Self-Insurer Apr 2012 by SIPC

April 2012

www.sipconline.net

How Self-Insureds Can

Achieve

Outstanding Results

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April 2012 | Volume 42

April 2012 the self-insurer (issn 10913815) is published monthly by self-insurers’ Publishing Corp. (siPC), Postmaster: send address changes to the self-insurer P.O. Box 1237 simpsonville, sC 29681

FEAtuRES

ARtIClES 8

Editorial Staff PuBlishing direCtOr James a. Kinder Managing editOr erica Massey

seniOr editOr gretchen grote

From the Bench: existence-of-covereage verses extent-of-coverage distiction rejected: representations by claims administrators are not prempted by erisa

art gallery: disappointment and rewards of academic life

How Self-Insureds Can Achieve Outstanding Results by Frank X. Altiere III, RF, CPCU, ARM, AU, AIS

design/graPhiCs indexx Printing COntriButing editOr Mike Ferguson

direCtOr OF OPeratiOns Justin Miller

direCtOr OF advertising shane Byars Editorial and Advertising Office P.O. 1237, simpsonville, sC 29681 (888) 394-5688 2012 Self-Insurers’ Publishing Corp. Officers James a. Kinder, CeO/Chairman

RRGs picking up larger Share of MedMal premium, data Show by Hazel Becker, courtesy of the Risk Retention Reporter

erica M. Massey, President

sound Bites from the siia legislative & regulatory Conference: siia members hear senator Baucus, then take their ‘Walk on the hill’

When is a summary More than a summary, Part two: agencies issue Final guidance on the aCa’s uniform summary of Benefits and Coverage Requirement

InduStRy lEAdERSHIp 18 From the desk of erica Massey 40 siia Chairman speaks

lynne Bolduc, esq. secretary

The Self-Insurer

April 2012

20 1 2

Self-inSurance inStitute of america, inc.

InternatIonal ConferenCe June 5-7, 2012 n Biltmore Hotel n Coral Gables, Florida

www. siia .org 2

April 2012

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

2012 Board of directors CHAIRMAn oF THe BoARd* alex giordano, vice President of Marketing elite underwriting services indianapolis, in PReSIdenT* John t. Jones, Partner Moulton Bellingham PC Billings, Mt VICe PReSIdenT oPeRATIonS* les Boughner, executive vP & Managing director Willis north american Captive + Consulting Practice Burlington, vt VICe PReSIdenT FInAnCe/CHIeF FInAnCIAl oFFICeR/ CoRPoRATe SeCReTARy* James e. Burkholder, President/CeO health Portal solutions san antonio, tX

Committee Chairs CHAIRMAn, AlTeRnATIVe RISk TRAnSFeR andrew Cavenagh, President Pareto Captive services, llC Conshohocken, Pa CHAIRMAn, GoVeRnMenT RelATIonS Horace Garfield, vice President Transamerica Employee Benefits louisville, KY

CHAIRwoMAn, HeAlTH CARe elizabeth Midtlien, senior vice President, sales starline usa, llC Minneapolis, Mn CHAIRMAn, InTeRnATIonAl greg arms, Global Head, Employee Benefits Practice Marsh, inc. new York, nY CHAIRMAn, woRkeRS’ CoMPenSATIon skip shewmaker, vice President safety national st. louis, MO

directors ernie a. Clevenger, President Carehere, llC Brentwood, tn ronald K. dewsnup, President & general Manager Allegiance Benefit Plan Management, inc.Missoula, Mt donald K. drelich, Chairman & CeO d.W. van dyke & Co. Wilton, Ct

siia new Members Regular Members Company name/Voting Representative steve holgerson, account executive, Cds group health, Chandler, aZ amber Curll, rn, MCO, inc., sebastian, Fl rosemary Wickham, Principal & Consulting actuary, Merlinos & associates, norcross, ga doug Young, vice President of sales, Progressive Medical, Westerville, Oh Jon svendsen, vice President of sales, stat health services, scottsdale, aZ

Employer Member Company name/Voting Representative

david Peters, trustee, los angeles Firemens relief assn., los angeles, Ca

steven J. link, executive vice President Midwest employers Casualty Company Chesterfield, MO elizabeth d. Mariner, executive vice President re-solutions, llC Wellington, Fl

The Self-Insurer

April 2012

How Self-Insureds Can

Achieve

Outstanding Results by Frank X. Altiere III, RF, CPCU, ARM, AU, AIS

April 2012

The Self-Insurer

emember the workers’ compensation crisis that began in the 1980s? losses reached unsustainable levels, and coverage was unavailable and unaffordable in many states. among several broad industry changes that ensued were innovations in alternative risk transfer and the rise of the current self-insurance market.

By the peak of the crisis in 1991, many insurance clients had entered the self-insurance arena, and PMa Management Corp. entered the third-party administration (tPa) and risk services business to meet their needs. during the past 20 years, self-insurance has grown and matured, and so have risk management techniques. this article examines what PMa has learned during the last 20 years of selfinsurance growth and success – 10 simple, but meaningful keys to achieving outstanding results in self-insured workers’ compensation programs.

1. Set Measurable Goals the foundation for a successful workers’ compensation program – and one of the most effective ways to address claims costs – is goal setting and benchmarking. Benchmarking provides a formal framework for setting goals, measuring performance and achieving results. You should establish two sets of benchmarks: one for measuring your performance and one for measuring your tPa’s performance. Both should link directly to bottom-line results. start with 5 to 10 key metrics, such as claims frequency, claims closing ratios, Preferred Provider network penetration, medical savings, subrogation/excess recoveries or loss reporting time frames. Measure your performance at least annually against your own results from past years and those of your industry peers.

effective plans should also include micro risk management built on good data. Conduct an analysis of the last five years of your risk management data, examining areas such as loss frequency, when and where losses occur, and loss ratios. then conduct a risk management assessment of your facility. integrate both sets of research to form the basis of your plan. You must constantly ask questions regarding frequency, severity, losses by locations, etc. to ensure you never lose focus of your cost of risk.

4. Optimize technology technology can help self-insureds and their TPAs improve efficiency in their workers’ compensation programs and meet their risk information needs. ensure that your tPa has invested in a technology-driven claims operation that can help you realize the efficiencies associated with eliminating paper files, minimizing manual processing, centralizing data and implementing

2. prioritize pre- and post-loss Initiatives successful self-insureds prioritize and implement both pre- and post-loss initiatives. On the pre-loss side, build a culture and infrastructure that promotes loss prevention through safety committees and safety training, and integrates safety into daily operations. there are two key components:

automatic controls throughout the life cycle of claims. A first-rate risk management information system yields tremendous benefits, allowing you to use your loss

• Company leadership should set the tone for the entire organization, actively supporting a safety culture and demonstrating their ongoing commitment.

information to enhance your business

• employers and managers need to understand the importance of loss prevention and the reasons for complying with safety initiatives.

manage claims, identify emerging

Of course, for even the most proactive clients, accidents and claims may occur. it is important to take an equally disciplined and rigorous approach to post-loss initiatives, including: • Prompt claims reporting

performance. use it to monitor and claims trends and take quicker corrective action. a risk management information system also facilitates automated cost allocation. For a risk management

• Frequent and detailed communication with your tPa

information system to be effective,

• return-to-work programs that get injured workers back to work safely

the right people must have the right information and tools. For example,

3. Balance Macro and Micro Risk Management techniques

a risk manager may require graphing

the most effective risk managers are those who balance macro and micro risk management. Your macro approach should be comprised of goal setting, establishing benchmarks and identifying and implementing key action steps.

to senior management, whereas a

capabilities to illustrate claims trends human resources manager may need to view claims adjuster log notes.

The Self-Insurer

April 2012

5. Think Like a Profit Center today’s workplace faces unprecedented pressure to reduce costs and increase efficiency. Workers’ compensation programs are no exception. Most CFOs and CeOs are asking their leadership team to reduce costs. treating your insurance program as a profit center can improve your company’s financial results. Rather than considering your insurance expenses as necessary and uncontrollable costs of business, manage your workers’ compensation program in a manner that focuses on achieving goals, performance and results. the savings achieved will result in a positive contribution to the financial results of your company.

6. use an ROI Approach look at how you can generate a return on your expenditures, remembering that one of the most significant and controllable costs in a workers’ compensation program relates to losses. that is why successful self-insureds, in partnership with their tPa, carefully manage claims and medical costs, addressing areas such as the compensability of claims, returnto-work programs, open claims, claims settlements and recovery opportunities. also, ensure your tPa has a comprehensive managed care program that includes quality medical case management and medical bill review programs, medical network strategies, pharmacy benefit management programs and PPO programs. all programs should be integrated into the claims handling processes. One example of the rOi strategy is prompt reporting of claims to reduce claims costs. successful self-insureds generally report losses promptly, typically within three days. to achieve this goal, take a systematic approach

April 2012

The Self-Insurer

– evaluating lag time by department/ location, educating stakeholders, assigning accountability, reviewing reporting techniques and providing results data.

