Self-Insurer Aug 2015 by SIPC

August 2015

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Is There a

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ACA REVIVES

CONSIDERATION of Provider-owned Health Plans

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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

Editorial Staff PUBLISHING DIRECTOR Erica Massey SENIOR EDITOR Gretchen Grote CONTRIBUTING EDITOR Mike Ferguson DIRECTOR OF OPERATIONS Justin Miller

Is There a

Doctor

in the House?

ACA REVIVES

CONSIDERATION

August 2015

Volume 82

From the Bench New Jersey Federal Court Declines to Dismiss Action Against Brokers

INside the Beltway Taft-Hartley Plans Strengthen Support for SIPA

OUTside the Beltway SIIA Members are Effective Advocates in Many Ways, from Testimony, to Lobbying Resources, to ‘Pyramid’

Captive Reinsurers of Life Insurance to be Included in NAIC Accreditation

PPACA, HIPAA and Federal Health Benefit Mandates A Supremely Busy Week: The Supreme Court Issues Two Rulings that Impact Health Plans

of Provider-owned Health Plans Bruce Shutan

DIRECTOR OF ADVERTISING Shane Byars EDITORIAL ADVISORS Bruce Shutan Karrie Hyatt

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

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

Lynne Bolduc, Esq. Secretary

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Jon Jablon, Esq. and Kelly E. Dempsey, Esq.

30 36

Taking a Leap of Faith on Captives

Chronic Conditions are Costing Self-Insured Employers an Arm and a Leg

SIIA Endeavors The 2015 National Education Conference & Expo in Our Nation’s Capitol this Fall August 2015 | The Self-Insurer

Is There a

Doctor

in the House?

ACA REVIVES

CONSIDERATION of Provider-owned Health Plans

hould doctors stick to examinations or also try running health plan networks for self-funded employers who are willing to bet that their clinical expertise could deliver the kind of operational efficiencies that other care delivery models cannot offer? This decades-old question has been somewhat revived by health care reform and while some industry practitioners have gladly taken that leap of faith, a cautious backdrop remains. â&#x20AC;&#x153;The upside with providersponsored plans is you tend to get longer-term deals because the providers will trade guaranteed and predictable volume for a defined premium or a defined benefit,â&#x20AC;? notes Paul Keckley, managing director of the Navigant Center for Healthcare Research and Policy Analysis, which has studied this issue as it relates to health insurance exchanges.

Written by Bruce Shutan

DOCTOR IN THE HOUSE? | FEATURE “The downside,” he continues, “is that provider-sponsored plans tend to cost more unless they have north of a quarter million commercialequivalent lives,” at which point they become more comfortable with care management. “So you trade having some predictability and direct access to providers for a higher premium.”

did, it usually wouldn’t be better and utilization would be higher,” he says. “Managed care companies also were doing the utilization management and negotiating pricing.”

Taking the Plunge

delivery system tightly ties health plan and delivery strategies with its medical group to ensure that cost and quality measures are in alignment, notes Cathy K. Eddy, president of the Health Plan Alliance, whose 49 members are provider-sponsored and independent health plans.

Several well-known companies have embraced the provider-run This concept isn’t new and while model. Within the past two years, it has shown promise for employers, for example, Boeing Commercial expectations haven’t been met in Airplanes contracted directly with years past, providers at Providence Health & observes Peter Services and Swedish Health Services Kongstvedt, on behalf of about 27,000 employees But she says the size of self-funded M.D., a national in the Puget Sound area, while groups with provider-sponsored health authority on Intel Corp. inked a similar deal with plans has been going down. “It used to health care and Presbyterian Healthcare Services to be very large groups and then 200 was senior health serve 54,000 manufacturing employees sort of the threshold,” she reports. “We policy faculty and dependents in Rio Rancho, N.M. have seen some that are smaller than Both arrangements reflect growing member in the Featured Quick Report that and I think probably health care corporate frustration with “escalating Department reform has accelerated some of that.” premiums, spotty quality and poor of Health Provider-Owned Health Plans Smaller provider-owned plans with retail service,” according to a 2014 Administration and Policy at George Since passage of the Patient Protection and Affordable Care Act two priorities for health providers are populationself-funding are offered at companies article inthe Modern Healthcare. Mason University. He says health and volume to value. It’s allthe part of the triple aim: improving care experience, improving the health of populations, and reducing the per capita cost of health care. At the end of the day it means assuming more risk. that used to manage many different networks usually would include Keckley also cites key contracts One of the risks by hospitals and health is taking an equityby position in a health plan.plans in their HR department and whoever wasunder partconsideration of their physician thatsystems have been pursued Safeway Provider-owned plans are not new. Indeed, the AHA Annual Survey of Hospitals has monitored such arrangements then tried to simplify, Eddy adds. hospital organization, most of whom and 3M, as well as Walmart, which for nearly 30 years. Consequently, local plans and coverage were private physicians. he says is carving out its spine work Equity Interest in Health Plans were dropped in favor of a single and Lowes, which has an exclusive for “What ended up happening was The AHA questionnaire, sent to all AHA member and non-member hospitals, asks whether the hospital has an administrator. There’s now an apparent heart care with the Cleveland Clinic.Fee for equityhealth interestsystems in a Healthoften Maintenance Organization, Preferred Provider Organization, or an Indemnity the did not Service plan. The hospital indicates whether the health plan ownership is by the hospital alone; through its healthswing back among provider-owned Large employers will find value in provide discounts to the same level system; through its network; or through a joint venture with an insurer. Figure 1 shows little change in the numbernetworks of to markets with a heavy provider-owned plans in 2013 compared with 2003, with the exception of hospital equity in PPOs. these arrangements if an interest integrated that they gave to insurers, or if they concentration and an opportunity with private exchanges.

Provider‐Owned Health Plans: 2013 & 2003

900 800 700 600

500 400

System

“When you’re selecting as an individual or family the network that works for you, that can be narrower than what a company needs to have to offer broader choice for their employees,” she says.

Hospital

Eddy sees growing acceptance of narrow networks for greater cost 200 control, which has been driven in part 100 by public exchanges. “Employers used 0 to want to offer as broad a choice as HMO '13 HMO '03 PPO '13 PPO '03 Indemnity '13 Indemnity '03 possible, but the tradeoff is you may Figure of United States hospitals with an with equityan interest in HMO, PPOinorHMO, Indemnity service plans Figure1 1– –Number Number of United States hospitals equity interest PPO,feeorfor Indemnity feeeither for service plans not get the best pricing in doing that,” either through theitself hospital itselfor(Hospital) or throughwith a relationship a health system (System). Source: AHA through the hospital (Hospital) through a relationship a health care with system (System).care Source: AHA Annual Survey Annual Survey Database™ Fiscal 2013 and Fiscal 2003. Copyright © 2015 Health Forum LLC, an American Hospital she explains. Database™ Fiscal 2013 and Fiscal 2003. ©2015 Health Forum LLC, an American Hospital Association company. Association company. 300

August 2015 | The Self-Insurer

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prrovider–owne ed plans (see Figure 2). Ins surers, provid der-owned or otherwise, m must meet statte regulationss for each sttate in which their t plans op perate. One significant fina ancial requirem ment is settin ng aside reserrves for the he ealth plan. DOCTOR IN THE HOUSE? | FEATURE The regulatory y and financial demands off owning a hea alth plan mayy be easier to tackle throug gh health care e system afffiliation or a joint venture with w an insure er.

Catalyst for Change

Percenta P age of Provider‐‐Owned Plans Health care reform certainly has forced the issue. “Self-insured employers by Be ed‐size Gro oup (Inclu udes hospita ls with equity y interest in p plans directlyy through thee really are the catalyst for the kind of hosp pital or throu ugh a health c care system) health reform that focuses on better 50 0 health at a lower cost,” Keckley says, “and larger self-insured employers are 40 0 becoming very astute at knowing how 30 0 Large (>4 400) to look at clinical data and that doing more is not necessarily getting a better Medium (100‐399) 20 0 outcome. They’re using reference pricing, Small (<1 100) 10 0 narrow networks, loading up on new models of primary care that also include 0 mental health, prophylactic dentistry, HM MO PPO Inddemnity optometric care, nutrition and even, in Figure 2 – Percentage of United Stateshospitals anhequity in health st plans through the hospital or through a a the Fiigure 2 – Perc centage of Un nited States hhospitals withwith an equity takeeither in health plans either through some cases, spirituality.” Source AHA th hrough a healt th care caresystem, system m, based ed size group A DataViewer 2015. health based on bed on sizebe groups. Source AHAs.DataViewer™, February 2015. ™, February 2

