access markets offering cyber security coverage, but small to mid-size businesses without in-house risk management personnel may find it more difficult to obtain this coverage independently.” Another reason smaller companies may not be purchasing cyber coverage is that they think they are at less risk of exposure than a large company – especially if they don’t obtain or store a lot of consumer data. However, the size of the company does not matter. One of the fastest growing segments of cybercrimes is the use of stolen credit card information. Any company that collects credit card information as part of the payment process is potentially at risk. Another cybercrime that many small businesses are unaware of is the theft of employee data. Even for companies with only a dozen employees could take a big hit if that private information is stolen. Leib Dodell, the former CEO of Media/Professional Insurance, is an insurance professional who has been at the forefront of developing cyber liability products – helping to set

up one of the first products in the late 1990s. He has found that the outreach for getting cyber products to small businesses is incredibly difficult. “One of the challenges with cyber is trying to figure out how to make it relevant to small businesses, smaller buyers. The big companies and financial institutions have access to a robust market that specialize in cyber. But the smaller buyers are a challenge because they typically work with small, local, retail brokers who have no experience with cyber and small budgets for insurance products. So trying to figure out how to get cyber to those smaller buyers has been a big challenge for the industry.” Insurers have been trying to find an efficient way to make their cyber liability products available to companies that likely don’t have cyber liability in their insurance budget and have been trying a number of different delivery methods. According to Dodell, “There are a lot of different distribution strategies and I think RPGs is one of those.”

What are Risk Purchasing Groups? RPGs are entities that were enabled by the Federal 1986 Liability Risk Retention Act (LRRA) along with their more well-known counterparts, risk retention groups (RRGs). The LRRA preempts some aspects of state regulation regarding RPGs, which also includes their members, their insurers and the agents and brokers that work with them. RPGs can operate in multiple states but must have a state of domicile and they are required to register in each state in which they intend to do business. Unlike RRGs which are actual insurance companies who retain their own risk, RPGs are collective buyers of existing insurance products from insurance companies.

RPGs typically represent a trade association or some other form of homogenous group and get the discount benefits of group insurance purchases. These entities are much quicker to set-up than a RRG, most taking only a few months to set in motion. While many RPGs offer coverage to members through a trade association, equally as many RPGs are introduced by agents or brokers who see a niche in the marketplace that could be best served by this type of alternative risk transfer mechanism. Real estate professionals, educators, hospitality and, of course, healthcare are some of the sectors that benefit from the RPG structure. Currently, there are over 900 RPGs registered to operate in the United States (compared to only 235 RRGs), according to the Risk Retention Reporter. Only a small number, at this time, are offering cyber products to their members, but those RPGs are “members of a regional restaurant association, or regional retail group; franchisees of a particular franchise operation; really, any group of small businesses or small retailers,” said O’Leary. The most recent addition to RPGs offering cyber coverage and one managed by O’Leary’s law firm, is Restaurant and Hospitality Businesses Data Security and Media Liability RPG. Domiciled in Illinois, the RPG was formed primarily for small to medium-sized restaurants and other hospitality businesses in California to cover the risk of obtaining customer information, such as credit card or other personal information.

The Benefits of RPGs While savings on premiums is one of the advantages in the use of the RPG mechanism, in the case of October 2015 | The Self-Insurer


CYBER LIABILITY | FEATURE cyber liability, it is less so. The benefit that RPGs can offer to the product are distribution channels that make it available to smaller buyers. Cyber liability products is still considered an emerging coverage. The expertise to underwrite the product lies in larger companies with better access to actuarial data. Local and regional agents and brokers offering services to small to mediumsized companies don’t necessarily have the expertise in underwriting cyber security liability, but by using a RPG they can offer cyber to their customers through larger insurers. Using an RPG, small businesses or individual professionals can band together to get access to this increasingly important coverage. RPGs, said O’Leary, “[Can] provide access to the markets providing the coverage, until the smaller retail brokers become more familiar with the need for the coverage and can understand the complexities involved in providing the coverage.”

gender discrimination could also be marketed to groups or associations.” Dodell has one specific type of coverage in mind, “There is an exposure that I haven’t seen covered by an RPG yet, but that is media exposure. I’ve been on the soapbox for a while that small business need media insurance. It’s been an insurance product for a while, but it’s only been bought by media companies – publishers, broadcasters, ad agencies.” Media coverage could offer copyright and trademark infringement, plagiarism and privacy/defamation coverage. It is seen as a very specific type of errors and omissions coverage and any business with a website or social media presence could be at risk for these types of exposure. Like with cyber, most small businesses don’t see themselves at risk. Dodell continued, “Nowadays every business has a website with pretty sophisticated content. They’re creating and disseminating content in ways that in the past only media companies would have been able to accomplish.” The general liability policy, Dodell said, was not designed for this type of exposure and won’t respond to most types of media and intellectual proper ty claims. For this reason he is advocating media liability coverage. ■ Karrie Hyatt is a freelance writer who has been involved in the captive industry for more than ten years. More information about her work can be found at www.karriehyatt.com.

