Self-Insurer Jan 2014 by SIPC

January 2014

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Uphill Battle Seen

for ACA Impact on Self-Insured

Taft-Hartley Plans

January 2014

The Self-Insurer

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JANUARY 2014 | Volume 63

January 2014 The Self-Insurer (ISSN 10913815) is published monthly by Self-Insurers’ Publishing Corp. (SIPC), Postmaster: Send address changes to The Self-Insurer P.O. Box 1237 Simpsonville, SC 29681

FEATURES

ARTICLES 8

From the Bench: Are “Unlawfully Employed” Aliens “Covered Persons” Under a Stop Loss Policy?

Editorial Staff PUBLISHING DIRECTOR James A. Kinder MANAGING EDITOR Erica Massey

SENIOR EDITOR Gretchen Grote

Uphill Battle Seen for ACA Impact on Self-Insured Taft-Hartley Plans

ART Gallery: 2014: When ACA and ART Square Off

PPACA, HIPAA and Federal Health Benefit Mandates: Impact of Supreme Court Same Sex Marriage Ruling on Health Benefits: Part II

Urgent Care Centers Offer Value in Benefit Structure for Self-Insured Employers

by Bruce Shutan CONTRIBUTING EDITOR Mike Ferguson DIRECTOR OF OPERATIONS Justin Miller

by David Boucher

DIRECTOR OF ADVERTISING Shane Byars

Editorial and Advertising Office P.O. 1237, Simpsonville, SC 29681 (888) 394-5688 2014 Self-Insurers’ Publishing Corp. Officers James A. Kinder, CEO/Chairman Erica M. Massey, President Lynne Bolduc, Esq. Secretary

The Rebirth of the PPO by Corte B. Iarossi

Self-Insurance & Comprehensive Maternity Management Reduces the Rate of Premature Delivery and C-Section’s for Multi-State Bank Company

INDUSTRY LEADERSHIP 36

SIIA President’s Message

by Michael J. O’Connor, Barbara M. Janes and Thomas D. Garasky

The Self-Insurer | January 2014 3

Uphill Battle Seen

for ACA Impact on Self-Insured

Taft-Hartley Plans by Bruce Shutan

January 2014

The Self-Insurer

hen President Obama apologized for promises made about keeping existing health insurance without warning the American public about substandard coverage, perhaps no one felt more wounded than certain segments of self-insured Taft-Hartley plan participants.

design changes needed involve lifting coverage caps and covering children up to age 26.

Their angst has generated strange bedfellows: organized labor and conservative Republicans taking turns slamming the Affordable Care Act (ACA) and public exchanges or calling for the repeal of Obamacare, which has become a pejorative moniker among critics.

Tom Holsman, CEO of Associated General Contractors of California (AGCC), is concerned about the ACA’s impact on indemnity plans and their viability for the nearly 600 contractors and specialty subcontractor member companies he represents across the state.

But equally telling is a level of confusion among many policymakers. They mistakenly assume that “selfinsurance is in the exclusive realm of the private employer marketplace,” says Self-Insurance Institute of America President and CEO Mike Ferguson, when, in fact, it’s a health plan funding approach also used by a large number of Taft-Hartley plans and many publicsector organizations.

Anticipated changes in the AGCC indemnity plan for 2014 include raising some annual deductibles, eliminating preexisting conditions, of course, and extending coverage to adult children – all of which are expected to make it less appealing relative to PPOs and HMOs. “After that,” he says, “it becomes a little less clear, and as a result, there’s more skepticism and fear than there is knowledge and confidence.”

Reports from the trenches Ken Boyd, International Vice President of the United Food and Commercial Workers (UFCW), reports that retail-grocery operations will be affected more than, say, the union’s meat packing and processing members with full-time positions because of all the variable hours those employees work. “I see employers on the retail side basically trying to keep everybody under 30 hours a week so they don’t have to provide health care coverage,” he observes, fearing the trend’s impact on the next collective-bargaining cycle. Since the UFCW offers a comprehensive health care package to its members that meet essential health benefit requirements under the ACA, Boyd says the only real meaningful plan

He says some rank-and-file members are concerned about their hours being scaled back to a point where they no longer can keep the plan they very much appreciate, which includes medical, dental, prescriptions, eyeglasses, life insurance and disability coverage.

One possible long-term solution Holsman suggests would be “to take the indemnity plans that are currently offered and pattern them after exchanges,” offering similar programs that charge a higher deductible “so there’s a larger selffunding that goes on.”

Stop-loss backlash? Ferguson predicts “there’s a reasonable chance” that somewhere down the line the U.S. Departments of Labor, Health and Human Services and Treasury will issue a joint statement that could be a game changer for selfinsured Taft-Hartley plans. The potential suggestion by the Administration would be that they aren’t really self-insured because they’re transferring much of the risk to a stoploss carrier and they’re also substandard

because they are not subject to the essential health benefits rule. The effort could be seen as in keeping with monitoring the small-group health care marketplace to determine trends that could either enhance or inhibit ACA implementation. “Our concern is that the regulators will take a creative interpretation of the definition of health insurance coverage and say, ‘well, stop-loss really should be included in this definition,’ ” Ferguson explains. SIIA has introduced legislation to prevent this from happening. There’s a growing concern among all self-insured plan sponsors that “the federal government will want to regulate stop-loss insurance in a way that would make it more difficult to obtain,” according to Ferguson. Such intentions come on the heels of recent restrictions at the state level, particularly in California, that prevent stop-loss carriers from selling policies with attachment points below certain levels aimed at discouraging small and midsize employers to self-insure their group medical risks. One motivation is a worry that self-insurance will have an adverse impact on public health insurance exchanges. But for now, stop-loss coverage appears to be safe for collectively bargained plans. “In the short term, the ACA is encouraging all Taft-Hartley funds to buy stop loss, so we’re seeing an increase in proposals here for 2014, and it’s actually related to the unlimited annual maximum coverage for all covered members,” reports Dan Wolak, president of Ullico, a major writer of stop-loss insurance for self-insured Taft-Hartley plans.

Reinsurance fee assessment Asked about the proposed exemption of certain self-insured plans from the ACA’s temporary reinsurance fee in 2015 and 2016, Boyd believes self-insured Taft-Hartley plans “shouldn’t have to pay the reinsurance fee

The Self-Insurer

January 2014

because that’s going to insurance companies for taking everybody else. We already provide it. We’re paying that price. Why should we pay for coverage for a Blue Cross, Blue Shield, Aetna, United Healthcare, whoever it may be, so they can take some people in? We take care of family coverage. We’ve done all of those things and a majority of the self-insured employers have done all those things. We don’t have preexisting illnesses. “This is just a program pretty much designed by the health insurance companies to make sure that they make a profit,” he continues. “We don’t make a profit. We’re not-for-profit. Taft-Hartley, at the end of the day, we pay out what we pay in. We don’t pay shareholders. We don’t pay stockholders. We don’t pay anybody else. We set our rates based upon what we need each year, and we go down that road and that bargain is part of our employee’s rates of pay, and that becomes an issue, some of the stuff.” The reinsurance program, however, “is critical to assuring greater stability in the marketplace as the new insurance reforms are implemented and new people enter the system,” counters Clare Krusing, a spokeswoman for America’s Health Insurance Plans. “All stakeholders have a shared interest in maintaining a stable and wellfunctioning individual insurance market,” she explains. “The reinsurance program

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January 2014

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will mitigate some premium increases for individuals and families purchasing coverage on their own. It will make it easier for employees not eligible for employer-sponsored coverage, such as part-time and seasonal workers, to obtain health care coverage.” Ferguson says the federal government is leaning toward exempting from the reinsurance tax only entities that are both self-insured and self-administered, which may apply to many Taft-Hartley plans but very few private-sector single-employer plans. After his interview with The Self-Insurer, Boyd was heading to Washington, D.C., for more lobbying on behalf of his constituents to preserve Taft-Hartley plans and avoid placing people on the tax rolls by steering them to subsidies through public health insurance exchanges. He’s not alone. The Taft-Hartley HealthWORKS coalition has met with representatives from the U.S. Department of Labor, members of Congress and White House staff. Among their requests: that small employer tax credits be extended to those that contribute to multiemployer plans and that these businesses be permanently deemed to have met the employer shared responsibility requirement to offer health care benefits. Despite the difficulties labor unions have faced under the ACA, Ferguson observes that the Obama Administration is still friendlier to TaftHartley plans than private employers. For example, annual lifetime coverage limits will be phased out for these plans. “The private employer community doesn’t have that luxury,” he believes. “The Administration has been skeptical of private employer self-insurance in the small group market” n Bruce Shutan is a Los Angeles freelance writer who has closely covered the employee benefits industry for 26 years.