hospital or

A 2014 Advisory Board Company S Summary whitepaper suggests that “the shared to cut out the middle man (i.e., insurance carriers or plan administrators), most leadership and vision inherent in The shift from volume to value and increaased focus onn assuming riisk for a popuulation is expeected to resullt in more of those attempts failed miserably “because you can’t cut out the middleman,” provider-sponsored health plans prroviders with an equity possition in healthh plans. To diffuse some oof the risk, thee increase in pprovider-owned plans Kongstvedt explains. “You replace theormiddleman andwith youanbetter may occur thro ough a relatio nship with the eneed healthtocare system, a joint-venture insurrer.be a allow for an enhanced capacity tom better middleman than you are replacing. It’s not so easy to do.” coordinate care and lower costs, M Methodology:: The AHA An nnual Survey of Hospitals is i sent to all h hospitals in th he United Stattes and Asso ociated A licensed and board-certified internist, Kongstvedt believes his fellow Areas regardle ess of AHA membership status. The datta in this repo ort represent a subset of th he insurance-rrelated two critical imperatives under theA physicians always adept a physician network unless there’s qu uestions on th he Surveyaren’t rep ported by hos spitalsatformanaging fisca al years 2003 3 and 2013. F For more infor rmation on thiis and Affordable Care Act.” otther hospital data, d including hospital spe ecific respons ses,such contact Health Foru m at 866-375 5-3633 strong physician leadership involved. As a partnership approach may makeor However, it was also noted that ah hadatainfo@ @healthforum m.com. the most sense. For example, he sees a reemergence of practice-management these plans have struggled to compete companies recruiting independent and IPAs run by physicians. Follow F thes se resource es to learnphysicians more: m with regional and national health “These days, most of them are associated with one or two payers,” he says. “In insurance carriers and despite the Plans Show P Vesely, V R. (Ju une 2014). Re esurgent Prov vider-owned P Promise. H&HN Magazine e. California, there’s a huge one called Hill Physicians Group that doesn’t contract promise for value-based purchasing, Insurers. without Morrison, M all the I.payers. (M May 2014). Risky R of Business Health Sysstems H H&HN Magazin ne. with It’s sort a hybrids: of an IPA and aBecome groupepractice there’s still considerable doubt about walls. They’ve been around for a while and they’re very experienced.” their long-term viability. Partlow cites two prominent health systems, also in California, that are adept Be that as it may, the idea is to steer players in the provider-owned health plan space: Western Health Advantage, a patients into hospitals and their affiliated very narrow network owned by Dignity Health and Sutter Health, which is in the medical groups or independent practice process of releasing a fully insured plan. associations (IPAs) at the expense

Feebruary 2015, Health Forum LLC, an Ameriican Hospital A Association co ompany

of local competitors – an application that has succeeded for small and medium-sized groups, according to Tom Partlow, CEO of onsite medical clinic provider Acorn Health Solutions and an advisor to telemedicine leader CirrusMD. He doubts large employers are all that eager to abandon one of the big PPO networks “in favor of a more limited provider-centric, provider-derived network.”

Replacing the Middleman While there was a spirited movement afoot nearly 20 years ago

In certain situations, he believes this delivery system can work for self-funded plans, though he’s more inclined to question whether or not PPOs can even exist with reference-based pricing is on the upswing.

“For the independent TPA and freethinking, innovative plan sponsor, dump your PPO network,” Partlow suggests. “It’s an absolute rip-off. Go to 100-andsome-odd percent of Medicare. Put that in your plan document and that’s a very disruptive product, but it’s absolutely working and it’s saving plans a lot of money.” One huge challenge for hospitals is to make a convincing enough argument that they will offer a comprehensive approach to wellness and disease management to keep employee out of their respective facilities. “Ultimately, they’re going to end up on a spreadsheet driven by some broker or consultant and have to show how they’re going to deliver more cost-effective care than the local Blue Cross or Blue Shield program that has a contract with your facility,” Partlow opines. Without better rates, the thinking is “it’s just not going to play out when the claims start flowing.” August 2015 | The Self-Insurer

DOCTOR IN THE HOUSE? | FEATURE Most provider-sponsored plans are fairly small relative to large fully insured or ASO contracts, serving anywhere from 25,000 to 150,000 lives, explains Keckley, but their smaller scale could pay off down the road. He believes they offer “a more consistent level of care and if you build in the right safety and quality measures, you may actually save some money in the long term.”

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

Provider-sponsored plans typically feature more primary care services and visits, as well as more preventive diagnostics, which Keckley says “should pay off in earlier detection and avoidance of some big-ticket items long-term.” But since health outcomes are often dictated by contractual agreements, he cautions that it could be difficult to reap the benefits of nutrition and exercise in the form of fewer heart attacks and other costly episodes or the onset of chronic conditions on a two-year contract when it could take five to seven years for improved outcomes to take hold. His advice to self-insured employers is to think about pursuing longer-term arrangements that look beyond the low-hanging fruit. “If you’ve got a workforce that tends to be middle age and older, the turnover tends to be lower,” Keckley observes. “And if it’s in an industry where you don’t compete for talent as much, then typically the employer’s got a lot of leverage there and they can say, ‘I want a really good three-year deal. I want to lock in a certain number of my population at these outcome levels and I’ll go at risk with you.’ It’s more complicated that just simply saying, ‘I’ve got 5,000 employees, 12,500 commercial-equivalent lives and I’m going to sign an agreement for one year with you.’ That basically is the way the insurance industry operates.” ■

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Self-Insurance Institute of America, Inc.

35th Annual National

2015

CONFERENCE & EXP0 MARRIOTT MARQUIS // WASHINGTON, DC // OCTOBER 18-20, 2015

MARRIOTT MARQUIS // WASHINGTON, DC // OCTOBER 18-20, 2015 August 2015 | The Self-Insurer

Bench From the

New Jersey Federal Court Declines to Dismiss Action Against Brokers

Johnson & Towers, Inc., et al. v. Corporate Synergies Group, LLC, et al, No. 14-5528, in the United States District Court for the District of New Jersey, June 23, 2015

Written by Thomas A. Croft, Esq. 10

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his case has an unusual fact pattern. The bulk of the Court’s opinion deals with relatively esoteric aspects of ERISA law outside the typical purview of these case summaries, which deal with issues more focused on the law applicable to medical stop loss policies. My summary, therefore, will be somewhat truncated, although the alleged facts of the case will be of interest to many readers. The plaintiff group, Johnson & Towers, Inc, (“J&T”) maintained a self-funded ERISA Plan, governed by a “Master Plan Document” (“the Plan”). In 2003, the group decided to amend the Plan to add an amendment to provide coverage for surviving spouses of deceased J&T shareholders until aged 65 or remarriage, whichever came first (“the Widowed Spouse Amendment”). The amendment was duly executed and

added to the Plan. In 2005, shareholder Walter Johnson, Jr. died, leaving behind his widow, Patricia Johnson. The various Defendants in the case include the insurance broker involved with advising J&T about benefits matters, one Suzanne Bruce and her respective employers. In addition to J&T, certain fiduciaries of the Plan were also named as Plaintiffs.

Defendants allege that J&T redrafted the Plan in 2007, without the Widowed Spouse Amendment. Plaintiffs allege that, when they changed stop loss carriers in 2008, they instructed Bruce to ensure that the Plan and stop loss policy matched the coverage under J&T’s arrangements with the prior carrier, including the Widowed Spouse provision. In 2013, six years after the change in carriers (and the alleged re-drafting of the Plan without the Widowed Spouse provision), Ms. Johnson was hospitalized and incurred medical expenses in excess of $380,000. J&T alleges to have paid $125,000 – the specific deductible under the stop loss policy – in respect of her claims and sued Bruce and her employers for the balance under ERISA and for professional malpractice. Plaintiffs also sought a declaratory judgment from the Court that the carrier since 2008 – Standard Security Life Insurance Company of New York (“SSLICNY) – owed the claim in the event Bruce and the other defendants did not. (This is an example of “pleading in the alternative,” which is permitted in the federal courts. That is, a claim that Defendant “A” is liable, or, alternatively, Defendant “B” is liable is permissible, even though both could not be jointly. In other words, if the Bruce Defendants did nothing wrong, then SSLICNY should have paid the claim unless it had other defenses).

