Self-Insurer Jan 2012 by SIPC

January 2012

www.sipconline.net

Final ACO rules, and How Captives Could Play a Role

2012 Board of Directors & Committee Chairs Chairman of the Board* Alex Giordano, Vice President of Marketing Elite Underwriting Services Indianapolis, IN President* John T. Jones, Partner Moulton Bellingham PC Billings, MT

www.sipconline.net

JANUARY 2012 | Volume 39

FeAtures

Vice President Operations* Les Boughner, Executive VP & Managing Director Willis North American Captive + Consulting Practice Burlington, VT Vice President Finance/Chief Financial Officer/ Corporate Secretary* James E. Burkholder, President/CEO Health Portal Solutions San Antonio, TX

Committee Chairs

Chairman, Alternative Risk Transfer Andrew Cavenagh, President Pareto Captive Services, LLC Conshohocken, PA

Final ACO rules, and how Captives Could play a role by Jason Kimpel and Nick Manetto

Chairman, Government Relations Horace Garfield, Vice President Transamerica Employee Benefits Louisville, KY Chairwoman, Health Care Elizabeth Midtlien, Senior Vice President, Sales StarLine USA, LLC Minneapolis, MN

ArtiCles 8

ART Gallery: Larger numbers bring efficiency, but how about the service?

From the Bench: Mirror, Mirror on the Wall: Should We Want You There at All?

SIIA Grassroots & Political Advocacy

PPACA, HIPAA and Federal Health Benefit Mandates: Practical Q&A

siiA leADership

Chairman, International Greg Arms, Global Head, Employee Benefits Practice Marsh, Inc. New York, NY

2 President’s Message Data Analysis: A primer for risk Management and Claims handling by Keith Higdon, MITM

19 From The Desk of Erica Massey 32 Chairman’s Report

Chairman, Workers’ Compensation Skip Shewmaker, Vice President Safety National St. Louis, MO

Directors Ernie A. Clevenger, President CareHere, LLC Brentwood, TN Ronald K. Dewsnup, President & General Manager Allegiance Benefit Plan Management, Inc. Missoula, MT Donald K. Drelich, Chairman & CEO D.W. Van Dyke & Co. Wilton, CT Steven J. Link, Executive Vice President Midwest Employers Casualty Company Chesterfield, MO Elizabeth D. Mariner, Executive Vice President Re-Solutions, LLC Wellington, FL

how international Medical travel Can Work For You by Allison M. Repke

January 2012 The Self-Insurer (ISSN 10913815) is published monthly by Self-Insurers’ Publishing Corp. (SIPC), Postmaster: Send address changes to The Self-Insurer, P.O. Box 1237, Simpsonville, SC 29681 The Self-Insurer is the official publication of the Self-Insurance Institute of America, Inc. (SIIA). Annual dues are $1495. Annual subscription price is $195.50 per year (U.S. and Canada) and $225 per year (other country). Members of SIIA subscribe to The Self-Insurer through their dues. Copyright 2012 by Self-Insurers’ Publishing Corp. All rights reserved. Reproduction in whole or part is prohibited without permission. Statements of fact and opinion made are the responsibility of the authors alone and do not imply an opinion of the part of the officers, directors, or members of SIIA or SIPC. Publishing Director - James A. Kinder Managing Editor - Erica Massey Senior Editor - Gretchen Grote Design/Graphics - Indexx Printing Contributing Editor - Mike Ferguson Director of Operations - Justin Miller Director of Advertising - Shane Byars

Editorial and Advertising Office P.O. 1237, Simpsonville, SC 29681• (864) 962-2201 Self-Insurers’ Publishing Corp. Officers (2012) James A. Kinder, CEO/Chairman Erica M. Massey, President Lynne Bolduc, Esq. Secretary

the self-insurer P.O. Box 184, Midland, NC 28107 Tel: (704) 781-5328 • Fax: (704) 781-5329 e-mail: ggrote@sipconline.net. The Self-Insurance Institute of America, Inc. (SIIA) is the world’s largest trade association dedicated exclusively to the advancement of the self-insurance industry. Its goal is to improve the quality and efficiency of self-insurance plans through education and to create a general acceptance in the public and business communities of this viable alternative to conventional insurance. Founded in 1981, SIIA represent the interest of self-funded employers, independent administrators, utilization review companies, managed care companies, underwriting management companies, insurance companies, reinsurers, agents, brokers, CPAs, attorneys, financial institutions, manufacturers, trade associations, retail and service companies, municipalities, and others. SIIA designs and implements programs and services for the benefit of its members, the industry, and the general public to increase the general level of knowledge about self-insurance plans, achieve greater professionalism in the industry, and enhance the general well-being and mutual interests of its membership. SIIA achieves its goals and objectives through several means: • International/national conferences and industry forums which provide educational opportunities, with substantial discounts on the registration fees offered to SIIA members. • Distributed monthly, The Self-Insurer, features useful technical articles as well as updates on topical issues of importance to the self-insurance industry. • The Self-Insurance Educational Foundation (SIEF) conducts statistical research regarding the industry and grants educational scholarships to promising students whose studies focus on the self-insurance industry. SIIA enjoys federal representation in our nation’s capital through counsel and staff on key legislative and regulatory issues. SIIA is the only national voice encompassing the whole self-insurance industry. If your company is involved or interested in self-funding risk for workers’ compensation insurance programs, employee benefit plans, or property and casualty exposures, then it should be a member of the association serving the industry – the Self-Insurance Institute of America, Inc.

The Self-Insurer

January 2012

PRESIDENT’S MESSAGE 2012 has Arrived, And siiA is ready

reetings to all. I pen my first message as your SIIA President with humility and respect for the purpose and mission of this great organization, and with the intent to add value to your SIIA experience. My leadership style is “big picture” and I find listening to be more rewarding than talking. Let us hear from you. SIIA has a talented and focused Board of Directors, and we are excited to work together and with the Committee Chairs and members to advance the business of SIIA. If you are reading this and are not a SIIA member, we invite you to join and reap the benefits.

Our ‘risky’ World The cliché ‘we live in interesting times’ has become the greatest understatement. In this world of instantaneous information (good and bad), we have become accustomed, numb if you will, to wildly volatile domestic and world markets, a deeply troubled Euro zone, one toppled monarch after another in the Middle East, our own “Occupiers” blocking our ports, recession level unemployment, a constantly gridlocked (dysfunctional?) Congress, natural disasters, horrific crime, the list goes on. But, we live in the greatest country in the world and as Americans we have a survivor’s spirit that allows us to look ahead and not back. And, one common thread in all of what goes on around us: risk. And risk is what we understand in this industry: recognizing it, quantifying it, managing it.

siiA’s ‘rainbow’ of Diversity in Membership SIIA’s ‘rainbow’ of diversity in its membership is a strength – a unique collection of colleagues, clients, customers and competitors, all pulling in the same general direction. SIIA’s purpose is to support that membership base and add value to that membership privilege. I like to say that at SIIA we “educate, advocate and communicate”. We endeavor to educate each other, and at the same time those that are not in our industry but who can be benefitted by the products and services we provide, including regulators, legislators, employers, cities, towns and business leaders. We “advocate” in the federal and state governing halls to make sure our voice is heard, so that the value of owning and managing one’s own risk is not dismissed as a little understood and complicated alternative. In fact, retained risk has its own turf in the world of risk, and our advocacy is aimed at protecting and expanding that turf. We “communicate” with each other, building and expanding valuable and profitable relationships and networks, and in doing so we solidify the places at the table for retained and alternative risk programs.