7. Make Everyone Accountable some organizations simply monitor claims and their costs and react to news as it unfolds. a solid tPa and risk services partner helps a selfinsured understand where the highest frequency and severity of claims are occurring. With that information, an organization can proactively address its challenges. effective organizations actively engage with frontline managers, training them on the importance of safety and, in some cases, linking compensation to workers’ compensation performance and charging back associated costs to their budget centers. it is critical to build a sense of accountability – giving pre- and postloss initiatives focus and weight within the organization.

8. never Stop learning Organizations consistently face new risk management challenges. to address emerging issues, it is important for risk managers to be active learners and participate in seminars and training programs. look to your tPa to explain the implications of legislative changes, workers’ compensation trends and other developments and make actionable recommendations. successful self-insureds count on their tPa for more than core service delivery. an outstanding tPa can also serve as educator, consultant and trusted advisor. For example, to help a new risk manager get up to speed on workers’ compensation issues, a tPa may provide monthly, one-on-one coaching sessions with the new employee.

9. never Stop Improving successful self-insureds are committed to improvement and continually ask the question, “how can we make it better?” they tap into their tPa’s resources for help identifying and executing improvements. By improving their processes, they can save money, and garner better care and improved outcomes for injured workers. For example, a public entity PMa worked with made it clear that continual improvements were very important to them. in particular, they wanted a more assertive approach to claims management than they had in the past. they asked PMa to review all of their open claims (nearly 1,000) for closure opportunities. the result was a more than 60% reduction in their open pending claims within ten months.

10. Choose the Right partner successful self-insureds know that an effective partnership requires more than checkmarks on a list of requirements. it means engaging with the right team – a group of professionals with knowledge, experience, passion and a servicedriven ethic. Carefully choose a partner that will manage your risks as if they were their own, providing you with results you need, expect and deserve. ask these questions about potential partners such as: • have they received an external auditor’s report on “Controls at the service Organization” (sOC 1), type 2 [formerly known as statement on auditing standards (sas) 70, type 2] with an auditor’s opinion without qualification? • Can they provide recent independent client satisfaction survey results?

• do they have consistent growth and strong client retention? • What is their value proposition or guiding principles – and do they deliver what they say they will? • do they specialize in your industry?

HEALTHCARE PORTALS AND APPLICATIONS

Self-Insureds and the next 20 years looking ahead, new challenges will emerge, from new regulatory mandates to additional exposures. at the same time, we look forward to capitalizing on opportunities to adopt new technology, achieve greater medical costs savings and enhance efficiencies. While no one can fully predict the changes ahead, by adopting best practices learned from the last 20 years, self-insureds can protect their workers and reduce the total cost of risk. this article is excerpted from a PMa insights white paper entitled, “two decades and 10 lessons learned: how self-insureds Can achieve Outstanding results,” available at www. PMaCompanies.com. n Frank X. Altiere, III is president of PMA Management Corp., part of the PMA Companies (www.pmacompanies. com). PMA Management Corp. is a third party administrator that provides claims administration, medical savings programs, risk control services and loss management services. Mr. Altiere has 33 years of risk management and insurance experience, with a focus on helping organizations develop and implement high-performing risk management programs. A Risk and Insurance Management Society (RIMS) Fellow, Mr. Altiere holds CPCU, ARM, AU, IIA and AIS designations and is a member of the SelfInsurance Institute of America.

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The Self-Insurer

April 2012

SOund Bites from the siia legislative & regulator y Conference SIIA members hear Senator Baucus, then take their ‘Walk on the Hill’

he uncertainty of how government will affect the selfinsurance industry in the immediate future and for the long term was an emerging theme – and a call to action for siia members – at the 26th annual legislative & regulatory Conference last month in Washington, dC.

speakers from the senate and house and presentations by others led attendees to expect the unexpected effects that government will pile onto the self-insurance world this year and in the years to come. then they all took the “Walk on the hill” for more than 200 meetings in the offices of Senators and representatives. during his presentation on siia government relations priorities, Mike Ferguson, Chief Operating Officer, described the challenge of predicting the future political environment, saying “it’s siia’s job to describe what’s going on and how it affects our members, and what we’re doing about it.” the conference opened on a high point, the appearance of senator Max Baucus (d-Mt), Chairman of the powerful senate Finance Committee, who was introduced by fellow Montanan, siia president John Jones.

April 2012

The Self-Insurer

Senator Max Baucus senator Baucus – the senator acknowledged that Congress would be able to accomplish very little during this election year when, he said, “the big issues will likely be held over until the lame duck session,” meaning the time between the national election and the beginning of the new Congressional session in January. the senator said there would be “virtually no chance” that repeal of healthcare reform – as was passed by the house last year -- would be brought up before the election. he advised siia members to “keep talking” to agencies such as the department of health & human services that will be administering much of healthcare reform. he ended his prepared remarks by acknowledging that siia members “serve a lot of people and we salute you for that.” the senator was asked what would happen if the supreme Court blocks the individual mandate for purchasing health insurance. “i’ve asked a lot of people in the healthcare industries about that and they tell me they are moving ahead to follow the law that is written and if it changes they’ll find a Plan B. We have an advantage that america is the most entrepreneurial country in the world. somebody will come up with something.”

• rep. tim Walberg (r-Mi), “employer-Based health related reforms” – rep. Walberg serves on the house education and Workforce Committee as Chair of the Workforce Protections subcommittee. he is serving his second term in

Congress as the representative of south-central Michigan. rep. Walberg was among republicans who gained their seats in the election of 2010 after the Patient Protection and affordable Care act (PPaCa) was passed earlier that year. he said that repeal of the law remains the goal of the house republican caucus, as well as repeal of elements of the law he referred to as “time bombs” that would damage the economy and citizens’ constitutional rights. he cited a recent gallup poll of small business owners in which 46 percent cited their fear of government regulations that add $1.75 trillion in costs to small businesses. “You deal with that issue daily,” he told siia members. rep. Walberg acknowledged that repeal of PPaCa would face stiff resistance by the senate and would not be signed by President Obama. “We can’t control the senate or the President, but we can inform our citizens what can be done,” he said. he said that house republicans are ready to put forward their replacement for PPaCa that would include greater use of health savings accounts and establish association

Congressman Tim Walberg talking about healthcare reform issues that will affect the employer based healthcare system figures. He said that some criticize the naiC as overstepping its bounds in promulgating “model acts” that states accept. erisa and other laws eroded state control of insurance and now the naiC has two main goals: “First, protecting their turf, and second, protecting consumers,” doherty said.

health plans, an element that siia has long advocated.

• Kevin doherty, “update on naiC issues” – siia member doherty of Burr and Forman llP in nashville serves as the siia Counsel to the national association of insurance Commissioners as it deals with issues that could have major impact on the future of self-insurance.

Currently siia is closely monitoring naiC’s study of two issues vitally important to members; possibly raising stop-loss attachment points and regulating risk retention groups as commercial insurance companies.

he explained that the naiC is not itself a government body, but a trade association comprised of government

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April 2012

said. “going forward, siia members will have ongoing input to make this process as painless as possible,” he added. IRS Definition of Stop-Loss insurance: during the dC conference a delegation of siia staff and members met with high-ranking irs tax policy officials to brief them on how stoploss insurance works. this was part of siia’s effort to protect the industry from unfair treatment as the irs seeks a definition of stop-loss insurance as part of its compliance with the PPaCa requirement to limit health insurance sales compensation SIIA Chief Operating Officer Mike Ferguson regarding stop-loss attachment points, doherty said that an naiC working group has asked for an actuarial report on the effects of raising them from the level established in 1985 as $1,000 for specific claims and $40,000 for aggregate claims. “now to raise stop-loss attachment points would eliminate self-insurance for many smaller employers,” he said. he urged siia members to learn how their state’s insurance commissioner views this issue. “Just talking can help sometimes,” he said. doherty said it would be wrong to regulate risk retention groups as if they were commercial carriers because of their special nature as captives comprised of members of businesses or professions. he noted that rrg policies are not sold to the general public, which reduces the need for consumer protection.