SSLICNY denied the claim on the grounds that there was no basis in the Plan it was provided at underwriting time for any Widowed Spouse benefit and that Ms. Johnson’s coverage lapsed when her spouse passed away (Mr. Johnson was the employee, Ms. Johnson the dependent spouse). As noted at the outset, much of the Court’s opinion is devoted to somewhat arcane principles of ERISA and the law of standing, ripeness and related issues. Essentially, the Bruce Defendants claimed that they were not ERISA fiduciaries, that the Plan had suffered no damages because it had not paid the allegedly unpaid stop loss claim. [Why this itself not an issue in terms of payment within the contract period is unclear from the limited facts available in the Court’s opinion]. The Court did conclude, however, that Plaintiffs had alleged that the Johnson claim, if eligible under the stop loss contract, would have increased its aggregate benefit under the stop loss policy.1 As for whether the Bruce Defendants were fiduciaries, the Court stated in a footnote, in relevant part:

“[M]any courts have found... brokers to be fiduciaries under ERISA where... the brokers play central roles in determining what benefits the plans will provide or where a plan de facto delegates its administration to an insurance agent or broker. However, where insurance providers or brokers merely provide insurance or brokerage services to the plan, courts have found brokers not to be fiduciaries. The Court’s inquiry is to locate where on the spectrum between mere provision of insurance and de facto total control of plan decisions and assets the alleged fiduciary’s actions lie. Here, the amended complaint contains allegations concerning the role of CSG, KTB and Bruce in decisions about stop-loss insurance on behalf of J&T... . The Court does not address the sufficiency of such allegations as the parties have not had an opportunity to brief the issue, but notes that an insurance broker may be liable as a fiduciary under ERISA under appropriate factual circumstances.” [Citations and quotations omitted]. August 2015 | The Self-Insurer

Thus, the determination of the Bruce Defendants’ statuses as ERISA fiduciaries was left by the Court for another day. The motion to dismiss filed by the Bruce Defendants was denied, subject to later proceedings. So what really happened here? The Court’s opinion is long on the law and quite brief on the facts. Likewise, the parties’ contentions in their pleadings are simply allegations and have not been subjected to the requirement of any proof at this stage of the proceedings. The author’s pure and rank speculation (and that is all it is) is that somehow the Plan sent to SSLICNY at underwriting time did not include any provision for the Widowed Spouse benefit. Why and how this happened will have to await further proceedings in the case, as will the issue of whether the Bruce Defendants met the tests for status as fiduciaries to the Plan (see quote above). ■

Tom Croft is a magna cum laude graduate of Duke University (1976) and an honors graduate of Duke University School of Law (1979), where he earned membership in the Order of the Coif, reserved for graduates in the top 10% of their class. He returned to Duke Law in 1980 as Lecturer and Assistant Dean (1980-1982) and as Senior Lecturer and Associate Dean for Administration (19821984). He also taught at the University of Arkansas-Little Rock law school, where he was an Associate Professor of Law (199091), earning teacher of the year honors. Until 2004, when he specialized in medical stop loss litigation and consulting, Tom practiced general commercial litigation. He was a partner in the litigation section of a major Houston ﬁrm in the late 1980s and moved to the Atlanta area in 1991. He has been honored as a Georgia “Super-Lawyer” by Atlanta Magazine for the last eight years running and holds an AV® Preeminent

rating from Martindale-Hubble®. Tom currently consults extensively on medical stop loss claims and related issues, as well as with respect to HMO Excess Reinsurance, Medical Excess of Loss Reinsurance and Provider Excess Loss Insurance. He maintains an extensive website analyzing more than one hundred cases and containing more than ﬁfty articles published in the Self-Insurer Magazine over many years. See www.stoplosslaw.com. He regularly represents and negotiates on behalf of stop loss carriers, MGUs, Brokers, TPAs and Employer Groups informally, as well as in litigated and arbitrated proceedings and has mediated as an advocate in many stop-loss related mediations. Tom can be reached at tac@xsloss.com. Resources Interestingly, Plaintiffs also alleged that SSLICNY had counted certain of Ms. Johnson’s claims in the aggregate beneﬁt calculation in prior years, and that the group had paid stop loss premium for her.

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INSIDE

the Beltway Written by Dave Kirby

Taft-Hartley Plans Strengthen Support for SIPA Continuing a series of articles on SIIA federal government issues and actions.

illions of people in effect have joined to support the SIIA-prompted SelfInsurance Protection Act (SIPA) now being considered by Congress. These supporters are members of self-insured health plans sponsored jointly by unions and employers under the Taft-Hartley Act. Ullico (Union Labor Life Insurance Company), the Washington-based SIIA member company that covers union members in all 50 states, provides stoploss insurance for many of these plans. As previously reported, SIPA was introduced earlier during this session of Congress to amend the definition of “health insurance coverage” to clarify that stop-loss insurance is not health insurance and cannot be regulated or taxed as such. This would help shield self-insured plans from possible weakening or loss of vital stop-loss insurance due to regulatory action by the federal government or the states and would reinforce earlier federal and state court decisions that stop-loss is not health insurance; it does not pay claims but reimburses plan sponsors for losses beyond a defined level. Ullico, which is owned by unions and union pension plans and includes 14

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a virtual “who’s who” of U.S. labor leaders among its board members, has become an active advocate for SIPA. Ullico’s President and CEO Edward M. Smith and Director of Government Relations Jack Reid have joined with SIIA Senior Director of Government Relations Ryan Work in visits to Congressional members and committee staffs. “Being able to represent these millions of union members and their families helps present SIPA as a bipartisan bill that serves a broad spectrum of Americans of both parties,” Work said. “With this broad support, we continue to look for opportunities to visit with key Congressional and committee staff members on both sides of the aisle.” “Our message to members of Congress is that these health plans serving many millions rely on stop-loss as the way to manage their risk,” Smith said. “When the Affordable Care Act took caps off claims, self-funded plans had to rely more than ever on stop-loss insurance to take care of big claims.” Smith points out that self-insured plans with stop-loss have continued to flourish while deductible amounts on commercial health insurance in the ACA age have risen by several factors. “Plans that just a few years ago had deductible levels of $500 for individuals

and $2,000 for families now are at the $5,000 and $10,000 levels,” he said. “How are working people supposed to pay out of their pockets at those levels? “We don’t think Congress understands how self-insured health plans work,” Smith continued. “Rather than undermining self-insurance, Congress should be heralding its success as the most efficient kind of health insurance. Thank God for SIIA leading the effort to educate Congress.” The Ullico executives are quick to refute lawmakers’ resistance to selfinsurance as possibly compromising the viability of state health insurance exchanges established under the ACA. Ullico contends that scare stories about self-insured plans covering healthy populations while leaving “bad” health risks for the exchanges are baseless. A statement by Ullico notes, “There is no data to substantiate these arguments and efforts to make it more difficult for employers to self-insure by restricting the availability of stop-loss insurance restricts choice and could lead to more employers discontinuing coverage.” SIIA’s support of SIPA in Congress is ongoing and all members who wish for their opinions to be heard are welcome to join the campaign. For background materials and tactical advice, contact Ryan Work in the Washington office, (800) 851-7789 or rwork@siia.org. ■

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OUTSIDE

the Beltway Written by Dave Kirby

SIIA Members are Effective Advocates in Many Ways, from Testimony, to Lobbying Resources, to ‘Pyramid’ Continuing the series of articles on SIIA government relations activities among the states.

uring the summer lull in legislation among the states, SIIA government relations staff took time to review some lessons learned while defending self-insurance interests during the ﬁrst half of the year. While legislative results were mixed, the increased level of volunteer advocacy by SIIA members was gratifying.

“SIIA members have stepped up their participation in various ways, including direct personal influence with high-level government officials, multiplying their efforts through outreach to their own business and professional networks and even sharing lobbyists to gain the best influence in specific jurisdictions,” said Adam Brackemyre, director of state relations in SIIA’s Washington, DC, office. A few SIIA members joined in a virtual panel discussion on the subject of their motivation for involvement in political issues: Robert P. Madden, benefit consultant of broker Lawley Service Inc. of Buffalo, NY, offered a succinct reason he takes time for political advocacy: “It’s important to provide a living for my family.” SIIA’s efforts to preserve stop-loss insurance availability for New York groups of 51-100 that would have been prohibited in 2016 were successful in gaining a two-year extension for existing plans while the state studies the issue. Madden reached out to several layers of contacts to gain support for 16

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continuing stop-loss coverage for the affected plans. “We contacted our clients to express their support for SIIA’s bill and urged them to relay the message to their own clients,” he said. “One of our clients is a major accounting firm that I believe relayed the urgency of the issues on to their many clients.” Madden agreed that the multi-level communications effort was a kind of pyramid scheme. “In a good way,” he added. “Our clients have been particularly responsive. In our programs for them, they know that the less state constraint, the better.” Catherine Bresler, counsel and vice president of government relations for The Trustmark Companies, relies on her national business and professional networks to leverage up interest and support in issues affecting their own businesses or those of their clients. From her base in Chicago she initiated strategically valuable contacts that served SIIA’s interests in the far-flung states of Maryland and New Mexico.

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“Currently, SIIA is the only self-insurance trade association representing stop-loss carriers specific to the interests of employee health benefit plans,” is how she explains her continuing involvement in SIIA legislative and regulatory issues.” In Maryland, her network contacts were the basis of communications to brokers and their clients to oppose legislation that would have hampered stop-loss programs with inordinately high attachment points. That bill was scaled back to a compromise level and existing stop-loss plans may be maintained at current levels. A state study of stop-loss insurance that will include SIIA members’ input is due for completion next year. In New Mexico, Catherine was instrumental in enlisting an influential local business leader who helped head off a regulation that would have required self-insured plans to meet all ACA coverage mandates. “Government relations is at best a matter of teamwork,” Bresler says. “Nobody has to act alone. It’s invaluable to have local employers testifying and meeting with government figures and to utilize local lobbyists.”