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The Self-Insurer

January 2014

Bench From the

by Thomas A. Croft, Esq.

Are “Unlawfully Employed” Aliens “Covered Persons” Under a Stop Loss Policy? (Bay Area Roofers Health & Welfare Trust, et al. v. Sun Life Assurance Co. of Canada, No. 3:13-cv-04192, in the United States District Court for the Northern District of California, December 2013).

his is a case of first impression in the stop loss arena to my knowledge. No substantive orders have been entered by the Court yet (the case was just filed in September, with a preliminary motions hearing set for December 18) but the parties’ filings to date paint an interesting picture, and pose some novel issues. At issue is a roughly $410,000 stop loss claim for medical expenses paid by the Plan with respect to prematurely born twins. The Trust is a TaftHartley trust created to provide health care benefits for employees and their dependents covered by certain collective bargaining agreements in the roofing industry in the San Francisco Bay area. The Trust established a self-funded, multiemployer health and welfare Plan for this purpose. The Trust has apparently maintained stop loss coverage through Sun Life of Canada (“Sun Life”) for several years. The stop loss policy at issue was effective August 1, 2011 and contained a $150,000 specific deductible. The Plan submitted the $410,000 claim (in excess of the spec.) to Sun Life in November 2011, which Sun Life denied. A copy of a lengthy appeal denial letter from Sun Life dated December 21, 2012 in the public record discloses that Sun Life initially attempted to verify the

January 2014

The Self-Insurer

social security number given by the roofing company employee and father of the twins to his employer when he was hired through Accurint®, a service of Lexis-Nexis® used by certain insurers and others. Sun Life determined through Accurint® that the social security number provided by the plan participant was not his, but instead belonged to someone else. During the course of the appeal process of the claim denial, Sun Life requested and received a consent form signed by the plan participant authorizing the Social Security Administration to release certain information about him. The plan participant used the same social security number on the consent form

as he had used to obtain employment and enroll for coverage under the Plan. The Social Security Administration confirmed that the number used by the plan participant did not belong to him. In its appeal denial letter, Sun Life wrote: “The only reasonable conclusion to draw from the fact that [the plan participant] used a SSN that does not belong to him is because he is not authorized to work in the United States, and resorted to using a false SSN for purposes of obtaining employment.” The Trust’s filings to date do not specifically allege that the plan participant was, in fact, lawfully employed in the United States; rather, the Trust appears to contend that he was as an “employee” of the roofing company, and was therefore eligible under the terms of the Plan and the stop loss policy, regardless of his immigration status. Apparently, there is no specific requirement in the Plan Document that an “employee” be lawfully employed, and nothing in the stop loss contract specifically imposes such a requirement either. In its filings, the Trust has asserted that, under the Plan, it has complete discretionary authority to make eligibility determinations, and that Sun Life has no right to substitute its judgment on that score. In response, Sun Life has pointed to language in the stop loss contract stating that “For the purpose of determining Eligible Expenses under the Policy, We have the right to determine whether an Eligible Expense was paid by you in accordance with the terms of your Plan.” Though I do not think it will (or should) matter in this case, I note a very unusual feature of the Sun Life stop loss policy: it does not incorporate the Plan document as a part of the stop loss contract, but instead merely references it throughout the policy.

Indeed, the “entire contract” clause in the stop loss policy omits any mention of the Plan. Thus, the usual war between the discretionary language of the Plan document and the stop loss policy should not be present in this case. (In case you’re wondering how excluding the Plan document from the “entire contract” can be done without subjecting the carrier to midstream amendments to the Plan document increasing its liability, the Sun Life policy accomplishes this by defining the “Plan” as the plan document, but stating that no changes to the plan document made subsequent to the effective date are binding on the carrier unless approved in writing). In any event, assuming Sun Life’s contractual rights to “second guess” the eligibility determination of the Plan in this instance, the fundamental question is still posed: Must otherwise eligible employees be lawfully employed to be considered eligible under a Plan, and thus be considered “Covered Persons” under a stop loss contract, where there is no such requirement set forth in either the Plan Document or the stop loss policy? Sun Life, in its appeal denial letter, argues that the Immigration Reform and Control Act of 1986 (“IRCA”) makes it a crime for employers to hire or continue to employ undocumented aliens who are not lawfully present in the United States, or not lawfully authorized to work in the United States and likewise makes it a crime to provide fraudulent documents to a potential employer. From this, Sun Life reasons that “illegal employment” is not “employment” for purposes of stop loss reimbursement. In their respective filings to date, both sides seem to agree that this will be the ultimately dispositive issue in this case. As I noted at the outset, this is the first stop loss case to involve this issue

of immigration status. However, in its appeal denial letter, Sun Life points to an ERISA case involving a denial of life insurance benefits to the widow of an illegal alien enrolled under a group policy through his employer decided by a Texas federal court in 2009, and affirmed on appeal in 2011. In that case, the court held that the employee’s use of an invalid SSN rendered him “unlawfully employed,” and affirmed the denial of benefits. We will have to await further proceedings in this case to learn how the California federal court will address these issues. The parties promise additional filings in the form of motions for partial summary judgment in the coming months. Of course, there is always the possibility of settlement before any substantive rulings by the Court, in which case we, as interested spectators, will be deprived of the final act in this interesting play. n Known for his extensive writing on medical stop loss insurance issues, both in The Self-Insurer and on his comprehensive website, www. stoplosslaw.com, Tom has been practicing law for 34 years. Currently he practices through his own firm, CROFT LAW LLC, in Atlanta, GA. He regularly advises and represents stop loss carriers, MGUs, and occasionally TPAs, brokers, and self-insured groups, in connection with matters relating to stop loss insurance and the disputes that may arise among these entities regarding it. He currently serves on SIIA’s Healthcare Committee. He has been honored as a Georgia “SuperLawyer” for the past six years running, and is listed as “Tier 1” in insurance by Best Lawyers. He is an honors graduate of Duke University and Duke University School of Law, where he formerly served as Senior Lecturer and Associate Dean.

The Self-Insurer

January 2014

HELP YOUR CLIENTS

TO THE BENEFITS OF STOP-LOSS. He has a new heart. His employer has peace of mind. With stop-loss coverage from Sun Life, your clients are protected against catastrophic claims. And they get the benefit of an independent point of view from one of America’s leading stop-loss providers. In the past three years alone, we processed 68,000 claims—over $1.3 billion in payouts. Why not put our expertise to work for you? Ask your Sun Life rep how.

Life’s brighter under the sun

sunlife.com/wakeup Stop-loss insurance policies are underwritten by Sun Life Assurance Company of Canada (Wellesley Hills, MA) in all states, except New York, under Policy Form Series 07-SL. In New York, stop-loss insurance policies are underwritten by Sun Life and Health Insurance Company (U.S.) (Windsor, CT) under Policy Form Series 07-NYSL REV 7-12. Product offerings may be subject to state variations. © 2014 Sun Life Assurance Company of Canada, Wellesley Hills, MA 02481. All rights reserved. Sun Life Financial and the globe symbol are registered trademarks of Sun Life Assurance Company of Canada. PRODUCER USE ONLY.

January 2014

The Self-Insurer

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The Self-Insurer

January 2014

ART GALLERY by Dick Goff

2014: When ACA and ART Square Off

aking a trip back in time to that wonderful year 2010, it seemed then that implementation of federal healthcare reform would take place far into the future – way out in 2014. Well, welcome to your nightmares, it’s here!