2012 Goals Some of the goals that we might consider of value in 2012: (1) expand our international base, presence and membership.This “interesting world” we live in no longer has economic borders and there are great opportunities outside the USA. Just look at the Euro zone alone; (2) increase the number of SIIA members who are employers.This initiative will complement SIIA’s current membership well; and (3) expand the number of Premier SIIA Members and work to enhance the benefits of the various SIIA membership levels.

January 2012

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“super-Failure” silver lining? The failure of the Super-Committee to reach an agreement has its many negative impacts and results. But, there may be a ‘silver lining’ depending on how you vote.The politics and parliamentary rules get complicated quickly, but when President Obama insisted that if the Super-Committee failed, the sequester cutting $68B in 2013 had to occur after 2013, in the next administration, an interesting scenario arose. As written, the sequester would occur on January 2, 2013. If the Republicans win a majority in the House and Senate, provisions of the revived Gramm-Rudman Act could be used to modify or replace the 2013 sequester with entitlement reforms or other changes in discretionary spending. This empowerment could be profound. Sparing the details, certain Congressional actions could result in a complete de-funding of PPACA and entitlement restructuring. (Credit: WSJ 11/18/11, Sen. Gramm and Mike Solon). Something to think about at the polls. Sending my sincere good 2012 wishes from Big Sky Country.

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January 2012

Final ACO rules, and How Captives Could Play a Role by Jason Kimpel, Baker & Daniels LLP and Nick Manetto, B&D Consulting

January 2012

The Self-Insurer

hen it comes to reviving patients from near-death experiences, the Medicare Shared Savings Program (MSSP), or Accountable Care Organization (ACO) initiative, may rival even the most heroic examples of medicine. Almost overnight on the eve of April Fool’s Day, ACOs morphed from being the subject of perhaps the most eagerly anticipated proposed federal rules in recent times to a target of all that is wrong with the Patient Protection and Affordable Care Act. Receiving the most scorn were proposed requirements that every ACO would incur some level of risk during the initial threeyear performance period. Critics admonished that the combination of risk, hefty quality reporting and upfront costs coupled with little to no early-stage savings would deter even the most advanced of integrated providers from applying. Public remarks ranged from mildly critical to outright scathing, and many health care policy and political watchers wondered if any takers for a signature Obama Administration healthcare delivery system reform initiative would step forward. Fast forward nearly seven months and more than 1,300 public comments later and the final ACO rule has received, by and large, a relatively more receptive response from the provider community than its predecessor proposed rule ever did. But concerns still remain and a big question is whether or not the multiple sweeteners in the final rule will be adequate to entice a large enough block of providers to submit the 21page application between December 1, 2011 and January 20, 2012 to be among the inaugural class of ACOs that begin operating on April 1st.

As this process unfolds, opportunities may exist for captive insurance companies to play a key role, especially with those ACOs willing to assume a greater financial risk for the prospect of a greater reward. By establishing itself as a captive insurance company (“Captive”) or forming a Captive subsidiary, an ACO may not only manage the downside risk but also enjoy other advantages under this new regime.

Key provisions of the Final rules In crafting the final ACO rules, CMS officials had to walk a careful line between addressing the most problematic portions of the proposed rule to attract an adequate number of participants while retaining enough of the fundamental reform components. At its core, the ACO concept seeks to reduce health care costs by fostering greater provider collaboration and achieving better patient outcomes by using a combined carrot and stick of cost and quality measures. While some may deride ACOs as “HMO-light,” proponents like to note that ACOs are established by providers and also point out that Medicare beneficiaries will retain unencumbered access to providers, including those outside of an ACO.

reduced risk While the proposed rule envisioned two models with the first placing ACOs at risk only in the final year of the three-year period and the second placing ACOs at risk all three years, the final rule eliminates downside risk from the first model completely. Removing risk from the “one-sided” model is a significant modification that should entice some organizations that were deterred by the risk requirement to at least give the question of forming an ACO some more thought. An ACO can only forego risk for one three-year period. After that time, it must agree to accept downside risk for any subsequent three-year period or leave the program all together. Those ACOs opting to accept downside risk right out of the starting block – as well as those opting for the one-sided risk model but seeking interim payments – will need to demonstrate within their application an adequate ability to repay losses. A higher shared savings rate for those ACOs that accept downside risk

The Self-Insurer

January 2012

– 60 percent vs. 50 percent – is a carrot CMS hopes will prove useful in attracting participants to the twosided model. The final rule also scraps the 25% withhold CMS had proposed for ACOs accepting downside risk as an insurance policy for the government to receive any repaid losses. Instead, each applicant will need to demonstrate within its application that it can adequately repay any losses.

Fewer Quality Measures Another point of criticism in the proposed rule was that all ACOs would need to report on an initial set of 65 quality measures. The final rule chops that number nearly in half, to 33. It also phases in the pay-forperformance provisions over time, with ACOs in the first year only needing to report on all measures to comply with the provision. In year two, 25 measures convert to pay-for-performance, and in year 3 performance criteria will be used to evaluate ACOs against all but one measure.

Other Key provisions Beneficiaries will still be assigned to ACOs retrospectively, meaning providers will lack absolute certainty as to whether or not a patient is in the ACO or outside of it. But the final rule calls for providing ACOs with quarterly access on likely or potential beneficiaries, giving them some data that should be helpful in gauging how well they are performing with at least a subset of the patient population on whom they will be evaluated against. The final rule also enables ACOs to share in savings with CMS earlier in the process once an initial benchmark is achieved, and it also provides a route through which ACOs in small and rural markets can receive advance payments of their shared savings to help pay for upfront costs.

January 2012

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using Captives to insure Downside risk

Opportunities beyond the Mssp

While many ACOs, particularly those less experienced in operating in an integrated manner, may opt for the one-sided model, the final rule provides opportunities for Captives. Under the two-sided model, an ACO must ensure its ability to repay shared losses through a self-executing method such as funds in escrow, surety bonds, letters of credit, or reinsurance. However, in order to access the reinsurance market, an ACO must be, or own, an insurance company. To do this, an ACO may organize itself directly as a Captive, or may form a wholly-owned Captive subsidiary.