Philip Healy, president of the Automobile Wholesalers Association of New England, was influential in helping to end a New Hampshire legislative threat that would have raised stop-loss insurance attachment points. His letter to the chairman of the pivotal New Hampshire House committee aided the favorable result of the bill’s withdrawal. Healy, a member of the SIIA PAC governing committee, believes the organization could be even more effective in state capitals as well as Washington if it could bring a greater number of self-insuring employers into grassroots advocacy. “Actual employers of representatives’ constituencies will

have far greater effect than our industry’s service providers,” he said. “It’s fine to have our current members testify on bills and issues but it would be even more effective to bring the benefits managers of soft drink companies and auto manufacturers.” Brooks Goodison, president of The Diversified Group TPA, became involved in political advocacy when Connecticut first required state licensing for TPAs. “Then we were on their radar screens,” he says. At present, Brooks says the state has followed a confusing strategy of looking to TPAs as a tax revenue source while also treating them as a threat to the ACA exchange. “At the end of the day the most frightening thing is that legislators generally don’t have an idea what we do or how we serve the business community,” he says. “If no one is there to express the contrary view they just go ahead with free rein to establish unfair and damaging laws.” SIIA shared in working with Diversified’s lobbying firm on the New York stop-loss bill, benefiting from its local position and knowledge of the issue. “SIIA has been huge in stepping up its government relations activity on the state level,” Goodison notes, adding

that the more people who get involved in grassroots advocacy, the better. “We can only hope that examples by the activists stimulate people to do their part in their own backyards.” Jay Ritchie, senior vice president of HCC Life, a medical stop-loss insurance company, has the benefit of the long view of SIIA government relations. He has been active for more than a decade including former leadership of the Government Relations Committee and the SIIA PAC and now sits on the Board of Directors. He believes the increased participation and effectiveness of members’ political advocacy is a reflection of SIIA’s momentum in the political arena. “The SIIA brand has gained in significance and people want to be part of that,” he said. “Our members are saying ‘we want the organization to lead and we’ll help,’ rather than asking what SIIA can do for them. “A big part of that momentum is SIIA’s increased credibility that members’ money will be put to good use. That radiates from the staff ’s continual gains in knowledge and effectiveness – it’s a real example of maturity of an advocacy organization.” ■ August 2015 | The Self-Insurer

Captive Reinsurers of Life Insurance to be Included in NAIC Accreditation

fter working towards it for more than a year, in May the Financial Regulation Standards and Accreditation (F) Committee of the National Association of Insurance Commissioners (NAIC) approved a revised version of Part A: Laws and Regulations Accreditation Preamble. The insurers that would now be part of the NAIC accreditation process are captive or special purpose vehicle (SPV) reinsurance for life insurance policies. Also included in the changes are variable annuities and certain long-term care insurance. The process began in late 2013 and after a year and a half of meetings, changes, comment periods and a complete revision to the Part A preamble, the (F) Committee unanimously adopted the proposed changes during a conference call at the NAIC’s 2015 Financial Summit held in late May. The date when the new Part A preamble will go into effect will be discussed at the NAIC’s Summer Meeting in August. At that time, the committee will also consider grandfathering provisions for transactions already in place.

Background

Written by Karrie Hyatt 20

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The captives affected by the proposed change are captive reinsurance companies that fall under the NAIC’s Valuation of Life Insurance Policies Model Regulation (known as XXX) and the Application of the Valuation of Life Insurance

Policies Model Regulation (known as AXXX) – these regulations apply specifically to life insurance insurers. By changing the accreditation standards to include captives in which XXX applies, those captives would be subject to accreditation by the NAIC and subject to NAIC capitalization requirements in order to do business.

In recent years captive reinsurers of life insurance products have come under intense scrutiny from a number of sources. The subsector has grown exponentially since regulations XXX and AXXX were adopted by the NAIC, in 2000 and 2003 respectively, in an effort to stem strategies being used by some insurers to reduce statutory reserves for certain level premium term life insurance policies. Some life insurance products have statutory reserve requirements that are many times higher than the reserves most actuaries would find necessary. The discrepancy between product pricing and product reserves are so out of sync that life insurance companies must either raise the price or discontinue the product. Captive reinsurers have been an effective alternative for life insurance companies. In fact, they have been so successful, they have grown from an $11 billion industry in 2002 to $364 billion in 2012 – companies moved 25 cents of every dollar insured to captives and SPVs in 2012 compared to two cents per dollar insured in 2002, according to the report “Shadow Insurance” by Ralph S.J. Koijen and Motohiro Yogo and published by the Federal Reserve Bank of Minneapolis last year. It is this explosion in growth that drives the criticism of these transactions. Comparisons have been made to the financial collapse in 2008 when derivatives and securitized assets without sufficient collateral backing were the cause. Also provoking fear is

the captive mechanism itself. Captives are the least understood of insurance vehicles and because captives are regulated only by their domicile state they are often disparaged by critics who call for more transparency. The NAIC’s (F) Committee began looking to include these types of captive reinsurers in the accreditation standards in late 2013 at the request of Rhode Island commissioner Joseph Torti. Captives usually are not subject to the NAIC’s accreditation standards since they operate only in their domicile state. However, captive reinsurers insuring life insurance products sometimes will operate in states other than just their domicile. The (F) Committee’s intention was to include XXX/AXXX captive reinsurers in the accreditation standards in order to make their transactions and regulation more transparent.

2014 Suggestion Changes In March 2014, NAIC staff submitted for the (F) Committee’s April meeting a draft proposal to change the definition of multi-state reinsurer. The draft expressly removes the language referring to insurers operating in only one state as being excluded and adds a long paragraph relating to the proposed definition of a multistate reinsurer, including the line: “This includes but is not limited to captive insurers, special purpose vehicles and other entities assuming business.” The committee voted to expedite the comment period from the standard one year to 45 days. During the comment period, the Committee received a robust 34 responses. Thirty of those responses thoroughly opposed the proposed changes and only four were in favor. The primary argument against the proposed change was that the language used to describe multi-state reinsurers

was too broad and could sweep up many other types of captives into the accreditation process. Other arguments were that the concern about captive reinsurers was unwarranted, that captives are already well regulated, that the change would contradict work being done by other NAIC groups and that the change would send captives to offshore domiciles. In light of the vociferous response against the change, at the 2014 Summer National meeting the (F) Committee decided to table the issue.

2015 Changes At the NAIC’s Fall 2014 National Meeting in November, the (F) Committee once again brought up the issue of captive and SPV reinsurers. During the meeting John M. Huff, director of the Missouri Department of Insurance, Financial Institutions and Professional Registration and chair of the (F) Committee, noted that “The accreditation preambles have been gradually added upon and revised over the course of the years to the extent that makes it difficult to simply add a section on multi-state reinsurers that both adequately and transparently addresses the proposed revisions.” The committee charged NAIC staff with preparing new and revised accreditation preambles for both Part A and Part B. In late February 2015, a memo was released by NAIC staff that included a revised preamble to Part A. While staff was charged with revising both preambles, they decided to hold off on Part B revisions until Part A had been approved in order that changes to each were consistent. Interested parties were invited to comment until March 20, 2015 and comments were presented at the NAIC Spring 2015 National meeting on March 28. August 2015 | The Self-Insurer

There were 51 responses – five in favor of the changes and 46 opposed. Most of the comment letters were supportive of including XXX/AXXX captive reinsurers in the accreditation standards, but were concerned that the language was again too broad and could unintentionally include other captives. Especially in the first flood of comment letters, interested parties felt that the revised language did include other captives. This prompted a joint memo, on March 17, from Director Huff and Superintendent Torti, Chair of the Financial Condition (E) Committee clarifying that the intention of the changes were only meant to affect life insurance captive reinsurers. After a lengthy discussion at the Spring meeting, the committee decided to have NAIC staff continue working on the wording of the preamble. The following month, at the NAIC Financial Summit, (F) Committee members met to discuss the additional changes made to the preamble. After suggestions offered by interested parties and regulators, the new Part A preamble was unanimously approved.

The Revised Part A Preamble The revised preamble released for comment in February split the original text into three sections to detail different types of insurers. In the previous iteration insurance companies were referred to “traditional” or “captive.” The revised preamble now distinguishes between life/health and property/casualty insurers that are not RRG captives, captive reinsurers and other types of insurance companies. Risk retention groups are still discussed in a separate section. The changes recommended at the Spring National meeting were incorporated into a second draft which was released for public comment at the end of April.