• Mike Ferguson, “Key Federal and state regulatory updates affecting selfInsurance”— SIIA’s chief operating officer brought a list of current issues that could have major implications on the self-insurance industry. Michigan Claims Tax: Ferguson reiterated that SIIA filed a lawsuit early this year in a Michigan federal court to overturn the inclusion of employee-sponsored selfinsured health plans in a one percent tax on claims that the Michigan legislature enacted for all health claims paid in the state. the state responded with a motion to dismiss the suit and a hearing is scheduled for June 7. Ferguson said siia brought suit on the basis that the tax is a violation of the erisa bar of state interference with self-insured plans. “Our hope is that by winning the suit we could possibly head off other states from similar approaches,” he said. Fees to support state health insurance exchanges under PPaCa: the law will require all health insurers including self-insured plans to pay into funds to support state premiums for reinsurance to cover excess losses of the exchanges. siia took the initiative by meeting with hhs personnel to “try for the least problematic approach” to collecting the funds. “at that time hhs didn’t know how to identify self-insured plans,” Ferguson said. the agency’s idea that tPas may be able to help was blocked by its inability to identify tPas as well, Ferguson

April 2012

The Self-Insurer

Ferguson commented that this is just one example of federal regulators making issues “pop” out of the PPaCa law. “We believe there are misconceptions among regulators about stop-loss insurance that we intend to correct,” he said. “First we wanted to make sure they understand our industry, and then we will be able to more successful influence them.” he said siia will follow up with the irs soon and report continuing developments to siia members. tPa coverage of contraception issue: this misconception of the role of third party administrators arose during the recent hearing when hhs Secretary Kathleen Sebelius testified to a hearing of the house energy and Commerce Committee. she said that health insurers or – in the case of self-insured organizations their tPas – may be called upon to provide contraception services to employees of organizations that have religious or ideological opposition to contraception. “this provided insight on the possible thought processes of federal regulators,” Ferguson said. “either this was an offhanded comment by the HHS secretary or reflects a plan to rope tPas into this process. We’ll

follow up and keep you informed.” siia integrated government relations approach – Ferguson listed the five pillars of SIIA’s coordinated government relations approach as: direct lobbying: Full-time lobbying activity is provided by the staff of the Washington, DC office as well as SIIA staff leaders Ferguson and erica Massey who are also registered lobbyists. grassroots lobbying: For many years siia members have joined the “Walk on the hill” during the annual legislative & regulatory Conference, and now that effort is ongoing through meetings of siia members with their representatives either in Washington or the home offices of Senators and representatives. Meetings are coordinated by siia staff. “We do all the work, and this helps put a face on our industry for members of Congress,” Mike said. Partnership with employer organizations: siia has recently made

inroads with employer organizations in several states to help support issues of self-insuring employers. this effort will continue as a permanent element of siia’s outreach program. One example: the indiana Manufacturers association will partner with siia at our national Conference in indianapolis this October.

conferences for members of Congress and their staffs to brief them on important issues affecting selfinsurance and alternative risk transfer.

the self-insurance Political action Committee: the PaC has enabled siia to support the campaigns of senators and Congressmen who support our issues in legislation. the PaC is still in its infancy but has steadily gained in contributions and its ability to support members of Congress. By law, PaC donations must be made by individuals rather than corporations.

• a report on risk retention groups by the government Accountability Office gives rrgs high marks for providing liability coverage in niche markets that are underserved or overpriced by the traditional insurance industry. the gaO recommended to Congress that it update the liability risk retention act (lrra) to avoid varying interpretations by captive domiciles and nondomiciliary states and for the naiC not to urge their members to regulate

the self-insurance educational Foundation: a 501(c)(3) organization, sieF serves as an educational outreach arm of siia. it will continue to hold “lunch and learn” educational

• Other conference sessions provided views that were more of a technical nature than political. those included:

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April 2012

rrgs as if they were traditional insurers. • a rand Corporation report on effects of health reform on small business healthcare coverage indicates the value of self-insurance given continued availability of stop-loss coverage. that report is available at the rand Corporation website listed as report tr-971. • legal analyst and journalist ted goldman reviewed expected arguments during the supreme Court’s review of PPaCa’s constitutionality this spring. he said the first test the act must pass is the federal anti-injunction act from the 1800s that states a tax cannot be ruled on until it is paid – leading to the argument of whether the “penalties” for individuals not taking mandatory healthcare coverage comprise a “tax.” his articles on the subject appear in the January and March issues of health affairs Magazine. • representatives of the department of labor described how to access documents of the Employee Benefits Security administration (eBsa) providing guidance on regulations arising from PPaCa at the website www.dol.gov/eBsa. n

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April 2012

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The Self-Insurer

April 2012

Bench From the

by Steven T. Polino

Existence-of-covereage verses extent-of-coverage distiction rejected: representations by claims administrators are not prempted by ERISA

t has long been debated whether payors and claims administrators can be held liable for provider claims based upon verbal and written statements regarding verification of benefits and payment. The written form of verification of benefit coverage usually contains a disclaimer something like the following: the information provided is not a guarantee of payment or benefits. Benefits are determined upon receipt of a claim and based upon all provisions, limitations and exclusions of the plan. Verbal verifications are more problematic because they are

April 2012

The Self-Insurer

susceptible to dispute as to what was actually said. the majority of benefit verifications are done verbally over the telephone. At least five (5) of the twelve (12) federal Circuit Courts of appeal have held that verbal statements made by claims administrators or payors verifying coverage or benefit amounts are not preempted by the employee retirement income security act of 1974 (“erisa”). One such case was recently decided by the Fifth Circuit in access Mediquip l.l.C. v unitedhealthcare insurance Co., 662 F.3d 376 (5th Cir. 2011). in that case, access Mediquip (“access”),

sought reimbursement for medicaldevice procurement and financing services provided in connection with over 2,000 patients insured under erisa plans administered by united healthCare insurance Company (“united”). it is important to note that united was acting as both a claims administrator and a payor. the facts and holding of this case reach beyond insurance carriers. the verbal statements referred to in the Fifth Circuit opinion involved representative samples of instances in which a representative of the medical device provider called the insurer to confirm coverage of a particular

concern, such as the right to receive benefits under the terms of an ERISA plan; and (2) the claims directly affect the relationships among traditional erisa entities: the employer, the plan and its fiduciaries, and the participants and beneficiaries.” Memorial, 904 F.2d at 245. using this test, the Fifth Circuit found in the access Mediquip case that the device provider’s common law claims of promissory estoppel, negligent misrepresentation were not preempted by erisa because these claims were premised on allegations and evidence that access provided the services in reliance on representations by the administrator-payor that the carrier as payor would pay reasonable charges for access’s services. Specifically the court stated that state-law claims alleging common law misrepresentation are not dependent on or derived from a plan participant’s

right to recover benefits under the employer’s plan. united attempted to argue that the Court consistently used the “existence of coverage” versus “extent of coverage” analysis under which claims base on “extent of coverage” misrepresentations are allegedly preempted. however the Fifth Circuit found that any “existence-of-coverage” versus “extent-of-coverage” distinction was at odds with both its prior decisions and the decisions of other circuits. united also argued that the plan fiduciary’s decision regarding what claims to pay constituted plan administration which brought the matter within the scope of erisa. the Fifth Circuit responded stating that the critical distinction is not whether the parties to a claim are traditional erisa entities, but whether the claims affect an aspect of a

relationship that is comprehensively regulated by erisa. the administrator’s handling of inquiries from providers regarding whether the provider can expect payment for services rendered to a participant or beneficiary of a plan is not a domain of behavior that Congress intended to regulate with the passage of erisa. No fiduciary responsibilities are imposed upon a plan administrator in favor of third-party health care providers regarding the accurate disclosure of information. Memorial, 904 F.2d at 247. With respect to estoppel and misrepresentation claims, the Fifth Circuit concluded that allowing third-party providers to recover based upon representations made by administrators or payors “in no way expands the rights of the patient to receive benefits under the terms of the health care plan.” id. at 246. Consultation of the plans’ terms is

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not necessary to evaluate whether the administrator-payor statements were misleading. a court or jury need only determine: (1) the amount and terms of reimbursement that the provider could reasonably have expected based upon what could fairly be inferred from the administrator-payor statements; and (2) whether the payor’s subsequent disposition of the reimbursement claims was consistent with that expectation. the unjust enrichment and quantum meruit claims, however, were considered to depend the allegation that an erisa plan would have been obligated to reimburse whatever provider procured the devices, whether it was access Mediquip or some other provider. access could therefore only recover under these theories of recovery if a plan conferred on its participants and beneficiaries a right to coverage for the services provided. such claims were thus preempted by erisa.

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Conclusion The purpose of ERISA preemption is to protect plans from unexpected financial consequences that could result from routine exposure to state-law claims. state-law claims premised on misrepresentations to a third party provider do not defeat this purpose. erisa plans and administrators can avoid exposure to liability under statelaw misrepresentation claims by not misleading providers regarding what they can expect to be paid if they render services for the plan’s participants and beneficiaries. there is no equivalent way, however, for plan administrators to limit their exposure to state-law unjust enrichment or quantum meruit claims. those claims, if not preempted, would allow any provider who has provided care and been denied reimbursement to challenge the erisa plan’s interpretation of its plan in state court. n

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The Self-Insurer

April 2012

From The Desk of

eriCa MasseY

looking for Solutions & Opportunities in an Ever-Changing Market

s we all know, the self-insurance/alternative risk transfer market is always evolving. More and more, industry leaders are looking for innovative solutions and opportunities to capitalize on the daily challenges we all face. there is no better time for employers to contemplate alternative risk finance mechanisms.