In addition to meeting the structural and functional requirements of the MSSP, ACOs will likely also participate in similar arrangements outside of the CMS program. While these programs may not be identical to the CMS’ ACO initiative, they will likely have similar attributes – as well as needs – that could be served by a Captive. For example, a providerowned Captive could possibly reinsure the policies of the providers’ patients. Also, a Captive ACO-like arrangement would allow participation in the profits/losses of the business and thus align the interests of the providers and the payer/insurer (similar to capitation models). Private payers/insurers could possibly contract with ACO Captives to shift risk and administrative expenses.

Under the final rule, an ACO must be a legal entity authorized under state law with a taxpayer identification number (“TIN”) and be comprised of Medicare-enrolled providers and/ or suppliers. Eligible entities could organize as a Captive to serve as the legal entity for an ACO and satisfy the structural requirements of the MSSP. An ACO must also have an established mechanism for shared governance and a system for receiving and distributing shared savings and repaying losses. An ACO organized as a Captive could meet these requirements. A Captive ACO’s benefits begin with its innate structure as a recognized risk-bearing entity with direct access to reinsurance markets. For example, a Captive ACO could also insure and/or reinsure its own “traditional” risks such as professional (medical and director & officer), general, and property liability, in addition to the downside risk under the MSSP. There may also be some synergies with the MSSP’s quality measures and lower medical malpractice coverage provided by a Captive.

CMS noted in the final rule that the MSSP would not pre-empt any state insurance laws. CMS also noted that the agency bears the risk of paying beneficiary claims, yet did say it would consider future rulemaking if “should we become aware of any unexpected program issues that render States responsible for bearing any costs resulting from the operation of this program.” State legislature interest in ACOs has been high. As of August 2011, more than 70 bills referencing ACOs had been introduced in legislatures throughout the country, according to the American Academy of Family Physicians. Of the 10 bills enacted into law, New York passed one that requires the state’s insurance commissioner to regulate ACOs, and several other states adopted health care statutes to include ACOs as recognized entities within such laws according to ACO Business News. Furthermore, a number of

states prohibit an unlicensed entity from assuming financial risk. In these situations, an ACO organized as a Captive may already (or more easily) qualify, or otherwise be eligible to be licensed, in such states.

Conclusion While the CMS final rule on ACOs has certainly lessened risk factors, the need to manage risk – particularly for those providers pursuing the twosided risk model – remains. ACOs organized as, or owning, a Captive could provide advantages over other structural forms by providing alternative risk management needs that may continue to grow as the ACO health system evolves. n

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The Self-Insurer

January 2012

Art GALLERY Larger numbers bring efficiency, but how about the service?

nless Congress repeals the law of large numbers (don’t laugh – they’ve done sillier things) all of insurance will continue to look for larger pools of insureds – and that applies whether you’re covering homes, Hummers or healthcare. The law of large numbers isn’t really a law in the sense of Obamacare or other foolishness – it’s more a natural law, like gravity or the half-life of holiday leftovers that seems to stretch into infinity. But I digress.

by Dick Goff

But, of course, captives are citizens of the world and easily move about between and among global jurisdictions. A central captive would seem the ideal vehicle to provide excess coverage with equal facility in Trenton, Trieste or Timbuktu. This would seem an ideal funding solution for excess coverage of widely scattered employee groups. By blending the populations into a statistical whole, the law of large numbers would allow an employer to proceed with confidence. But wait! I cautioned myself. Healthcare is more than finance – it’s also, well, care of peoples’ health. Would the law of large numbers apply to groups of employees working in widely disparate social and economic environments? If acceptable standards of healthcare and service weren’t applied everywhere that would seem to throw off the underwriting model.

Regarding employee benefits, the larger the numbers the better. When you can pull together tens or even hundreds of thousands of individuals, you improve your ability to predict and price the risk of losses from employee health plans. That’s an obvious benefit to employer sponsors of self-insured health benefits plans that may cover a large number of people in a country such as the U.S. But, I wondered to myself one day, what happens when that employer establishes a number of employees in one or more foreign countries? Do the numbers aggregate to the whole or do the overseas workers each comprise a small unit with greater underwriting risks? Then I applied my favorite tool, ART, to my scenario and thought about how difficult it would be to establish captives in each operational country to cover losses in excess of the sponsor’s retention.

January 2012

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As so happens in my life, I needed a dose of reality to validate my theory. I turned to Steve Jacobson, a member of SIIA’s International Committee who is CEO of Olympus Managed Health care, the international service company affiliated with Assent Medical Cost Management in Miami. Steve’s opinion was that, no matter what the funding structure of healthcare, it couldn’t occur in a vacuum without regard to the care provided to individuals. “Employees around the world, particularly if they work for a U.S. company, expect the same level of care and service they would get here,” he said. “That can be a stumbling block for people working in foreign countries that don’t have the same standards.” He said that for 17 years Olympus Managed Health Care has been involved in care access and quality on behalf of employers around the world with a variety of

“concierge services” and the assurance that employees won’t have to pull out their foreign currency or a credit card when they need care. Just as important to employers is the billing review and negotiation services that Jacobson said can equate to network discounts even in places where there are no networks as they are known in the U.S. Upon reflection Steve agreed that the law of large numbers that could drive healthcare funding could also provide efficiencies of scale to services. “There would be extremely significant savings for the services to blended programs you’re talking about compared to the cost of fragmented services organized in separate countries around the world,” he said. David Lubowitz, Managing Director of Assent, joined the conversation to point out that there could be significant savings of costs for health care in many

foreign countries if it is managed well. “Look at the trend of medical tourism where people in the U.S. travel to a variety of countries for surgeries or other procedures that can cost a quarter of the price of those services in the U.S.” He pointed out that quality standards of many health care organizations around the world are monitored by the international arm of the Joint Commission on Accreditation of Healthcare Organizations that has long set the care standards of U.S. hospitals.

I realized my conversation with Steve and David was just scratching the surface of a very large component of ART in international settings. I’m thinking we’re going to have to write more about this in the future. n Dick Goff is managing member of The Taft Companies LLC, a captive insurance management firm and Bermuda broker at dick@taftcos.com.

When designing healthcare plans in foreign countries, nothing succeeds like having “feet on the street,” Steve Jacobson said, adding that data accrued over years of experience in many countries both helps international employees receive good care and allows for more aggressive underwriting on behalf of employer plan sponsors.