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Comments received during that period and suggestions that were made during the conference call on May 26 were incorporated into the most recent draft. The approved draft more clearly states the type of companies to which the accreditation standards will apply. The definition of a multi-state reinsurance captive, the item which incited serious industry protest last year, now falls under the section defining captive reinsurers. It states, “The following Part A standards apply to the regulation of a state’s domestic insurers licensed and/or organized under its captive or special purpose vehicle statutes or any other similar statutory construct (captive insurer) that reinsure business covering risks residing in at least two states, but only with respect to the following lines of business.... ” The section then lists XXX/AXXX policies, variable annuities valued under Actuarial Guideline

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XLIII – CARVM for Variable Annuities (AG 43) and long term care insurance valued under the Health Insurance Reserves Model Regulation (Model #10). These last two items are both still pending due to work being done on other NAIC committees. Under the section defining Life/ Health and Property/Casualty Insurers, the section clearly states that it applies to captives “only if the insurer is a multi-state insurer.” This is followed by a note which maintains that “This section does not apply to a state’s domestic insurers licensed and/or organized under its captive or special purpose vehicle statutes or any other similar statutory construct.” With these changes the fears that captive supporters had that the vague language could unintentionally sweep up many types of captives has been addressed. While some in the industry would prefer that no captive come under the auspices of accreditation, for now accreditation standards have been limited to only one type of captive that accounts for a small portion of captive business.

What’s Next? Since the (F) Committee approved the revised Part A preamble, they will discuss dates for when the changes will take effect and grandfathering clauses for existing transactions at the next national meeting, NAIC Summer 2015 National Meeting to be held in mid-August in Chicago. Once the (F) Committee approves a time frame for the adoption of the revised preamble, it will go to Executive (EX) Committee and Plenary for final approval. ■ Karrie Hyatt is a freelance writer who has been involved in the captive industry for more than ten years. More information about her work can be found at: www.karriehyatt.com. August 2015 | The Self-Insurer

PPACA, HIPAA and Federal Health BeneďŹ t Mandates:

Practical

Q&A

A Supremely Busy Week: The Supreme Court Issues Two Rulings that Impact Health Plans

n June 25, 2015, the Supreme Court issued its holding in the long awaited, much anticipated King v. Burwell case. In a 6-3 decision written by Chief Justice Roberts, the Supreme Court held in King that premium subsidies (also often referred to as tax credits, we

use premium subsidies here) are available for coverage issued in a federally run Exchange. Then, just one day later, the Supreme Court issued its holding in the Obergefell v. Hodges. In a 5-4 decision, the Supreme Court held in Obergefell that States must issue marriage licenses to same sex couples and, in addition, States must recognize same sex marriages legally entered into in other states. While both decisions have significant political and social ramifications, they each

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also could have a significant impact on group health plan administration. The health coverage related impact of each is discussed below.

King At issue in King was whether premium subsidies are available for coverage purchased in an Exchange maintained by the Federal government (either solely or in partnership with a State). Internal Revenue Code Section 36B specifically indicates that a premium subsidy is available for coverage purchased in “an Exchange established by a State”. At the time the Court of Appeals decided King, 34 states had chosen not to establish an Exchange on their own, but elected to have the federal government run their exchanges. The IRS interpreted “Exchange established by a State” to mean any Exchange established under the Affordable Care Act, including Exchanges actually established by a State AND the Federal government where the State chose not to establish an Exchange. Had the Supreme Court held that premium subsidies were not available to individuals in states with federally run exchanges, many Americans would have lost the right to subsidized coverage. In addition, for many, the unsubsidized cost of coverage would have become unaffordable – causing them to be exempt from the individual mandate. Such a decision could also have had an effect on the stability of the individual market in the states with federal Exchanges. More importantly for employers, had the Supreme Court held that subsidies were not available in States with federally run exchanges, employees in those states who qualified as full-time employees (as defined by the employer shared responsibility rules) would no longer trigger an excise tax under the

employer shared responsibility rules (the so-called pay or play mandate under IRC 4980H) if the employer failed to offer them qualifying coverage. No 4980H penalty would apply where employees could not have received a premium subsidy or tax credit in an Exchange. If you are an employer and you had employees only in states with a federally run exchange, a ruling by the Supreme Court that subsidies were not available in those States would have effectively eliminated the employer shared responsibility rule. The Supreme Court did NOT hold that premium subsidies or tax credits are available only in Exchanges established by a State. So, what does this mean for employers? It means that it is business as usual and compliance efforts under 4980H and its related ACA reporting requirements should proceed in earnest. A final note on this issue, the Supreme Court decided King based on their reading of the statutory provisions, not on an examination of whether the IRS regulation is a valid exercise of regulatory authority. This means that the decision restricts the ability of the IRS to make future changes to the regulation to limit the availability of premium subsidies to State Exchanges. Any such changes would appear to require a change in the statute.

Obergefell At issue in Obergefell is whether States violate the 14th amendment of the Constitution by defining marriage as a union between a man and a woman – effectively denying same sex couples the ability to marry in that State and to take advantage of the legal rights attendant to marriage. Following this holding, all States must issue marriage certificates to same sex couples and they must recognize

same sex marriages entered into legally in other States. So what does this mean for employers who sponsor health plans – especially employers who sponsor health plans that do NOT currently provide coverage to same sex spouses? Well, that remains somewhat unclear. The Obergefell case applies only to States. It has no direct impact on private citizens not otherwise acting in union with a governmental entity. In fact, other than the prohibition against slavery, the Constitution does not directly regulate a private individual’s or entity’s actions. So refusing to offer health coverage to same sex spouses does not result in a violation of the Constitution. BUT, the holding in Obergefell will undoubtedly indirectly impact health plans that don’t offer coverage to same sex spouses in one of the following ways: • Although state anti-discrimination claims have historically been preempted by ERISA, employers relying on ERISA preemption in such cases post Obergefell may see a different result. ERISA preemption has been eroding anyway and where courts were on the fence on finding in favor of “plans” on the basis of ERISA preemption now have an additional legal “principle” (impeding a right that the Supreme Court has determined is fundamental) on which to find against ERISA preemption. - Note that the analysis may be different for state and local governmental plans, both because they are statebased and because ERISA pre-emption does not apply. Such plans may have a more difficult time defending failure to extend health benefits to same-sex spouses if the plan covers spouses in general. August 2015 | The Self-Insurer

- Special consideration should also be given in the case of other plans, such as church plans, which are not subject to ERISA and, therefore, do not benefit from ERISA pre-emption. • Don’t be surprised (in fact, you should expect) to see an expansion in the scope of protected classes under Title VII to include sexual orientation. We have already seen a similar expansion in an executive order issued by President Obama that prohibits discrimination by employers engaged in contracts with the Federal government against employees based on sexual orientation with respect to privileges of employment. At the end of the day, employers who currently sponsor health plans that do not offer coverage to same sex spouses should consult with legal counsel to assess whether that continues to be a prudent approach after Obergefell. ■ The Affordable Care Act (ACA), the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and other federal health beneﬁt mandates (e.g., the Mental Health Parity Act, the Newborns and Mothers Health Protection Act and the Women’s Health and Cancer Rights Act) dramatically impact the administration of self-insured health plans. This monthly column provides practical answers to administration questions and current guidance on ACA, HIPAA and other federal beneﬁt mandates.

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

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& VAGUE

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RIGHTS

Responsibilities

o matter your opinion on Obergefell v. Hodges – the recent Supreme Court case holding that interpreted the fourteenth amendment as granting same-sex couples the right to marry – it is undeniably an important occurrence in our country’s culture. While this holding will have profound impacts on many lives, its effects are not quite limited to simply the act of marriage. For instance, areas of the law that will be changed include bankruptcy law, Medicare entitlement, wills and inheritances, taxes – and health plans.

Written by Jon Jablon, Esq. and Kelly E. Dempsey, Esq. THE PHIA GROUP

Many facets of the legal changes come in the form of new or amended rights for those most directly affected by this new common law; many other changes are more relevant to other entitles and employer-sponsored

FUNDAMENTAL RIGHTS | FEATURE healthcare is a great example of that. We often suggest that selffunding, versus offering a fully-insured policy, carries with it the freedom to structure a benefit plan however the plan sponsor wants. While that is generally the case, this new bit of common law – which will soon be enacted into law by states that have not yet so enacted – places a restriction upon a plan sponsor and to some extent limits the sponsor’s ability to fully customize its benefit plan.