One of the most significant business trends over the past several years has been an increased focus on globalization. as this trend has taken hold, selfinsurance/alternative risk transfer solutions are being developed to respond to the specific needs of companies whose operations reach well beyond specific geographic borders. Join SIIA for the International Conference June 5-7 in Coral gables, where several of the industryâ&#x20AC;&#x2122;s top experts share their knowledge on helping companies with international risk management needs understand the self-insurance solutions available to them. this event will also provide unique networking opportunities for companies interested in establishing strategic partnerships with global reach. there are also several exposure opportunities still available. Please visit www.siia.org for more information and to register. here at the self-insurer, we strive to bring you informative articles on current industry topics. We are excited about our new feature, domicile direct, which debuted in our March issue. each edition of domicile direct focuses on a particular captive domicile, and provides information on domicile specific topics, legislative issues and educational and networking opportunities. The first domicile direct focused on Washington, dC. stay tuned for more domiciles and other exciting features in the self-insurer!

erica M. Massey President/Managing editor, siPC

April 2012

The Self-Insurer

April 2012

ARt gallerY by dick Goff

disappointment and rewards of academic life

t was disappointing to learn that it’s not appropriate for college instructors to wear full academic regalia anytime they’re on campus. i was looking forward to my gown (what do they really wear underneath?) with the sash in school colors and one of those little squishy hats.

But it will just be the usual blazer when i serve on the faculty of the Captive Insurance Risk Management Certificate Program at the University of Delaware this spring. the course runs eight weeks through June 6 at the Wilmington campus, and those who find these descriptions compelling may still be able to access registration information at www.pcs.udel.edu/insurance. This course confers a full academic-accredited certification that should look good on anyone’s resume, not to mention equipping people to operate in the specialized art universe. it is the most comprehensive educational experience i know of that combines the interests and capabilities of a captive industry group – in this case the delaware Captive insurance association (dCia) – along with the domicile regulatory agency and a major state university. the course is based on a real-world textbook, “Captive Practices and Procedures: how to structure and Operate a successful Captive insurance Program, 2nd edition,” by Kate Westover, a highly respected thought leader of our industry. an outstanding faculty (possibly excepting yours truly) will lead students through four study modules with 12 class sessions leading from basic identification of the field to fully realized case studies. The certification course was the brainchild of Mary Jo Lopez who served as director of business development for the delaware department of insurance. Currently Mary Jo’s day job is director at alvarez & Marsal north america llC, risk Management advisory in new York City. But she has maintained leadership of the u delaware program. Mary Jo sensed a need for many people working in insurance to reengineer their careers after the passage of federal healthcare reform. “Just in delaware we have about 20,000 producers in health care,” she says. “the new federal program is likely to severely diminish healthcare commissions by 2014, so i thought it would be timely for brokers and agents to learn about captives.” “governor Markell had issued a challenge to his staff: ‘how do we keep people employed?’ and I thought a captive certification course could help fill a void with the opportunity for insurance people to get involved in another part of the industry.” delaware insurance Commissioner Karen Weldin stewart was enthusiastic in her support of the program and planning got underway last year by a group that included members of the dCia. richard Klumpp, president of dCia and CeO of Wilmington trust sP services, inc., says the association’s members were pleased to participate, and that the course has become a valuable involvement opportunity for many.

April 2012

The Self-Insurer

“We have a lot of members who work in particular fields such as legal, accounting, actuarial or underwriting that provide services to captive insurance companies but as specialists they don’t really know the full workings of a captive. this course is a great opportunity for valuable cross-training,” Klumpp says. he also noted that the course appears to be stimulating interest among dCia members who had not previously been directly involved in association events. that got me thinking that similar programs could benefit ART industry members in any domicile, and that such educational efforts could provide generous returns in business development during these volatile times. it’s just up to someone – a regulator or a member of the art community – to get the ball rolling in other states. the delaware course provides an ideal model that could be emulated elsewhere. it is structured in 42 hours of class time at the university’s goodstay Campus. this is not just another lecture series, but a serious academic process with – egads! – exams and letter grades. But the instructors are dedicated to making the course a good experience for the students, and welcoming them into the often mysterious-seeming world of art. and i’m personally looking forward to my “goodbye, Mr. Chips” moment when we part company in June. n Dick Goff is managing member of The Taft Companies LLC, a captive insurance management firm and Bermuda broker at dick@taftcos.com.

The Self-Insurer

April 2012

rrgs Picking up

larger share

of MedMal premium, data show by Hazel Becker, courtesy of the Risk Retention Reporter

April 2012

The Self-Insurer

he share of medical professional liability (MPl) premium written by risk retention groups has increased over the last five years, even as the total premium paid for MPl coverage has been shrinking, an analysis of data from the naiC and data collected by the risk retention reporter found. according to the naiC data, premium in the medical malpractice/ MPl sector declined from $12.2B in 2005 to $10.5B in 2010, a 13.9% drop. Over the same period, according to rrr data, premium written by rrgs in the hospitals and Physicians market segments increased from $1.2B to $1.3B, and rrgs’ share of total medical malpractice/MPl premium increased from 9.6% to 12.0%. For purposes of this analysis, both hospitals and Physicians premium are included because some hospitals insure employed and affiliated physicians through the same rrg that provides the hospital’s MPl coverage, rather than through a group formed expressly to insure medical personnel. also note that naiC changed its label for this coverage from medical malpractice to medical professional liability beginning in 2009. Pinpointing the reasons for the changes in the MPl market is complicated by internal and external factors at play in the marketplace, with industry consolidation shrinking the number of customers purchasing insurance for physicians and a prolonged soft market pushing total premium down. in interviews with rrr, some industry stakeholders said a shift in physician culture indicates a permanent change toward hospital employment of doctors. Others, however, noted that a similar wave of hospitals purchasing physician practices about 20 years ago was reversed a few years later and expressed hope that history would repeat itself in that regard in the next few years.

that rates paid to insure physicians’ malpractice liability have been declining is undisputed. annual surveys published by the Medical liability Monitor (MlM) began noting a softening of the market in 2006, when MlM reported that survey respondents attributed rate declines in part to increasing competition from captive insurers and rrgs. By 2008, MlM reported that the “overwhelming majority” of respondents characterized the market as soft, and 43% said their rates had decreased. the 2010 MlM survey reported that the majority of respondents were concerned about competitors’ use of credits and discounts to reduce premiums even when published rates were not going down, a phenomenon that continued to trouble editors of the 2011 MlM survey report. an examination of rrr data going back to 2002 found that both the number of rrgs in the hospitals segment and their aggregate premium jumped in 2003, while a similar increase in the Physicians segment came a year later. the number of hospital rrgs reporting annual premium to the naiC doubled from 17 in 2002 to 34 a year later, with aggregate premium increasing more than 70% that year. in the Physicians segment, the number of rrgs reporting premium jumped from 14 in 2003 to 30 in 2004, but the increase in premium has been more gradual. that premium in both sectors levels off or drops in 2006 is not surprising, considering what MlM’s surveys reported about rates beginning to drop at the same time. despite an overall increase in the number of physicians insured through rrgs, as reported in the 2011 rrr survey (see rrr, november 2011), total rrg premium in the MPl market is being suppressed as some groups follow the industry trend of discounts and credits noted in the MlM survey. although many rrgs continue to be

selective and relatively conservative in their underwriting, some groups are changing their policies governing loss-experience credits and others are revising their rate schedules based on average rates in some states. “i’ve seen evidence of the market very aggressively pricing premiums for physicians, especially the physicians deemed to be a good risk,” said Michael Coulter, deputy managing director of aon global risk Consulting’s Captive Management Practice. “We have a lot of clients with rrgs that are directly competing with the commercial markets for premium dollars.” Coulter noted that offering lower rates does not guarantee that a rrg will be able to win new business, even in hospital-affiliated or captive RRGs that provide quotes to physicians being brought into a hospital system. “there are some really deep discounts out there, and the traditional companies see the rrgs as a threat to their market share and/or their premium volume. . . . the physicians are using the rrg quote as a bargaining chip when negotiating renewals.” although a hospital system may prefer that a newly affiliated physician or practice become insured by its captive rrg, so that it can institute loss mitigation measures, many hospitals do not force the issue in negotiations with practices or physicians they need to add to their systems. in some cases, if a system needs to employ a physician who does not fit the RRG’s risk profile, hospitals are choosing to buy commercial coverage to bring the doctor on board. some industry stakeholders look forward to a hardening of the MPl market to stem the fierce competition among industry participants, commercial carriers, and rrgs alike. Others see changes in the healthcare arena and attitudes of new physicians coming out of medical schools and residencies bringing about a longerlasting change in the MPl marketplace.