Using RPGs for Other Emerging Coverages The opportunity for wide distribution to smaller buyers that RPGs offer can be applied to other emerging coverages as well. O’Leary, who has been working with RPGs since the late 1980s believes that, “Any new or emerging coverage could be marketed through a purchasing group to small and midsize businesses until the coverage becomes more readily available.” “I could imagine a purchasing group could be used to provide D&O coverage to condo association boards or to any group of smaller companies at less premium than any one individual entity could purchase the coverage independently,” he continued. “Coverage for claims of sexual or 36

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Symetra Life Insurance Company and First Symetra National Life Insurance Company of New York (collectively, ‘Symetra’) are subsidiaries of Symetra Financial Corporation. Each company is responsible for its own financial obligations. Stop loss, filed as the Excess Loss policy, is insured by Symetra Life Insurance Company, 777 108th Avenue NE, Suite 1200, Bellevue, WA 98004. In New York, stop loss, filed as the Excess Loss policy, is insured by First Symetra National Life Insurance Company of New York, New York, NY. Mailing address: P.O. Box 34690, Seattle, WA 98124. Symetra® is a registered service mark of Symetra Life Insurance Company. SLM-6245


October 2015 | The Self-Insurer


The Value of Narrow Networks in Impacting Plan Costs This article represents “commentary” and represents views of the authors. We welcome other opinions on the subject


he more things change, the more they stay the same... Back in the olden days of managed care (mid-80s to mid-90s), HMOs and EPOs were the weapons of choice in the fight against skyrocketing healthcare and health insurance costs. As we moved into the late 90s and early 21st century, both lost favor in the market due to a lessening of healthcare cost pressures and a desire for patients to have open access to providers. Fast forward to 2015. We once again find ourselves in the throes of significantly increasing healthcare and health insurance costs, the Affordable Care Act and the use of Medicare repricing as a replacement of traditional PPOs. And guess what?! The focused, restricted network is gaining significant interest and traction in the market. We’ve just changed the name to give it an appeal that the Exclusive Provider Organization (EPO), never really enjoyed. Today we speak interchangeably of Narrow Networks, Focused Networks, High Value and High Performance Networks.

Written by Corte Iarossi 38

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How Do We Define These New Network Iterations? There appears to be several standard elements, as well as some variation depending upon the network: • Focused provider contracting within a geographic area with the intent of providing access to key providers and facilities. • Desire to direct patients to select providers in return for extremely favorable reimbursement rates. • Provider contracts can be based on varying payment mechanisms including but not limited to reference based pricing (e.g. Medicare), pay for performance, value-based and capitation. • An intent to offer price and quality transparency and to engage the patient in the process of purchasing healthcare services so that they can be discriminating consumers. The reality is that we’re likely to see multiple variations on these themes over the next several years as the market matures and competitive innovation increases. Now, let’s put this in the perspective of current market trends: The following was taken from the Towers Watson 2015 Emerging Trends in Healthcare Survey. Companies seeking to achieve and sustain such high performance need to develop clearly defined, comprehensive and aggressive multiyear strategies for maximizing their health care investments. • Health care costs for 2015 are projected to increase by 4% after plan changes, compared to the 4.5% employers previously projected for 2014. Without changes, the increase would have been 5.2%. • The excise tax is a primary focus of companies’ health care strategies. Twothirds of employers (62%) say the 2018 excise tax will have a moderate to significant impact on their health care strategy. Two in five employers that have done extensive modeling of their plans say they will trigger the tax in 2018. • Employers continue to partner with their vendors to link payment to value and enhance networking strategies. Use of COEs and narrow medical networks is expected to more than triple over the next three years.

Which Specific Actions Do Self-insured Organization Have in Place or Are Considering Between Now and 2018 for Their Health Care Program?

What Does this All Mean in Terms of Options for Self-funded Health Plans? • We anticipate that many carriers, ACOs and independent network organizations will develop their version of the Narrow/High Performance Networks. • Multiple options will offer selffunded health plans greater choice and leverage in negotiating pricing. • Many of the networks will utilize Medicare allowables to establish their contractual relationships in return for increased patient volume and the ability for a provider to carve out its competitors.

In Place Today

Planned for 2016

Considering for 2017/ 2018

Offer telemedicine (e.g., real-time interactive services that leverage mobile collaboration technologies)




Expand use of centers of excellence either within your health plans or via a separate network




Engage a third party to secure improved pricing on medical services




Offer benefit differential for use of high- performance/narrow medical network




Contract directly with physicians, hospitals, ACOs or patient-centered medical homes




Network/Provider Strategies

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

To be attractive, narrow, tailored, tiered and high performance networks will need a 20%-25% price advantage over PPO and HMO products. Interviews with six major national and regional payers indicate that new high performance network products with aggressive management of deductibles and primary-care physician lock-ins will likely be priced at a 20% to 25% discount to open access PPOs and a slightly less discount to standard HMOs. (As seen in the article “Narrow, Tailored, Tiered and High Performance Networks: An Emerging Trend” by Bill Eggbeer, Managing Director and Dudley Morris, Senior Advisor, BDC Advisors, LLC)

(Information taken from the Towers Watson 2015 Emerging Trends in Healthcare Survey) October 2015 | The Self-Insurer



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• Smaller boutique companies will offer Client tailored network options allowing Plans to create a program that meets the needs of its employees. This could include: » Exclusive use of the network with no out-of-network benefit. » The ability to offer a Wrap PPO for out-of-area and out-of-network services. » Three tiered options using a Narrow/High Performance Network, a Wrap PPO and a separate out-of-network benefit. • Pricing on a PEPM could vary greatly, depending on the network: » Some independent rental PPOs may offer their own Narrow Network solution at a rate higher than the typical PPO option. Potentially $8-12 PEPM. » Carriers offering Narrow/High Performance Networks may also increase the cost of accessing the network reflecting the greater savings anticipated. • There may be a push toward offering performance rewards to providers to enhance the quality of care and reduce utilization as appropriate. The end result could be additional Plan savings. • Health Plans utilizing a Medicare repricing alternative to a PPO may consider implementing this type of PPO option in lieu of the more draconian approach to eliminating the PPO altogether.


