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November 2016


The World’s Leading Alternative Risk Transfer Journal Since 1984

What You

Don’t Know Can


Be Prepared For the Unintended Consequences of Effective Cost Containment

strength in


balance Experts in coverage solutions for single entities, groups and public entities, our integrated approach gives self-insureds greater stability and control over their self-funded plan. Unparalleled underwriting expertise, innovative risk management and in-house claims management, work in sync and in perfect balance for best possible outcomes.



The World’s Leading Alternative Risk Transfer Journal Since 1984

Self-Insurer’s Publishing Corp.


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




Volume 97

What You

Don’t Know Can


Be Prepared For the Unintended Consequences of Effective Cost Containment

Written by Christopher M. Aguiar, Esq.


Outside the Beltway SIIA Members Support Stop-Loss In Washington State Meeting

18 ACA, HIPAA and Federal Health Benefit Mandates The Affordable Care Act (ACA), the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and other federal health benefit mandates

EDITORIAL ADVISORS Bruce Shutan Karrie Hyatt

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

2016 Self-Insurers’ Publishing Corp. Officers


James A. Kinder, CEO/Chairman Erica M. Massey, President Lynne Bolduc, Esq. Secretary

PREMIUM FINANCE: The Solution You Didn’t Know You Were Looking For


SIIA Endeavors SIIA Endeavors: SIIA’s 36th National Educational Conference Wrap Up


News from SIIA Members

Written by Karrie Hyatt

November 2016 | The Self-Insurer


What You

Don’t Know Can


Be Prepared For the Unintended Consequences of Effective Cost Containment


he cost of healthcare in the United States is out of control, and virtually everyone operating in the world of healthcare should know the root of the problem. As stated by Gerard Anderson, a healthcare economist at the Johns Hopkins School of Public Health, ‘the prices are too @#$% high.’[1] A sweeping statement that encapsulates the healthcare conundrum in five simple words. Many in the industry are giving it their all to try to combat those prices, and in no area is that more prevalent than in the world of self-insurance, where a new cost containment idea appears to service daily. But to launch those ideas without a full understanding of all the elements of self-funded benefits plans and all the issues that may arise can put plans and their advisors in the line of fire.

Written by Christopher M. Aguiar, Esq.

Whether it is through ineffective implementation of a cost containment strategy (make sure your plan language strong before you start repricing those medical claims), misunderstanding the many relationships a plan enters into (consider your stop loss and network obligations before you try to implement any cost containment initiative), or not evaluating the situational prudence of a particular strategy, administrators must avoid going into any cost containment venture blindly.


Why would any plan or administrator rush into a decision with such broad implications on its benefit plan? Quite simply, the pressure is on. Increasingly, courts are holding plans and advisors responsible for their duties as plan fiduciaries and careful oversight and dissemination of plan assets is under a microscope Unless you have been living under a rock, you know how aggressively health costs are rising, but just in case, consider the following statistics:

1. Healthcare inflation has

outpaced inflation of the consumer price index every year dating back to at least 2005. [2]

2. In 2015, Healthcare inflation outpaced the consumer price index by 900%. [3]

Those statistics do not even specifically reference some of the shortfalls of the highly touted savior of healthcare, the Affordable Care Act (the ACA).  

continue to develop viable ways to provide robust benefits. When faced with challenges, business owners rely on their entrepreneurial spirit and seek innovative answers; many are looking to self-insurance as their alternative. An excellent example of some innovative approaches for which those who seek alternatives often underestimate the downstream consequences is a reference based pricing approach to claims payment. Perhaps the most innovative and often discussed strategies, reference based pricing is still utilized by a small percentage of plans because its implementation is complicated and can be difficult and volatile. There are different types of reference based pricing plans that can help minimize the disturbance while maximizing its impact on savings. Some plans choose to go with a very aggressive approach, severing all arrangements with networks and instead paying all claims as if they are out of network by setting pricing parameters based on

several data references derived from publicly available data such as Medicare or the hospitals’ cost data. On the surface, an approach like this can be sold quickly by savvy sales professionals because they can tout hundreds of points in savings, virtually overnight. Unfortunately, there are some very important details that must be consider before proceeding:

1. No pricing model will be

successful unless you have airtight plan language;

2. Unless you work with a

stop loss insurer that understands the complexities of a reference based pricing model and who will support the efforts, any reference base pricing approach will likely fail; and most importantly,

3. According to the Henry J.

Kaiser Family Foundation, between 2014 and 2015, Benchmark Silver Premiums were either flat or increased up to more than 10% in the majority of the country. [4]

4. The number of exchange

participating insurers is down approximately 25% from 2013 to 2016 with major players such as Aetna, United Health Care, and Humana all pulling themselves from the marketplace. [5] Due to the continued increase in costs, benefit plans and their advisors

November 2016 | The Self-Insurer



3. Any aggressive repricing

model will experience backlash as hospitals use the best resource they have against the benefit plans, the patients.

The stark reality and the unrest it causes often leads to the demise of such innovative endeavors. As so many self-funded professionals will tell you, and especially with the new batch of organizations looking to self-fund in a post-ACA world, once burnt, a self-funded employer flees to the world of the fully insured, never to take on the risk of self-funding again, regardless of how lucrative the rewards might be. Amongst all of the innovative approaches discussed in the self-insured marketplace, all of which could have a separate article concerning the potential consequences of an ineffective implementation or execution of the model, many of the consequences and considerations discussed above are relatively contained within the confines of the model itself. But what about these models’ impacts on other, oft overlooked, perhaps more downstream cost containment tools?

Consider this example: ABC, Inc. sponsors a self-insured employee benefit plan. It utilizes a referenced based pricing model with no network obligations, instead, it has established very effective plan language that provides for payment of 200% of some reference price John Smith is a beneficiary of the benefit plan and suffers injuries in an automobile accident. The benefit plan receives $200,000.00 in medical bills. Mr. Smith brings a third party claim and obtains the full insurance limits available to him, $50,000.00. Of that $50,000.00, he owes his attorney a 33% contingency fee, leaving him with a net settlement of $33,333.37. Assume that 200% of the reference price as established by the terms of the plan totals $100,000.00. Because the plan established its program effectively, the plan’s payment is entirely defensible. On the surface, the provider received a fair payment derived from publicly available data which covers the costs incurred in providing the services as well as an additional amount to ensure profitability. So, what is the problem? Recall that the provider’s initial bill for its services was for $200,000.00. When Mr. Smith went to the hospital, he signed a document wherein (the hospital will argue) he agreed to pay any balance remaining once his insurance pays for the services. As a result, the provider in this case now puts a lien on Mr. Smith’s settlement for $100,000.00, i.e. the difference between the $200,000.00 charge and the $100,000.00 paid by the plan. Of course, Mr. Smith also has an obligation to reimburse the Plan the full amount of his settlement.

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Bear in mind that many of the cost containment mechanisms that are sought after and publicized today are designed to control costs before the claims are actually paid, whereas more traditional cost containment strategies (e.g. subrogation) are focused on recovering funds that are already spent. So every cost containment model designed at reducing the amount spent will necessarily have an impact on the execution of an effective third party recovery program.

The Self-Insurer | www.sipconline.net


guaranteeing payment. In order to obtain a recovery, the plan or its administrator may need to engage legal counsel and incur additional expenses thereby calling into question the prudence of such a pursuit; once those costs are factored in, and in light of the limited funds available, it may no longer make financial sense to pursue the recovery.