The Self-Insurer

April 2012

“new norms” in the medical malpractice market have been the topic of panels at industry meetings, including one session at the Captive insurance Council of the district of Columbia’s annual meeting in October 2011 (see rrr, november 2011). “if the current soft market had followed the patterns of past soft markets, it would have become a hard market two or three years ago,” eugene rosov, former president of the Pediatricians insurance risk retention group of america (Pirrga), told the risk retention reporter. “there doesn’t appear to be any end in sight for it because the underlying essentials have changed substantially. there probably never will be a hard market – and the result is that rrgs will always have a hard time operating (growing or even maintaining their membership status) in this market.” Pirrga is going through voluntary dissolution after losing nearly half its total premium since 2006. rosov

April 2012

The Self-Insurer

is now managing director of a new risk purchasing group formed by former members of the rrg. Meanwhile, traditional MPl companies appear to be seeking strategies of their own to help them weather the tough economic climate that has reduced their investment income even as this extended, deep soft market has forced them to maintain low rates. For example, one new england MPl company is sponsoring a rrg that began operations in 2010. Most recently, Minneapolis-based MMiC group, the country’s 20th-ranked MPl company, formed MMiC rrg inc. to offer its clients the option to cover medical professionals outside its core eightstate region. Whether the MPl marketplace will return to typical hard-soft cycles of the past, and whether recent changes in the healthcare business will have

a lasting effect on the market for physician insurance, remains to be seen. recent moves by some players – such as traditional companies starting up rrgs to serve some customer groups, hospital-sponsored rrgs insuring affiliated physicians, and RRGs transitioning to purchasing groups – indicate that companies offering alternative risk transfer mechanisms will have a place in this market for the foreseeable future. Article originally published in the January 2012 issue of the Risk Retention Reporter.

physicians RRGs Include Variety of Formats, Characteristics the 59 risk retention groups operating in the Physicians market segment going into 2012 are a mixed bag – with the majority of rrgs in this segment operating as stock companies, in limited geographic areas (state or regional), and offering membership to physicians regardless of affiliation or practice type. For this analysis, the risk retention reporter looked at rrgs’ descriptions in the 2011 risk retention group directory & guide as well as their websites and other published descriptions. Of the 66 Physicians rrgs included in rrr’s 2011 survey (see rrr, november 2011), 59 groups were considered likely to report premium for 2011. the remainder, which maintain active licenses, either are in run-off or have not reported premium to the naiC since at least 2009. the majority of the 59 active rrgs are organized as stock companies (42 groups, or 69.5%). the others are almost evenly split between mutual companies (9 rrgs) and reciprocals (8 rrgs), while one group operates as a non-profit. two-thirds of active Physician rrgs offer coverage across practice areas rather than limiting membership to specific medical specialties. However,

many such multi-specialty groups exclude high-risk practice areas such as obstetrics/gynecology and surgery, which are served by companies that limit membership to physicians in one practice area. Other specialties served by rrgs include allergy and ear/nose/ throat, anesthesiology, emergency medicine, ophthalmology, radiation oncology, and urology. specialty rrgs include some of the oldest and biggest groups in the Physicians sector. the two groups that reported more than $40M in annual premium in 2010 were Ophthalmic Mutual insurance Co. rrg (OMiC) and Preferred Physicians Medical rrg inc. Both were formed in 1987, the year after the liability risk retention act was enacted. their members are ophthalmologists and anesthesiologists, respectively. While both companies were affected by the one-two punch of the prolonged soft market and the recession, both reported higher premium in 2010 than the previous year.

another longtime specialty company is national guardian rrg inc., which has been insuring emergency room doctors and hospitalists since 1989. emergency medicine is the specialty with the largest number of rrgs – seven, including four that operate across a widespread geography and three with members practicing in limited geographic areas. More than three-fifths of all Physicians RRGs offer coverage to doctors in only one state or region. in contrast, only 25% operate in all states or across a wide geographic span. These include 12 groups that are affiliated with a single hospital or practice or that offer insurance only to physicians affiliated with a hospital system. the limited regional coverage of such a large number of Physicians rrgs keeps this market segment from being top-heavy. unlike the hospitals segment, which is dominated by two rrgs that rank among 25 largest medical professional liability companies in the united states (see rrr, March 2011), OMiC and Preferred Physicians each account for about 10% of total premium in this segment. Fifteen Physicians rrgs reported annual premium of more than $10M in 2010, accounting for 65% of the segment’s business. n The Risk Retention Reporter (RRR) has been the leading publication oriented specifically towards Risk Retention Groups and Purchasing Groups since 1987. The flagship monthly newsletter, the RRR, covers news and developments in the industry with detailed analysis and 24 years of historical data. Four quarterly publications and one annual directory compliment the RRR’s coverage of the risk retention marketplace. For more information about the RRR and its sister publications, visit www.rrr.com.

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The Self-Insurer

April 2012

ppACA, HipAA and Federal Health Benefit Mandates:

Practical

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

April 2012

The Self-Insurer

Q&A

When Is a Summary More than a Summary, part two: Agencies Issue Final Guidance on the ACA’s Uniform Summary of Benefits and Coverage Requirement

n February 14, 2012, the departments of the u.s. treasury (“treasury”), labor (dOl) and health and human services (hhs) (collectively, the “Agencies”) jointly published final regulations that identify the standards for completing and delivering the uniform explanation of coverage (“summary of Benefits,” or SBC) required by the Patient Protection and affordable Care Act of 2010 (ACA). The final regulations clarify and revise the sBC requirements first proposed by the agencies in the proposed regulations issued on august 22, 2011.

group health plan sponsors and health insurance carriers must act quickly. With respect to participants and beneficiaries enrolling during an annual enrollment period, the sBC rule described in the final regulations is effective on the first day of the first annual enrollment period beginning on or after september 23, 2012. With respect to participants and beneficiaries enrolling other than during an annual enrollment period (e.g., newly eligible individuals and special enrollees), the sBC rule is effective for such enrollments that occur on or after the first day of the plan year beginning on or after september 23, 2012.

Practice Pointer: Applying the effective date of the SBC rules can be tricky. For some plans with fiscal years, the SBC rules may first apply to newly eligible individuals and special enrollees. See “When are SBCs required to be provided?” below for a more detailed discussion of the effective dates. the following is the who, what, when, where and how of the sBC rules, as described in the final regulations. For those who simply want to know the differences between the proposed and final rules, we have attached to this advisory a quick reference chart that highlights the differences between the proposed regulations and the final regulations. We will highlight issues arising from the template and the corresponding instructions in a subsequent advisory. nOtE: the sBC requirements also apply to health insurance issuers who issue coverage in the individual market; however, the focus of our overview below is solely on group health plans.

Who is required to provide an SBC? The final regulations obligate the group health plan (including the plan administrator) and, if applicable, the health insurance issuer offering coverage in connection with a group health plan (i.e., if the plan is fully insured) to provide the sBC in accordance with the standards described below. Practice Pointer: The SBC requirement applies to all self-insured and fully-insured group health plans that are otherwise subject to the health insurance reforms in Sections 1001 and 1201 of the ACA, including grandfathered plans. Thus, the SBC rules do not apply to benefits that qualify as “excepted benefits” under HIPAA’s portability rules (e.g., non-integral dental and vision coverage, Health FSAs funded solely with employee’s pretax salary reductions, certain specified disease and hospital indemnity insurance) and stand-alone retiree health plans. While many health Fsas and some health reimbursement arrangements will be excepted benefits, and thus exempt from the SBC requirements, Health FSAs and HRAs that are not excepted benefits are subject to the SBC requirements. The preamble clarifies that separate SBCs must be prepared where such arrangements are stand-alone plans (although many of the provisions applicable to traditional fee for service plans would not apply). however, for a non-exempt health Fsa or hra that has been integrated into other major medical coverage, an sBC prepared for the other major medical coverage can note the effects of the health Fsa or hra. if the group health plan is self-insured, the obligation to provide an sBC lies solely with the plan. if the plan is fully insured, the obligation to provide an sBC lies with both the plan and the health insurer; however, both are deemed in compliance to the extent one of the responsible parties timely provides an sBC. Plan sponsors of fully insured plans and their health insurers must cooperate with one another to ensure an sBC is timely provided as required. Practice Pointer: Unlike HIPAA’s portability rules regarding certificates of creditable coverage, the plan or insurer will not avoid liability under the statute simply by entering into a written agreement with the other party that the other party will provide the SBC.

to whom must the SBCs be provided? The final regulations indicate that a plan or insurer must generally provide an sBC in accordance with the sBC rules to a “participant” and “beneficiary” as defined in ERISA Sections 3(7) and 3(8). the terms “participant” and “beneficiary” are defined broadly by erisa and include not only those individuals who are currently enrolled in the plan (i.e., covered employees/ former employees and their covered dependents), but anyone who is eligible to enroll. thus, a plan or insurer must provide an sBC generally to employees (including former employees) and dependents that are eligible to enroll or are enrolled in the group health plan. Practice Pointer: The regulations indicate that a single SBC provided to participants and beneficiaries at the participant’s last known address satisfies the requirement to send an SBC to all beneficiaries who reside at that address. See “How must the SBC be delivered?” below for more information. in addition, “participant” and “beneficiary” would also appear to include self-employed individuals and their dependents that are eligible for or enrolled in the plan. ERISA’s definition of “participant” does not specifically include self-employed individuals, such as independent contractors or partners covered under a plan; however, cases have held that self-employed individuals covered under an erisa-covered plan should be treated as participants. Practice Pointer: Although both participants and beneficiaries are each entitled to receive an SBC, plans are not always required to send an SBC to both. See “How must the SBC be delivered?” below for more information.