Plans should have procedures to ensure that an adequate number of providers that accept the reference price are available to participants and beneficiaries. For this purpose, plans are encouraged to consider network adequacy approaches developed by States, as well as reasonable geographic distance measures and whether patient wait times are reasonable. (Insured coverage is also subject to any applicable requirements under State law.) The underlying concept and one in which we feel supports the movement toward these Narrow/High Performance PPO’s is the reference to “networks”. Though time will tell, we believe the ground work is being laid through the Affordable Care Act to protect patients through network access and which will support reference based or value-based contracting with providers. ■ Corte B. Iarossi is the VP of Sales and Marketing at United Claims Solutions and can be reached at (866) 762-4455 x120 or via email at ciarossi@unitedclaim.com.

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

There are those that believe that the PPO will be replaced with a free-form use of Medicare or other Reference Based Pricing mechanism to discount medical bills. Though there may be a place for this solution, we contend that there will be a rebirth of the PPO in a form that can achieve significant savings, enhance the quality of care and provide employees/members/patients the peace of mind that the provider will accept the payment in full (less copays, deductibles and coinsurance). This appears to be supported by a recent FAQ by the Feds related to the Affordable Care Act (released October 10, 2014), that attempted to

define “reasonable access” in terms of Reference Based Pricing:

October 2015 | The Self-Insurer


London Calling... SIEF Summit Imparts ‘Brilliant’ Lessons from Across the Pond


ondon is known for Buckingham Palace, Big Ben, the Royal Albert Hall and Harrods, among other historic landmarks. It’s also home to Lloyd’s of London, known for managing unusual risks for 327 years and a driving force behind self-funded markets around the globe.

Just across the street, a group of senior executives representing global selffunding and alternative risk markets assembled for last month’s Self-Insurance Executive Summit. The event was sponsored by the Self-Insurance Educational Foundation (SIEF), the nonprofit educational arm of the Self-Insurance Institute of America (SIIA). It featured attendees and speakers from major corporations across the U.S. and Europe. Hot topics included captive growth, U.S. health care policy, the Affordable Care Act, global medical trends and the looming implementation of Solvency II, a financial standard governing insurance regulation across the European Union that takes effect in January.

Written by Bruce Shutan 42

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SIEF Chairman Nigel Wallbank, who’s also president of New Horizon Insurance Solutions, references “a fabulous presentation” on Lloyd’s of London by Colin Bird, chairman and CEO of Besso Insurance Group Limited. He says the summit represented a good opportunity for attendees “to learn about the way that special risk is conducted in Europe and in Lloyd’s and how that supports

many a North American project or North American writing of projects.” As for Solvency II, which also had everyone talking, Wallbank says it’s only a matter of time before it arrives in the U.S. because European entities must apply the new standard to their operations around the world. Freda Bacon, a SIEF board member who administers the Alabama Self-Insured Worker’s Compensation Fund, says London was chosen to host the executive summit “primarily due to the everincreasing cross-over of self-insurance issues, which affect both sides of the Atlantic.” She describes the market, as well as Lloyds of London, as steering everything from excess and reinsurance coverage to captives around the globe and also notes that most international brokers are headquartered there.

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

International conferences are critical to the self-insurance industry at a time when the global economy is expanding, according to Wallbank. “The world is shrinking in that regard. A lot of the major players now are involved in global insurance or reinsurance.”

Colin Bird, chairman and CEO of Besso Insurance Group Limited

Recalling memorable SIIA trips to China and to Bangkok, Wallbank is hopeful that a conference can now be planned for Cuba now that U.S. diplomatic ties have been restored and there’s an American embassy in place. He believes interest is high, adding: “that would be educational because the law requires education at the moment. You can’t just go there for fanfare.” While events overseas are an important part of SIIA’s educational mission, Bacon notes that SIEF also hosts a number of sessions in Washington, D.C., to help educate congressional aides and policymakers on the self-funded industry, its goals and concerns.

Gary Osborne

October 2015 | The Self-Insurer


Bruce Shutan is a Los Angeles freelance writer who has closely covered the employee benefits industry for more than 25 years.

SIEF would like to thank the following sponsors for their support of the Self-Insurance Executive Summit: • Oxford Insurance Brokers Ltd. • Fairmont Specialty, a Div. of Crum & Forster • Re-Solutions Intermediaries, LLC • The Taft Companies Dominic Hagger, Amy Troiano, Erica Massey and Freda Bacon

• New Horizons Insurance Solutions “We can never be complacent in our understanding of the self-funding process,” she says, noting a “trickle-down effect” from London and other key international markets that are ripe for SIEF and SIIA events. “Members of SIIA and the self-funded industry should be on the lookout for future programs and educational opportunities.” ■

• Willis North American Captive & Consulting Practice • Renalogic - formerly DCC, Inc.

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

©2015 BenefitMall. All rights reserved.

www.benefitmall.com/Services/Benefits/Stop-Loss 44

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How to Decrease Your Health Care Costs for Employees with Diabetes


ike John Fogerty said in one of his hit songs, “I see a bad moon arising, I see trouble on the way,” the self-insured employer has been dealing with a bad moon – diabetes. And there is more trouble on the way, unless company executives take strategic steps to help those employees living with this chronic illness.