Balance billing, the practice by which the provider seeks the remainder of a bill from a patient after the insurance payment, is an unintended consequence of a reference based pricing strategy and can negatively impact the plan’s rights in a third party recovery case. It occurs because the only way to prevent a provider from seeking full payment from a patient is to enter into a contract wherein the provider agrees not to bill the patient upon receipt of payment from the plan, subject to other conditions. Without this agreement, in almost every situation, the provider is free to request payment from Mr. Smith. As this hypothetical example is designed to illustrate, the provider’s ability to bill Ms. Smith for the remainder of the bill causes complications in the plan’s ability to recover the third party funds from Mr. Smith’s settlement. Note that even if Mr. Smith wanted to issue reimbursement to the Plan, he now has a rather large elephant in the room – a $100,000.00 provider lien. In this scenario, the best a plan can likely hope for is that the provider agrees to some split between the parties of the remaining $33,333.37 rather than insist on full payment. Otherwise, the only way to successfully recover money for the plan is with a lawsuit challenging the enforceability of the agreement Mr. Smith signed when he arrived at the hospital. In many jurisdictions, the plan participant’s lawyer will simply deposit the money with the courts and file an interpleader, i.e. an action which forces all interest holders to appear before the court and prove their claim to the money. As many who have engaged in any dispute with a hospital over a perceived debt can attest, providers will make their claim with exhaustive persistence often refusing to concede the actual value of their services or the questionable legality of their contract with patients

Some advisors will stress the plan’s duty to seek every recovery dollar as required by the terms of the plan and its fiduciary duty under ERISA. While this is unquestionably a very important obligation of the plan, many plan advisors will forget the second, perhaps more important duty of a benefit plan administrator, to exercise prudent in its administration of plan assets. In the end, it is imperative for plans and administrators to understand the complexities and consequences of every decision and benefits strategy they choose to utilize. There is a bevy of innovative tools and cost containment mechanisms that can be used to help benefit plans maximize savings. These include but are not limited to the reference based pricing strategies discussed above as well as some of the more hybrid approaches customized to give benefit plans the best of both worlds (strong plan language controlling out of network charges and some form of network for a feel as seamless as their fully-insured counterparts), self-insured plans can be tailored to fit the needs of the plan. November 2016 | The Self-Insurer



As more benefit plans become more aggressive and experts come up with new strategies, it is important that those who establish benefit plans understand the full range of issues that may arise from their decisions. Utilizing experts that understand the self-insurance industry is an absolute necessity. Whether an administrator, a plan document drafting partner, a repricing agent, or a subrogation expert, understanding the self-insured marketplace improves the experience for the benefit plan, and puts it in the best position to succeed, and ultimately, remain self-insured.

References [1] http://www.citizen-times.com/story/opinion/ contributors/2014/02/17/lets-face-it-todays-gigantic-hospitalsare-ripping-us-off/5493643/ [2] http://www.forbes.com/sites/mikepatton/2015/06/29/u-shealth-care-costs-rise-faster-than-inflation/#5a035ef16ad2  [3] http://www.forbes.com/sites/mikepatton/2015/06/29/u-s-

Christopher Aguiar is an attorney with The Phia Group, LLC. Beginning his career in 2005 and specializing primarily in subrogation recovery, Chris has managed thousands of cases nationwide and spearheaded negotiations between plan participants, plaintiffs’ counsel, and plan administrators on matters of State and Federal Law as well as ERISA Preemption, recovering millions of dollars on behalf of benefit plans. Since receiving his license to practice law in the State of Massachusetts in 2014, Chris has also handled plan drafting and plan consulting matters ranging from plan language analysis, claims appeal assistance, balance billing defense, pre-payment claim negotiations, overpayment recovery, stop loss, PPO, and administrative service agreements.

health-care-costs-rise-faster-than-inflation/#5a035ef16ad2 [4] http://kff.org/health-reform/issue-brief/analysis-of-2015premium-changes-in-the-affordable-care-acts-health-insurancemarketplaces/ [5] Edmund F. Haislmaier: Senior Research Fellow, Center for Health Policy Studies, http://www.heritage.org/research/ reports/2016/03/insurer-aca-exchange-participation-declinesin-2016

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PREMIUM FINANCE: The Solution You Didn’t Know You Were Looking For


remium finance” is not a familiar term to most people, both inside and outside the insurance industry. If people have heard of it, they tend to think of it as a tool for making payments on a single payment life insurance policy. However, it can be an important tool for individuals and businesses to maintain insurance coverage while keeping their finances balanced.

Written by Karrie Hyatt

At its most basic, premium financing is a loan to pay insurance premium. It taps into the underlying value of insurance premium as a financial resource and can help the insured (also known as the policyholder) improve cash flow and preserve working capital. Premium finance companies facilitate this transaction with terms that won’t tie up the assets of the insured. November 2016 | The Self-Insurer





Just having group benefits expertise is not enough. At AmWINS, we have taken specialization one step further by creating a practice that enables our team of specialists to collaborate with one another quickly, helping you give the best options to your self-funded clients. That’s the competitive advantage you get with AmWINS Group Benefits.



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How does premium finance work? The premium on insurance policies are generally due annually. For many insureds this can pose a financial difficulty by having to make a large single payment for their insurance premium. Many large insurers offer a payment plan for the premium—especially for nonbusiness consumer insurance such as private passenger auto, boats, or similar policies—but for many property and casualty products premium is due in a single payment. The options for the insured to avoid this drain on cash flow are a bank loan or premium finance. Rather than taking a loan out from a bank, when the policyholder takes a loan from the premium finance company, they make payments on their premium finance loan over the course of the year. Premium finance companies offer interest rates that are competitive with banks without the large fees for taking out a bank loan or requiring the completion of long loan application forms. All this without tying up the insureds assets through UCC form filings. According to Dick Crnkovich, vice president with Imperial PFS (IPFS), the largest originator of insurance premium finance loans in the U.S., “It’s a very simple and short process. The insured’s agent or broker prepares the premium finance agreement (PFA) electronically. The policyholder reviews the PFA, signs it, and pays the down payment amount to their agent or broker. That’s it, very easy. The agent or broker submits the PFA to the premium finance company for review and acceptance. Upon acceptance, the premium finance company funds the loan amount to the agent or insurance company and the transaction is complete.”

Many premium finance companies use propriety software that allows the agents and brokers they work with to generate the PFA in their office at the time the insured is obtaining or renewing their policies. It gives the insured the opportunity to choose between making a single payment for their policy or to take out a loan with a premium finance company. Typically, a premium finance loan requires a down payment that is around 25 percent of the insured’s annual premium, followed by a monthly payment plan to pay for the additional 75 percent. Different premium finance companies have different payment plans—some require quarterly payments and some allow for the loan to be paid monthly. Nine payments are the standard within the premium finance industry.

November 2016 | The Self-Insurer



The premium finance agreement, while describing the terms and conditions of the loan, also, “Contains provisions wherein the policyholder grants the premium finance company a security interest in any return premiums on the policies financed and listed on the PFA, and a power of attorney to cancel the financed policies in the event of non-payment of an installment,” said Crnkovich. This is basis of the premium finance business. By having the power of attorney to cancel a policy and retaining an interest in returned premiums, premium finance companies protect their interests. If a policyholder misses a payment on their premium finance loan, the premium finance company has the right to cancel the insured’s policy. Upon cancellation, the insurance company sends any unused premium to the premium finance company in order to recoup their losses from the unpaid loan. For many individuals and companies, premium finance can smooth out their cash flow and help them retain liquidity. Rather than having to make a one-time large payment that could negatively affect their liquidity, insureds can spread the payments over the year which can help to keep their cash flow balanced. This arrangement is especially good for companies or individuals whose business operates on month-to-month arrangement, such as physicians or trucking companies. These types of businesses don’t get paid in large sums, but smaller sums every month as services are rendered. Premium finance can help to mitigate over-extension that a large single-payment may entail. According to Crnkovich, “The

insured gets to smooth out the impact of the cost of insurance on their cash flow. It takes a lot of pressure off the policyholder to come up with a significant amount of money at the start of the policy.”

How does premium finance work for captives? Like traditional insurance policies, premium finance can help the captive policyholder smooth out their cash flow and the PFA is issued in much the same way. “The primary difference in the captive insurance company market space versus the traditional insurance company market is the availability of financial information on the financial position of the captive insurance company,” said Crnkovich. “Traditional insurance companies are required to report their financial information to the National Association of Insurance Companies (NAIC). The financial information reported to the NAIC is publicly available, whereas financial information on captives may not be available to the public.” Premium finance companies review the creditworthiness of the insurance companies that issue the insurance policies they finance. Premium finance can be especially useful for captive insurance companies as many of them won’t have the resources to offer a premium payment plan to their policyholders. As Crnkovich stated, “Insurance companies are in the business of taking underwriting risk and settling claims while finance companies are in the business of making and servicing loans, including collecting installment payments. Insurance companies, captives, and RRGs can better serve their stakeholders by collecting premiums upfront and leaving the premium billing function to others.” Another reason it can be useful to captives is that the captive will get the entire premium amount at one time which allows the company to


The Self-Insurer | www.sipconline.net


use that money towards their operating expenses and investments. Most insurers, captive and traditional alike, prefer to have “the money in the bank” as it were than to have to anticipate collection of premium payments. For captives, especially, it means they aren’t taking the credit risk, which can go a long way to enhancing their position as a legitimate insurer in the eyes of their regulator. Most captives utilize reinsurance to lower their net risk exposure and many reinsurance arrangements require upfront minimum and deposit premium payments to put the contract into effect. These large, upfront cash payments for reinsurance can be a huge burden on small- to medium-size captives.

more are choosing this method to pay their annual premiums.”