The Self-Insurer

April 2012

a group health plan is also entitled to receive an sBC from a health insurer.

When are SBCs required to be provided? generally, plans or insurers must provide the requisite sBCs participants or beneficiaries in the following instances (“triggers”): • upon “application” for coverage, • upon “renewal,” • following a request for a special enrollment (as defined by hiPaa), • upon request by a participant or beneficiary, and • following a material modification in the information contained in the sBC. an sBC must also be provided by a health insurer to a plan at certain times. see “What sBCs must a plan or insurer provide?” below for more detail on the number and the contents of the

sBCs required to be provided. Practice Pointer: The number of SBCs that a plan or insurer must provide to each participant and beneficiary is based, at least in part, on the number of “benefit options” maintained by the plan and the applicable trigger. See “What SBCs must a plan or insurer provide?” below for a more detailed discussion of the requisite SBCs. The SBC triggers and the specific time frames for providing the sBC as a result of those triggers are discussed below.

A. From Plan to Participant/Beneficiary The First SBCs the sBC rules have two different effective dates, depending on the type of enrollment period. With respect to participants and beneficiaries enrolling during an annual enrollment

period, the sBC rules are effective on the first day of the first annual enrollment period beginning on or after september 23, 2012. For all other participants and beneficiaries enrolling during an enrollment period other than annual enrollment (e.g., newly eligible individuals and special enrollees), the SBC rules are first effective with any enrollment occurring on or after the plan year that begins on or after september 23, 2012. Practice Pointer: The SBC rule will apply to the plan’s first annual enrollment period based on the date that the annual enrollment period begins—not the date the plan year starts. For example, if your annual enrollment period typically begins September 1 of each year, then the first annual enrollment period to which the SBC rules apply is the annual enrollment period beginning September 1, 2013, even if your plan year begins prior to that

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April 2012

The Self-Insurer

date. However, that does not mean you necessarily get a pass from the rules until then. Depending on when your next plan year and enrollment period start, the SBC rule applicable to all other enrollments may apply before your next annual enrollment period. Consider the following examples to illustrate application of sBC effective date. example #1: aBC sponsors a health plan that has a calendar plan year. each year it begins the annual enrollment period for the following plan year on October 1. aBC must comply with the sBC rules with respect to individuals enrolling in the annual enrollment period that begin October 1, 2012. thereafter, the sBC rules will apply to all initial and special enrollments that occur on or after January 1, 2013. example #2: XYZ sponsors a health plan that has a calendar year; however, unlike aBC Plan, XYZ typically begins annual enrollment for the following plan year on september 1 of each year. For XYZ, the first annual enrollment period to which the sBC rule will apply is the annual enrollment period beginning september 1, 2013 (for the 2014 plan year). however, the sBC rules will apply to all initial and special enrollments that occur on or after January 1, 2013.

enrollments other than Annual and Special enrollments occurring after the effective date (Application) Plans and insurers must provide the requisite sBCs to individuals who become eligible to enroll (except during a special enrollment period) with any written (or electronic)

enrollment materials distributed by the plan as part of the enrollment process. if the plan does not provide written or electronic enrollment materials as part of the initial enrollment process, the plan must provide the SBC no later than the first day on which the individual is otherwise eligible to enroll. if any of the information required to be in the SBC that was provided changes before the first day of coverage (e.g., prior to the effective date of coverage), then an updated sBC must be provided no later than the first day of coverage. Practice Pointer: Plans that typically do not provide written enrollment materials in connection with the initial enrollment will nevertheless have to provide an SBC in accordance with the SBC rules. This could pose administrative issues if the enrollment period for newly eligible individuals begins shortly after the individual becomes eligible for coverage. Consider the following examples to illustrate the application of this rule: example #3: Bob is hired by aBC on October 1, 2013, and he becomes eligible for coverage under aBC’s group health plan on that date. aBC’s plan administrator sends Bob written enrollment materials on October 5, 2012. ABC satisfies the SBC rules if ABC provides the requisite SBCs (or a postcard with a link to the sBCs, as permitted by the sBC rules) with the written enrollment materials sent to Bob on October 5, 2012. example #4: this example presents the same facts as example #3, except that aBC does not send written enrollment materials. instead, aBC typically instructs new employees on the enrollment process, which begins immediately, during the employee orientation. in that case, aBC would need to provide the requisite sBCs in accordance with the sBC rules on the date of the employee’s orientation.

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The Self-Insurer

April 2012

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April 2012

The Self-Insurer

SYM 6903-2 HealthcareNewLogo_SI.indd 1

11/28/11 2:50 PM

Special Enrollments Occurring after the Effective Date Plans must provide the requisite sBCs to special enrollees during a special enrollment period, as defined by hiPaa’s portability rules, within 90 days of becoming covered under the plan (i.e., the date that a summary Plan description is otherwise required to be provided under erisa). unlike the other enrollment periods, a plan and insurer are not required to provide an sBC at the beginning of a special enrollment period. this seems to be the applicable rule without regard to whether the employee was previously enrolled in the plan prior to requesting a special enrollment. Practice Pointer: Special enrollments under HIPAA’s portability rules are not the only situations in which an individual may be able to enroll him/herself or a beneficiary in a plan during the plan year. For example, an employee’s election for a group health plan benefit offered through a cafeteria plan may, to the extent permitted by a cafeteria plan, be changed mid-year to add a spouse whose coverage period under the spouse’s employer’s plan is different than the employee’s plan, or where the spouse’s employer significantly increased the cost of the spouse’s coverage. These events that enable an individual to request mid-year enrollment are not special enrollment events as defined by HIPAA. Unfortunately, it isn’t clear which SBC rules apply to such mid-year enrollments. Are such enrollments treated as “applications,” which require plans or insurers to provide an SBC automatically, or would they be subject to the request rule (see below), which requires an SBC only if an SBC is specifically requested?

written enrollment materials provided in connection with annual enrollment. if annual enrollment is automatic, the Plan or insurer must provide the requisite sBCs no later than 30 days prior to the first day of the new plan year. With insured plans, however, if the policy, certificate or contract of insurance has not been issued or renewed before this 30-day period, the sBC must be provided as soon as practicable, but no later than seven business days after issuance of the new policy or receipt of written confirmation of intent to renew, whichever is earlier. Practice Pointer: Many plans utilize a “negative” or “passive” enrollment process where affirmative elections are made by participants only if the participant wishes to change his/her prior election. Are these enrollments considered “automatic” enrollment? We all would like to treat them that way, but conservative plan sponsors should carefully consider this issue with counsel absent further favorable clarification on this point from the agencies. unlike the sBC rules applicable to other enrollments, the final regulations do not specifically require plans and insurers to issue a new sBC for annual and special enrollments if there are changes to the information in the sBC before the first day of coverage.

Upon Request by a Participant or Beneficiary

Annual Enrollment (Renewal)

a plan or insurer must provide the requisite sBCs to a participant or beneficiary upon request as soon as practicable, but no later than seven business days following the receipt of the request.

if a written annual enrollment is required, the Plan or insurer must provide the requisite sBCs with the

Practice Pointer: May plans and insurers charge for requested SBCs? Neither the statute nor the regulations

address charges for requested SBCs. Absent guidance that specifically permits plans and insurers to charge for requested SBCs, plans and insurers would be wise to provide them free of charge.

Material Modifications the sBC rules affect the timing for providing a summary of material changes (i.e., a summary of modification, or SMM) to participants. For covered plans, the revised process will subsume the process for distributing sMMs for covered plans. the timing will vary depending on whether the change is effective during the plan year or on the first day of the next plan year. Where a material modification (as defined in erisa section 102) is made to the terms of the plan that would impact the information in the most recently distributed sBC, and such change is effective during the plan year (i.e., prior to the first day of a subsequent plan year), a plan or insurer must provide notice of the material modification to “enrollees” at least 60 days prior to the effective date of the change. if it is a change effective as of the first day of the next plan year, a plan or insurer must provide an updated sBC in accordance with the sBC rules applicable to annual enrollment (see above). Practice Pointer: Although the statute uses the term “enrollee,” the section of the regulations explaining material modifications is the only time in the regulations in which the term “enrollee” is used. The isolated use of this term raises questions with respect to the scope of individuals to whom a plan or insurer must provide the notice of material modification: Does this requirement apply only to those enrolled in the benefit package affected by the material modification or everyone who previously

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received an SBC for that benefit package? The preamble to the regulations indicates that “enrollee” is interpreted by the agencies to mean “participant” and “beneficiary”; therefore, a plan or insurer must arguably send an SBC notice of material modifications for a benefit package to everyone who previously received an SBC for that benefit package. A “material modification” is generally any modification that, standing alone or in conjunction with other modifications, an average plan participant would consider an important change. A material modification could include an enhancement to coverage or a reduction in services. The preamble to the final regulations states that the mid-year notice of material modifications can be in the form of a stand-alone notice that describes the material modification or an updated SBC. In either case, a plan or insurer must provide the notice of material modification in accordance with the SBC rules. Practice Pointer: The preamble indicates that an updated SBC or notice of modification provided in accordance with SBC rules will satisfy ERISA’s SMM requirements as well.