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January 2012

Bench From the

by Thomas Croft

Mirror, Mirror on the Wall: should We Want You there at All?

ssuing a stop loss policy with no exclusions is currently all the rage. Termed “mirroring,” the idea is to market a product that has no “gaps” between the Plan and the stop loss policy, such that no claim falls between the cracks. No matter how desirable from a marketing point of view (“If it’s covered under your Plan, its covered under our stop loss policy”), I submit that there are serious and as-yet-unrecognized cracks in the mirror that spell future trouble for carriers and MGUs. Specifically, I fear that carriers and MGUs issuing mirrored stop loss coverage are “handing over the company checkbook” to the Plan fiduciaries. How is this so? Virtually every Plan has a provision giving the Plan Administrator broad discretion to determine issues such as Plan coverage as to claims for benefits. And most stop loss policies contain provisions emphasizing that it is the Plan’s prerogative to determine claims under the Plan. Such provisions also typically make it clear that the issuing carrier has no involvement in Plan decision-making regarding claims. In contrast, stop loss policies do usually contain language making it the carrier’s sole prerogative to determine whether claims under the stop loss policy are eligible for reimbursement or not. So--what happens, for example, with a “mirrored” policy where an MGU believes that an uncovered claim has been erroneously paid by the Plan, say on

January 2012

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the grounds of an exclusion in the Plan for experimental/investigational treatment, or because the injury to the Plan beneficiary occurred in the course of the commission of a crime, like DWI? In order to prevail in this kind of situation, the MGU must necessarily second-guess the Plan Administrator’s decision about the applicability of the particular Plan exclusion involved, and, in essence, reverse it to support a denial of the stop loss claim. With an unmirrored stop loss policy this direct confrontation with the Plan Administrator’s discretionary decision-making is both unnecessary and superfluous. Instead, the MGU can rely on the stop loss policy exclusions for experimental treatment or acts committed in the course of the commission of a crime to support the denial wholly independent of

any Plan language that has been discretionarily interpreted. In other words, it is much easier to argue to a court that a stop loss policy exclusion applies than to claim--as the mirrored policy issuer must—that Plan language has been misinterpreted and/or misapplied and that the MGU has the contractual freedom to correct that misinterpretation or misapplication without any deference to the decision of the Plan fiduciaries. Courts are used to giving Plan Administrators’ decisions deference from the many ERISA cases they hear involving individuals’ claims for benefits, and this mindset carries over to stop loss litigation. Mirroring is also a bad idea from an industry perspective, in my humble view. Increasingly, stop loss insurance has come under attack from groups like the NAIC for being a fully insured product in disguise. Low attachment points and advance funding features add fuel to the rhetorical fire. With mirroring, one more fundamental difference between fully insured plans and self-insured plans with stop loss protection collapses. Instead of being a separate contract with separate exclusions, a mirroring stop loss policy becomes an extension of the Plan

document, at the practical mercy of a claims administrator making benefits decisions under the Plan. And finally there is the problem that all mirrors have: the mirrored subject can be downright ugly. A carrier issuing a policy form with a mirroring provision necessarily reincarnates and replicates deficiencies in a Plan document without any corrective protection from separate stop loss policy exclusions. So if the Plan is ugly in any material respect— ambiguous, lacking in exclusions, or otherwise undesirable from an underwriting perspective—the stop loss policy itself will reflect those deficiencies by virtue of the mirroring. The only option for the carrier/MGU is to insist on corrective language being added to the Plan or to decline to write the case. Now the carrier or its MGU is in the business of writing the Plan Document, a fiduciary function if there ever was one. Little activity by a stop loss carrier could be more intrusive, and more like a fully insured situation, than one where the insurer dictates the content of the underlying Plan Document.

assumed, and is inconsistent with the structural separateness of the stop loss contract and the Plan. It also tempts a carrier or MGU to insert itself where it does not belong – into the very terms of the Plan itself. Are the marketing benefits of mirroring really worth it, or does prudence suggest that the industry might do itself a favor by rethinking the current craze? A look in the mirror might be in order… n

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January 2012

SIIA GrAssrOOts & Political Advocacy Monthly Wrap Up Report

SIIA pursues its mission to preserve and protect selfinsurance and alternative risk transfer in part through political advocacy that is a coordinated, multi-layered ongoing effort. Activities include lobbying by an expanded full-time staff in SIIA’s Washington, D.C. office; operation of the Self-Insurance Political Action Committee; visits to legislators in Washington and elsewhere by members of the SIIA Grassroots Project; educational activities in conjunction with SIIA by members of the Self-Insurance Educational Foundation (SIEF) and direct presentations about self-insurance to business and public affairs organizations throughout the United States. This page will reﬂect selected events each month.

Members Clemente, Kelbel Meet their representatives Bob Clemente, CEO of Specialty Care Management, met with Congressional staffers for both Democratic New Jersey Senators Frank Lautenberg and Robert Menendez. He reported back: “I believe our grassroots effort is vital and instrumental in getting the message to our elected officials and their staffs about the importance of the employer-based healthcare system and the value it brings to their constituents. It helps ‘bring it home’ for them in a meaningful way. “SIIA’s efforts through the various committees, staff and now our PAC are invaluable in helping us as members get our message delivered. The SIIA staff has been very supportive in setting up meetings and providing the necessary talking points to make the grassroots efforts work. “I would encourage every SIIA member to contact their representatives and to contribute to the PAC to help us all get the message delivered and keep our industry strong.” Craig Kelbel, President and CEO of HCC Life Insurance, met with Sen. Johnny Isakson (R-GA) and healthcare staffers for Georgia Republican Senator Saxby Chambliss, plus Rep. Phil Gingrey (R-GA) in their Capitol Hill offices. He said, “With the growing challenges affecting our industry, there is no better time to get involved in SIIA’s grassroots initiative. SIIA secured meetings for me with elected officials on Capitol Hill and it was worth every effort to have the opportunity to address my concerns with rising healthcare costs, quality of care and other issues affecting the selffunded community. “I’ve seen firsthand how these lobbying efforts are paying off. When we work together to educate legislators and reinforce the value of the self-insurance industry, we achieve great results.”

upcoming scheduled Meetings Bob Clemente, noted above, is scheduled to meet with Rep. Leonard Lance (R-NJ). And Gerry Gates, President of Stop-Loss Insurance Services, will meet with Rep. James McGovern (D-MA).