Second, the alternative risk community has prepared an environment that would help enable U.S. employers to provide health benefits to their employees and dependents with both cost stability and coverage control. Remember those words: stability and control; they’ll come up again.

We have – somewhat reluctantly, but what can you do? – entered the year scheduled for consummation of the law first called the Patient Protection and Affordable Care Act (PPACA), then shortened to the Affordable Care Act (ACA) and which everyone, even the President, terms Obamacare. I have observed two phenomena attached to this significant milestone. First, the federal government in all its majesty ran amok like a million chimpanzees with a million iPads botching the attempt to prepare a technological gateway where millions of citizens would gratefully accept the opportunity for government-mandated health care. Or not. The weaknesses of the ACA are not, of course, limited to its website.The greatest weakness perhaps is the notion that younger Americans will voluntarily pay for the privilege of supporting the care of older Americans by joining a health care exchange. Good luck with that.

January 2014

The Self-Insurer

ART’s contribution to employee health care has been the development of captive insurance programs that protect employers from catastrophic claims costs. These take the form of group captives that spread the risk among their members for maximum efficiency within actuarially sound pools. A Montana TPA, EMBS, formed a group medical stop-loss captive nine or ten years ago to support continuing rising medical cost protection beyond its clients self-insured retention (SIR). It felt strongly that by doing so it would bring stability to this non-controlled medical plan delivery component and guess what, not only had there been no rate increases over that nine or ten year period, the captive had continued to assume more and more risk over that time, continuing to push the traditional stop-loss market further out. Talk about taking control and bringing stability – wow! A Pennsylvania company that forms group captives for excess employee benefit claims expects to double or even triple the number of companies in its groups this year as employers feel the full impact of the ACA’s deficiencies. In my view federal healthcare reform has been the greatest-ever stimulus of employer education about the value and management of employee benefits programs. No longer are health benefits passed off as a staff function to buy off-theshelf products and continue business as usual. Now benefits planning is a strategic function of the executive suite.

Andrew Cavenagh, Managing Director of Pareto Captive Services, LLC, of Philadelphia, likens health care to another expense line of all organizations, such as energy-associated costs. “As energy costs rise, some business people shrug it off as a cost of doing business, and send that along to customers as increased prices,” Cavenagh says. “Others seek more efficient sources of power such as solar, or they procure a more efficient fleet of vehicles. As they restrain cost increases while others accept them, they enjoy a significant competitive advantage.” Cavenagh sees three current sources of benefits-planning efficiency among employers: “At the first level, self-insurance is the first step employers can take to increase the efficiency of their benefits dollars with ERISA-enabled plans. A selfinsurance plan eliminates many of the carrier profits and other structural inefficiencies of the fully-insured market.

“At the next level, employers can decrease the demand for health care among their employees by using their own claims data as the basis for wellness and disease preventative programs. Consumer fewer units of healthcare is obviously a key step to reducing costs.

tripled or even sent higher to cover the losses the government will be racking up because of its actuarially unwieldy exchange pools? This year the mass migration to self-insurance and ART solutions will gain momentum toward the future. As the great Al Jolson said, “You ain’t seen nothin’ yet!” n

“Third, employers can find the efficiency of group captives to cover costs beyond their self-insured retention. These captives provide both the price stability and control of coverage and healthcare providers.” Once again we ponder the magic words: stability and control. And aren’t those everyone’s goal in life? I believe the stampede to selfinsurance and ART-crafted excess loss programs has just begun. This year employers of 50-plus employees will face a possible penalty tax of $2,000 per employee they do not cover or send to a state exchange. How long might it be before that tax is doubled,

Readers who wish to comment on this column or write their own article may contact Editor Gretchen Grote at ggrote@ sipconline.net. Dick Goff is managing member of The Taft Companies LLC, a captive insurance management firm and Bermuda broker at dick@taftcos.com.

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The Self-Insurer

January 2014

SELF-INSURANCE & Comprehensive Maternity Management Reduces the Rate of

Premature Delivery and C-Section’s

for Multi-State Bank Company

by Michael J. O’Connor, Barbara M. Janes and Thomas D. Garasky

January 2014

The Self-Insurer

ealth plans in the United States continue to struggle with rising delivery costs, which are linked, to premature and cesarean deliveries. The US premature birth rate has risen 36% over the last 25 years. Currently, the United States rate of Premature Births is 11.7%. The current Cesarean Sections rate is 31.0% in the US. According to March of Dimes data, the year one cost of a premature infant is $49,000 versus $4,550 for a healthy newborn while the average cost of a Cesarean Section is almost $18,000 versus the $10,000 cost of a Normal Vaginal Delivery. Avoidable cesarean surgeries and elective premature deliveries add billions of dollars to the health care costs for our country as a whole, employers and employees alike. In addition to the cost issues there are inherent increased risks of complications for both mother and child. Self-Insurance has provided health plans the flexibility to address these issues and show substantial impact.

Company Background The company is a bank holding company headquartered in the Midwest. They operate 13 banks and four affiliate companies also located in the Midwest. They have approximately 4100 individuals covered by their self insured health plan. The insured population has a high percentage of females who are of child bearing age. The company’s Benefits Administration Department and benefit consultant were concerned with the high rate of Premature Births and C-Sections they were experiencing with their fully insured population. They were also frustrated by the ineffectiveness of the maternity management program that was provided by the national carrier administering the group health plan. In 2006 the company moved to self-insurance and engaged the services of a third party claims administrator and population health management partner. The company’s Benefit Administration Department working in conjunction with their care & population health management partner, benefit consultant and claim payer developed a maternity management program that would focus on the following objectives: • Early Identification • Early Intervention – Prior to the Second Trimester • Member Engagement • Member Risk Assessment • Member Education • Registered Nurse Coaching. • Incentives for Participation • Reduction in the Rate of Premature Births • Reduction in the Rate of Cesarean Sections

Key Program Components Program Announcement. A series of multi-cultural program announcement flyers were developed outlining the benefits of participation. The Benefits Administration Department distributed the flyers to the HR department at each bank. Program flyers were also included in employee health plan enrollment packets provided to employees at new hire orientation meetings. Program flyers and enrollment information was also posted on the Company and Care Management web sites.

Program Enrollment. Initially, employees or covered dependents were requested to call the Maternity Management program as soon as they had a confirmed pregnancy diagnosis. The employee or covered dependent would then complete the enrollment questionnaire and the maternity risk assessment via phone. Neither the Benefit Administration Department nor Maternity Management programs were pleased with the number of members and covered dependents enrolling in the program. Feedback to the Benefit Administration Department pointed to concerns on the time required to complete the enrollment and potential confidentiality issues inherent with members calling from work to enroll and complete the maternity risk assessment. The Care Management program provided Plan members with a 24/7 secure web based portal for program enrollment as well as the ability to complete the Maternity Risk Assessment and Confidential Health History on line. A toll-free 800 number to provide live enrollment with a RN Maternity Coach was still available as well as enrollment via pre-paid postage mail submission. The Care Management program also engaged any members or covered dependents not already enrolled in the program upon notification of a pregnancy diagnosis. The two key components driving increased enrollment and completion of the risk assessment and health history were the proactive Benefit Administration Department and 24/7 web enrollment. Member Engagement and Incentives – Keep Working Until You Get it Right. The initial program incentives used to engage participants were in fact, the primary program member education components:

The Self-Insurer

January 2014

materials (pamphlets & books) on having a baby and steps to a healthy pregnancy, a free Maternity Risk Assessment, and access to a Registered Nurse to answer questions and coordinate with the obstetric provider. This produced participation, but not at a satisfactory level. The program advanced during the first year to offer the above incentives in addition to the Company adding a complimentary copy of “What to Expect When You Are Expecting” upon completion of the Maternity Risk Assessment and a complimentary copy of “Your Baby’s First Year” upon completion of the maternity management program. This produced a slight boost in participation, but again not at a satisfactory level. After discussing a variety of options it was decided to put some money on the table. The Company provided an additional incentive at the beginning of the second program year. Participants

enrolling in the program prior to their 2nd trimester and completing the maternity health risk assessment would have the mother’s $200 inpatient co-payment waived in addition to the above incentives. This produced a significant boost in participation. Following a change in benefits the third year that removed the inpatient co-payment, the Company invested again in the program to ensure member engagement and participation by waiving the mother’s $450 calendar year deductible. Participation in the program soared with a 44% increase in member participation. Risk Evaluation. A Maternity Nurse Coach reviews each member’s Confidential Health History to identify potential areas of risk such as a history of multiple births or premature labor, edema, elevated blood pressure or preeclampsia. Of primary concern is the presence of an OB provider and obtaining routine prenatal care. The

Maternity Nurse Coach will also discuss any significant member risks with the Care Managers Medical Director and Obstetrical specialists. They in turn may discuss the member’s risk status with the members prenatal care provider. Management techniques and tools for all identified actual and potential risks are also discussed with the member. Member Education – Cover All the Bases. The Company trained the HR staff at each bank on program procedures and provided supplies of program flyers and posters. They also worked with the Client Service staff of the claim payor to provide program information to plan participants who called the payor to inquire about maternity benefits. After Enrollment the Maternity Nurse Coach provides each member with general educational material including how to enroll in “Text for Baby”. Each member also receives educational material specific to their exact risks and the educational requests of each member.