Plan sponsors have historically been permitted to exclude benefits for same-sex spouses, in states that had not, at the time, recognized marriages between same-sex couples. The practical result of Obergefell v. Hodges is not directly or immediately realized; the Supreme Court interprets existing law, rather than creates new law from scratch (which is actually the primary rationale behind each dissenting opinion in the decision) and the interpretation was that the Fourteenth Amendment to the United States Constitution applies to prohibit a state from denying the legality or validity of a same-sex marriage. Given this broad change, public-sector plan sponsors and private-sector plan sponsors need to analyze the impact of the ruling as it applies to their plans. The Supreme Court’s decision was issued on June 26th and within just the first three days (which, by the way, were a Friday, Saturday and Sunday), our consulting division received over a dozen questions from third party administrators regarding how this decision will affect their groups and their groups’ prior decisions to treat same-sex spouses as ineligible. These questions can be grouped into three and a half categories. Some questions from thirdparty administrators are regarding a general notion of what will the effect

be. The answer to this question also depends on whether the plan sponsor is in the private or public sector. Public-sector plan sponsors will be prohibited from drawing an eligibility distinction between same-sex spouses and opposite-sex spouses, while private-sector plan sponsors will not be so prohibited, but may still face allegations of sex discrimination under Title VII of the Civil Rights Act of 1964. FMLA applies to employees caring for, among certain other individuals, their spouses. Under previous guidance in the form of Fact Sheet #28F, issued by the Wage and Hour Division of the Department of Labor (issued after Windsor but before Technical Release 2013-04), the definition of “spouse” as used for the purpose of the Family and Medical Leave Act (FMLA) defers to the state’s definition of the term in order to define who is classified as a valid spouse. In other words, this definition referred to the state of residence rather than the state of celebration. If the employee resided in a state that did at the time consider “spouse” to include same-sex spouses, then the employer was required to offer FMLA coverage to the employee to care for the same-sex spouse. If the employee resided in a state that did not consider “spouse” to include same-sex spouses, then the employer was not required to offer FMLA coverage in conjunction with caring for the same-sex spouse. In February 2015, the Department of Labor issued new guidance which focused on the state of celebration rather than the state of domicile – so that a marriage license lawfully issued in any state in the country would be sufficient for FMLA to apply to a spouse, whether same- or opposite-sex. Through Technical Release 2013-04, the United States Department of Labor, in response to United States v. Windsor – perhaps not coincidentally decided exactly two years prior to Obergefell – adopted “a rule that recognizes marriages that are valid in the state in which they were celebrated.” “Celebrated,” in this context, refers to the state of issuance of the marriage. In other words, if Massachusetts permitted and recognizes same-sex marriage, then benefit plans within Massachusetts were required to have no more restrictive a definition of “spouse” than Massachusetts law, which defined marriage as not between a man and a woman but by two consenting adults. Obergefell, in effect, extends the effects of Technical Release 2013-04 to all states. That distinction, the Department reasoned, minimized the administrative burden for health plans under ERISA and ensured uniformity. It is a distinction that will no longer be necessary, though, given Obergefell; this case effectively renders every state a state that recognizes same-sex marriage as legal and valid and considers a “spouse” to be of either sex. Other third-party administrators want to know what effect ERISA pre-emption has on this new law. That’s never a simple question to answer; pre-emption takes many forms, involves certain pre-made multi-factor “tests,” is very fact-intensive and generally involves the examination of decades of legal precedent. Given the intense effect of the Supreme Court’s decision – that same-sex marriage is as fundamental a right as opposite-sex marriage – pre-emption becomes more unclear than many other situations. On the one hand, a fundamental right – and a protected class – under the United States Constitution is not something that federal courts will take lightly; it would be comparable to excluding eligibility for a certain sex, race, or nationality. On the other hand, “ERISA preempts state laws that (1) mandate employee benefit structures or their administration; (2) provide alternate enforcement mechanisms; or (3) bind employers or plan administrators August 2015 | The Self-Insurer

FUNDAMENTAL RIGHTS | FEATURE to particular choices or preclude uniform administrative practice, thereby functioning as a regulation of an ERISA plan itself.” Penny/Ohlmann/Nieman, Inc. (PONI) v. Miami Valley Pension Corp., 399 F.3d 692, 698 (6th Cir. 2005), Internal quotations omitted. In other words, such state laws as will be enacted as a result of Obergefell likely fall within at least one of the three categories of preempted state laws. Another question we’ve been asked by the numerous third-party administrators anxious for some clarity is regarding when this new law will become truly effective. The answer to that is an unknown. For instance, the Department of Labor did not provide guidance on United States v. Windsor for some twelve weeks (the decision came out on June 26, 2013 and Technical Release 2013-04 released on September 18, 2013). So, if Windsor is any indication, we can expect guidance

mid-June – but the Department of Labor is often unpredictable and we may receive guidance in a few weeks, or many months. In the meantime, though, we are advising third-party administrators and health plans to begin complying with the law in good faith, which simply entails deleting any provision within the Plan Document that excludes same-sex spouses from eligibility. Obergefell can be viewed almost as an extension of Windsor in this regard; Windsor required that publicsector benefit plans define “spouse” as in the state of celebration of the marriage and Obergefell extends that to all states, since the Fourteenth Amendment now requires all states to legalize and recognize same-sex marriage. Private-sector plan sponsors are at this time not required to abide by the same obligation – but given this new interpretation of the Fourteenth

Amendment, affording different treatment to same-sex marriage as to opposite-sex marriage may be viewed as discriminatory under the Civil Rights Act of 1964, even though not enforceable by the state on a privatesector plan sponsor. Lest we forget, of course, the Hobby Lobby case regarding contraceptive coverage and potential religious challenges to the laws created or modified by Obergefell. Hobby Lobby prevailed in its argument that the Religious Freedom Restoration Act prohibited the government from imposing restrictions upon privatesector entities if the restrictions violated the entity’s religious freedom. It is a safe bet that similar arguments will be raised regarding the implications of the Obergefell decision. We were asked one outlier question (hence the three and a half categories of questions) regarding

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© 2015 Meritain Health, Inc. For self-funded accounts, benefits coverage is offered by your employer, with administrative services only provided by Meritain Health, a subsidiary of Aetna Life Insurance Company (Aetna). 2014285

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what effect will this law have on stop-loss? And the answer to that is... have you ever seen a stop-loss policy that has its own definition of “spouse?” If you’re a self-funded group and you’ve contracted with a stop-loss partner that refuses to mirror the Plan Document’s most basic definitions, you might want to look for some new quotes, because you’re in trouble. ■

Jon Jablon, Esq. joined The Phia Group’s team in 2013. Jon received his Juris Doctor from New York Law School and is admitted to the bars of New York and Massachusetts. He is well-versed in the ins and outs of ERISA, stop-loss policies, PPO agreements, administrative services agreements and, of course, health plans. Jon has become an integral part of The Phia Group’s legal team, providing various consulting services to clients as well as serving as a part of its in-house legal counsel. He works on a large variety of projects for The Phia Group’s clients, including providing advisory opinions, consultative advice and contract review.

Kelly E. Dempsey, Esq. joined The Phia Group’s team in early 2014. She is one of The Phia Group’s consulting attorneys, specializing in plan document drafting and review, as well as a myriad of compliance matters, notably including those related to the Affordable Care Act. Kelly is admitted to the Bar of the State of Ohio and the United States District Court, Northern District of Ohio. Kelly earned her Juris Doctorate from Cleveland-Marshall College of Law and earned her Bachelor of Science degree in Psychology and Business from Muskingum University (formerly Muskingum College), graduating magna cum laude. Kelly’s former industry experience extends to having worked for a TPA and an insurance carrier, which has given her experience with balance billing and other provider disputes, as well as the issues that TPAs face on a daily basis. Kelly brings a unique perspective to The Phia Group and is a valuable asset to its team of consultants.

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Taking a Leap of Faith on Captives Editor’s Note: This is the second of a three-part monthly series leading up to SIIA’s National Conference in October that is geared toward educating insurance brokers and advisers on alternative risk transfers involving captive insurance solutions. The aim is to address any concerns and misperceptions, as well as better prepare them to answer client inquiries about these arrangements, particularly in small and middle markets.

ith more than 25 years of traditional brokerage experience under his belt, Danny Plante has guided clients with unusual contingencies in their business that, upon closer examination, weren’t entirely a surprise.

Many are in the marine and trucking industries, with heavy casualty exposures that aren’t appropriate to assume within a group captive solution. Those same companies, however, are also confronted with all manner of consequential loss that might accompany such severity and are not adequately addressed through the traditional market. So they end up being excellent candidates for inclusion in a captive.

Written by Bruce Shutan 36

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An EVP at Towne Insurance, Plante says it is naïve to presume that emergent risks will be adequately addressed through traditional means “when the insurance industry really hasn’t caught up with the pricing parameters and the coverage forms that create a reasonable level of value.” It’s a message clearly aimed at fellow brokers, many of whom may be apprehensive about placing clients in an alternative risk transfer arrangement they view as a threat to their compensation – at least in the short run.

Risk management is a centerpiece of P&C group captives given that most of the premium is set aside to pay claims and if there’s a significant enough reduction in claims costs each year, then members of the captive will be able to put more dollars in their pocket. They also shield employers from hard-and-soft traditional market cycle swings, explains Chad Kunkel, who runs the P&C group captive practice at Artex Risk Solutions. As such, he says brokers have a better opportunity to create lasting relationships with their clients, who become long-term owners of their insurance rather than annual buyers. While Kunkle cautions that group captives “aren’t necessarily always the cheapest deal every year,” he believes they’re the most prudent long-term solution for financially strong middle-market companies. He says the idea of a captive might not sit well with brokers who’d rather troll for the best possible short-term deal in 20 different markets year after year. P&C group captives offer “an additional layer of risk management that can be tremendously helpful,” explains Art Grutt Jr., an insurance agent and EVP, managing partner with Cambridge Insurance. “And so, it’s really just an extension of what we already to day-to-day. It’s just another tool in our arsenal and that’s our job: to make sure our clients are properly mitigating their risks and then taking advantage of different financial vehicles, of which a captive is one of many.” Plante describes group captives as a particularly good fit for agencies with larger books of smaller business or cases where similarities allow for observations to be made about areas that are ripe for assumptions of risk. “When you’re able to align some of those financial observations with the right shared culture, there can be some good ways to create value for a community like that,” he says. “But my greater interest would be in single-parent captives or captives that are working more singularly for the ends and needs of a particular insured – maybe one that has good financial capacity and some operational complexity and the appropriate appetite for risk.”