In 2012, the Centers for Disease Control and Prevention estimated that 29.1 million1 Americans have diabetes and an alarming 8.1 million of those were undiagnosed, meaning their diabetes is progressing unchecked. That’s a 62% increase in diagnoses from just 10 years ago. And it is only expected to get worse: By the end of 2015, as many as 37 million Americans may have diabetes, according to the Gallup-Healthways Well-Being Index.2 The Centers for Disease Control and Prevention predict 33%3 of Americans may be diagnosed with diabetes by 2050, compared to less than 10% today. To account for this dramatic rise in diabetes cases, many experts point to changes in the American diet and lifestyle since the 1950s. Over the last 65 years, we’ve become more likely to eat processed foods and lead more sedentary lifestyles. Both can lead to obesity, which puts us at higher risk for developing diabetes. Written by Tom Milam 46

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The steady rise in diabetes is contributing significantly to rising health care costs for employers. According to the Kaiser Family Foundation Employer Health Benefits Survey, premiums for employer-sponsored health care coverage more than doubled from 2002 to 2014. The increasing numbers of Americans with diabetes is a major factor in this escalation.

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

With experts predicting that diabetes will afflict more and more people in the coming years, we are obviously going to see a corresponding increase of diabetes in the workplace – and it is already high. In an average self-insured health plan, eight to 10% of total covered lives have diagnosed diabetes, but these individuals will account for 20 or even 25% of claim costs. Of course, these numbers can vary depending on the industry. A workforce with predominantly white-collar employees can have just 5 to 6% of employees with diabetes and they might account for 15 to 18% of total claims costs. The prevalence of diabetes tends to be higher within some blue-collar industries, where it is often the case that 12 to 15% of employees have diabetes and they account for 30 to 35% of the plan’s total claims cost. And blue-collar workers who put in long hours on the job are especially vulnerable to the disease. According to a study by the American Diabetes Association (ADA), people who put in more than 55 hours a week of manual labor are 30% more likely to develop diabetes than those who work fewer than 40 hours. Breaking claims costs down per employee, employers pay nearly four times as much per health plan member with diabetes than one without, or $14,999 compared to $4,305, according to the Health Care Cost Institute. Plan members living

with diabetes are also at higher risk for catastrophic medical and worker’s compensation claims.

Disease Management Diabetes and its associated complications (cardiovascular disease, nerve or kidney damage, eye and foot damage, strokes, etc.) cost America about $245 million in 2012, per the American Diabetes Association – and, given the escalation of diabetes we’ve already noted, this cost is certainly higher today. The majority of this total expenditure related to diabetes - $176 billion - was attributed to direct medical costs, such as doctor’s visits, hospitalization, prescription medications and diagnostic tools like the testing supplies for checking blood sugar. Testing supplies are hugely important for those with diabetes. Without these tools, a person with diabetes has no way of knowing if her glucose levels are outside a healthy range. When blood sugar levels are not properly monitored and managed, your employees with diabetes risk suffering a hypo- or hyperglycemic episode or developing complications that can put them in the hospital, or even something more severe. These complications associated with poor diabetes management cause your costs to rise, which are then passed on to the majority of employees without diabetes. It’s time to get better control of this runaway train.

Absenteeism Did you know that employees with diabetes are more likely to be absent from work than their counterparts without diabetes? In fact, men with diabetes miss 11 more workdays than those without it, while

women with diabetes miss about nine more days than women without it. An astounding $69 billion of the $245 billion total health care cost attributed to diabetes costs is in indirect costs like decreased productivity and absenteeism from work.

The Solution Implementing a best-practices and productive program can help a company significantly cut costs associated with the progression of diabetes, not only saving the company money, but also saving money for employees or their dependent(s) with diabetes and ultimately, for all employees on the health plan – since the increased costs associated with diabetes treatment are spread throughout all plan members. Because the diabetes problem is only going to get worse, in a recent paper4 the Northeast Business Group on Health calls for employers to make meaningful changes now. Unfortunately there’s not a onesize-fits-all approach to managing and treating diabetes. Because the disease affects each person differently, one person’s issues with diabetes are different from the next person’s. However, we do know that healthy lifestyles and behaviors are more important in managing the disease than are prescription drugs, especially in type 2 diabetes patients. The best approach is to find an evidencedbased diabetes program with several key components, including: • Modest but meaningful incentives to participate: Diabetes can be a daunting diagnosis because it requires an overhaul of one’s lifestyle, from eating habits to physical activity. Compound that with the daily stresses that affect October 2015 | The Self-Insurer


everyone and managing the disease can seem nearly impossible. So instead of making the necessary changes, many people with diabetes allow the disease to progress, which can result in severe consequences such as heart disease, stroke, blindness, loss of sensation and amputation. Providing incentives – such as cash, reductions in insurance premiums and gym memberships – can help jumpstart an employee with diabetes to begin taking control of their health. • A trained professional health coach: When a person is diagnosed with diabetes, they can feel uninformed and unsure of the course of treatment – especially when their physician’s demanding schedule does not allow for adequate time to explain what they should do to manage their disease. That’s why it’s important to offer your employees with diabetes the services of a professional health coach who can engage with and mentor them on how to monitor and self-manage the disease. Without this kind of personal assistance, someone with diabetes is more likely to forego managing their disease. The coach serves as a valuable resource and personal partner, answering questions about such things as smart food choices or how to test blood sugar levels. The coach can also help the employee with diabetes prepare for clinical visits, as well as simply be a sympathetic sounding board that someone with diabetes needs to deal with the many frustrations of living with the disease 24/7/365. Several studies have reported an increase in patients’ daily management of their disease with the help of a health coach. Hold your employees accountable by encouraging regular interaction with the coach to receive ongoing incentives.