January 2012

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To put your name on this list, see the following item:

Medicare & Ucr PriciNG daTa

Now it’s Your turn Recently SIIA has set up more than two dozen meetings between SIIA members and Senators or Representatives on Capitol Hill or in their home districts. Now with a new Congress in place, the timing has never been more important for this ambitious initiative. Each SIIA member can become an effective advocate for our industry and help play a crucial role in our success in Washington. For our members interested in meeting with their elected representatives either on Capitol Hill or in home districts, SIIA makes it easy. Just contact SIIA’s Washington office at 202-463-8161 to get the process underway. n

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January 2012

Data Analysis: A Primer for

Risk Management and Claims Handling by Keith Higdon, MITM

January 2012

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ata analysis is critical to the management of risk and the oversight of claims handling. Understanding a program’s experience sets the direction for future action by outlining what has occurred, where the program stands today (the current baseline), and what opportunities exist for improvement. Data analysis as a discipline contains three interrelated components: • Process Management • Data • Analysis Process management provides the framework for initiating and directing a data analysis project. A widely accepted approach within the discipline is the Cross Industry Standard process for Data Mining (CRISP-DM). A complete explanation of the steps in the process and supporting documentation can be found at www.crisp-dm.org. Aside from a framework, data analysis requires a solid foundation, which is the data itself. Previous articles have outlined the data lifecycle (Higdon, Keith M., “Understanding the Data Lifecycle,” John Liner Review, Vol. 24, NO. 1, Standard Publishing Corp, Boston, MA, Spring 2010) and its five stages. • • • • •

Capture Storage Access Analysis Deployment

When considering a data analysis project, understanding the first three stages of the lifecycle create the foundation by setting boundaries around what is currently possible. The purpose of this article is to expand on the processes within stage 4 (Analysis) with additional considerations for making solution deployment (stage 5) have a more practical impact. By having a better understanding of

the methods of analysis, metrics commonly used in data analysis and statistical techniques, risk management departments will be in a better position to assess their need for analysis, to identify the resources and commitment necessary to design and implement a data analysis project, and to set appropriate expectations as to the usefulness of the information obtained.

What is data analysis? Data analysis is a process through which data is transformed into information, which in turn provides a decision point that results in action. Actions within the risk management arena generally take the form of an intervention or series of interventions such as return-to-work initiatives, nurse case management, safety programs, allocation systems, etc. The range of interventions is broad, but their focus is on the process of managing risk, the mitigation of risk, or the prevention of risk. Data analysis supports the intervention process by providing information that either: 1) evaluates the outcome of an intervention, or 2) identifies an opportunity for an intervention. For example, lost time statistics tell you what the current state of affairs is for a given employer based on the total or average number of days away from the job for workers’ compensation claims. By itself these descriptive statistics tell the “what is”. These statistics become information when they enable risk professionals to understand the drivers to lost time as it relates to the characteristics of the claimant, the claim, and the environment in which the incident occurred. Understanding the larger picture opens up opportunities to target specific actions, positions, locations, etc. to affect future claims. It is important to understand that data analysis is not reporting. This is a common misconception from both a skill set and product expectation perspective. Reporting is the ability to present data. Presenting data in a meaningful way is an important skill, but alone, it is not data analysis. Reporting tends to be more technology driven. There are hosts of report writing tools available that allow individuals to specialize in this area. The goal of reporting is to improve access to data and tee up the data for analysis, but it is generally a starting point for reviewing data and the current state of a situation as opposed to the act of analyzing the data and transforming it into information. This is a key distinction when looking to some organization or individual to provide data analysis. The ideal solution contains three separate sets of skills (see Figure 1). In many cases two of the three will meet a specific need, but consider the requirements before the engagement and ensure that the solution (organization or individual) possesses the necessary skills to make the project successful.

Figure 1. Methods of Data Analysis There are four general forms of analysis in risk management. • • • •

Benchmarking Trending Anomaly Detection Program/Intervention Evaluation

Benchmarking is a comparative mechanism that uses either an outside data source (industry data or carrier/ third-party administrator (TPA) book of business) or past experience as the point of reference to evaluate current program performance. The metrics involved are usually at the aggregate level

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January 2012

and assume that the benchmarking source experience is “normal” or “expected.” If it is, it can be used to highlight nuances and aberrations in the program being compared to the benchmark. Herein lays the difficulty with benchmarking. It is not just the nuances of the program being compared that need to be considered. In the area of public entity risk, this is even truer since often benchmarking is done across jurisdictions in an effort to identify “like” entities (municipalities of approximately the same population, transportation systems with similar modes of transportation and scope of service, etc.). Jurisdictional differences are just one of many elements that include budgetary considerations, union contracts, return-to-work programs, local economic considerations, and employee demographics to name just a few. This is not to say that benchmarking can’t be useful. The key is to keep the comparisons at high level, focus on trending, and don’t look to benchmarking to be the final answer. Benchmarking is a starting point for analysis, never the end point. Trending data takes benchmarking a step further by creating a view of the data that consists of multiple points in time. The definition of a trend line requires three points or more in time to be included in the analysis. This is not to say that all benchmarking must be done from a trending perspective. On the contrary, benchmarking can be conducted with fewer than three points in time and often involves conducting a before-after comparison for an intervention (see program evaluation section) or creating a comparison against specific goals not based in time (e.g., 5% reduction in costs). Trending is critical when making comparisons to industry and carrier/ TPA book of business data as it takes the focus away from data set nuances

January 2012

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and focuses on larger issues that assist in determining where to look next (remembering that benchmarking is a first step) for causality. Information drawn from a trend line comes from the direction of the trend in combination with the variance between the two or more data sets being compared. For instance, trending directs attention to relationships across programs that are aligned at the state and industry level allowing for initial conclusions as to whether the trend is a function of program specific design or broader forces acting on that design. The multiple points in time also allow you both to assess the validity of the comparison and highlight points for further investigation.

specific circumstances that may require a very different intervention.

Anomaly detection is probably the least glamorous, but most important form of analysis in risk management. Anomalies such as large losses can drive individual figures, overall trends, and misdirect focus and interventions. The first question to be asked when provided a set of numbers should be “What are the outliers?” while the second question should be “How are the outliers affecting what I am seeing?” There are three primary forms of anomalies to consider:

The fourth form of analysis is program/intervention evaluation. Program/Intervention evaluation can be viewed as a very specific implementation of benchmarking to past experience. The goal of this form of analysis is to isolate, and thereby, demonstrate the success of a program or intervention by comparing current results against a baseline or starting point. An added component is the concept of monitoring. Monitoring not in the sense of “are we on track to reaching our goal,” but in terms of measuring the accuracy and consistency of the intervention(s) as it is being applied. The question here is whether the intervention is being administered the same way every time. If not, the outcomes will be measured by varying standards. All too often monitoring is forgotten. Don’t make this mistake. Monitoring metrics are usually the hardest to try and reproduce after the fact. All aspects of program/intervention evaluation should be considered and planned out during the design phase for the program/intervention to provide the best opportunity for success as it relates to measurement once the intervention is deployed.

• Severity – extremes highs and lows on the dollar scale • Pattern – types of injuries, location of injuries, and types of claimants • Program specific – special claim types used to record nuances in the program, special handling instructions for certain types of claims, etc. Each of these anomaly types has the ability to affect trends and overall performance in ways that may not be indicative of the program as a whole. It is therefore important to look at trends both with and without the outliers to isolate the broader patterns from

One way to understand outliers on an ongoing basis is through stratifications, especially when looking at claim financials such as cost per closed claims, average incurred on open claims, or average incurred for a period of time regardless of claim status. An average or other measure of central tendency will likely not provide enough insight. The key for deploying stratifications is choosing the correct break points, which will vary from employer to employer and exposure type to exposure type. Look for natural breakpoints in past experience for guidance or consult your carrier/TPA for their experience with other clients.