Why doesn’t everyone use premium finance?

Many times captive owners just don’t know that premium finance is even an option. Occasionally, captive managers aren’t aware of it either. Many captive managers come from the accounting or legal side of insurance and may not be familiar with the front-end, hands-on side of the insurance business that is usually handled by agents and brokers. Premium finance companies, like IPFS, are working to change that through outreach and education. Premium finance can be an important tool for insureds, they just need to know about it first.

People need to know about premium finance, like any useful tool, before it can be used and it is still a relatively unknown sector. Crnkovich said, “Lack of knowledge about the availability of premium financing typically is the reason more captives are not using premium financing. As captives and their insureds learn more about the insurance premium financing option

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.

Association captives and risk retention groups are key users of premium finance in the captive industry. Crnkovich is seeing pure captives and micro-captives making greater use the mechanism as well. For association captives and RRGs, and for that matter—all captives, credit risk can be a real concern, so it makes sense for captives to seek out premium finance and transfer the credit risk exposure to the premium finance company.

November 2016 | The Self-Insurer



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the Beltway written by Dave Kirby

SIIA Members Support Stop-Loss In Washington State Meeting A delegation of SIIA members recently visited the colorful and historic city of Olympia, capital of Washington at the southern end of Puget Sound. It wasn’t a pleasure trip. At stake was stop-loss insurance for self-insured employee health plans as it is ordinarily practiced. New Washington policy guidelines would jeopardize elements of stop-loss including lasering and advanced aggregate funding that help employers provide high quality health care for their employees and dependents. The SIIA delegation came away from the meeting with cautious optimism as regulators asked for further information and indicated they would initiate a data call among the state’s stop-loss carriers and self-insuring employers to assess current practices. Participating in the meeting led by Adam Brackemyre, SIIA Vice President of State Government Relations, were Michael Fry and Julie Bodmer of Symetra, Catherine Bresler of Trustmark, Mike Kemp of Swiss Re, David Fry of Voya, and broker Bob Bentley of Albers and Company.

Kemp said the response of the OIC staff became noticeably warmer over the course of the meeting as the SIIA delegation provided positive examples of how current stop-loss insurance practices benefit employees and plan-sponsoring employers alike. “It nearly always helps to sit down around a table with regulators to work on resolving these kinds of issues,” he said. Kemp said that several years ago he advised SIIA leaders to increase the organization’s focus on state regulatory and legislative issues that can affect the self-insurance industry to an equal or greater extent than federal governance. “I think it’s working out well,” he said. “SIIA is working harder on state issues with, I believe, positive trending results.”

“Our objective was to help educate the key staff members of the Office of Insurance Commissioner (OIC) about a specific line of insurance that, to our knowledge, is not the subject of consumer complaints,” said Brackemyre.

Mike Kemp

SIIA’s message included real-life examples of the practice of lasering as an alternative method to finance anticipated costs for employees or dependents with known extremely high-cost health conditions, and on advanced aggregate funding as a way to help plan sponsors spread their annual risk to better match up with their revenue flow.

“I would rate the threat of these guidelines to disrupt the industry as about an eight,” said Mike Kemp, the Enfield, CT, head of accident and health insurance in North America for Swiss Re. Kemp flew the width of the country to participate in the same kind of process that helped to moderate a similar regulatory process in Connecticut within the last couple of years.

Catherine Bresler

Catherine Bresler, vice president of government relations for the Trustmark Companies of Lake Forest, Illinois, noted,

November 2016 | The Self-Insurer


“This is part of a terrific process. I’m a big fan of coalition building regarding regulation and legislation. I thought our delegation was comprised of just the right people to represent our industry and serve the best interests of people in Washington. Included in our group were a couple of insurance experts and a broker who really knows the business there.

Insurance Company of Bellevue Washington, was among the in-state representatives at the meeting. He believes the OIC regulators were attentive to the health coverage needs of the state’s employees. “Their commitment to protecting the citizens of Washington was clear, and they told us at the end of the meeting that they don’t want to issue guidelines that are inappropriate. We know they could have issued guidelines arbitrarily and made us live with them, but that’s not their approach,” he said.

“It was good to walk in with a very respectful and educational approach, and I sensed that was appreciated by the regulators,” Bresler commented. “There remains a lot of work to do but I think this was a great start.”

Following the Olympia meeting, Brackemyre sent a letter to the OIC that provided further detailed information to support continuation of current stop-loss insurance practices. SIIA will stay in touch with the OIC data-gathering process and initiate further meetings when possible.

Michael Fry, executive vice president of the Benefits Division of Symetra Life

Fry said that members of the SIIA delegation benefit from such cooperative advocacy. “Some of us compete with each other on a day-to-day basis but it was beneficial for all of us to present our case with a united front under the SIIA banner,” he said.

Michael Fry

SIIA members who wish to join the state government relations advocacy team are invited to contact Adam Brackemyre at the Washington, DC, office, (202) 463-8161 or abrackemyre@ siia.org.

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November 2016 | The Self-Insurer




Q& A T

he Affordable Care Act (ACA), the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and other federal health benefit mandates (e.g., the Mental Health Parity Act, the Newborns and Mothers Health Protection Act, and the Women’s Health and Cancer Rights Act) dramatically impact the administration of self-insured health plans. This monthly column provides practical answers to administration questions and current guidance on ACA, HIPAA and other federal benefit mandates. Attorneys John R. Hickman, Ashley Gillihan, 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 E-MAIL to Mr. Hickman at john.hickman@alston.com. 18

The Self-Insurer | www.sipconline.net

November 2016 | The Self-Insurer


Navigating the Winding Highway of Wellness Program Compliance A GPS for the EEOC’s Wellness Program Rules The road to health plan compliance has never been straight and narrow, but it has become more winding over the years, due in large part to the Affordable Care Act (ACA).The road to compliance just became even more difficult with the issuance of two new final regulations by the Equal Employment Opportunity Commission (EEOC) that implement certain provisions of the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA). The final ADA-related regulations (“Final ADA Regulations”) and the final GINA-related regulations (“Final GINA Regulations”) join the existing wellness regulations previously issued by the tri-agencies—Departments of Labor (DOL),Treasury and Health and Human Services (HHS)—that implement the bona fide wellness program rules of the


Health Insurance Portability and Accountability Act (HIPAA), as amended by the ACA and Title I of GINA.This article will serve as a GPS for sponsors and administrators of wellness programs to help navigate the road to compliance with the ADA and GINA rules. This is Part One of Two.This part focuses on GINA. Part Two will cover ADA compliance issues, and will be in the December issue of The Self-Insurer.

Highlights of the Final GINA Regulations Title II of GINA prohibits employers from requesting, requiring or purchasing the genetic information of an employee or a family member of the employee except in certain limited instances, such as when the employee provides prior, knowing, voluntary and written authorization. Genetic information includes not only an employee’s genetic tests but also the medical history of an employee’s family members.The EEOC issued regulations in 2010 that shed light on the application of Title II of GINA to wellness programs. Despite the

The Self-Insurer | www.sipconline.net

2010 GINA regulations, questions remained regarding the application of GINA’s rules to wellness programs. In particular, the extent to which employers may request or acquire information regarding the medical history of an employee’s spouse or child was unclear. The Final GINA Regulations make the following clarifications about the medical history of an employee’s family members:

• Employers may provide an inducement to the employee whose spouse provides his or her medical history as part of a health risk assessment. An employer may not, however, offer an inducement in exchange for the genetic information (beyond medical history) of a spouse (e.g., the spouse’s genetic tests) or the genetic information and/or medical history of an employee’s children, without regard to whether such children are adopted or natural, minors or adults.

October 2016 | The Self-Insurer


• Any inducement provided in connection with the spouse’s medical history may not exceed 30% of the total cost of self-only coverage (30 Percent Limit) under the applicable group health plan (Benchmark Plan). Much like the Final ADA Regulations, the Final GINA Regulations provide specific rules for identifying the Benchmark Plan, which vary depending on whether the employer offers group health plan coverage and, if so, how many health plan options are offered.

• In accordance with the 2010 GINA regulations, the spouse must provide prior, written authorization. In addition, all information collected must be used solely for the purpose of the program, and no information collected may be disclosed to the employer except in aggregate, de-identifiable form. The wellness program must be reasonably designed to promote health and prevent disease. Employers are prohibited from denying access to health insurance if a spouse refuses to provide his or her medical history. The provisions in the Final GINA Regulations related to inducements for a spouse’s medical history are effective on the first day of plan years that begin on or after January 1, 2017.