• Daily vitals testing: This is one of the cornerstones of managing diabetes. It is not possible to properly manage diabetes without knowing blood sugar levels, so try to find a program that includes the testing equipment in addition to incentives and professional health coaching. Some people with diabetes (mostly type 1) might test 8 to 10 times each day, but most with type 2 will test once or twice, or if using insulin three or four times. But what is very alarming is that as many as one-half of your health plan members with diabetes are not testing at all. These individuals represent your long-term risk as the disease progresses. However, employees with diabetes are likely to be more motivated to


Renalogic’s solutions are customized and individualized to fit your plan’s renal health needs. One-time and Monthly CKD & ESRD Risk Analysis • Member Education Individualized CKD Management • Dialysis Cost Containment/Cost Management Programs

Call (866) 265-1719 Visit www.renalogic.com Formerly DCC, Inc.


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Mitigate the risk of your self-funded medical plan with Guardian. Employers have counted on us to protect their employees with products like Life and Disability insurance for over 50 years — now we can help protect their companies too. With a strong mutual foundation and exemplary financial ratings, Guardian has been there for our customers — and we plan to always be there — especially when they need us most. What we offer: • A comprehensive stop loss contract with no new lasering • Immediate reimbursement on specific stop loss claims • No minimum thresholds for monthly aggregate accommodation Visit www.guardiananytime.com/gafd/wps/portal/contact-us Guardian Stop Loss Insurance is underwritten by The Guardian Life Insurance Company of America, New York, NY. Policy limitations and exclusions apply. Optional riders and/or features may incur additional costs. Financial information concerning The Guardian Life Insurance Company of America as of December 31, 2014 on a statutory basis: Admitted Assets = $45.3 Billion; Liabilities = $39.6 Billion (including $34.9 Billion of Reserves); and Surplus = $5.7 Billion. Ratings as of 08/15 and are subject to change. Policy Form # GP-1-SL-13. File #2015-9276 Exp. 8/17








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test their vitals on a daily basis if their employer provides the necessary equipment. Doing this in concert with health coaches who work with the individual participants to understand the benefits from regular testing and helps them to learn how to apply the results in their daily life, can improve future outcomes. Implementing a diabetes program is critical not only to your employees’ health, but also to the financial health of the self-insured company. Since there is no cure for diabetes, your employees have two choices: • Engage with and learn to manage the disease to prevent further health complications. OR • Let the disease progress, which can ultimately lead to poor quality of life marked by such complications as blindness, amputations and even premature death from heart disease, stroke or kidney failure. When your employees are engaged with self-managing their diabetes, they live healthier lives. Healthier employees lead to a healthier bottom line, thanks to fewer hospital visits and days absent from work. In fact, at TrueLifeCare, we implemented a diabetes program for employees with the disease at a manufacturing company. Over the course of two years, we have seen more than a 20% decrease in emergency room visits and hospital days and the costs associated with these visits.

company, just like a person with diabetes can slow or stop the progression of the disease with improved self-management practices. An ounce of prevention is worth a pound of cure. ■ Tom Milam is the CEO of Nashvillebased TrueLifeCare, which makes meaningful, positive differences in the lives of people with diabetes and reduces associated health care costs for their employers. Resources 1 www.diabetes.org/diabetes-basics/ statistics/?referrer=www.google.com/





www.nebgh.org/resources/NEBGH%20Diabetes%20 Report%20__Directions.pdf


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

While you may not be able to stop the rise in diabetes across the country, you can slow or stop the rise in the associated health care costs at your

October 2015 | The Self-Insurer


Top Eleven Criteria of an Expert Benefits Administration Partner


any employers are either embarking upon, or in the midst of, evaluating the performance of their benefit plan as it relates to decisions for the 2016 plan year. It is well understood that the complexities of administering an effective self-funded plan require an expert third party administrator (TPA). However, determining what defines an expert TPA is difficult. When evaluating prospective benefits administration partners, a network discount comparison is usually the first step. Too often, however, it is the only tool used to select an administration partner. There is greater opportunity for significant savings in implementing a holistic cost mitigation approach by partnering with a TPA that has proven success implementing this type of strategy. To get the most value out of a self-funded strategy requires the implementation of a full benefits solution, one that takes into consideration the multiple manners in which risk and costs, can be mitigated. The following eleven criteria will help you identify an expert benefits administration partner that is able to assist in managing the most effective benefits strategy.

Written by Jessica Marabella 52


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Customization A self-funded model offers organizations the ability to fully customize programs in order to meet specific needs and goals which can in turn

reduce costs. In addition, if you intend to either move to a self-funded financial strategy or change carriers/benefits administrators, but have a desire or need to maintain your existing plan design, make sure that any benefits administrator or carrier you are considering is able to not only customize your existing plan design, but mirror it exactly. All customizations should be accommodated and applied to all aspects of the solution including: workers’ compensation, consumer-driven health plans, medical management, population health management, etc.


Diversification and Integration of Services

A comprehensive benefits solution should contain a variety of additions to core plan elements, including medical, dental and/or vision plans; consumer-driven health plans; workers’ compensation and disability plans; case management; population health management programs; pharmacy integration management; employee benefit statements; online enrollment; backoffice administrative support and more. A benefits partner with the industry expertise and technology to integrate the administration of these services through its access to comprehensive data analyzed by a strategic account manager, not only streamlines administration from an employer perspective, but also optimizes overall cost control and helps ensure proper fund management.