A related area of exploration for the broker community involves enterprise captives, which he says provide benchmarks for what constitutes best practices in risk management that transcend routine P&C coverages.

“It’s really the audit community’s attempt to quantify and create a framework for best practices and operational risk management,” Plante adds. “While aspects of operational risk management do not necessarily lend themselves to insurance, there are many elements within that framework that are very well suited for assuming risk in a captive.” Customizing Client Needs It all comes down to a client’s needs. “If you have a customer that each year is running on really a tight margin and there’s not a lot of profit or excess cash, they might not be a great captive fit,” according to Grutt. He says ideal candidates will

have “a consistently profitable business and is looking for some additional planning opportunities for both risk transfer, maybe some asset protection, maybe some tax savings. Those would be the three components of why you would look at a captive.” Since not all group captives are the same, Kunkle suggests that brokers focus on what’s most important to their clients. For example, while greater control might be a priority for some, others might prefer to be part of a mega-captive group with 300 insureds, which he says is almost akin to buying a mutual insurance company policy. The latter approach shows that there could be tremendous strength in numbers. “Homogeneous captives tend to bring like-minded individuals together from construction, transportation, or warehousing” to reduce risk and improve losses over time, according to Kunkle. There may be trends in the experience of larger companies that suggest the need for a contingency funding mechanism that isn’t available in the current market, which is where captives come into play. “Once you start to think in those terms, there’s far more susceptibility to those types of losses than most traditional brokers think,” Plante opines.

Taking the Long View The trouble is changing the mindset of employee benefit advisers who are concerned about the effect captives could have on their bottom line relative to other business insurance solutions. Plante sees “an enormous communication gap and missed opportunity in the industry in terms of recognizing the value proposition captive practice presents, because ultimately it is not at odds with the traditional brokerage model, but rather, complements a commission-based structure.” August 2015 | The Self-Insurer

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Brokers who fear losing commissions if they steer clients to captives should realize that these arrangements create such substantial value “they probably have earned fee income and a lifetime “bye on competition” by being such a valuable advocate, Plante observes. Grutt acknowledges that captives involve an initial sacrifice or tradeoff for fellow agents, but such a move could pay off down the road in a number of ways. While a few percentage points may be lost along the way to increasing retention levels on traditional policies, he cautions advisers against adopting a myopic view about reduced commissions.

“There’s definitely concern that some of these newer ideas may jeopardize your existing book of business,” he says, “but I think you have to look in a mirror and say, ‘What is the alternative? If I ignore these new trends, what if somebody else brings them to my client? What does that mean?’ And that alternative might be worse for you.” Grutt believes that keeping employer clients happy will not only retain their business, but also could lead to word-of-mouth referrals for advisers whose “reputation in the marketplace might trump any small lost revenue from one particular strategy. It just kind of gets back to what’s best for your client.” Other key aspects of these arrangements that Kunkle says brokers

will need to examine on behalf of their clientele is whether it would make the most sense to establish an on-shore captive in the U.S. or offshore captive in the Cayman Islands, Bermuda, Angola or other far-flung parts of the world known for being hospitable to these arrangements from a taxation standpoint. But there also could be misconceptions. For example, he notes that offshore captives have to pay federal excise taxes if they’re part of the premium and income must be reported back to shareholders through a Form 5471. He also mentions that “there are no real tax filings that need to be done for a 953(d) election because the captive would file a U.S. tax return.” Captives are admittedly esoteric and complex, as well as counterintuitive to think about. Forming an insurance company for a limited application is out of reach for a lot of companies; they’re certainly not for everyone, according to Plante. “But in the right circumstance for the appropriately capitalized company with the right appetite for risk with the right operational complexity, it’s just a tremendous and powerful tool,” he adds. ■ Bruce Shutan is a Los Angeles freelance writer who has closely covered the employee beneﬁts industry for more than 25 years.

SIIA NATIONAL EDUCATIONAL CONFERENCE on P&C GROUP CAPTIVES P&C group captive programs represent a growing market segment with significant business opportunities for employee benefit brokers and advisers, according to the description of an educational workshop at SIIA’s 35th Annual National Educational Conference & Expo on October 18-20, in Washington, D.C. The session, “What Brokers Need to Know About Property and Casualty Group Captive Programs,” is one of three sessions on captives tailored to the broker community. An entire educational track on captives will feature eight of the conference’s 40 sessions at the world’s largest event focused exclusively on the self-insurance/alternative risk transfer marketplace. Speakers will include Peter Gernold, SVP of First Niagara Captive Group, Lynne Bailey, area President of central California for Arthur J. Gallagher & Co. and Jerry Ouimet, a broker with Cobb Strecker Dunphy & Zimmerman.

August 2015 | The Self-Insurer

Chronic Conditions are Costing Self-Insured Employers an Arm and a Leg

elf-insured employers know what they are doing. Financially speaking, it makes a lot of sense to self-insure; it typically improves cash ﬂow, saves money on interest and taxes and helps keep employees happy with smaller deductibles and monthly fees. But, what if there isn’t any savings?

Outside of catastrophes and steadily increasing health care costs, the biggest culprits behind reduced cost savings are chronic conditions. In fact, care for the health plan’s chronic condition population can double or even triple a self-insured company’s already-high annual increase of 8-10%. So what can self-insured companies do to combat these chronic costs? A lot more than they know.

The Scoop: Chronic Conditions

Written by Rich Williams 40

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There is a reason most self-insured companies are worried about their chronic condition population – it is by far the most costly group of health plan members. Chronic diseases, like heart disease and diabetes, are the leading cause of death and disability and afflict about half of the American population.1 Those with chronic conditions use more than 75% of hospital stays, office visits, homehealthcare and prescription drugs. So it’s no surprise that the cost of chronic conditions is high, at two-thirds of all healthcare spending.2

However, not all chronic conditions pose the same threat. Obesity is a chronic condition that doesn’t pose an immediate danger, yet still has a huge impact on health and costs in the long run. Though Mississippi and West Virginia have the highest rates of obesity, the prevalence of obesity does not fall below 20% in any state.3 On the flip side, cancer is much more serious and costly as it can be a reoccurring condition and frequently incurable. There are drugs that have been developed that can help significantly, but they are costly to both the patient and the insurance plan. The total annual cost of cancer is upwards of $157 billion.4

Managing the Risk The good – and somewhat surprising – news to many people is that all of this risk can be managed. Here are a few examples of risks and behaviors related to chronic conditions that can be analyzed and managed.

Problem: Over-prescribing • Often, patients with chronic conditions see several doctors who prescribe multiple medications to treat the same problem. Each doctor can prescribe a medication without knowing that the patient has been prescribed several other medications for their condition, which could cause a dangerous interaction or reduce the effectiveness of the drug. In addition to the potential threat to the patient’s health, this habit increases the already high healthcare costs of drugs.

Solution: Rx Usage Analysis • Implementing a data analytics system that can analyze the medications a member is prescribed will help to avoid these pitfalls and reduce costs. Once the data analytics system is implemented, employers can view categories such as high Rx utilization claimants, top drugs, etc., which allows them to then target members on an individual level. Most importantly, the system should be able to point out when there are mild to severe interactions between drugs. If this feature is not available, look elsewhere for your Rx data analysis needs.

Problem: Over-use of the Emergency Room • Emergency care costs can be staggering. But when plan members repeatedly visit the ER for a preventable crisis caused by a chronic condition, the cost to both the patient and the employer can be overwhelming.

Solution: Identify, Then Educate • Use a data analytics system to identify plan members who are frequenting the ER for preventable conditions. Examples of conditions that could become emergent if not properly treated include asthma, COPD, congestive heart failure, dehydration, diabetes, hypertension, UTI and pneumonia.5 Once the members who need assistance managing a condition have been identified, add them to the company care plan for further management. More on care plans later. The catch is that traditional analysis of health insurance costs and utilization overlooks the individual’s behavior and we’ve found that’s often where the risks

– and the savings – lie. Once the high-risk members are known, a plan of action can be created to assist not only those members with chronic conditions, but also those who are at risk of developing these conditions.