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January 2014

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Coordination with Providers and Care Management. The Maternity Nurse Coach verifies that each member has an appropriate OBGYN provider. If the member does not have a provider the Maternity Nurse Coach assists the member in identifying an appropriate, in-network OB-GYN provider or specialist. The Maternity Nurse Coach will also refer potential high risk members to specialized Maternity and Neonatal Certified Case Managers for assistance prior to and post delivery.

fax or mail the form back to the Maternity Nurse Coach. Each of these patient contacts is an opportunity to reinforce the importance of healthy lifestyle choices and prenatal care, as well as evaluating additional risk factors.

Ongoing Risk Evaluation and Member Monitoring. The Maternity Nurse Coach contacts each member by phone, email or mail prior to all scheduled OB provider visits. A Prenatal Visit Form is provided to the member for discussion with the provider. The provider completes the current status section and can email,

Premature Birth Program Impact. The Company rate of Premature Births for 2009 through 2013 to date is significantly below the U.S. Average. The plan average rate of premature births since 2006 is 11.5%, which is five percent below the U.S. average of 12.1% for the same time period. The Plan also outperformed the March of Dimes goal rate of 9.6% for every year since 2010.

Partnerships That Work – Listen to Your Partners Needs. The Benefit Manager of the Company states: “The success of the Maternity Management Program is the result of our Departments ability to work directly with a quality Care & Population Health Management partner collaboratively to customize a program as needed to ensure member engagement. Our previous national carrier-based program was a “one size fits all” model that did not allow the Company the program design flexibility required to improve participation and outcomes. The Maternity Management program results clearly demonstrate success by increasing program participation and overall decreases in the rates of premature births and cesarean section deliveries. This result is a win-win for our plan’s Mom’s, their babies and the Plan!”

Premature Birth cost savings per 100 births were calculated for each plan year by computing the Company variance, both plus and minus, from the US Average for each plan year. The March of Dimes data determined a $49,000 cost of a Premature Birth for the child’s first year. This amount was used to determine the net savings for

Your Bottom Line is our bottom line

The Self-Insurer

January 2014

Return on Investment. Total program costs to the Company since inception have been $68,230, an average of $8,803 per calendar year. Plan Premature Birth cost savings of $230,300 plus C-Section cost savings of $390,035 result in total program savings of $620,335. The Company Return on Investment to date is $9.09 per dollar expended as well as a dramatic increase in the number of healthy moms and healthy babies. n

yearly and total cost estimates. While the first three years showed cost increases, the following five years showed significant cost savings resulting in Premature Birth program savings of $230,300.00. Cesarean Section Program Impact. The Company rate of C-Sections in 2006 was 30.2%, about 1% below the US Average at that time of 31.1%. It should be noted that the U.S. has one of the highest rates of C-Sections in the world. While the plan out performed the U.S. average every year of the program the yearly average rate of C-Sections for the 2010 – 2013 period was 22.2% compared to 28.6 for the first four years of the program, a 22.4% reduction.

Michael J. O’Connor is the President and Founder of MCM Solutions for Better Health. Barbara M. Janes is the Employee Benefit Officer at a MultiState Bank Holding Company. Thomas D. Garasky is the President/CEO of Znth Benefits Consulting.

C-Section cost savings per 100 births were calculated for each plan year by computing the Company variance from the US Average for each plan year. The March of Dimes data shows a $7,693 cost savings between a C-Section costing $17,859 and a Normal Vaginal Delivery costing $10,166. The $7,693 saving was applied to the yearly variance and total variance of C-Sections per 100 births resulting in C-Section program savings of $390,035.00

January 2014

The Self-Insurer

January 2014

PPACA, HIPAA and Federal Health Beneﬁt Mandates:

Practical

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.

Q&A

Impact of Supreme Court Same Sex Marriage Ruling on Health Benefits: Part II

his article discusses the impact of the Supreme Court’s Windsor decision and recent Internal Revenue Service (“IRS”) and Department of Labor (“DOL”) guidance for health and welfare benefit plans. While there are still many unanswered questions, the recent agency guidance has given plan administrators some guidelines about how to proceed. On June 26, 2013, the Supreme Court held in Windsor v. United States that Section 3 of the Defense of Marriage Act (“DOMA”) was unconstitutional. As a result, the definition of “spouse” under federal law now includes a spouse of the same sex. Since the Supreme Court handed down its decision, it has been unclear how employee benefit plans would be affected – especially welfare benefit plans such as cafeteria plans, FSAs, HRAs, and HSAs. Although Windsor established that “spouse” would be defined by reference to state law, one of the key questions for plan administrators was whether the federal agencies would define spouse by reference to the laws of the state of ceremony or the laws of the state of domicile. This question is significant, since the majority of states do not recognize same sex marriages. Agency guidance is beginning to bring some clarity to the issues left unresolved by the Windsor decision itself: • On August 29, 2013, the IRS issued Revenue Ruling 2013-17 and two FAQs on how the IRS intends to apply the Court’s decision in Windsor for federal tax purposes.1

January 2014

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• On September 18, 2013, the DOL issued guidance that matched the definition of “spouse” adopted in the IRS guidance.2 • On September 23, 2013, the IRS issued Notice 2013-61, which provides special administrative procedures for employers to make adjustments to FICA and income tax withholding for benefits previously provided to same-sex spouses.3 • Most recently, on November 20, 2013, the IRS updated its prior FAQ guidance with respect to refunds of employment tax amounts.

Post-Windsor Guidance IRS Revenue Ruling and FAQs The August IRS guidance, which is generally prospectively effective on September 16, 2013, answers some, but not all, of the questions facing plan sponsors of health and welfare plans. Important takeaways include: • The terms “spouse” and “husband and wife” include individuals who entered into a legal marriage in any jurisdiction that recognizes same sex marriage, regardless of where they currently live. • Employers and employees can request refunds of taxes for all open years on amounts for health coverage provided by the employer to a same sex spouse that was previously included in income. The process for employers is detailed in Notice 2013-61.4

Practice Pointer: The September 16, 2013 prospective effective date for the August IRS guidance appears to establish a date after which taxpayers MUST take certain action. However, the guidance does not seem to limit actions taken before that date.

DOL Technical Release The DOL has also issued guidance on the impact of Windsor on benefit plans. In Technical Release 2013-04, the DOL reached the same conclusion as the IRS on the definition of “spouse.” According to the DOL, for purposes of its jurisdiction, “marriage” includes a same-sex marriage that is legally recognized as a marriage under any state, territory, or foreign jurisdiction.

Q&As for Health and Welfare Plans The following Q&As will cover what we know – and what we don’t yet know – about the effect of the Windsor decision and the recent guidance on health and welfare plans. We anticipate that the IRS and DOL will issue further guidance in the future.