Strategic Account Management

While cost is a primary indicator of success, the ineffectiveness of the account management team is often the underlying reason organizations issue an RFP. When evaluating benefits administrators, understand the level of strategic guidance and service support you will receive. The ideal administrative partner will deliver an account management team that has years of industry experience and maintains a responsive service model. They must also demonstrate the ability to develop a strategic engagement plan that emphasizes the following: corporate and solution objectives, cost-drivers, recommendations, ROI measurements and coordination of solution services.

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Advanced Analytics and Reporting

Having access to claims and clinical data is essential to making educated plan decisions. However, monitoring health plan claims experience retroactively is not enough to optimize an integrated benefit plan solution. Strategic benefits partners must synthesize known historical claims experience with predictive modeling techniques and data obtained through population health management services in order to truly synergize a comprehensive view of a population and its impactful risk factors. An example of this includes using integrated neural network population management software that looks for patterns in large batches of data to predict health outcomes before they occur.


Population Health Management

Expert benefits administration partners have recognized that the most effective population health management solutions do not rely upon a string of non-cohesive, individual wellness services, but rather require a comprehensive solution that leverages benchmarks to assist the organization

in reaching full wellness maturity, or the state in which health outcomes for each member are optimized in relation to members’ current health statuses. An optimal benefits administration partner has the analytical tools and industry expertise necessary to provide a strategic recommendation for a fully integrated and results-optimized solution. A strategically-minded benefits administrator will build a solution around the risk categories and modifiable behaviors that are most adversely impacting the population and driving costs. The benefits administrator should also outline a recommendation for providing aggregate reporting and a return-on-investment analysis to validate the success of the program. From planning to analysis, a strategic benefits administrator should provide quality execution, service and support throughout the entire process to ensure the highest level of success.


Provider Network Expertise

A truly strategic benefits administration partner will offer services beyond regional and national network development. While many benefits administrators lease networks at an additional cost, those with their own proprietary network and on-site network development experts will offer the most value. Internal network experts can assist with custom network development – a cost-saving strategy for plans able to steer member utilization patterns. An effective strategic benefits administration partner will have the relationships and predictive modeling capabilities necessary to design the best possible domestic network strategy; one that considers the population’s needs and utilization habits to optimize plan performance. October 2015 | The Self-Insurer




A self-funded costcontainment strategy should focus on mitigating unnecessary plan payments, rather than simply denying services or shifting costs to members. A medical record review can achieve significant savings by identifying instances when a service was incorrectly coded – resulting in a higher charge – or when protocols set out by the plan were not followed. It can also uncover billing fraud and abuse in the process of flagging inappropriate services. While a typical insurance carrier or TPA will limit its administrative role to paying claims based on contracted rates, a strategic benefits partner will go beyond simply paying claims. It will have audit review processes in place to proactively reduce the plan’s payment on every applicable claim, beyond network discounts. Another


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important and often overlooked, factor in cost-containment is the application of predictive modeling to develop benefit design and support strategies throughout the year. The ability to analyze member data is a valuable benefit of self-funding, but having a partner that understands how to take claims data and turn it into an actionable strategy for costmitigation results in tangible savings.


Member Engagement

Since no two selffunded plans are alike, customer service representatives must have extensive knowledge of varying plan designs and translate the intricacies of plan documents to customers accurately. A thorough understanding of the benefits administrator’s claims training process, as well as a review of key customer service

performance indicators, will provide insight into the quality of service members can expect to receive. Also, a partner with a fully staffed and trained customer service unit, dedicated to first-call resolution, will execute the service philosophy needed to ensure the highest quality member satisfaction. A first-call resolution strategy aims to answer a caller’s question upon their first interaction with a customer service representative, eliminating the need for return phone calls, either from the service center or the caller, on the same issue.


Compliance Expertise

Benefit partners with internal compliance departments have shown a more thorough understanding of the Affordable Care Act (ACA) and other federal

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October 2015 | The Self-Insurer


AIG Benefit Solutions

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

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

Visit aig.com/us/benefits to learn more about what AIG Benefit Solutions can do for your business. www.aig.com/us/benefits Policies issued by American General Life Insurance Company (all states except NY), The United States Life Insurance Company in the City of New York (all states), and National Union Fire Insurance Company of Pittsburgh, Pa. (all states). Each insurance company is responsible for the financial obligations of insurance products it issues and all are members of American International Group, Inc. (AIG). © 2015. All rights reserved. AIGB100051 R06/15


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and state mandates impacting selffunded benefit plans. For general plan compliance, an internal compliance team offers more immediate access to information and often engages in direct and consistent communication with the organization without incurring ad-hoc consultative fees.

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PBM Management

Like selecting a benefits administrator or carrier, selecting the right pharmacy benefit manager (PBM) for the organization ensures that the PBM’s administrative experience and service-offering capabilities are aligned with corporate and benefit plan goals. A strategic benefits partner will leverage insight from the overall solution to help determine the appropriate PBM to administer the prescription drug plan. Ideally, there will be a range of aggressive, negotiated contracted rates from more than one PBM to consider, as well as an integrated service model. For organizations that are looking to change administrators while retaining their existing PBM, a desirable benefits administration partner should not restrict or limit the PBM choice, but should accommodate any existing partnership and integrate health and prescription drug plans accordingly. Accessing a PBM contract via the benefits administration partner should be seamless, with the benefits administrator ensuring proper prescription drug plan execution by the PBM.