The Road to Compliance—the Final GINA Regulations Which wellness programs are subject to the Final GINA Regulations? A wellness program is generally subject to the Final GINA Regulations if the wellness

program is maintained by a private or state or local governmental employer with 15 or more employees for each working day in at least 20 calendar weeks in the current or preceding calendar year (similar to Title I of the ADA). In what ways do the Final GINA Regulations regulate wellness programs? The 2010 GINA regulations set the stage by indicating that employers who offer health or genetic services, including a wellness program, are not in violation of GINA if the employer obtains an individual’s genetic information to the extent the following requirements are satisfied:

• The individual voluntarily provides the information. Information is not considered to be voluntarily provided if a penalty is imposed on individuals who choose not to provide such information.

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Insurance Commissioner Karen Weldin Stewart 26

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• The individual provides prior,

for information regarding a spouse’s manifestation of disease, and then only to the extent the spouse provides the authorization required by the 2010 GINA regulations. No inducement may be offered in exchange for a spouse’s genetic information (other than medical history) or the genetic information and/or medical history of a child.

written authorization.

• The individual’s identifiable genetic information collected through the program is used solely for purposes of the program and none of the information collected is disclosed to the employer except in aggregate, de-identified form.

The Final GINA Regulations were primarily issued to address a discrete issue—the extent to which inducements can be offered in exchange for information regarding the manifestation of disease or disorder (i.e., current or past medical history) of an employee’s family members. The Final GINA Regulations make the following clarifications:

The regulations make no distinctions between adult or minor children and natural and adopted children. Moreover, the 2010 GINA regulations define “genetic information” to include the genetic information of a fetus carried by an employee or family member of an employee. Practice Pointer:

The request for such information must be made as part of a health risk assessment. The Final GINA Regulations clarify that this may be through a questionnaire, medical exam or both.

• In accordance with the 2010 GINA regulations, the information collected may only

• An inducement may be provided

be used for the program, and no information may be provided to the employer except in aggregate, de-identifiable form.

to the employee only in exchange

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

for identifying the Benchmark Plan, which vary depending on whether the employer offers group health plan coverage or not. These rules are identical to the rules prescribed in the Final ADA Regulations for identifying the applicable Benchmark Plan.

Practice Pointer:

Unlike the Final ADA Regulations, the Final GINA Regulations, in conjunction with the 2010 GINA regulations, do not appear to allow disclosure of identifiable information to the employer to administer the health plan. It is unclear if this is an intentional limitation or an oversight. Such a limitation could have a significant impact on plans that use health risk assessments and screenings.

If the total cost of employee-only coverage for the Benchmark Plan is $3,000, then the total inducement offered for information regarding the spouse’s manifestation of disease would be $900. Practice Pointer:

• The employer may not condition

The wellness program must be reasonably designed to promote health. This is essentially the same standard espoused by the EEOC in the Final ADA Regulations.

participation in the wellness program or provide any inducement to the employee or spouse in exchange for an agreement permitting the sale, exchange or disclosure of genetic information.

• The employer may not exclude a spouse from participating in a health plan, restrict access to health plan options or otherwise retaliate against the employee or the spouse who chooses not to participate from participation in or restrict access to health coverage.

• If the employee and spouse are offered the opportunity to participate in the program, the inducement to each may not exceed 30 percent of the total cost of self-only coverage (30 Percent Limit) under the applicable group health plan (Benchmark Plan). Much like the Final ADA Regulations, the Final GINA Regulations provide specific rules


The Final GINA Regulations clarify that tobacco usage is not considered “medical history” for purposes of GINA. Practice Pointer:

Arriving at Your Destination Charting a course for compliance with the Final ADA and GINA Regulations is no small challenge, especially when you consider that the tri-agencies also have issued wellness program rules under both HIPAA and Title I of GINA. Part II will explore those rules and how they coordinate with the EEOC’s ADA

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and Title II GINA Rules. In the meantime, employers who sponsor wellness programs should input the following coordinates:

• Carefully review your wellness programs to determine whether it includes DRIs or MEs.

• Include an ADA-compliant notice in your wellness program materials and ensure that program participants receive that notice before they provide any information.

• If you offer inducements in connection with responses to DRIs or completion of MEs, ensure that all inducements related to DRIs and MEs (even if offered under different programs maintained by the same employer) do not exceed the 30 Percent Limit.

• If you provide inducements in exchange for information regarding a spouse’s manifestation of disease or disorder, be sure that the spouse provides a prior, written authorization for such information and that the information is kept confidential in accordance with the Final GINA Regulations.

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Endeavors written by Bruce Shuntan

SIIA Endeavors: SIIA’s 36th National Educational Conference Wrap Up Mulling Political and Business Disruption Everything is bigger in Texas, as the saying goes, and the depth of meaningful content at SIIA’s 36th National Educational Conference in Austin certainly lived up to that billing. In fact, a towering theme hung over both the opening and closing keynote addresses: making sense of significant disruption to U.S. politics and business.

“The single most important story of this election was a husband and wife demographer who studied morbidity and mortality rates,” he noted. What they found was white men age 40 to 60 were dying sooner because of drug abuse and suicide. The culprit: a loss of hope, disruption, displacement and a feeling that what was promised, predicted and known was turned upside down. While the future belongs to women, he said Clinton miscalculated their role in the election – which is why poll numbers showed a tight margin based on gender. Donald Trump emerged as a political outsider who represented hope for the disenfranchised, he added, referencing the cusp of a second machine age driven in large part by robotics and breakdown in the family unit.

Attendees were treated to a political science lesson from Chris Stirewalt, digital politics editor at the Fox News Channel who kicked off the event. He devoted most of his insightful talk to how the nation arrived at a point where both major political parties chose presidential candidates with such high disapproval ratings.

Asked what will likely happen to the Affordable Care Act under the next president, Stirewalt doubted that Congress will have the political will to repeal and replace the ACA or embrace a singlepayer solution. Instead, he predicted several patches to the landmark legislation to help better control rising costs.

November 2016 | The Self-Insurer



Stirewalt also opined that Americans will need to take more personal responsibility for adopting healthier lifestyles rather than expect a national government solution. He noticed 15 wheelchairs lined up at the gate upon stepping off an airplane a few days prior to his appearance at the conference, figuring obesity is playing a major role in shaping the health policy debate.

the North American Free Trade Agreement decimated its industry by producing bullet-proof vests that were too high end for anyone to produce for less outside the U.S.

Facing adversity head on

What’s a ‘Reasonable’ Price to Charge?

As much as Trump clearly disrupted the 2016 presidential campaign, several scrappy startups have done the same across various industries, according to Robert Stevenson, an author and nationally recognized speaker who has spoken at numerous SIIA events through the years. His folksy and often humorous chat, entitled “Business Success in the Age of Disruptors,” he lauded the surprising success of companies like Uber and Airbnb and suggested to attendees a winning formula for helping their firm become a disruptor or protect their market niche from being disrupted. “If you don’t like change, you are going to hate extinction,” he quipped. Stevenson noted how $1.8 trillion will be stolen from business people by the year 2020, while more than 60% of CEOs fear a data breach, whose latest highly publicized violation involved information on at least 500 million Yahoo user accounts. What successful companies do is identify what’s draining energy, money and resources from their business and eliminate them, he explained. They also figure out ways to diversify their income streams or simply adapt during times of significant market disruption. One such example involved a U.S. manufacturer that completely changed course after


Another key ingredient is to build customer service around honesty and respect when handling complaints, Stevenson said. “People are more forgiving than we think,” he observed, noting how 75% of patients will not sue for malpractice if a doctor admits to making a mistake.

Critical Reference Points: 3 Perspectives In each of the many discussions about reference-based pricing (RBP), speakers and attendees alike sought to answer the proverbial $64,000 question: What exactly is a fair market price that will please all major stakeholders? In a heavily attended session entitled “Reference Based Pricing – Exploring Different Strategies and Approaches,” panelists agreed that Medicare reimbursement can be used as a baseline charge. What’s unknown, of course, is the additional layer needed to settle each balance bill in a rational way as part of a standard methodology for RBP. They said it can range anywhere from Medicare plus 20% to 140% and even higher (i.e., a hospital administrator’s hope). One panelist suggested the 40% to 45% range as a sweet spot for self-funded plans. Since Medicare sets a fixed payment amount, it’s “the easiest calculation any underwriter could ever do,” said Mike Dendy, CEO of Advanced Medical Pricing Solutions. Under this approach, he explained that “the plan document defines exactly what the employer will pay, and the stop loss carrier is an extension of the employer plan, and that’s what they’ll pay, so they’re bulletproof.” Another suggestion is to examine BUCA (Blue Cross, United, Cigna Aetna) out-of-network claim contracts that are clobbering employers in order to help benchmark RBP rates, he said.