B. From Health Insurance Issuer to Plan Beginning september 23, 2012, an insurer must provide an sBC to a group health plan (or its sponsor) at the following times: • With the plan’s application or as soon as reasonably practicable, but no later than seven business days following receipt of the application by the group health plan. • if there is a change in the information required to be in the sBC provided upon application or before the first day of coverage, an updated SBC must be provided no later than the first day of coverage. • if written application for renewal is required, then the sBC must be provided when the written application materials are provided. • if renewal is automatic, then the sBC must be provided to the plan no later than 30 days prior to the first day of the new policy year. However, if the policy, certificate or contract of insurance has not been issued or renewed before this 30-day period, the sBC must be provided as soon as practicable, but no later than seven business days after issuance of the new policy or receipt of written confirmation of intent to renew, whichever is earlier. • as soon as practicable, but no later than seven business days following receipt of a request by a plan for an sBC or summary information about a health insurance product.

what SBCs must a plan or insurer provide? as noted above, the number of sBCs a plan or insurer must provide to a participant or beneficiary is based on the number of “benefit packages” maintained under the plan that are otherwise subject to the aCa’s health insurance reforms and the specific triggers identified above. Practice Pointer: The regulations clarify that stand-alone HRAs are generally required to provide an SBC and the effects of an “integrated” HRA must generally be noted on the SBC for the health plan into which the HRA is “integrated.” No guidance is provided

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regarding (i) the time period for providing an SBC for a stand-alone HRA, which typically has no enrollment period, and (ii) the definition of an “integrated” HRA. The final regulations do not define “benefit package”; however, the special enrollment regulations under hiPaa’s portability rules (the same subpart in erisa, the Phsa and the Code to which the health insurance reforms were added by the ACA) define a benefit package as any coverage arrangement with a difference in benefits or cost sharing (e.g., deductibles or out-of-pocket maximum). Practice Pointer: From a practical perspective, any option that can be elected separately by a participant is presumably a “benefit package.” For example, assume employees may elect any of the following benefit options maintained by the employer: (i) a PPO with a $1200 deductible, (ii) a selfinsured PPO with a $2,000 deductible and (iii) an HMO. Presumably, each option is a separate benefit package. The triggers identified above also determine the number of sBCs a plan or insurer must provide to a participant and beneficiary.

enrollments other than Annual and Special enrollments (Application) With respect to individuals enrolling during an enrollment period other than an annual or special enrollment period, a plan or insurer must provide to the participant and beneficiary an SBC for each benefit package for which the participant or beneficiary is eligible. example #5: Bob is hired by acme, inc., on January 5, 2013, and he is sent written enrollment

materials on January 10, 2013. acme, inc., maintains a PPO, hMO and indemnity option, and Bob is eligible for each one. acme, inc., must provide three sBCs to Bob with the written enrollment materials: one each for the PPO, hMO and indemnity options.

Annual enrollment (Renewal) With respect to individuals enrolled in a benefit package, a plan or insurer must only provide an sBC during annual enrollment for the benefit package in which the individual is actually enrolled. a plan or insurer is not required to automatically provide an sBC to an enrolled individual for any benefit package in which the individual is not enrolled, but the participant or beneficiary may request an SBC for the other benefit packages for which the individual is otherwise eligible. Practice Pointer: What if the employee is enrolled in a benefit

package under the plan, but the employeeâ&#x20AC;&#x2122;s spouse is not? Must a plan or insurer provide the employee with an SBC for the benefit package in which the employee is enrolled and an sBC to the spouse for each benefit package for which the spouse is eligible? Presumably, the plan or insurer is only obligated to send an SBC for the benefit package in which the participant is enrolled; however, the participant or spouse may request an SBC for the other benefit packages for which they are eligible. Further guidance from the agencies on this issue would be helpful.

Special enrollment The final regulations do not clearly define the scope of SBCs that plans or insurers must provide to special enrollees. as noted above, a plan or insurer must provide an sBC to a special enrollee no later than the date an sPd is required to be provided,

which is 90 days after the individual becomes covered under the plan. this strongly suggests that a plan or insurer must only be provided an sBC for the option in which the special enrollee actually enrolls; however, additional guidance would be welcomed.

Material Modifications Plans or insurers must provide a notice of material modification or an updated SBC only for the benefit package affected by the material modification. However, as noted above, the regulations do not clearly indicate to whom the notice of material modification should be provided (i.e., only those currently enrolled in the affected option or all eligible employees).

How must the SBC be delivered? at a minimum, a plan or insurer must provide the requisite sBCs in

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paper form. however, plan or insurers may provide an sBC electronically according to the following rules: • For plans and issuers subject to erisa (plans sponsored by private employers) and/ or the internal revenue Code (e.g., church plans), a plan or insurer may provide the sBC electronically to individuals covered by the plan, but only if the requirements of the dOl’s electronic disclosure safe harbor at 29 CFr section 2520.104b-1(c) are met. Practice Pointer: ERISA’s electronic disclosure safe harbor currently set forth in its regulations imposes strict requirements on plan administrators. For example, while SBCs may automatically be provided to employees who have routine access to the electronic medium as part of their job function, plans or

insurers may generally provide the SBC electronically to employees who do not have routine access and non-employees (e.g., retirees, spouses, COBRA continuees) only if such individual provides affirmative electronic consent. Obtaining consent may pose administrative difficulties for plans or insurers. Perhaps the agencies will relax this rule in the future to more closely align with the rule noted below for distributing SBCs to non-enrollees. For those who are eligible for coverage but not enrolled, a plan may provide an sBC electronically if the following requirements are satisfied: • the format is readily accessible; • a paper copy is available free of charge upon request; and • if the electronic form is an internet posting, the individual is notified (by paper or email) that the documents are available online, informed of the web

address and notified that paper copies are available upon request. Practice Pointer: The final regulations provide much-needed relief for plans and insurers who desire to send the SBCs electronically, but only with respect to those who are not currently enrolled. nonfederal governmental plans may comply with either erisa’s electronic disclosure safe harbor requirements or, alternatively, the requirements applicable to insurers in the individual market. nonfederal governmental plans that wish to comply with the electronic disclosure requirements for insurers in the individual market may provide the sBC by email after obtaining the individual’s or dependent’s agreement to receive the sBC or other electronic disclosure by email, or post the sBC on the internet if they advise the individual or dependent in paper

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or electronic form that the sBC is available online and provide the applicable web address. however, a nonfederal governmental plan cannot disclose an sBC electronically unless the format is accessible; the sBC is placed in a prominent, accessible location; the electronic form can be electronically retained and printed; the sBC appearance, content and language requirements are satisfied; and the recipient is informed a paper copy is available free of charge. The preamble to the final regulations states an sBC may be provided as either a stand-alone document or in combination with other summary materials (e.g., an sPd), if the sBC information is displayed prominently at the beginning of the materials (after the table of contents in an sPd) and in accordance with the timing requirements for sBCs. like the proposed regulations,

the final rules contain a “single notice” rule that allows plans or insurers to satisfy the SBC requirement for a participant and beneficiary with a single notice sent to the participant and beneficiaries at the participant’s last known address, unless the beneficiary is known to reside at a different address. However, the proposed regulation seemed to limit application of the single notice rule to situations where the plan or insurer knew the participant and beneficiaries resided at the same address. The final regulations clarify that an SBC sent to the participant and beneficiaries at the participant’s last known address satisfies the requirement with respect to all beneficiaries residing at the participant’s address, even if the plan or insurer does not know that they reside there. however, like the proposed rule, the final regulations indicate that a plan or insurer must send a separate SBC to a beneficiary it knows resides at a different address. Practice Pointer: The single notice rules does not appear to go so far as to say that a plan or insurer does not have to send an SBC to a beneficiary who is enrolling subsequent to a participant solely because that SBC has already been provided to that address. For example, if a spouse is enrolled via special enrollment subsequent to the participant, then the plan or insurer arguably has to send an SBC to that spouse, in accordance with the SBC rules for special enrollment, even though that SBC has already been provided to that address as part of the participant’s initial enrollment. For an sBC provided by an issuer to a plan, the sBC may be provided in paper form or electronically. For electronic forms, the format must be readily accessible by the plan, the sBC must be provided in paper form upon request free of charge, and if the electronic form is an internet posting, the issuer must notify the plan the documents are available online and provide the web address.