Stop-Loss Reinsurance Administration Expertise

employees, adding a level of stop-loss reinsurance helps protect budgets from unexpected catastrophic claims. A strategic benefits administrator will have relationships with a variety of stop-loss carriers that have A+ ratings to ensure plan sustainability, will assist in determining appropriate levels of specific and/ or aggregate coverage and will provide recommendations as to the deductible threshold, protection terms and contract length that best protects the benefit solution. Proper stop-loss administration does not end once the contract is secure. An efficient and responsible benefits administration partner actively submits claims to the carrier per the terms of the contract arrangement throughout the plan year – ensuring that reimbursable dollars owed are received in a timely manner. This requires proper coordination with the chosen PBM partner, providers and facilities, case management coordinators, claims processors and financial analysts – once again proving the necessity of a benefits administration partner with a holistic and integrated approach to plan management. ■

Jessica Marabella is the marketing and communications specialist at POMCO, one of the nation’s largest third party administrators. Prior to joining POMCO, Jessica was a senior account executive and managed a variety of business-to-business and businessto-consumer clients to develop and lead marketing and communications strategies. Jessica received her Insurance Agent License in Life, Accident, and Health from New York State in 2010 and holds a Bachelor of Arts degree in English from the University of Rochester, and a Masters of Arts degree in Advertising from the S.I. Newhouse School of Public Communications at Syracuse University.

For many self-funded plans, especially those with less than 1,000 October 2015 | The Self-Insurer


Are Health Networks Going to Jurassic Park? This article originally appeared in Captive Insurance Times special Conference Issue 77.


harging a fee for access to a group of health care providers has been a fantastic business. Low investment in capital assets, minimal labor costs and bountiful cash ows attract our country’s smartest investors. With margins above 60%, it is no surprise the Goldman Sachs of the world own networks. With any good deal, however, one must ask if it is too good to be true. Will it last? There are some evolving market forces that suggest the traditional notion of paying for access to a group of health care providers is coming to an end. A health network is a group of physicians, hospitals and other health care providers that agree to provide medical services at pre-negotiated prices and rates. Health networks generate income by leasing access to their group of providers for a fee. Network access fees range, on a per employee per month basis, from under ten dollars a month to twenty dollars a month. A payor entertains these access fees in the hopes the network of providers will deliver health care services at a lower price than if the payor purchased the services directly. Networks are the consummate middle men, inserting themselves between buyers and sellers with arguments of price efficiency and convenience.

Written by Michael A. Schroeder 58

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To date, they have done a wonderful job of creating brands and other barriers for payors and providers to work more closely together. In fact, the

mere suggestion of proceeding with a health benefit plan outside of a recognized network will cause many to predict financial ruin. Is this suggestion still accurate? Are traditional networks worth their price of admission? Is it possible to receive health care services at an equal or better price without paying fourteen dollars per employee per month?

created and controlled by groups of employers with far different motivations than for profit insurance companies. These pooled insurance solutions enable an entire community of employers to negotiate directly with that same community’s providers. These community health plans can be delivered in a regulatory-compliant insurance solution in weeks.

The Payors

All in, a health care provider is no longer beholden to the traditional insurance company as its only source of payment for services. No wonder the health care providers are now asking themselves whether network participation is the most attractive way to deliver their services. Could health care services be provided without the network middlemen?

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A driving force behind the creation of health networks is their connection to payors. Insurance companies created groups of health care providers in an effort to manage the cost of care they were funding on behalf of their insured customers. The network’s relationship with insurance companies created a double-edged sword where payors felt they needed a network to obtain the best price from health care providers and providers felt they needed to be in a network to gain access to funding from the payors. Network growth throughout the country exploded because of these symbiotic motivations. Take away either perception and the idea of paying a middleman for access to health care services may lose its appeal. For a variety of reasons, not the least of which is health care reform, the makeup and characteristics of payors is changing. Self-insurance by employers is rising dramatically. The government is becoming an even larger market participant with Medicaid, Medicare and individual market funding. Traditional fixed-cost insurance companies are no longer confident in their monopolies. Mergers of the country’s largest insurers are being negotiated as each tries to assert relevance in the new market. Turnkey insurance solutions like the stop loss group captive are

Market Darwinism The market is a tough critic and permits little to remain that is not contributing for the better. Like dinosaurs, health networks may be confined to an insurancethemed amusement park, sort of like Jurassic Park, if they cannot support their place in the health care delivery system. Because payors are undergoing such a dramatic transformation, it is probably best to look at how the new payors are pushing out the old payors and their networks with them. Like many of nature’s creatures, lethargy and softness creeps into many a market participant’s makeup. For insurance companies that control our country’s largest networks, outsized overhead and substandard services are the signs of a long successful tenure atop the health care delivery system. These characteristics do not bode well for survival in today’s health care delivery environment where cost and quality control the agenda.