Metrics, Metric Functions, and Metric Data sets Metrics form the basis of any analysis and focus on measuring either a process or an outcome. When choosing metrics for an analysis, consider the following:

in both application and interpretation. Practitioners of these methods need to understand the pros and cons of these techniques, the assumptions that underlie their use, and methods available to validate findings. The use of the wrong technique, a misunderstanding of the data, or the deployment of a result that has not been validated risks inaccurate conclusions, which often leads to misdirected actions. It is strongly recommended that those who are not familiar with these techniques seek out an expert to consult with prior to their integration into the analysis of a program.

• Data element that applies to the analysis (cost as represented by total amount paid, total amount incurred, medical paid, medical incurred, etc.) • The function necessary to the analysis (averages, rates, percentiles, etc.) • The data set that comprises the metric (new claims, open claims, closed claims, etc.) Table 1. Below outlines examples of regularly deployed metrics within claims management.

table 1. sample Metrics in the Claims Management environment Metric functions or statistical techniques fall into two categories: descriptive and relational. Descriptive statistics are the most commonly used and tell you “what is” generally by summarizing or otherwise illustrating the characteristics of a data set (averages, ranges, variances, etc.). A more powerful, but more complicated, set of metric functions are relational statistics that identify either an association (correlations and analysis of variance) or causal relationship (t-test and other forms of hypothesis testing) between the characteristics of a data set. Relational statistics provide more insight in to the “why” that inevitably follows the “what is”.

A list of commonly used metric function from a descriptive statistical perspective within claims management includes: • Difference

• Percent

• Rates

• Measures of central tendency

• Percentile

• Standard deviation

• Mean (average)

• Percent Change

• Stratification

• Median (midpoint)

• Range

• Sum

• Mode (most frequent) The metric data set defines what comprises the metric and metric function. Rule number one in accessing data for an analysis project is, “know the system”. The underlying system will greatly define what can and can’t be done from an analysis perspective. Considerations for pulling data from a claim system include:

Unfortunately, with the power of relational statistics comes a level of complexity that can create pitfalls

• Data capture – who gathers the data, what is captured, and what controls are on the data • Data definitions – does the data description match the expectation and need • Data set types • NEW – beginning of activity • OPEN/PENDING – ongoing activity • CLOSED – end of activity • ACTIVITY – all claims with a certain task performed within a given time frame (e.g. payments and lost days)

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• “As Of ” – evaluation point for metrics and other characteristics such as claim status – most common evaluation points include: • End of period – date of loss (NEW) from 1/1/2009 through 12/31/2009 as of 12/31/2009 • 6 months out – date of loss (NEW) from 1/1/2009 through 12/31/2009 as of 6/30/2010 • 12 months out – date of loss (NEW) from 1/1/2009 through 12/31/2009

Deployment

When deployed consistently and accurately, data analysis becomes a valuable tool for risk management and claims handling by continuously challenging the status quo, providing insight into opportunities for targeted interventions, and validating investment based on outcomes. n

Metrics combine with metric functions and methods of analysis to produce meaningful information that becomes the story behind the claim experience. Putting it all together can be a challenge. The key is prior planning that runs through each of the steps outlined below. • Determine the purpose of the analysis • Is it a process or outcome question? • Choose the metric(s) • Choose the metric function(s) • average is the most common but not always the most useful • when using an average combine it with the median or trends that include volumes and stratifications for the same metric • Choose the data set • Choose the “as of ” • Apply to the method of analysis • Benchmarking • Trending • Anomaly detection • Program evaluation

Mr. Higdon is a Senior Vice President and Director of the business intelligence and risk services teams for Sedgwick Claims Management Services, Inc. in Schaumburg, Illinois. Keith has fifteen years of experience in program evaluation, benchmarking, and information system design and development. Keith has bachelor’s degrees in Sociology and Anthropology from Northern Illinois University, a master’s degree in Information Technology and Management from the Illinois Institute of Technology, and additional graduate work in Program Evaluation and Statistics.

January 2012

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From The Desk of

ERICA MASSEY

011 was full of challenges for the self-insurance and alternative risk transfer industry. As we welcome the New Year, we look forward to embracing the opportunities that have come from these challenges. It is time to stay positive, and move forward. Be on the lookout for information on our new campaign, Positively SIIA… Positively Connected… Connecting the Self-Insurance Industry for Positive Risk Solutions. You may have recently noticed the increase in advertisements in The Self-Insurer. We are pleased that an increasing number of leading industry companies are using The Self-Insurer as a forum to communicate how they can help self-insured/ART programs operate more efficiently. This complements the value of our editorial content for corporate buyer readers. If you are interested in advertising in The Self-Insurer, please contact Shane Byars at sbyars@sipconline.net or (888) 394-5688. If you have ever aspired to be a published author, we invite you to share your insights and submit an article for consideration for publication in The Self-Insurer. Please contact our Editor Gretchen Grote at ggrote@sipconline.net for details. Watch for more news from The Self-Insurer and exciting changes to come.

Erica M. Massey President/Managing Editor, SIPC

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January 2012

PPACA, HIPAA and Federal Health Beneﬁt Mandates:

Practical

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

Q&A

2011: Yet another Busy Year for health plans

ell, 2011 was yet another busy legislative and regulatory year for health and other welfare benefits – keeping benefits practitioners and plan sponsors on their toes for most of the year. And not all of the activity related to health care reform. Don’t worry though, health care reform played its part. If you blinked, you almost certainly missed something. For those of you that may have blinked, or who just gain comfort from a retrospective review, we briefly outline below the major legislation, regulations, and other federal guidance that either became effective this year or was issued this year – each of which had or will have a profound effect on health plans and other welfare benefits.

the road Well traveled!! Over the Counter Drugs and Medicines – I need what to receive a reimbursement? Thanks to the Patient Protection and Affordable Care Act of 2010 (PPACA), over the counter drugs and medicines purchased on or after January 1, 2011 failed to qualify as “medical care” unless a state-law compliant prescription was first obtained from an authorized health care provider. This change impacted all group health plans, including health FSAs and health reimbursement arrangements (HRAs), and health savings accounts.

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The IRS also issued helpful guidance on the use of debit cards to purchase over the counter drugs and medicines (see IRS Notice 2011-5). In particular, the guidance indicates that debit cards may still be used to purchase over the counter drugs and medicines at a pharmacy (including a web-based vendor) that uses the inventory information approval system (IIAS) so long as the pharmacist dispenses the drug, an RX number is assigned without which the purchase may not be made, and the general IIAS data retention requirements are satisfied. Practice Pointer: The “prescription” requirement applies only to “medicines or drugs” and not to over the counter supplies. While this is good news, identifying the distinction between a “medicine or drug” and a “supply” can be difficult because we do not yet have a working definition of “medicine or drugs”. Treasury regulations define “medicine or drugs” as items that are legally procured and “generally accepted as falling in the category of medicine or drugs” (see Treas. Reg. 1.213-(e)(2)). Hardly a helpful definition to say the least. Arguably, any item whose primary component is medication would be considered a drug or medicine.