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October 2016 | The Self-Insurer



“When most of the BUCAs pay an out-of-network claim, they do it at a flat 110%, 115%, or 120% of Medicare,” Dendy added. “That’s all they pay, and they provide no advocacy.” Regional differences also play a huge factor in deciding what’s reasonable. “How you answer that question in Boston is very different than how you answer that question in a town where there’s two major hospitals, or another place where there’s five hospitals, or a city where everyone is using a PPO,” explained Adam Russo, CEO of The Phia Group. At times, there were a few testy exchanges. In response to one attendee’s question about what constitutes a reasonable reimbursement that will allow many struggling hospitals to stay in business, several panelists bristled and reminded attendees that there are some very profitable hospitals operating across the U.S. Hospitals that are losing money simply need to operate more efficiently and innovate rather than pressure patients in employer-provided plans to pay hefty balance bills, Russo opined. One panelist even noted that the CEO of the HCA hospital chain earned $34 million last year, the University of Pittsburg Medical Center’s CEO made $8 million and Sutter Hospital in Northern California has 32 executives whose annual earnings are more than $1 million a year. Be that as it may, there’s a growing acceptance that balance billing is inevitable and steps must be taken to educate health plan members on this topic, observed Steve Kelly, president and CEO of ELAP Services. He recalled a startling change of attitude about RBP among providers, referencing a cordial meeting the day before his talk with a major health care system in Austin where the conference was hosted. Their initial encounter about eight years ago featured “a completely different atmosphere.”

Threat of regulation When viewed in a much larger context, it’s critical that a market solution be pursued to avoid Congress stepping in at some point and setting prices directly, cautioned Edward Day, CEO of HS Technology Solutions, Inc. He described regulations on financial-assistance policies as “very vague,” though they still impose some discipline and limit expenses to average managed care prices, the usual, customary, and reasonable structure, or Medicare prices. Also noting how the Department of Labor released some quasi-regulation on RBP, Day said “it’s clear they don’t really quite understand it.” The oversight was geared more toward a CalPERS-type plan with hospital contracts whose health plan members were “stuck holding the bag for the difference between the contracted price and the reference price,” he explained.


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Hospitals realize that as unregulated utilities transitioning the way they conduct business (i.e., embracing RPB) is always preferable to oversight, Dendy observed. But their backs are against the wall considering that 99% of Americans “can’t pay an extra $5,000, $10,000 and certainly not $100,000” in balance billing, he explained. Another potential risk hospitals run involves PR fallout in their local community from patient billing horror stories.

“So by having any of us act as a fiduciary for a plan, the medical extortion corridor is shut off,” he said. “Now the hospital has to deal in good faith.” Kelly encouraged attendees to have open discussions about billing disputes with high-performance health providers and said patient advocacy on the front end will vastly reduce the number of balance bills. But he also mentioned that it’s important the hospital community understands that employers are prepared to litigate in the absence of good-faith negotiations, even though that it rarely happens. Another helpful tip involved the use of technology, which Day said can more easily help identify appropriate prices in different markets. “As we know, health care is not a one-size-fits-all [proposition], so using the technology to filter, manage and communicate effectively has proven very effective for us,” he added.


RBP Seen as Powerful Transparency Tool Conference rooms, hallways and exhibit-hall booths were buzzing with talk of referencebased pricing (RBP) perhaps more than any other topic. In one particular session entitled “The Future of Stop Loss – Industry Leaders Weigh in,” it was standing room only. Bob Baisden, president of International Assurance of Tennessee, Inc. who was one of five panelists weighing in on this topic, described RBP as the latest incarnation of transparency. He said California Senate Bill AB72 and Florida House Bill 221 are leading the way to protect patients from surprise hospital bills.

RBP also has emerged as a welcome solution for paying rising pharmaceutical bills, especially with regard to the specialty pharmacy area which accounts for about half of Rx trend, according to Tom Doran, president of Medical Risk Managers. He noticed how some clients with 8% of their stop-loss costs tied to specialty pharmacy are now in the 15% to 17% range. RBP is one of the “shining examples” of ways the self-funded industry can price coverage

November 2016 | The Self-Insurer





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and do a better job of controlling cost when balance billing occurs, said Mike Kemp, head of the North America accident and health business unit of Swiss Re Corporate Solutions . The goal is to achieve a level that the payer and provider agree to be reasonable pricing. While some hospitals are using bill collectors, he noted that others are willing to negotiate and this practice will help grow RBP. Steve Gransbury, president of accident and health at QBE North America, has seen rocksolid outpatient advocacy playing a part of the RBP model. “The most important element to these arrangements is when you prepare a claimant or an employee that they might get a letter, nasty-gram, or threat of a second mortgage or somebody taking away their home in balance billing situation,” he opined. The Leapfrog Group helps consumers evaluate hospital cost and quality in terms of surgeries, number of services offered and mortality rates, Doran observed. As part of that movement, he said there’s also momentum to improve practice patterns. However, it also would be helpful for the industry to give more thought to using pricing transparency as a tool at the employer level rather than expect consumers to take action, Gransbury suggested. Most of the top brokers have approached him about having a producer panel in place to help steer employer clients to the right resources for managing their risk. Indeed, employers expect more collaboration in the marketplace than they ever have and this will be a key theme in the next three to five years, predicted Brad Nieland, VP of stop loss at Sun Life. He said there will be some cost containment wrapped around a producer panel to improve coordination with stop-loss carriers, especially in light of growing pharmacy trend. In fact, Nieland has seen a 25% increase in $1 million claims largely driven by specialty drugs and believes it’s only a matter of time before the trend will include $2 million claims. In a Mercer survey of employers with 1,000 lives or less, Nieland noted that more than half carved out their stop-loss business rather than bundle it with administrative services only carriers. He believes greater use of producer panels will help promote this trend. Benefits eligibility is seen as a huge issue with regard to stop-loss claims when balance bills are submitted, though a key question remains about who exactly owns the claims eligibility reporting. There should be a reference to employee handbooks in a plan document to help stop-loss claims analysts, Kemp suggested. A big problem is when a $500,000 claim is made for someone who’s not eligible for the plan, Baisden noted.

Captive traction Panelists also addressed the rise of captive insurance to help control employee health benefit costs. Gransbury, whose single-parent and homogeneous group captive business is thriving for groups in the 1,000 lives range, explained that it can be challenging and time-consuming to spread volatility among smaller groups.

He also said there’s more traction with captive risk financing in terms of claims management and ensuring there aren’t overages, less reliance on spreadsheets with captives and no shortage of carriers and reinsurers serving the marketplace. A key component to the captive model is the level of employer engagement, according to Kemp, who said it creates a self-selection process that draws like-minded groups that want to take a more aggressive stance on health benefit costs. It creates “a selfselection process that brings in and attracts those employers that really see the value of their health benefit plan, but want to do something about the cost,” he noted. “They’re managing just like any other cost of business.” Kemp said there’s a need to educate and train brokers to understand what the captive means and doesn’t mean and that one size doesn’t fit all their clients. Whether it’s the use of captives or alternative funding, the marketplace is looking for solutions and brokers are looking for differentiation, added Nieland, who believes these arrangements will continue to gain market share as more employers move to self-funded health plans.

Montana’s DataDriven Approach to RBP In the reference-based pricing (RBP) arena, it’s not unusual to raise eyebrows in response to crunched numbers. There was a telling moment during intense negotiations between the state of Montana’s health care and benefits division and 11 hospitals.

November 2016 | The Self-Insurer



Hospital CFOs weren’t able to guess their own charges when aggregate data was shared, according to Ron Dewsnup, president and general manager of Allegiance Benefit Plan Management, whose analysis helped the state save millions. He said “it was the first time they had seen anything other than either their chargemaster comparison or their cost to charge ratios.” Marilyn Bartlett, an administrator with the state, experienced her own revelation: “We realized that the higher-cost facilities were coming in with the lowest quality, and the lower-cost were coming in with a higher quality.” These recollections were shared in a session entitled “Data-Driven Medicare Reference Contracting,” which detailed a nearly seven-year journey during which the state’s largest self-insured plan was able to significantly lower hospital costs and improve efficiencies. Using data comparing allowed amounts to Medicare as a common reference, the state finalized new contracts by July 1, 2016 with all 11 hospitals across Montana where 87% of state hospital dollars flowed prior to the agreement. Because of its size in the marketplace, the state was able to wield its considerable purchasing power and obtain substantial discounts on hospital services. The hope was to pursue a collaborative approach based on trust and negotiation in terms of determining reasonable and appropriately priced contracts. One concession the state made was to keep these negotiations under wraps as long as the hospitals agreed to new contracts and avoid balance billing. But it wasn’t easy arriving at that point. Of roughly $200 million in taxpayer dollars that Montana spends each year, 43% went to hospital expenses, 22% to pharmacy benefits and 18% to out-of-state facility charges.