The government has or will be passing laws that change how health care providers are being paid for the services delivered to beneficiaries of the Medicare, Medicaid and exchange systems. These changes limit what is paid based on a per-patient amount or capitated fee. Excess overhead and services delivered without the latest technology cannot survive. Why would a seller engage an intermediary if that intermediary is not offering access to the highest payment available. This is especially relevant when the payment is capped. If the traditional fixed cost insurer is offering the health care provider 60¢ of a fixed capitated fee and the provider can deliver the services through a new payor with one fourth of the overhead, will the traditional network survive? Why settle for 60¢ of the capitated fee when 85¢ of the same fee is available from today’s new payors? This is just the government payor market. What about the commercial market? As mentioned, groups of self-funded employers are now pooling together through innovative funding mechanisms known as stop loss group captives. These captives function perfectly as the chassis for a community health plan. Health care providers deliver their services to the community of employers directly and all par ticipants of this variable cost insurance solution benefit when costs are reduced. The medical captive facilitates health care services to the employees at a reduced cost through lower overhead and the latest technology. The symbiotic motivation of the health care providers and the traditional insurance companies has been interrupted. Providers no longer believe they need to be in a network to gain access to payment. October 2015 | The Self-Insurer



International Conference


April 5-7, 2016 | San Jose, Costa Rica

SIIA’s International Conference provides a unique opportunity for attendees to learn how companies are utilizing self-insurance/alternative risk transfer strategies on a global basis. The conference will also highlight self-insurance/ ART business opportunities in key international markets. Participation is expected from countries all over the world.

Schedule Events

Self-Insured Health Plan Executive Forum March 21-23, 2016 | New Orleans, LA

The educational focus for this event will be to address the interests of plan sponsors, in addition to third party administrators and stop-loss entities. This forum delivers high quality educational content of interest to executives involved with the establishment, management and/or support of self-insured group health plans. In addition to the educational program, the event will feature multiple unique opportunities.




May 18-19, 2016 | Chicago, IL



Self-Insured Taft-Hartley Plan Executive Forum Taft-Hartley plans refer to the multi-employer pension plans collectively bargained by a union and a group of employers, usually in related industries. Taft-Hartley plans are governed by a trust, half of whose trustees are appointed by the employers and half by the union. This retirement plan model has enabled tens of thousands of small and medium-sized businesses to provide workers with the traditional defined benefit pensions that used to be standard among larger employers, but have now virtually disappeared in the non-unionized private sector.

Self-Insured Workers’ Compensation Executive Forum May 24-26, 2016 | Scottsdale, AZ

SIIA’s Annual Self-Insured Workers’ Compensation Executive Forum is the country’s premier association sponsored conference dedicated to self-insured Workers’ Compensation employers and group funds. In addition to a strong educational program focusing on such topics as analytics, excess insurance, wellness initiatives and risk management strategies, this event will offer tremendous networking opportunities that are specifically designed to help you strengthen your business relationships within the self-insured/alternative risk transfer industry.

36th Annual National Educational Conference & Expo September 25-27, 2016 | Austin, TX

SIIA’s National Educational Conference & Expo is the world’s largest event dedicated exclusively to the self-insurance/alternative risk transfer industry. Registrants will enjoy a cutting-edge educational program combined with unique networking opportunities, and a world-class tradeshow of industry product and service providers guaranteed to provide exceptional value in three fastpaced, activity-packed days.

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For more information visit www.siia.org


Why should a health care provider entertain a reduced fee from the traditional network payor when another payor in the form of a self-funded medical captive can offer a more reasonable payment because of its lower overhead and fixed expense insurance solution? They shouldn’t and the provider market is developing these self-funded community health plans throughout the country.

The Tipping Point Improved communication is a disruptive force in the market, no doubt. It serves to drive out redundant and inflated costs. For networks that relied upon claims of convenience and cheap access to a group of health care providers, many other payment platforms now compete and offer improved provider communication and access at a reduced cost. Is fourteen dollars per employee per month still needed to gain cost-effective access and communication? Does the regulatory-compliant insurance solution need to be delivered at an overhead and profit cost of 40¢ of the premium dollar? Are health care providers realizing there is a choice beyond the traditional network? No, No, Yes.

Michael A. Schroeder is President of the Roundstone organization. Mike offers more than twenty years of insurance industry management experience with responsibilities in the captive market, self insurance trusts, publicly held insurance companies and the regulatory environment.

The removal of an unnecessary intermediary fee is good news for those interested in creating a more cost-effective health care delivery system. ■

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October 2015 | The Self-Insurer


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

2015 Board of Directors CHAIRMAN OF THE BOARD* Donald K. Drelich Chairman & CEO D.W. Van Dyke & Co. Wilton, CT CHAIRMAN ELECT* Steven J. Link Executive Vice President Midwest Employers Casualty Co. Chesterfield, MO

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

Committee Chairs

PRESIDENT Mike Ferguson SIIA Simpsonville, SC

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

TREASURER & CORPORATE SECRETARY* Ronald K. Dewsnup President & General Manager Allegiance Benefit Plan Management, Inc. Missoula, MT

GOVERNMENT RELATIONS COMMITTEE Jerry Castelloe Principal Castelloe Partners, LLC Charlotte, NC


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

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

INTERNATIONAL COMMITTEE Robert Repke President Global Medical Conexions, Inc. Novato, CA WORKERS’ COMP COMMITTEE Stu Thompson Fund Manager The Builders Group Eagan, MN *Also serves as Director


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SIIA New Members Regular Members Company Name/ Voting Representative

Keith McNeil Partner Arrow Benefits Group Petaluma, CA Rick Franklin CEO Frates Benefit Administrators Oklahoma City, OK Pat Sir President HealthiestYou Scottsdale, AZ Jody Williams Marketing Director Insurance Applications Group, Inc. Greenville, SC Joseph Fiegoli President National Health Administrators Inc. Peekskill, NY Jeff Frater Director of Partner Development TCS Healthcare Technologies Auburn, CA

Employee Members Christopher Ritchey CEO Curry Holdings Inc. Roaring Spring, PA

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Totally Transformed Learn More at ppsonline.com or call 1-877-828-8770. October 2015 | The Self-Insurer




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

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