HSA Non-Qualified Distribution penalty increases to 20% We can also thank PPACA for an increase in the excise tax applicable to non-qualified distributions from a Health Savings Account. Effective January 1, 2011, the excise tax for nonqualified distributions (i.e. distributions other than for “medical care” as defined in Code Section 223) increased from 10 to 20%. Practice Pointer: Employers who have established an HSA contribution program for employees have likely communicated, as a convenience to the employee, the

potential excise tax; however, it has been our experience that most employers did not alert employees to the increase. These employers should review communication materials and revise accordingly.

Mental health and substance Abuse parity: And we really mean it this time!!!!! The Departments of Labor, Treasury, and Health and Human Services issued interim final regulations on the Mental Health Parity and Addiction Equity Act (“MHPAEA”) back in February 2010; however, they were effective for plan years beginning on or after July 1, 2010. Thus, health plans operating on a calendar plan year became subject to the final regulations on January 1, 2011. Unlike the original Mental Health Parity Act of 1996, the MHPAEA requires true parity with respect to financial and treatment limits (e.g. the number of visits) imposed on mental health and/or substance abuse. The final regulations clarify many aspects of the MHPAEA, and they also set forth the manner in which the MHPAEA applies to non-quantitative treatment limits (e.g. pre-authorization) and how the MHPAEA rules apply to employee assistance plans (they don’t unless EAP visits must be exhausted before the health plan pays). Practice Pointer: The Departments recently issued a FAQ that further clarifies the manner in which the MHPAEA applies to non-quantitative treatment limits. You can find the FAQ at www.dol. gov/ebsa/faqs/faq-aca7.html.

eeOC regulations on title ii of GiNA take effect (didn’t we already address GiNA?) The EEOC’s final regulations on Title II of GINA took effect on January

10, 2011. Title II of GINA regulates the collection of genetic information as part of the employer’s employment practices and should not be confused with Title I of GINA, which regulates the collection and use of genetic information by health plans. The final Title I regulations issued by the Departments of Labor, Treasury and Health and Human Services were effective December 7, 2009. Title II of GINA prohibits employers from discriminating against applicants and employees on the basis of genetic information and from requesting or requiring an employee’s genetic information (including the employee’s family medical history). The regulations carved out some important exceptions to the general prohibition against requesting or requiring genetic information, including genetic information obtained as part of the employee’s “voluntary” participation in a wellness program and where the employee’s advance authorization is obtained. The regulations go on to indicate that participation in a wellness program is not voluntary if participation in the program is conditioned on providing the genetic information or the employee is penalized for failing to provide the information. Moreover, financial inducements for providing genetic information are not permitted. However, financial inducements for completing a health risk assessment with questions regarding family medical history or other genetic information may be permissible as long as the assessment clearly indicates that the financial inducement will be provided without regard to whether the participant answers the family medical history questions or not. For more information on the EEOC’s final regulations on Title II of GINA, go to www.alston.com/ files/Publication/70f33fe2-bf82-46f3-

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9765-8d31dc0e7477/Presentation/ PublicationAttachment/0a115c1e-60a4440c-9da5-99f0a1bb8e47/GINA%20 TitleIIRegulations.pdf. Practice Pointer: The EEOC indicates that they intend to prevent Title II causes of action being asserted for Title I violations by a health plan; however, there is practical overlap. For example, if an employer amends its self-insured health plan to require genetic information, the employer may have violated Title II. If the plan requires the genetic information as a result of the amendment, then the plan may have violated Title I. Although the “plan” is a separate legal entity, it is the employer who pays the penalty for both the Title II and Title I violations. NOte: On June 24, 2011, the EEOC issued an informal information letter confirming its prior position regarding the definition of “voluntary”. You can find the letter at www.eeoc. gov/eeoc/foia/letters/2011/ada_gina_ incentives.html.

the “seff Case”: ADA relief for Wellness programs? The Americans with Disabilities Act (“ADA”) generally prohibits employers from requiring employees to undergo a medical examination or answer medical inquiries (the “ADA Prohibition”). An important exception exists for wellness programs that are considered to be voluntary under ADA guidance. Based on current informal guidance from the EEOC, a wellness program will only be considered to be voluntary if it neither requires participation nor penalizes employees who do not participate. In 2011, a district court in Florida ruled in favor of Broward County in a suit brought by participants under the ADA with respect to Broward County’s wellness program that imposed a surcharge on employees who declined to participate (see Seff v. Broward County, U.S. District Court for the Southern District of Florida, Case No. 10-61437-CIV-Moore/Simonton). Ruling in favor of Broward County, the court stated that the County’s wellness program did not violate the ADA Prohibition because the program comes under ADA’s “safe harbor” underwriting exception to the ADA Prohibition. Practice Pointer: Only one other court has applied the approach adopted in Seff, and that decision was under a fully insured program. It is unclear whether the EEOC, as the ADA enforcement agency, will follow this ruling. We are aware of several EEOC challenges where the EEOC has disputed the validity of employer wellness programs that offer financial incentives based on the “voluntariness” of the arrangement. Nonetheless, Seff provides employers some breathing room, and an alternate approach to support the validity of their wellness programs

What kind of a carrier would you trust for your Stop-Loss coverage?

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Group insurance policies are underwritten by Sun Life Assurance Company of Canada (Wellesley Hills, MA) in all states, except New York, under Policy Form Series 02-SL and 07-SL. In New York, group insurance policies are underwritten by Sun Life Insurance and Annuity Company of New York (New York, NY) under Policy Form Series 02-NYSL and 07-NYSL. Group insurance policies are underwritten by Sun Life and Health Insurance Company (U.S.) (Wellesley Hills, MA) in all states under Policy Forms Series GP-A and GP-D (or appropriate state edition). Product offerings may not be available in all states and may vary depending on state laws and regulations. © 2009 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. Visit us at www.sunlife-usa.com. SLPC 19273 08/08 (exp. 08/10)