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what are the format and content requirements for an SBC? an sBC must satisfy the following format requirements: • four double-sided pages (i.e., a total of eight printed pages, front and back); and • no less than 12-point font (and the instructions to the draft template reflect that the font must be times new roman). an sBC must generally satisfy the following content requirements: • uniform definitions of standard insurance terms and medical terms, so that consumers may compare health coverage and understand the terms of (or exceptions to) their coverage; • a description of the coverage, including cost-sharing, for each category of benefits identified by the agencies; • the exceptions, reductions and limitations on coverage; • the cost-sharing provisions of the coverage, including deductible, coinsurance and copayment obligations; • the renewability and continuation of coverage provisions; • coverage examples that illustrate common benefits scenarios (a normal childbirth, diabetes management) and related costsharing based on recognized clinical practice guidelines; • a statement about whether the plan provides minimum essential coverage as defined under section 5000a(f) of the internal revenue Code, and whether the plan’s or coverage’s share of the total allowed costs of benefits provided under the plan or coverage meets applicable

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requirements (this information does not have to be provided until on or after January 1, 2014); • a statement that the sBC is only a summary and that the plan document, policy certificate or contract of insurance should be consulted to determine the governing contractual provisions of the coverage; • a contact number to call with questions and an internet address where a copy of the actual individual coverage policy or group certificate of coverage can be reviewed and obtained; • for plans and issuers that maintain more than one network of providers, an internet address (or similar contact information) for obtaining a list of network providers; • for plans and issuers that maintain a prescription drug formulary, an internet address where an individual may find more information about the prescription drug coverage under the plan or coverage; and • an internet address where an individual may review and obtain the uniform glossary, as well as a phone number to obtain a paper copy and a disclaimer that paper copies are available. Practice Pointer: The SBC must be completed in accordance with the instructions to the template provided by the agencies. The instructions to the template are very rigid and generally instruct the plan or insurer to use language and formatting precisely as required by the instructions, except where otherwise permitted by the instructions. However, if a plan’s terms required to be described in the template cannot be reasonably described in a manner

consistent with the template’s instructions, then plans or insurers must accurately describe the relevant plan terms while using its best efforts to do so in a manner that is as consistent with the instructions as possible. For items and services provided outside the United States, the final regulations allow a plan or issuer to provide an internet address (or similar contact information) for obtaining information about benefits and coverage provided outside the united states. however, an sBC that summarizes benefits and coverage available within the united states still must be provided. in addition, if at least 10 percent of the population in the county are literate only in the same non-english language, as determined by the american Community survey data published by the united states Census Bureau, then each sBC sent to a recipient with an address in that county must include a one-sentence statement in that non-english language about the availability of language services provided by the plan.

what happens if I don’t comply? Potential penalties for failure to comply with the sBC requirement are severe, including agency-induced fines of up to $1,000 for each failure to distribute an sBC and the self-reported excise tax applicable to group health plans (other than governmental plans) under section 4980d of the internal revenue Code. the department of labor (which has enforcement authority over erisa plans) has indicated that it will issue separate enforcement penalty regulations in the near future.

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April 2012

Chart of differences Between proposed Rules and Final Rules For those familiar with the guidance in the proposed regulations and only want to understand the differences between the final and proposed rules, a summary is provided below.

Item

proposedRegulations

effective date

enrollments occurring on or after March 23, 2012

stand-alone document sBC must be provided as a stand-alone document.

time period to respond Within seven (7) calendar days to request for an sBC Changes to sBC prior if there is any change before the coverage is offered to first day of coverage or before the first day of coverage, an updated SBC must be provided no later than the date of the offer, or the first day of coverage, as applicable.

sBCs for automatic renewals

sBC must be provided no later than 30 days prior to the first day of the new plan or policy year.

special enrollment

sBC must be provided within seven days of requesting enrollment.

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FinalRegulations With respect to participants and beneficiaries enrolling during an annual enrollment period, the SBC rules are effective on the first day of the first annual enrollment period beginning on or after september 23, 2012. For all other participants and beneficiaries enrolling during an enrollment period other than annual enrollment (e.g., newly eligible individuals and special enrollees), the sBC rules are first effective with any enrollment occurring on or after the plan year that begins on or after september 23, 2012. The final regulations eliminate the requirement that an sBC be provided as a stand-alone document to the extent certain conditions are satisfied. Within seven (7) business days The final regulations state if there is any change to information required to be in the sBC that was provided upon application and before the first day of coverage, an updated SBC must be provided no later than the first day of coverage. The final regulations state that if renewal or reissuance is automatic, the sBC must be provided no later than 30 days prior to the first day of the new plan or policy year. however, with an insured plan coverage, if the policy, certificate or contract of insurance has not been issued or renewed before this 30-day period, the sBC must be provided as soon as practicable, but in no event later than seven business days after issuance of the policy, certificate, or contract of insurance, or receipt of written confirmation of intent to renew, whichever is earlier. The final regulations state that special enrollees must be provided an sBC no later than when an sPd is required to be provided under the timeframe set forth in erisa section 104(b)(1)(a), which is 90 days from enrollment.

Contents-premium information Coverage and services outside the united states

required

not required

required to be described in sBC

electronic disclosure

all plans subject to erisa and the Code must provide sBC electronically according to erisa safe harbor.

instead of summarizing coverage for items and services provided outside the united States, the final regulations indicate that a plan or issuer may provide an internet address (or similar contact information) for obtaining information about benefits and coverage provided outside the united states. Of course, the plan or insurer must still provide an SBC that summarizes benefits and coverage available within the united states. special, less burdensome rules apply to individuals that are eligible but not enrolled.

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

Footnotes see 77 Fed. reg. 8668 (Feb. 14, 2012) at www.gpo.gov/fdsys/pkg/Fr-2012-02-14/ pdf/2012-3228.pdf. see also our prior advisory at www.alston.com/employee_ benefits_SBC_regulations.

Phsa section 2715, as added by section 1001 of the aCa. this requirement is also incorporated into erisa (erisa section 715) and the internal revenue Code (section 9815) by reference.

see 76 Fed. reg. 52442 (aug. 22, 2011) at www.gpo.gov/fdsys/pkg/Fr-2011-08-22/ pdf/2011-21193.pdf.

Raymond B. Yates, M.D., P.C. Profit Sharing Plan v. Hendon, 541 U.S. 1, 32 EBC 1097 (2004) (citing dOl Opinion 99-04a).

see dOl information letter, Washington star/Washington-Baltimore newspaper guild to Munford Page hall, ii, Baker & McKenzie (February 9, 1985).

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siia ChairMan sPeaKs Alex Giordano

Breakfast with the Senator

ot many citizens of this great country have the chance to sit down for breakfast with a united states senator – but that was actually the experience of some siia members last month when they broke bread with senator Max Baucus right before his appearance at the 26th annual siia legislative/regulatory Conference in Washington, dC. since this was a private, offthe-record meeting for senator Baucus with some members of the self-insurance Political action Committee, details have not been made public. i’m sworn to secrecy on the breakfast menu, for instance, but i can tell you that eggs were involved. eric dove, the president of my company, elite underwriters, attended the breakfast and according to him senator Baucus was cordial and attentive to our concerns about the future of selfinsurance, especially as it relates to employer-sponsored self-insured benefit plans. the good senator from Montana just happens to know something about benefit plans in the context of federal healthcare reform. as chairman of the senate Finance Committee that has primary responsibility for reforming the healthcare system in the u.s., he is one of the nation’s most powerful figures on this issue.

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having access to such a powerful policy maker is one of the most important benefits of belonging to a politically savvy trade association such as SIIA. Of course, senator Baucus will follow the dictates of his conscience, but we know that we have had his ear, and that is our goal. last month’s conference in Washington was in several ways the most important in the quarter-century-plus one year history of the event. according to siia staff, our members had the greatest number of face-to-face meetings with their elected representatives on their annual “Walk on the hill.” it was also a blue ribbon conference in the composition of the program. in addition to senator Baucus, we were enlightened by the views of three pivotal Congressmen and other policy thought leaders from within and without the government. You will be able to read “sound bites” of conference speakers elsewhere in this issue, but i’ll take the opportunity to sketch some of their backgrounds: Rep. tim Walberg: a republican from the seventh district of Minnesota, rep. Walberg is a senior member of the powerful house health, employment, labor and Pensions (helP) Committee where he focuses on healthcare policy. he is at the center of discussions on possible changes to the federal healthcare reform law. In addition, SIIA members at the conference received top-level briefings from patrick Ward and Shamiah Kerney of the Government Accounting Office (gaO) which has published a report to Congress on risk retention groups with possible future implications on art policy at the federal and state level. Christine Ebner, researcher and analyst with the rand Corporation, summarized two recent rand reports on stop-loss insurance and self-insurance for small groups. Our luncheon speaker was david drucker of the political insider publication roll Call with his preview of the pivotal 2012 elections. in addition, legal analyst and journalist ted Goldman provided a fascinating advance view of the supreme Court’s review this spring of PPaCa’s constitutionality. and Elena lynett and Beth Baum provided insight into the Department of Labor’s Employee Benefits Security Administration workings. SIIA members left the conference feeling more confident in their ability to make sense of public policies affecting our industry. those who did not attend will remain less equipped to function in this dynamic environment. But for them there’s always next year’s conference. n that’s it for now,

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