Issues Specifically Addressed by the Agencies • How are “spouse” and “husband and wife” defined for federal tax purposes? The IRS and DOL clarified that the terms “spouse” and “husband and wife” in the Internal Revenue Code (the “Code”), ERISA, and related laws under the agencies’ jurisdiction include same sex individuals who are validly married in accordance with the laws of any jurisdiction that recognizes same sex marriages, even if the couple resides in a state that does not recognize same sex marriages. This is the “state of ceremony” test.5 Note that it does not include registered same sex domestic partners or civil union partners.

Practice Pointer: This outcome provides the most administrative simplicity for employers. If the agencies adopted an approach that looked to the laws of the state of domicile instead of the state of ceremony, the status

of employer provided accident and health insurance for same sex spouses would vary depending on where the same sex couple lived. It would be even more complicated administratively if a same sex couple moved from a state that recognized same sex marriages to another state that didn’t (or vice versa). • Is the cost of employer provided health coverage for same sex spouse coverage excluded from federal income and employment tax? Yes, employer provided health coverage for an employee’s federally recognized same sex spouse is now excluded from income and employment tax. If a plan is already providing health insurance coverage to same sex spouses, the August IRS guidance seems to indicate that the cost of such coverage paid by the employer must be tax free for federal tax purposes after September 16, 2013.6 • How may/must adjustments be made if the employer provided health coverage to same sex spouses and treated the coverage as taxable? For those employers that did provide health coverage to same sex spouses, the September IRS guidance clarifies the following: – Employers may request refunds or make adjustments for employment taxes and FICA taxes paid with respect to certain benefits and remuneration for same sex spouses, for 2013 and some prior years. These are optional, and employers that prefer to use the regular procedures for correcting employment tax overpayments may do so. – For third quarter 2013, if an employer calculates and reimburses an employee for the amount of employment taxes withheld for the same

The Self-Insurer

January 2014

sex spouse before the filing of the Form 941 for that quarter, the employer won’t report the wages and withholding on the third quarter Form 941. If the employer does not reimburse the employee before filing the third quarter Form 941, it must report the amount of the over collection and can use one of the special administrative procedures discussed in the Notice. – There are two administrative procedures that employers may choose for corrections in the fourth quarter of 2013 (with respect to benefits provided in the first three quarters of 2013). • Under the first option, the employer must repay or reimburse affected employees for the amount of over-collected FICA and income tax for the first three quarters of 2013 on or before December 31, 2013. On the fourth quarter 2013 Form 941, the employer will reduce the wages reported and income tax withheld, corresponding to the benefits for same sex spouses that were treated as wages for the first three quarters of 2013. The benefit of this option is that the employer does not have to file separate Forms 941-X for the first three quarters of 2013. The employer may only correct the employer share of FICA tax that corresponds to the employee share of FICA tax that has been repaid or reimbursed on or before December 31, 2013. • Under the second option, an employer that does not repay or reimburse employees for the amount of withheld FICA and income taxes with respect to same sex spouse benefits provided in 2013 on or before December 31, 2013 (and thus files the fourth quarter 2013 Form 941 without making the adjustment) may correct overpayments of FICA taxes for 2013 using Form 941-X. In this situation, the employer files

January 2014

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one Form 941-X for the fourth quarter of 2013 to correct for all quarters of 2013, provided that the employer has satisfied the usual requirements for filing a form 941-X. The employer should write “WINDSOR” in dark, bold letters across the top margin of page 1 of 941X. If an employer uses this method, it can only show corrections made under this procedure on the 941-X. • Keep in mind that employers cannot make an adjustment for overpayment of income tax for a prior calendar year, except in cases of administrative error. Because the employer can use the second method only if it didn’t repay or reimburse the

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January 2014

employee on or before December 31, 2013, the second approach cannot be used with regard to income tax withheld in 2013. Instead, affected employees will receive credit when they file their Forms 1040. – For years before 2013, employers may make a claim or adjustment for FICA taxes for all four quarters on one Form 941-X for the fourth quarter of that year, as long as the period of limitations has not expired and will not expire within 90 days of filing the adjusted return. This is subject to the usual requirements for prior year corrections, including the issuance of Forms W-2c. The employer should write “WINDSOR” in dark, bold letters across the top margin of page 1 of 941-X. If an employer uses this method, it can only show corrections made under this procedure on the 941-X. Like the second method for 2013, this method cannot be used with regard to income tax, and affected employees will need to file a 1040X. • How can employees request refunds? The August IRS guidance provides procedures for employees to request refunds. – Employees may request refunds of income taxes paid on employer provided health insurance coverage that was imputed in income for all “open” years (3 years from the date of the return or 2 years from the date the tax was paid, whichever is later). Such refunds would be requested via an amended Form 1040. – If the coverage was otherwise provided through a cafeteria 24

January 2014

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plan, the employee may also request a refund for income taxes paid on all after-tax employee contributions made for the accident and health insurance coverage of the same sex spouse for all open years.

Practice Pointer: The tax status of benefits for same sex partners under state law remains unclear in states that prohibit recognition of same sex marriages. States will likely provide more guidance on this issue.

Issues Not Specifically Addressed by the Agencies • Do I have to offer welfare benefits to same sex spouses? Nothing in the Windsor decision or federal law requires plans to offer coverage to same sex spouses. In many cases, a plan amendment would be required to add coverage for a same sex spouse if the plan doesn’t currently offer such coverage. – However, employers should keep in mind that same sex spouses may become automatically eligible as a result of the Windsor decision, even if the plan doesn’t intend to offer coverage to same sex spouses. Whether same sex spouses are automatically eligible will depend on how the plan defines an eligible spouse. For example, a plan provision that defines an eligible spouse in accordance with “federal law” and does not specifically exclude same sex spouses would appear to automatically include a same sex spouse without further amendment or modification to the plan. • Can an employee with a same sex spouse change his or her cafeteria

plan election? The Windsor decision will likely affect cafeteria plan elections in the following ways: – If same sex spouses were covered prior to the Windsor decision, but coverage was offered on an after-tax basis, it would appear that an election change to pay for such coverage with pre-tax dollars must be allowed if the employer has adopted Code Section 125 change in status rules. – If same sex spouses are now eligible solely by virtue of the Windsor decision, and an amendment is not made to exclude them, then employees should be able to change their coverage under the Code Section 125 rules to add a same sex spouse if the plan has adopted the change in status rules. – Likewise, an employee covered by a health FSA that covers same sex spouses by virtue of the Windsor decision should be able to increase his or her health FSA election, because of the increase in the number of dependents eligible for the plan. – If same sex spouses are specifically excluded, no election changes would be permitted.

Practice Pointer: Most plans require notice of a qualifying event within 30 days; however, if same sex spouses became eligible under a Health FSA or HRA by virtue of the Windsor decision, the date of the “event” was arguably the date of the Windsor decision – June 26, 2013. If so, the election period has expired. There is no clear answer how to address this; presumably the agencies will do so in future guidance. In the meantime, employers can amend their plans to allow an election period.

• How does Windsor impact COBRA? As a result of Windsor, a same sex spouse covered by a group health plan is now a qualified beneficiary entitled to COBRA. If group health coverage is currently offered to same sex spouses but COBRA continuation coverage is not, or continuation coverage that does not otherwise comply with COBRA is not offered, plan changes will be required. However, it is not clear whether all qualifying events after Windsor must be recognized or whether plans can recognize only qualifying events that occurred after September 16, 2013. We expect future guidance on this subject.

incurred by a same sex spouse would be eligible for reimbursement from a Health FSA or HRA depends on how the plan defines “spouse.” It is our view that that medical expenses incurred by same sex spouses became automatically eligible for reimbursement by virtue of the Windsor decision if the Health FSA or HRA defines spouse by reference to federal law and does not specifically exclude same sex spouses. Otherwise, a plan amendment is required for plans that restrict coverage to opposite sex spouses that wish to allow employees to submit expenses for expenses incurred by a same sex spouse.

Practice Pointer: If same sex spouses qualify as eligible spouses under a Health FSA or HRA by virtue of the Windsor decision, would expenses incurred at any time during the year be reimbursable or just those incurred on or after September 16, 2013 (the effective date of the August IRS guidance)? Although the answer is not clear, we believe that any expense incurred during the plan year is reimbursable if a same sex spouse automatically became an eligible spouse by virtue of the Windsor decision. Additional guidance on this issue is expected.