Also noteworthy was a huge differential between the payments some hospitals accepted and deepest discounts, Dewsnup reported. A statistically valid random sampling of various claims in 2013 and 2014 showed inpatient costs up to 322% of Medicare, while outpatient costs ranged anywhere from about 240% to 611% of Medicare. The state’s hospital agreement doesn’t define a set Medicare reference; instead, Dewsnup said “it simply says that we will pay up to what we would pay a participating provider.” It’s certainly a much better deal for Montana taxpayers. A 271 point differential in the state’s blended hospital utilization cost in 2014 is expected to be just 28.5 points by 2018, he reported. The state projects that it will save about $34 million during a two and a half year period beginning in 2016. There were no changes projected in terms of premiums, deductibles, co-pays and coinsurance that about 15,000 employees, legislators and retirees and another 16,000 dependents would pay in the future. In ensuring that all hospital benefits would be provided at network rates, Bartlett said

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the state also was able to avoid narrow networks and steerage to certain facilities, as well as preserve freedom of choice. “We did not want to do reference-based pricing with balance billing,” Bartlett explained. “That would just not work with the state of Montana employee population. So we did have agreements in place where the provider would accept the payment and would not balance bill, except that the member would pay their normal co-pay deductibles and non-covered services.”

A hospital perspective Those agreements are becoming increasingly common among payers and providers who would rather settle unpaid bills in good faith than involve bill collectors or lawyers. Emily Scott, an attorney with Hirschler Fleischer who advises hospitals that negotiate with self-insured payers that pursue RBP, acknowledged that hospitals and the health care industry in general must become more efficient. “Most, if not all, of the providers I represent are continually working to streamline operations,” said Scott, who led a session entitled “Reference Based Pricing – The Hospital’s Perspective.” She explained that hospital charges are made up of a complex cost structure that includes the labor force, facility operations and improvements, current and projected technology expenses, a competitive marketplace and the number of uninsured patients who are treated. Another key factor involves the cost of uncompensated care, which the American Hospital Association estimated at nearly $43 billion in 2014 and more than $502 billion since 2000. In addition, Scott detailed what goes into


the cost of an outpatient MRI. Chief among them: expenses related to buying or leasing the machinery, equipment wear and tear, staff salaries, climate control or electric bills, cleaning fees and related overhead such as malpractice insurance. Scott suggested that members of the self-funded community approach the right person at their local hospital (i.e., someone who understands the expenses associated with balance billing and has the authority to negotiate with TPAs and self-insured employers). “Talk to that person early and often – certainly before any patient is presented with a balance bill,” she advised. Another recommendation is to maintain a conciliatory tone by framing the discussion in terms of cooperating with providers to minimize balance billing, collection costs and bad-debt write offs.

Do you aspire to be a published author? Do you have any stories or opinions on the self-insurance and alternati ve risk transfer industry that you would like to share with your peers? We would like to in vite you to share your insight and submit an article to The Self-Insurer ! distributed in a digital and print format to reach over

Stop-Loss Captives Said to be on the Rise A promising solution is emerging in the alternative risk transfer arena, and while not much is known about stop-loss captive programs, industry experts are forecasting solid growth but also cautioning self-funded employers to manage their expectations. The value proposition of a stop-loss captive is that it’s a gateway into self-insurance for limiting risk and volatility, noted Andrew Cavenagh, managing director of Pareto Captive Services who serves on SIIA’s board of directors and once chaired the Alterna-

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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 employ ers, TPAs, MGUs, reinsurers, stoploss carriers, PBM s and other service providers.

Articles or guideline to Editor Gretchen Grote at ggrote@sipconline.net also has advertising opportunities available. Please contact Shane

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tive Risk Transfer Committee. His talk was entitled “Stop-Loss Captive Programs – The Basics Plus Lessons Learned.” Captives not only fill a void in the stoploss market, they also enable like-minded employers that band together to share in the spoils and help service providers become more profitable, according to Cavenagh. To some degree, he said, they represent a unique offering that is trickling down market to smaller groups. But given the stop-loss captive structure, it would be unrealistic for each employer member that invests its own capital to expect any sort of rate reduction in the first year, cautioned Brian Johnston, an employee benefits attorney with Polsinelli who moderated the session. He said based on his experience in the industry, a three- to fiveyear commitment is necessary before being able to reap any ROI from the arrangement.

Serving as a backdrop for their rise is the increasing cost of benefits, though that argument equally applies to self-insurance and other alternative risk transfer arrangements. While there are tax-deferred advantages with stop-loss captives, Cavenagh said they’re not as large as on the P&C side. The duration of stop-loss captive claims “is much lower than it is on the P&C captive because the dollars are going out the door so quickly,” he explained.

Program evolution While stop-loss captives date back to the 1980s when ACE created the market, the first employee benefit captive program Cavenagh knows of was in the ’90s. In 2008, he said there were three different structures that have since morphed into a single vehicle involving traditional stop loss. One is a captive direct that writes stop-loss coverage directly in a given state and is subject to a particular state’s regulation. Other popular captives involved risk retention groups (RRG) whose advantages were similar to direct captives and fronted captives. The latter ended up replacing the former after California regulators pursued legal action involving an RRG. In 2013, the number of stop-loss carriers and captive managers expanded dramatically, Cavenagh noted, and there have been very large jumps in growth since then now totaling $500 million. But it could climb much higher. Cavenagh predicted “explosive growth” if there are more defections to self-insurance from an estimated $700 billion to $800 billion in pool of premium among fully insured group health plans. He also said the stop-loss market is about $13 billion.

Each member of a stop-loss captive has its own plan and rate based on experience, while the group will share large claims, which Cavenagh called a key component of the arrangement. His firm has found that heterogeneous captives tend to be a bit more successful than homogeneous arrangements, which could be attributed to more freedom to focus among employers that do not compete in the same industry. Group decisions are collectively made with regard to renewal or service providers, wellness, plan designs and options.

Considering the old axiom about managing only what can be measured, a full understanding about the potential of captives is still being formulated. There wasn’t much data on captives being shared in a recent SIIA membership poll, Cavenagh reported. Still, he lauds SIIA for doing “a great job of educating the industry” about captives.

At the employer level, he explained that each organization sponsors its own health benefits plan, as well as chooses its own plan design, TPA and provider network. While each individual employer will retain the smaller predictable claims, he said “the group will share a mezzanine layer of claims typically, and then you buy catastrophic protection above that.”

There also can be legal pitfalls associated with stop-loss captives. For example, since employee contributions to a plan are defined by ERISA as plan assets, they cannot be used to pay for non-claim related expenses in a captive, according to Johnston. That could be deemed a prohibited transaction, among other things, he said, adding that the captive does not pay claims – it reimburses for expenses.

A dearth of information about stop-loss captives, however, can lead to unfortunate assumptions that serve as an obstacle to growth. All captives fall under the ERISA definition of a multiple employer welfare arrangement (MEWA), Johnston noted. In essence, they involve two or more employers that band together in an aggregate structure to provide benefits to employees of multiple organizations and co-mingle assets. And since states consider MEWAs unlicensed insurance companies, he said it was critical for the self-insurance industry to educate regulators about the differences between MEWAs and captives, as well as demonstrate the latter’s money saving potential.

November 2016 | The Self-Insurer


Vol. 30, No. 10

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Woman’s Appendix Grows Back!!


Tax Code Changes Could Fuel ERC Growth The use of enterprise risk captives (ERCs) may continue to swell among smaller and midsize companies searching for more diverse risk exposure, noted a panel discussion on the topic. One driving factor involves recent tax code changes that increased the annual premium limit to $2.2 million and imposed some ownership restrictions to qualify for the 831(b) tax election. ERCs appeal to privately held firms that roll their uninsured or prohibitively expensive risks into an insurance company small enough to take that election, explained Jeff Simpson, a partner at Gordon, Fournaris & Mammarella, PA who served as moderator of the session, which was entitled “The Evolving Use of Enterprise Risk Captives.”