A Care Plan that Saves The key to managing a chronic condition population is to have a dynamic care plan in place. The most effective plan will engage the entire chronic condition population in a mission to improve health and reduce care gaps. Every self-insured company’s care plan should address the following questions: • Which chronic conditions should be prioritized and why? • How can the company coordinate interventions for patients with multiple conditions and barriers to care? • Which patient goals are most critical? • How can patients be effectively educated? • Perhaps most importantly, how will results be measured? The resulting care plan should be built on evidence-based metrics that are informed by medical literature and best-practice recommendations. Health plan guidelines should incorporate condition-specific content and be developed from evidencebased medicine and peer reviewed clinical studies. Guidelines should also be reviewed and updated at appropriate intervals and address prevalent, high-cost conditions and programs that offer significant quality and cost savings. Focusing on the question of how to measure results of the care plan, those who analyze the health plan data should remember to measure all results beyond the obvious savings in total cost August 2015 | The Self-Insurer

from one year to the next. Often, this requires utilizing third-party software with powerful analysis capabilities to discover not only the savings accrued in every medical and pharmaceutical category, but the increased health of the entire population. The most effective and accurate data analytics “risk engine” is one that provides the ability to customize a care plan according to individualized reports which include behavior and non-clinical attributes – yielding a riskscore for admissions and readmissions with greater accuracy and certainty, regardless of company size. Done right, it will be apparent that the care plan is resulting in fewer preventable admissions to the ER and hospital; fewer new members diagnosed with chronic conditions; and cost savings. The engine should also track all results to customize and make changes to the care plan as needed. Diseases

and chronic conditions come in many forms, all of them damaging to health and the bottom line and must be approached, managed and treated as uniquely as the person carrying the disease or condition. It is also important to have a customizable care plan – one that is responsive to specific needs and measured according to risk priority and health scores. For example, at Company A, there is a large population of obese patients, so every standard obesity care gap metric should be utilized in their care plan. If the health plan is found to perform poorly in one metric, the care plan resources can be assigned to alleviate the problem. For example, providing free weight management counseling could also be made part of the care plan. At Company B the population is mostly female, so perhaps the focus is more on care gap metrics involving

checks for cervical/breast cancer. Mailings can be sent out informing plan members of when and how often to get these checks.

An Example: Managing the Risk of Type 2 Diabetes Today, more than 27 million Americans live with Type 2 diabetes. While this chronic disease can be controlled by achieving and maintaining a safe A1C level, still two-thirds of this population is unable to do so.6 You might be wondering: Why is Type 2 diabetes is so prevalent and detrimental to a health plan despite the many wellness programs, data analytics and technologies in health education available today? For starters, employees with Type 2 diabetes can miss work for a variety of reasons, including doctor visits, recuperation for diabetes-related surgery and medical

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complications. The key is learning each person’s unique condition so that the care plan and coverage are viewing health-related missed work through the “Type 2 diabetes” lens. Perhaps, then, the question that should be asked is not “why is this person missing work,” but “who is the person, what is their medical history and is it chronic, when did it happen and where?” More broadly, if missed work and decreased productivity is the symptom, the question might be: “Where is decreased productivity stemming from and what evidencebased solution can be implemented to lessen the cost?” Decreased productivity is often an overlooked cost, but its impact is significant, as are the many attributes correlated to behavior...especially as it relates to chronic conditions.

In the case of Type 2 diabetes, with the total cost of care close to $245 billion, companies cannot afford to invest in costly analytics engines that lack crucial pieces of the big picture.

When the Risk is Due to Lack of Treatment A good care plan will also need to target those who have chronic conditions that are worsening due to lack of treatment. This can be a frustrating problem, as there are effective treatments for many chronic conditions, yet some members fail to take advantage of these treatments and as a result end up in the ER or with new medical conditions. It is important to look into the reason these members do not treat their disease. If it is financial, it may make sense for the care plan to reduce costs of high-impact drugs and procedures. For example, many self-insured companies have implemented programs that provide free drugs for all diabetics. The members receive the drugs they need to stay healthy and the company saves on ER visits and secondary medical costs. However, if the reason members don’t treat their disease is due to lack of awareness of their options, then an awareness campaign should be front and center in the care plan. Email blasts, mailings and other company-wide communications should be crafted to educate members on how best to use the health plan benefits to remain healthy. Another option

Without the tools in place to ask these questions, let alone answer

them, the fight to improve care plan efficiency is fought with one hand tied behind the back. If the risk engine software cannot incorporate non-clinical or behavioral factors that allow for a customizable analysis, important information will fall through the cracks and a savings opportunity will be lost.

August 2015 | The Self-Insurer

is employing on/off-site nurses as part of a team that reaches out to members directly to guide them towards appropriate services.

The Takeaway Chronic conditions will be present in virtually all self-insured health plans, but they can be managed. Working with members on both the individual and group level is the surest way to see results. A care plan will be able to do this if the full support of the company leadership is behind it and all health plan members are both informed and committed. Done right, the care plan will be able to focus on the most high-risk health plan members, while still improving the health of the entire population and the companyâ&#x20AC;&#x2122;s bottom line. This is the win-win scenario that so many acknowledge exists, but so few achieve. Make 2015 the year your company and your employees, win. â&#x2013; Rich Williams is the Marketing Leader for Poindexter, a risk-management predictive and analytical software that is helping self-insured companies save millions and can be found online at www.mypoindexter.com. Rich can be reached at richwilliams@mypoindexter.com Resources www.cdc.gov/chronicdisease/overview/index.htm

www.rwjf.org/en/library/research/2010/01/chronic-care.html

www.cdc.gov/obesity/data/prevalence-maps.html

http://costprojections.cancer.gov

CMS and Agency for Healthcare Research and Quality (AHRQ) Ambulatory Care Sensitive Conditions guidelines

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August 2015 | The Self-Insurer

SIIA Endeavors The 2015 National Education Conference & Expo in Our Nation’s Capitol this Fall

he SIIA National Education Conference & Expo is the world’s largest event focused exclusively on the self-insurance/alternative risk transfer marketplace, typically attracting more than 1,700 attendees from throughout the United States and from a growing number of countries around the world. The program features more than 40 educational sessions designed to help employers and their business partners identify and maximize the value of self-insurance solutions. If self-insurance is important to you in any way, this is simply a must-attend event, so join us at the Marriott Marquis in Washington, DC October 18th-20th. This year’s keynote session “An Insider’s Look at Politics, the White House and the Future of America” will be presented by Chris Wallace, Anchor of Fox News Sunday. Few journalists in the nation’s capital know the American political system like Chris Wallace, a three-time Emmy award-winning anchor for FOX News. Wallace will handicap the mid-term congressional and gubernatorial elections, what it might mean for the remainder of President Obama’s second term and provide insight and a historian’s perspective into the race for the White House in 2016. He provides audiences 48

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with behind-the-scenes anecdotes about Washington and the role of the media in the national dialogue. As a high profile television anchor with millions of viewers, his media access and beltway insider status has propelled him to be a favorite for speaking audiences across the country. There are more than 40 educational sessions, broken into 4 educational tracks; General Sessions, Alternative Risk Transfer, Heath Care and Workers’ Compensation. Session details and speakers can be found at www.siia.org. This top notch educational program will be supplemented with quality networking events, including an exhibit hall with more than 150 companies showcasing a wide variety of innovative products and services designed specifically for self-insured entities. If you are searching for a self-insurance business partner, they will be waiting for you at this event. For more information on this can’t miss event, including hotel information, sessions, exposure opportunities, registration and more, please visit www.siia.org. See you in Washington! ■

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

2015 Board of Directors CHAIRMAN OF THE BOARD* Donald K. Drelich Chairman & CEO D.W. Van Dyke & Co. Wilton, CT CHAIRMAN ELECT* Steven J. Link Executive Vice President Midwest Employers Casualty Co. Chesterﬁeld, MO PRESIDENT* Mike Ferguson SIIA Simpsonville, SC TREASURER & CORPORATE SECRETARY* Ronald K. Dewsnup President & General Manager Allegiance Beneﬁt Plan Management, Inc. Missoula, MT

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

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

Committee Chairs ART COMMITTEE Jeffrey K. Simpson Attorney Gordon, Fournaris & Mammarella, PA Wilmington, DE GOVERNMENT RELATIONS COMMITTEE Jerry Castelloe Castelloe Partners, LLC Charlotte, NC

SIIA New Members Regular Members Company Name/ Voting Representative

Cathy Nenninger President & CEO New World Medical Network Westhampton Beach, NY Brian Sharp CEO/President Prime Health Services Brentwood, TN Kathy Major Executive Director & VP UCHealth Plan Administrators Lone Tree, CO Michael Bodack President York International Agency Harrison, NY

Employee Members

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

Bruce Checkla VP Controller The Connell Company Berkeley Heights, NJ

INTERNATIONAL COMMITTEE Robert Repke President Global Medical Conexions, Inc. Novato, CA

Afﬁliate Members

WORKERS’ COMP COMMITTEE Stu Thompson Fund Manager The Builders Group Eagan, MN *Also serves as Director

Todd Owen, CFA CEO Windsor Strategy Solutions LLC Princeton Junction, NJ

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WHAT MAKES A LEADER IN HEALTHCARE COST MANAGEMENT?

PRODUCT PERFORMANCE PARTNERSHIP

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