• Are medical expenses for a same sex spouse eligible for reimbursement from a Health FSA or HRA? Whether expenses

• How does Windsor affect Dependent Care FSAs? It is our belief that expenses for child or elder care cease to be eligible for reimbursement on and after September 16, 2013 if the employee’s same sex spouse doesn’t work or isn’t looking for work. The tax free benefit under Code Section 129 will be affected both by the manner in which the couple files its federal tax return, and the same sex spouse’s earned income.

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– The August IRS guidance indicates that same sex couples filing after September 16, 2013 must use a married filing status (jointly or married filing separately). It is not clear how this will affect Dependent Care FSA elections for the 2013 calendar year. Under Code Section 129, married couples filing jointly may not receive more than $5,000 in benefits and couples that are married filing separately may not receive more than $2,500 each. It is also unclear how a same sex spouse’s earned income for 2013 will impact the benefits received by the employee for 2013. • How does Windsor affect HSAs? Qualifying medical expenses incurred by a same sex spouse would be eligible for a tax free reimbursement through an HSA. Since HSA rules only require that the otherwise unreimbursed expense be incurred after the HSA was established, an unreimbursed expense of a same sex spouse incurred at any time after the HSA was established is arguably a qualifying expense – even if incurred prior to the Windsor decision. However, IRS guidance on this point would be welcome.

Practice Pointer: HSA rules limit the contributions made by each spouse (now, including same sex spouses) to their respective HSAs if one or both have family coverage. It is unclear how the married couple contribution rule will affect contributions made by married same sex couples in 2013. n Attorneys John R. Hickman, Ashley Gillihan, Johann Lee, and Carolyn Smith provide the answers in this column. Mr. Hickman is partner in charge of the Health Benefits Practice with Alston & Bird, LLP, an Atlanta, New York, Los Angeles, Charlotte and Washington, D.C. law firm. Ashley Gillihan, Carolyn Smith and Johann Lee are members of the Health

Benefits Practice. Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner’s situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation. Readers are encouraged to send questions by email to Mr. Hickman at john.hickman@alston.com. Resources

1 See Internal Revenue Service, Revenue Ruling 2013-17, August 29, 2013, available at www.irs.gov/pub/irs-drop/rr13-17.pdf; Internal Revenue Service, “Answers to Frequently Asked Questions for Individuals of the Same Sex Who Are Married Under State Law,” August 29, 2013, available at www.irs.gov/uac/Answers-to-Frequently-Asked-Questionsfor-Same-Sex-Married-Couples; Internal Revenue Service, “Answers to Frequently Asked Questions for Registered Domestic Partners and Individuals in Civil Unions,” August 29, 2013, available at www.irs.gov/uac/Answers-to-FrequentlyAsked-Questions-for-Registered-Domestic-Partners-andIndividuals-in-Civil-Unions. 2 Department of Labor,Technical Release 2013-04, September 18, 2013, available at www.dol.gov/ebsa/pdf/tr13-04.pdf. 3 Internal Revenue Service, Notice 2013-61, September 23, 2013, available at www.irs.gov/pub/irs-drop/n-13-61.pdf. 4 The August IRS guidance also clarifies how the decision in Windsor impacts qualified retirement plans. 5 Although we refer to a “state of ceremony”, a marriage in any jurisdiction, including another country, would be recognized. For instance, the marriage at issue in the Windsor case took place in Canada. 6 It appears that employers who previously imputed the value of such coverage in the employee’s income could stop doing so even before September 16, 2013.

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January 2014

Urgent Care Centers Offer Value in Benefit Structure for Self-Insured Employers by David Boucher

n the context of a self-insured medical benefits arrangement, the cost of urgent care-related spending will be a small percentage of the overall benefits spend, especially when compared to hospitalizations. However, if implemented carefully, the self-insured employer can leverage the urgent care model as a means to reduce overall spending, improve quality, and/or show a positive benefit to the members of the plan. In a time when the United States is preparing to cover an additional 30 million residents with insurance coverage of some sort, patient queues will necessarily elongate due to existing primary care provider shortages. Improving the benefit structure around access to urgent

January 2014

The Self-Insurer

care centers can improve employee convenience and reduce absenteeism since most urgent care centers offer evening and weekend hours. Urgent Care is a category of ambulatory care in a dedicated medical facility primarily treating injuries or illnesses requiring immediate care, but not serious enough to require an emergency room (ER) visit. Patients are generally not required to schedule appointments; in fact most urgent care centers do not accept appointments. The urgent care concept has been around for over thirty years, but only recently taken off nationally. In most communities, over 80% of patient traffic in the hospital ER does not need to be in the ER. Many patients utilizing the ER

for non-emergent care would rather be in a more convenient and comfortable setting if they knew that option existed. And their employers and TPAs would undoubtedly prefer to spend a lot less than what a typical ER visit costs. A significant number of Americans do not have a primary care doctor and the urgent care model represents an excellent match for this group. For patients with a primary care doctor, it is up to the employer to determine whether the economics are feasible. The patients with a primary care relationship may still elect to use an urgent care out of convenience, affordability, or other reasons. There are three emerging types of

‘urgent’ or ‘convenient’ care providers and each have different implications for the self-insured employer: 1) hospital-owned, 2) pharmacy-based, and 3) independent. The ownership structure of the urgent care center(s) in the employer’s local region may help describe whether they are a good fit for the employer’s benefit strategy. An increasing number of hospital systems have urgent care satellites, recognizing the need for ER alternatives and/or expanded geography coverage. These are often built as large complexes with multiple ancillary services and group practices under one roof. These urgent care centers generally carry “facility charges” (unlike freestanding, independent urgent care centers) and still represent the ready gateway to hospitalizations and expensive ancillary utilization. These are a step in the right direction with improving quality and creating a positive benefit, but may not address cost management issues confronting employers. There has also been dramatic growth with pharmacy-based, walk-in clinics. These do not qualify as urgent care centers (typically one exam room with limited treatment capabilities: no trauma, no x-ray, limited labs, etc.). These walk-in clinics may naturally be inclined to emphasize prescription medications since they are located in, well…pharmacies. A particular pharmacy-based walk-in clinic may or may not neatly integrate with the employer’s pharmacy benefits manager (PBM), or be able to contract directly with the local employer. These clinics meet the convenience and per-encounter cost criteria, but not necessarily the bigger picture cost management or quality care requirements. Finally, the rapid growth of independent urgent care chains in many areas of the U.S. has created de facto “networks” of which self-insured employers can readily take advantage. Chances are that the local urgent care chains are already in-network or the selected TPA and members are familiar with them. These chains form cost effective partners with scale in numerous locations, can share their own expertise in network contracting (many are self-insured themselves), prefer to deal with cost effective independent specialists, and are dis-incentivized to drive member volume into hospitals by keeping the member from going to the ER. They often contract directly with employers for pre-employment testing, occupational medicine, and workers compensation needs. They understand how to treat the member as a ‘customer’ and ensure the patient is satisfied with their experience in addition to receiving quality care. There are multiple savings opportunities for employers steering their employees via lower co-pay levels to urgent care centers. A source of immediate savings for these employers is to de-emphasize unnecessary ER use. Though longer-term in nature but offering significant savings potential is for independent urgent care centers to steer referrals to a narrow network of specialists and facilities - to simultaneously meet the needs of both the member and the self-insured employer.

Reduce Overall Spending? Whether an urgent care network can save the self-insured employer health care dollars depends on the level of sophistication of the arrangement. To flatten or actually bend the cost curve downward, several things might be considered: 1. Consolidate to one or few urgent care chains, trading volume for price reduction; 2. Design the plan benefits to emphasize covered services at an urgent care, with financial penalties for ER utilization, transferring additional cost to the member who opts out;

3. View the network as a whole, with the urgent care center as the gateway. After all, most urgent care centers are open evenings, weekends, and holidays. And some are beginning to function as patient-centered medical homes. 4. Centralize billing to provide consistency in charge generation and minimization of administrative overhead. Fixing errors and disputing charges wastes time for all concerned.