While the IRS has long been skeptical of captives, there could be confusion surrounding its oversight. For example, Theriault recalls how a tax attorney specializing in the captive business asked IRS officials in one meeting their definition of business insurance risk, but the room went quiet. In another case, he heard that a line-by-line IRS review of what constituted a business risk vs. insurance risk “made no sense whatsoever.” His larger point is a pressing need for guidance, adding that “it’s going to seem sometimes a little bit of tail-wagging-the-dog in terms of responding to the IRS, but that’s the reality of the world, and we’re seeing a little bit of that going on in the industry.”

Gaining steam While ERCs can be traced back to 2000, they didn’t start to reach critical mass until 2010, Simpson said. There are now large public companies taking an interest in the arrangements, which are being integrated

into traditional commercial insurance solutions. A Marsh benchmarking survey analysis shows “interesting” growth patterns in nontraditional coverages from 2014 to 2015 in terms of employee benefits (nearly 143%) and supply chain (133%) purposes, observed Michael Serricchio, SVP at Marsh Captive Solutions. Other such areas included cyber liability (30%), political risk (26%) and medical stop loss (nearly 14%). Leading traditional lines of coverage include general public third-party liability, property and workers’ compensation or employers liability. In terms of the means by which the insurance tax status for ERCs is achieved, he noted that the vast majority involve what’s called a “brother/sister” approach (66%) compared with unrelated risk (25%) and a hybrid of those two arrangements (9%).

Early on in the ERC evolution, there would be many cases where lower deductibles were covered – a trend that largely disappeared and then returned, noted Patrick Theriault, managing director of Strategic Risk Solutions, Inc. One explanation was that the IRS began asking to review those particular ERC claims. “We expect looking at deductibles again next year with increasing premiums as a way to bring more premium to these captives,” he predicted. November 2016 | The Self-Insurer



There’s no cookie-cutter approach to captives, according to Theriault, who said there could be a dual-path solution in that “a group captive could fit well with a secondary ERC captive for all the P&C lines of business.” When addressing captive basics, several key points pertaining to the role of an ERC emphasized the need to have a disciplined, controlled formalized mechanism for self-insured risks, as well as a reasonable, smart, prudent and conservative philosophy. In terms of fundretained corporate risk, ERCs insure predictable or high-frequency, and high severity or lowfrequency claims. Serricchio pegged the typical ERC captive cost at “somewhere between $40 and $90,000” to get the arrangement off the ground, including a feasibility study, implementation, government fees, actuarial work and legal advice. The process generally takes one to three months, he said. In terms of operational costs, he noted that it’s less than $72,000 a year to run. The latest Business Insurance Directory on captive managers and domiciles shows that Vermont leads the pack among domestic captives at 587, followed by Utah at 422 and Delaware at 333. Some U.S. regulators are keeping a close watch on these borders. There could be a self-procurement tax as high as 5% or 6% that’s assessed on premiums paid to a captive located in a state other than where the company is based, according to Theriault, who noted that the additional cost could be significant.

There also are issues involving offshore domiciles to consider. For example, if an ERC is established in the Cayman Islands, Serricchio said there also would have to be a 953(d) tax election to make it a U.S. company for tax purposes. As many as four years ago, Theriault noticed new captive managers or consultants entering the marketplace. Such activity has since slowed down, and if that trend continues, he believes some small managers could be acquired by bigger ones. He also has seen an uptick in RFPs from existing ERC captive owners who are considering a change in service provider for various reasons. About 40% of his clients are the result of takeovers in the small captive sector. Bruce Shutan is a Los Angeles freelance writer who has closely covered the employee benefits industry for nearly 30 years.

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SIIA Diamond, Gold & Silver Member News

SIIA Diamond, Gold, and Silver member companies are leaders in the selfinsurance/captive insurance marketplace. Provided below are news highlights from these upgraded members. News items should be submitted to Wrenne Bartlett at wbartlett@siia.org. All submissions are subject to editing for brevity. Information about upgraded memberships can be accessed online at www.siia.org. For immediate assistance, please contact Jennifer Ivy at jivy@siia.org. If you would like to learn more about the benefits of SIIA’s premium memberships, please contact Jennifer Ivy and jivy@siia.org.

from SIIA



​AmWINS Group, Inc. Completes Acquisition of Private Client Insurance Group, LLC AmWINS Group, Inc. (“AmWINS”), a global distributor of specialty insurance products and services, announced the acquisition of Private Client Insurance Group, LLC (“PCIG”), a leading wholesale broker that specializes in personal lines insurance for high net worth individuals. “The addition of PCIG to AmWINS Access, our small accounts division, is yet another example of our stated strategy to make significant investments in this platform,” said M. Steven DeCarlo, CEO of AmWINS. “The placement of personal lines insurance, much like the placement of small commercial lines insurance, is about expertise, access to markets and speed of execution. As such, it only makes sense that we would strategically build the capabilities of AmWINS Access in both personal and commercial lines insurance.” “Since its formation in 2009, PCIG has earned the trust of its agents and carrier partners as a valued advisor in the placement of high net worth personal lines coverage,” said Ray Celedinas, sole shareholder of PCIG. “I have a tremendous amount of respect for the AmWINS organization and am thrilled that the PCIG team is now part of an independent distribution platform that is completely focused on serving its retail clients and carrier partners.” “AmWINS Access will benefit from the addition of PCIG’s highly respected team whose strong regional presence offers us the ability to strategically enhance and expand our relationships in the southeastern United States.” said David Lavins, Senior Vice President at AmWINS Group. “The PCIG team deepens our expertise in this large and growing high net worth personal lines segment, a strategic growth area of ours.” “We are excited to join the AmWINS family, and about the ability to expand our product range with resources now available to us through this partnership,” said Kevin Madden, Senior Vice President of PCIG. “AmWINS is an industry leader, and we’re confident that our employees and our clients will benefit from this combination.” November 2016 | The Self-Insurer



Risk Solutions


world-class capabilities

A powerful combination

Sometimes more really is more. Swiss Re Corporate Solutions has joined forces with IHC Risk Solutions. By integrating IHC’s business we are complementing this highly-regarded firm’s wealth of expertise with our own financial strength and global capacity. It’s a powerful combination of expertise and capabilities, and we believe it offers enhanced value to any employer seeking to self-fund their healthcare benefit plan. But there’s another belief that we share with IHC, and that’s in the paramount importance of understanding and supporting the needs of our customers and building strong, enduring partnerships. We wouldn’t have it any other way. We’re smarter together. swissre.com/esl Insurance products underwritten by Westport Insurance Corporation and North American Specialty Insurance Company.


The Self-Insurer | www.sipconline.net

MultiPlan, Inc. Seeking National Account Manager


At MultiPlan, employees are instrumental to success and rewarded accordingly. MultiPlan offers a very competitive compensation and benefits package, an incentive bonus program, service recognition awards and an employee recognition program that honors individuals whose achievements go above and beyond expectations.

RedCard Seeking Senior Systems Engineer

The National Account Manager, BCBS Markets is responsible for the day to day management of the business relationship between the Company and assigned BCBS customer(s). As the primary interface with the customer, this job is responsible for facilitating the delivery of the Company’s branded services; developing and maintaining positive relationships at all organizational levels; and communicating customer business needs to the Company’s process owners. The National Account Manager of BCBS market must be strategic in managing and retaining their block of business. An incumbent must also understand and exceed the expectations of the client in their partnership with the Company and initiate improvements to better service the client. An incumbent must deliver effective and organized presentations in order to increase the Company’s revenue from new or existing clients. The incumbent has the latitude and authority to make commitments on behalf of the Company within defined parameters. Learn more at http://www.jobs.net/jobs/multiplan/en-us/job/United-States/National-AccountManager-BCBS-Markets/J3G1T46XDDN8DS1TP33/.

The Senior Systems Engineer – Global Services is responsible for installing, configuring, managing, troubleshooting and repairing the enterprise software delivery infrastructure, client management infrastructure, remote installation infrastructure, and client operating system management infrastructure. Provides services enterprise-wide. Duties & Responsibilities:

• Maintains the windows network administration, network monitoring and maintenance and network security.

• Maintains and assists with backup and recovery

• Maintains the enterprise application deployment architecture.

• On-Call 24x7 responsibilities. • Implement enterprise remote services.

November 2016 | The Self-Insurer


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• Implement client management technologies.

• Assists Technicians with second and third level support of client devices/applications.

• Deploys software to client devices using enterprise deployment tools.

• Implement device security architectures using group policies, registry settings, anti-virus, and vendor provided patches.

• Deploys patches, software updates, and anti-virus updates to enterprise systems. For more information and to apply, visit https://redcard.aaimtrack.com/jobs/97601. html.