Quality Urgent care chains can provide the employer with a data-driven oversight structure. Dealing with many different sources or non-technology based practices can dilute clinical oversight… and prevent the self-insured employer from turning data into information. The objective is for each member visiting the urgent care center to consistently receive quality care, . Centralized, consistent electronic health records with the ability to integrate to thirdparties including payers, specialists, diagnostics, and other referral partners helps to demonstrate this quality. This offers to improve the quality of care in that each provider that comes into contact with the patient has key medical information – leveraged by the electronic health record.

Positive benefit For the employer, a consistent “how to use” message based on one or few urgent care networks is key to adoption. A degree of centralized coordination across the employer, members, plan administrator, and urgent care chain is necessary to ensure the parties are comfortable working together and resolving issues quickly to the member’s satisfaction. Member surveys should be used as a vehicle to show what is working

The Self-Insurer

January 2014

and what to fix. It is important to acknowledge that some members may be uncomfortable with using the urgent care model. Free visits or scheduling preventive services (such as flu vaccines, pre-employment physicals, sports or camp physicals for school-age dependents, etc.) at a center will help introduce the member base to the new direction and medical culture. Urgent care networks are typically focused on convenient care and positive customer (member) experience. An urgent care center is a perfect fit for a member in need of care but potentially not needing a longer-term medical relationship. The employer may find it useful to work directly with the urgent care chain to develop in-house marketing materials, run campaigns to increase awareness of benefits for using the urgent care, and/or sponsor events at one of the centers (flu shots, stress tests, cholesterol checks, etc.) on behalf of members.

January 2014

The Self-Insurer

The urgent care center can reach out to the members and invite them to use their capabilities; much of the challenge at hand is education. The educated employee will generally be the smartest consumer. Many members are becoming healthcare savvy and will readily adopt this new model based on their desire to exert greater control, while other employees will need more time to warm up to the idea. In closure, a potential opportunity exists for the self-insured employer to exercise greater control of their benefit structure and spending through implementing benefit steerage to independent urgent care center chains/networks. Employers with local reach in markets with urgent care chains may want to consult with their plan administrator on how they might work together. n Since October, 2012, David Boucher has served as President and Chief Operating Officer of UCI Medical Affiliates, Inc. UCI Medical provides management services to 53 urgent care and employer on-site centers under the Doctors Care brand and 21 Progressive Physical Therapy rehabilitation centers in South Carolina and Tennessee, as well as the Doctors Wellness Center in Columbia, SC.

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January 2014

The Rebirth of the PPO by Corte B. Iarossi, VP, Sales & Marketing, United Claim Solutions

believe it was Mark Twain who once said “The reports of my death are greatly exaggerated”.

I begin the article with this because of the rhetoric in the market place regarding the impending demise of PPOs. It has been suggested that in five to ten years the PPO will go the way of the Dodo. There are even organizations that counsel payers to eliminate PPOs from their service offerings because it puts them at risk of “breaching fiduciary responsibilities”. The contention is that language within many PPO contracts can limit the ability of a payer to impact the medical costs of their clients by utilizing more aggressive

January 2014

The Self-Insurer

reimbursement methodologies, including UCR, Medicare and other “referenced based” options. From a conceptual standpoint, I certainly understand the desire to effectively manage the Plan’s medical costs. However, we need to consider another key objective of most employers; attracting and retaining high performing employees. Essential to this goal has traditionally been to offer a benefits program that provides access to quality providers at an affordable cost. Consequently, employers developed Plans that utilize preferred, contracted providers in order to limit provider billing of employees to anticipated deductibles, copays and/or coinsurance, while also impacting health plan medical costs. There was no desire to put employees in situations where balance billing or collections was the result of aggressively reduced payments to providers. The fact that PPOs have been the accepted form of provider access for over 30 years suggests that there is value to this model. As a side note, I also find it interesting that a number of the organizations promoting the elimination of PPOs happen to offer products as replacements. But, let’s not kid ourselves. Today, many PPO’s are providing less than stellar savings. Although originally designed to direct significant patient volume to “preferred” providers in return for material savings, PPOs have evolved into provider inclusive organizations. Who is included in the network has become just as

important as the savings the provider is willing to offer. And frankly, we as consumers are part of the problem. We’ve come to expect that we can have a high level of benefits, reasonable premiums AND have all our providers in-network. The good old days. In the late 1970s, early 1980s, the Americans were experiencing significant increases in health insurance premiums. This upward cost pressure resulted in “managed care”, typified by the HMO. The HMO was designed to provide enhanced benefits at a reasonable cost, by limiting the providers who participate in the network, while also adding a level of cost management not used previously (you may recall the “referral mechanism”). Employees appreciated the increased benefits and low copays, but there remained a strong push back against limited provider access. The result of this market pressure was the development of the PPO. It was intended to provide similar benefits and costs, but allow more flexibility in provider access. However, it was not intended to offer participation to every provider in the market; at least not in its original form. Back to the future. Millions of Americans are uninsured or under insured and the cost of care is rising rapidly as are health insurance premiums. This has prompted many companies to move to a consumer driven health plan model that requires employees to share in more of the cost burden for services; e.g. higher deductibles. Additionally, some companies are considering dropping their benefit programs to stay solvent. As a result we have seen several changes in the market, including the implementation of the Affordable Care Act, as well as a focus on “referenced based” reimbursements like Medicare

as an alternative for managing healthcare costs for self-insured employer groups. And now we are back to the purported demise of the PPO. What I hear in the market when talking with payers, employers and PPOs is something very different. There is a recognition that changes to the PPO market need to be made, but we don’t have to throw the baby out with the bath water. Instead, we may find that by revisiting the original intent of the PPO, we can develop solutions that will help address many of the cost pressures we are now experiencing. PPOs need to focus on controlling the cost of services rather than on the percentage discount off billed charges; since billed charges have steadily increased over the past decade, often without a corresponding change in the contracted discount, many providers have been able to see to a disproportionate increase in their compensation compared to medical inflation. Coming full circle. We all know the adage; the more things change the more they stay the same. I think that can be applied appropriately to the PPO market. The original intent of the PPO was to drive down medical costs by limiting provider access and creating a synergy between the Plan, the providers and the patients. With the recent changes in the health insurance landscape, it appears we may be seeing a fundamental shift back to this original concept. Listed below are several options that could have a material impact on healthcare costs, while also providing a level of protection to employees and members necessary for maintaining a quality work force.

EPO (Exclusive Provider Organization): For those of us that have been in the

industry for a few years (or a lot of years), this is not a new concept. In the 90’s a number of carriers developed this type of smaller, more focused network for those clients that were looking for options to further impact their healthcare costs. The intent was to take the existing PPO network and pare it down so that they could gain deeper discounts from providers by driving more patients to them instead of competing providers. In some cases, the organization took the next logical step by attempting to select providers based on quality and cost effectiveness. These programs essentially fell to the wayside as cost pressures relaxed, and consequently so had the appetite for a limited provider network. However, I am starting to hear rumblings of an “EPO” like product. There is at least one national PPO that is considering the development of a more focused network option. Additionally, this concept appears to be gaining traction again with a number of carriers in terms of the networks they will make available to the participants that purchase coverage through the Exchange, or more recently called, “The Marketplace”. The networks are much smaller; thus, access is significantly limited. However, the savings are expected to be higher than what is available in the networks offered to the private market and employer provided plans. If the carriers feel this approach will work within the Exchanges, it should also be considered for the broader market.

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Medicare Plus Contracted Network: If you take the concept of a tighter, more focused network, and build the contracts based on a percentage of Medicare, you potentially have the best of all worlds; a focused network with fees based on a standardized reference based model and protections for the patient. Add to this transparency in pricing and a selection process based on quality indicators and you have the next generation of the PPO. As we all know, the concern with many PPOs today is that the discounts haven’t kept pace with the increases in fees, resulting in the common

recognition that a percentage discount means very little. A Medicare based contract helps eliminate the guess work in estimating medical costs, and can positively impact stop-loss premiums. It also has the added bonus of protecting the patient from balance billing and collections. Hybrid PPO and Medicare Plus: Another option that has recently gained traction is a hybrid solution that combines a traditional PPO for accessing physician and ancillary services with the application of Medicare Plus repricing for facilities. The PPO access enables an employer to offer a contracted physician

network for the roughly 80% of the medical bills that will be incurred. These represent the majority of claim activity for most employees. For the other 20% of claims that typically can equate to 70-80% of the total claim dollars, the providers are paid at a more aggressive percentage of Medicare. There are a couple variations within this model; the repricing entity can contract with a limited number of facilities based on a Medicare plus reimbursement, or they can allow the patient to seek care from any facility, and reimburse the provider based on a Medicare Plus rate. The benefit to the first option is that patients are protected from balance

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billing, but are also limited in the number of providers they can access for care. The second option allows patients to seek care from any facility, but may be subject to balance billing or even collections if the provider is unwilling to accept the Medicare payment or to negotiate a reimbursement. Employers who continue to believe in the value of a high performing workforce are more likely to consider the first rather than the second option. Utilizing the hybrid method can be an attractive option for employers that have employees throughout a large geographic area, and also want to offer reasonable access to the providers most commonly used. It also enables them to focus on high cost services by limiting payments based on contracted rates or utilizing a referenced based payment mechanism. Never play leapfrog with a Unicorn. Payers and employers need to understand the needs of their employee population, along with the prevailing attitude of the provider market. Attempting to put into place a benefit plan that does not take into consideration both of these elements is extremely risky, and could lead to unintended consequences. Clearly, effectively managing medical costs are critical to the ongoing financial health of any Plan, but carefully measure the potential impact on other aspects of the business, including key employee retention. I believe there are several good options being developed around the PPO model that can meet the financial goals of the Plan, while also maintaining the viability of the organization. n

Corte Iarossi is the VP, Sales & Marketing for United Claim Solutions (UCS). He has over 20 years success in the health insurance, managed care and PPO markets. UCS is a Medical Cost Reduction and Claims Flow Management company located in Phoenix, AZ. UCS provides cost saving solutions for payers, employers, labor organizations, health plans and stop-loss companies. Corte can be reached at 866-762-4455 x 120, or via email at ciarossi@unitedclaim.com.

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January 2014

SIIA PRESIDENT’S MESSAGE Michael W. Ferguson

SIIA Looks Ahead to 2014... There Has Never Been a Better or More Important Time to Be a SIIA Member

ith the haze of holiday season behind us it’s time for everyone to get back to work. This is certainly true at SIIA where we have an ambitious agenda ahead of us for 2014 that is worth previewing.

At the risk of this sounding like a presidential state of union speech that includes a laundry list of priorities and action items in no particular order, such is the nature of these types of messages so let’s get started. During 2013, SIIA expanded and upgraded its team of federal lobbyists, which has significantly improved the association’s political influence in Washington, DC. One of the tangible results has been the introduction of the SIIA-backed Self-Insurance Protection Act (SIPA) and we expect that this will be the focus of an intensive lobbying campaign for much of the year. SIIA will also continue to advocate for the extension of the Terrorism Risk Insurance Act (TRIA), which will expire at the end of the year absent affirmative action by Congress. The fate of TRIA captives hangs in the balance. Supporting SIIA’s lobbying efforts in Washington, DC is the Self-Insurance Political Action Committee (SIPAC), which provides a vehicle to provide financial contributions to members of Congress. We welcome Bob Tierney as the new Chairman of the SIPAC board of trustees for 2014. Watch for a message from Chairman Tierney coming soon to tell you how you can help. Rounding out our activities in Washington, DC, The Self-Insurance Educational Foundation (SIEF), which is affiliated with SIIA, will continue to produce a series of educational briefings on Capitol Hill designed to teach congressional staff members the basics about self-insurance and captive insurance. Of course, legislative/regulatory developments affecting companies involved in the self-insurance marketplace is not confined to the federal level. In fact, much of the action has been happening at the state level. The association has responded to this reality by adding a new senior lobbyist to its team who will focus primarily on state government relations. So when threat s pop up in various states as anticipated in 2014, SIIA will be there. Ideally, we hope to be able to head off such threats before they even surface. And SIIA be protecting our industry in federal court as well. We expect to be making oral arguments in the Sixth Circuit Court of Appeals soon as part of the association’s litigation against the state of Michigan in response to the state’s Health Care Claims tax. This is a critical ERISA preemption case, so we hope for a win that can be announced this year. Also on our legal defense radar screen is possible litigation in response to new state regulation of stop-loss insurance. We took a long look at suing

January 2014

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the state of California last year over this issue, but ultimately determined that certain language included in the recently-enacted law wasn’t ideal for litigation purposes. To the extent other states enact stop-loss laws that can more easily be challenged in federal court, we will likely pull the trigger. One significant factor influencing the current industry threats that are playing out in Congress, state legislatures and the courts, is that self-insurance has an image problem. Industry critics have invested heavily in portraying the self-insurance marketplace as largely unregulated and therefore bad for consumers. Never mind that the facts don’t fit the messaging. But instead of continuing to complain about this reality, we intend to implement a more proactive response strategy in 2014. Specifically, the association will be working with a highly-respected professional marketing firm to develop and launch a branding campaign for self-insurance. We have a very good story to tell and plan to tell it better going forward. Third party administrators have always been a very important membership constituency and given the acute challenges and opportunities in front of them today due to the evolving health care marketplace, SIIA intends to roll out some new membership service initiatives with TPAs in mind to help them better navigate in these times of rapid change.

For our member companies involved with self-insured workers’ compensation programs, the association’s Workers’ Compensation Committee is working on some valuable educational initiatives, including an on-line training program for SIG trustees and distilling expertise on how workers’ compensation workers’ compensation self-insurers can benefit from data analytic strategies similar to how such strategies are being successfully utilized by self-insured group health plans. SIIA’s Alternative Risk Transfer Committee will continue to focus on membership services related to stop-loss captive programs, further strengthening the association’s leadership position in this area. The committee will also look to develop new educational and informational resources related to the fast-growing market niche of 831b captives.

Self-Insurance opportunities in Latin America will be one of the main focuses of SIIA’s International Committee. The world is a big place and we’d like to help our members develop a more informed global perspective.

companies to enhance benefits they receive while providing additional financial support for the association to help to carry-out its mission. Details will be provided to all members at the time of renewal.

Speaking of committees, I think it’s worthwhile to note that SIIA has five standing committee, providing meaningful volunteer opportunities for nearly 100 association members. We rotate committee members each year to maximize participation. If you think you might want to get involved, watch for a “call for volunteers” this summer and respond as requested.

A busy year for sure… and so it begins. n

Mr. Ferguson is SIIA’s president and CEO. More information about SIIA can be accessed on-line at www.siia.org, or by calling 800-851-7789.

I would also be remiss not to express appreciation to the many companies who have upgraded their SIIA membership support over the past year and we hope to continue this momentum into the new year with a redesigned and re-branded upgraded membership program. This will enable

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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

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

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

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

SIIA New Members Regular Members Company Name/ Voting Representative Lena Andrews Vice President/COO Benefit Support, Inc. Gainesville, GA

Committee Chairs CHAIRMAN, ALTERNATIVE RISK TRANSFER COMMITTEE Andrew Cavenagh President Pareto Captive Services, LLC Conshohocken, PA CHAIRMAN, GOVERNMENT RELATIONS COMMITTEE Horace Garfield Vice President Transamerica Employee Benefits Louisville, KY

Duke T. Wolpert Vice President/Director of Marketing Ringler Associates, Inc. Manchester, CT

Employer Members Maria Szubski CFO Pubco Corporation Cleveland , OH

CHAIRMAN, HEALTH CARE COMMITTEE Robert J. Melillo VP Alternate Funding Strategies USI Insurance Services Meriden, CT CHAIRMAN, INTERNATIONAL COMMITTEE Greg Arms New York, NY CHAIRMAN, WORKERS’ COMPENSATION COMMITTEE Duke Niedringhaus Vice President J.W. Terrill, Inc. St Louis, MO

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

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