Specialty Care Management Hiring Claims Business Manager Specialty Care Management (SCM) is a national company specializing in the management of healthcare and the associated financial risk of catastrophic diagnoses, including: renal disease, cancer, transplants, high-risk maternity/neonate, and others. SCM is in need of a dynamic, innovative Claims Business Manager to be part of our Operations Department. SCM is a privately owned company in the self-funded marketplace and has been in business for 14 years. The Claims Business Manager performs a multi-facet of duties and is an integral part of the operations and accounting team. This position will have day-to-day responsibility for all aspects of the claims process; assisting

The Self-Insurer | www.sipconline.net

with customer service; maintaining financial reports, records and general ledgers, and perform general bookkeeping, such as accounts payable and accounts receivable. Additional duties include communicating with clients via telephone, email or regular mail; managing database records; drafting status reports on customer service issues; and managing the day-to-day operations of the office. Specialty Care Management believes in delivering superior value to our many clients in the self-fund market by combining innovative products and competitive rates with superior service. E-mail your resume, cover letter, and salary history to cclemente@specialtycm.com. To find more information, visit http://www.specialtycm. com/careers/.

TPAC Underwriters Announces Partnership with Sirius America As it Celebrates 25th Anniversary TPAC Underwriters Inc. while celebrating its 25 anniversary as a company, is thrilled to announce a new partnership with Sirius America Insurance Company, the U.S. arm of Sirius International Insurance Group Ltd. th

Sirius America, headquartered in New York, is rated “A” by A.M. Best Company and “A-” by Standard and Poor’s. This venture, along with TPAC’s continuing partnership with its longstanding partner, Pan-American Life Insurance Company, allows TPAC to offer Employer Stop Loss products on premier paper to self-funded groups in 48 states and the District of Columbia. “TPAC has been blessed by a long standing, profitable relationship with Pan-American Life, and our many TPA partners. Now at our milestone 25th anniversary as a company, we are particularly happy to enlarge the TPAC ‘family’ to include Sirius,” said Michael Meloch, President of TPAC Underwriters, Inc. “We are very excited to be working with Mike and the TPAC team. Sirius holds its partners to the highest standards, so we are proud to be the new partner for TPAC’s Employer Stop Loss business,” said Tom Leonardo, Senior Vice President of Sirius America Insurance Company. TPAC Underwriters wrote its first Employer Stop Loss case on January 1, 1992 and has maintained the same relationships that were developed at the outset. While carriers, reinsurers and MGU’s have been bought and sold, TPAC remains an independent, innovative leader in the self-funded community. In addition to offering traditional specific and aggregate excess loss products, TPAC developed and introduced the first level-funded aggregate product Spaggregate® in May of 1999 which has been revolutionary in the small and medium employer space. Learn more about TPAC at www.tpac.com Learn more about Sirius America at www.siriusgroup.com Learn more about Pan-American Life at www.palig.com

SILVER MEMBERS Windsor Strategy Solutions Seeking Sales Associate Windsor Strategy Solutions is seeking a dynamic, self-motivated sales associate to join our rapidly growing company. Incentive based compensation with base salary and significant upside potential. Candidate should have a record of prior sales success, as well as working knowledge of health benefit plan design and underwriting. Job responsibilities & requirements

• Ability to manage the sales cycle including prospecting, proposing, closing, and further developing an account

• Demonstrate the software product suite via webinar or in person

• Ability to quickly learn new technology and translate it into solutions that address customer needs

• Target market: health benefits consultants / advisors / brokers

• Some travel required • Excellent communication skills Preferred qualifications

• 3+ years sales and/or underwriting experience

• Bachelor’s degree Interested parties should submit their resume and cover letter to: info@ wspactuaries.com.

November 2016 | The Self-Insurer


As patients take on more cost, who should be responsible for helping them find value in healthcare?

Let's talk.

solutions@fairchex.com | 844-640-0754 | fairchex.com

American Fidelity Recognized as One of the “Best Workplaces in Finance and Insurance” by Fortune Magazine and the Great Place to Work Institute American Fidelity Assurance Company received national recognition as one of the “Best Workplaces in Finance and Insurance” as recognized by global research and consulting firm Great Place to Work® and Fortune Magazine. American Fidelity was also selected for several other lists by Fortune this year, including the 100 Best Companies to Work for in America, Best Companies for Giving Back and the Human Capital 30: Companies that Put Employees Front and Center.


Here are what a few American Fidelity Colleagues shared: “They give Colleague ideas a chance and recognize them when it pays off. I gave management an idea to raise our rating within the app store that was slightly unorthodox. They allowed us to give it a shot and it paid off more than we could expect. Management was extremely happy with the results.” In addition to working hard to create a positive work environment for Colleagues and create better solutions for Customers, American Fidelity strives to improve the quality of life in Oklahoma City, where it is headquartered. Last year, employees raised nearly $260,000 for the local United Way campaign and the corporate foundation kicked in another $200,000. American Fidelity also hosts annual campaigns for Allied Arts, the Regional Food Bank of Oklahoma and Buchanan Elementary school in OKC, plus supports charities nominated by Colleagues each month. “Oklahoma City is a great city but we have significant challenges in regards to our school system, hunger, child abuse and neglect, and an over-populated prison system,” says Jessica Sanders, who manages the field compensation and training team. It’s rewarding, she says, to be “part of the solution.”

The Self-Insurer | www.sipconline.net

SIIA New Members Regular Corporate Members Ross Bjella Co-Founder & CEO Alithias Milwaukee, WI John White ASO Underwriter Baptist Health Plan Lexington, KY Tom Cardwell Chief Operating Officer Benefit Plan Administrators, Inc. Roanoke, VA Anthony Nyers Owner/Advisor Healy Group South Bend, IN Dan Whitney President & CEO Medova Healthcare Wichita, KS Krista Haas Chairman Merchants Building Maintenance Monterey Park, CA

Karla Putnam TPA Operations Manager Special Insurance Services, Inc. Plano, TX Chris Burns VP, Sales Vida Health, Inc. San Francisco, CA Robert Turner Consulting VP Willow Health Fife, WA

Silver Member Mary Pozuelo President CPR Risk Management St. Petersburg, FL Matt Vick Chief Operating Officer FreedomCare Las Vegas, NV

Employer Member Chris Fiorello Partner EBC INC Buffalo, NY Marc Lapointe President Freedomcare Insurance Company Las Vegas, NV Myron Pincomb CEO IBCCES Ponte Vedra FL Marc Goodman Fund Manager Local 272 Welfare Fund New York, NY

Ryan Metzler President Metzler Captive Solutions Ladue, MO Andrew Barth Principal RMA Toronto, Ontario William Lutz Managing Director Sextant Self Funding Syracuse, NY

November 2016 | The Self-Insurer


SIIA would like to Recognize our Leadership and Welcome New Members 2016 Board of Directors CHAIRMAN* Steven J. Link Executive Vice President, Midwest Employers Casualty Co. Chesterfield, MO PRESIDENT/CEO Mike Ferguson SIIA, Simpsonville, SC TREASURER & CORPORATE SECRETARY* Duke Niedringhaus Senior Vice President, J.W. Terrill, Inc. Chesterfield, MO CHAIRMAN-ELECT Jay Ritchie Senior Vice President, Tokio Marine HCC - Stop Loss Group Kennesaw, GA

Directors Joseph Antonell Chief Executive Officer/Principal A&M International Health Plans Miami, FL Adam Russo Chief Executive Officer The Phia Group, LLC Braintree, MA Andrew Cavenagh President Pareto Captive Services, LLC Philadelphia, PA Mark L. Stadler CEO Bridgehealth Irving, TX

David Wilson President Windsor Strategy Partners, LLC Junction, NJ

Committee Chairs CAPTIVE INSURANCE COMMITTEE Michael P. Madden Senior Vice President Artex Risk Solutions, Inc. San Francisco, CA GOVERNMENT RELATIONS COMMITTEE Lawrence Thompson Senior Vice President, Sales & Client Services POMCO Group Syracuse, NY

Robert A. Clemente Chief Executive Officer Specialty Care Management LLC Lahaska, PA


The Self-Insurer | www.sipconline.net

HEALTH CARE COMMITTEE Kari L. Niblack Executive Vice President of Client Engagement & Services Apex Benefits Indianapolis, IN INTERNATIONAL COMMITTEE Robert Repke President Global Medical Conexions, Inc. Novato, CA WORKERS’ COMP COMMITTEE Stu Thompson CEO The Builders Group Eagan, MN

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