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relief for Certain hrAs from Medicare reporting – Oh What a relief it is!!! In late 2007, Congress enacted the Medicare, Medicaid, and SCHIP Extension Act of 2007, which amended the Social Security Act to add new mandatory Medicare coordination reporting requirements (“MSP Reporting Rules”) for third party administrators and insurers of group health plans. Health Reimbursement Arrangements (“HRAs”), but not Health FSAs or HSAs, are considered “group health plans” for this reporting purpose. The nature of HRAs posed unique reporting problems. Although reporting was originally required to begin for coverage provided on or after January 1, 2009, CMS initially delayed the reporting date for HRAs until the last quarter in 2010. In addition, CMS initially exempted HRAs that had a maximum annual reimbursement amount of less than $1000. In 2011, CMS issued additional reporting relief for HRAs. For new accounts or renewals (e.g. the beginning of a plan year) on or after October 3, 2011, reporting is no longer required for HRAs with a maximum annual reimbursement of less than $5,000. In addition, if the balance of a reportable HRA is exhausted during the year, then the administrator would report an HRA as terminated (until coverage begins again). Practice Pointer: The exemption applies to HRAs with a maximum annual reimbursement of less than $5000. However, if the maximum annual reimbursement is equal to or exceeds $5,000, at any time during the year, the reporting requirements apply. Moreover, amounts carried over from a prior year are considered in determining whether the HRA has an annual reimbursement equal to or greater than $5000.

extension of COBrA for pBGC/hCtC recipients On October 21, 2011, the President signed into law the Trade Adjustment Assistance Extension Act of 2011, Pub. L. No. 112-40 (the “TAAEA”). The TAAEA will retroactively increase the Section 35 health care tax credit that is available to certain individuals receiving trade adjustment assistance, or certain PGBC recipients from 65% (previously 80% for coverage months beginning prior to February 13, 2011) to 72.5%. This increase will not extend beyond January 1, 2014. The IRS is currently working on the process for applying the credit retroactively. The TAAEA also entitles COBRA qualified beneficiaries by virtue of a termination of employment/reduction in hours of employment who are also (i) PBGC recipients (or survivors of PBGC recipients) or (ii) TAA-eligible individuals to continuation of COBRA coverage periods through January 1, 2014 or, if later, the maximum COBRA period. Fortunately, the COBRA extension is applied prospectively – it will only apply to coverage months which would end (absent the extension) on or after the date that is 30 days after the bill was enacted, which was October 21, 2011. Thus, the extension only applies to those whose coverage would otherwise lapse naturally on or after November 20, 2011. Practice Pointer: The Omnibus Trade Act of 2010 extended coverage for such PBGC recipients or TAA-Eligible Individuals until the later of the maximum COBRA period or February 12, 2011. Since the new extension under the TAAEA is presumably not retroactive, those PBGC recipients or TAA-Eligible Individuals whose statutorily extended coverage ended in February 2011 would not be entitled to re-elect coverage.

hipAA privacy and security enforcement On November 8, 2011, the Department of Health and Human

Services’ Office for Civil Rights (OCR) published on its website the details of a new audit program targeted at covered entities. Under the program, OCR will perform up to 150 audits of covered entities for compliance with the privacy, security and breach notification standards adopted under HIPAA and the Health Information Technology for Economic and Clinical Health Act (HITECH Act). You can find more details regarding the audit program at www.hhs.gov/ ocr/privacy/hipaa/enforcement/audit/ index.html. Practice Pointer: This would be a good time for sponsors of group health plans to ensure that they have updated privacy and security policies and procedures, including “Breach” procedures as required by the HITECH Act.

First Wave of ppACA’s health insurance reforms apply to health plans with Calendar plan Years The first wave of health insurance reforms added by Sections 1001 and 1201 of PPACA (you know, the ones that require coverage of a child until age 26, prohibit lifetime or annual limits on essential benefits, and require a 4 page summary of your benefit plan options – yeah, those) went into effect for plan years beginning on or after September 23, 2010. Thus, the health insurance reforms applied to calendar year plans on January 1, 2011 and all other plans that were not already required to comply in 2010. The agencies were very busy this year issuing regulations and guidance regarding the health insurance reforms. The following is a brief overview of that guidance: Nondiscrimination rules for fully insured plans – The IRS delayed the application of the new

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January 2012

nondiscrimination rules applicable to fully insured, nongrandfathered health plans and then requested comments. See IRS Notice 2011-1, which you can find at www. irs.gov/newsroom/article/0,,id=220809,00.html?portlet=6. New Well Woman Preventive Care Guidelines Adopted by HHS on August 1, 2011

Guidance on new Claims review procedures, including external review Amended regulations and guidance issued by agencies provide clarification and relief regarding the new internal and external claims review procedures applicable to non-grandfathered plans. For example:

Applicable only for non-grandfathered plans and is not effective until first plan year beginning on or after the date the guidelines were issued. Thus the first effective date is for plan years beginning on or after August 1, 2012. You can find fact sheet from HHS at www.healthcare.gov/news/factsheets/2011/08/ womensprevention08012011a.html. You can also find a more detailed summary at www.alston.com/ files/Publication/511f716c-2331-4fee-8845-6bc32718f56f/Presentation/ PublicationAttachment/320b7e68-eeda-4168-ad7b-6d3a87c2b3c3/EBEC%20 HHS%20Womens%20Preventative%20Health%20Guidelines.pdf.

Urgent care determination and notice period changed from 24 hours to 72 hours

hhs issues guidance on waiver process HHS issued guidance regarding process for obtaining waivers from the restricted annual limit rule. First, HHS indicated that the waiver application process closes September 22, 2011. Also, HHS granted a class exemption from the waiver process for HRAs otherwise subject to the annual limit prohibition so long as the HRA was in effect prior to September 23, 2010. Such HRAs are still subject to certain recordkeeping and notice requirements. For more detail, see www.alston.com/files/Publication/d8f10804-359f-46c5-8dd7-bc5fb51f757e/Presentation/PublicationAttachment/759b1e42-5a41-47ca-adca-1e00b2577562/EBEC%20 Updated%20Guidance%20on%20Annual%20Limit%20Waver%20Process.pdf.

Scope of external reviews requested after September 20, 2011 under federal external review program (e.g. for self-insured plans) limited to claims involving medical judgment Guidance regarding notices required to be sent in a culturally and linguistically appropriate manner. For a more detailed summary regarding the internal and external claims review guidance, see: www.alston.com/files/ Publication/1fdd958a-6f5e-4d67abf2-712f8ffc38cf/Presentation/ PublicationAttachment/a4d024481861-4757-a3ea-630f0f1886db/ ExtensionEnforcementGrace.pdf. www.alston.com/files/ Publication/28e46250-c64c-4d678be0-692b8e6df4e8/Presentation/ PublicationAttachment/dee578660783-4c9b-8446-6c22cbcb4e9f/ Summary%20of%20Revised%20 Claims.pdf.

regulations and guidance on Summary of Benefits Coverage (sOBC) The agencies issued regulations regarding the 4 page, 12 point font “summary” of benefits coverage required to be distributed during the plan’s applicable enrollment period. The new SOBC were originally slated to be effective on March 23, 2012; however,

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recent FAQs from the agencies have delayed the effective date until a later date yet to be determined. For a more detailed summary of the SOBC rules, see www.alston.com/ files/Publication/ce0ca69b-749b-49b0ac58-7db6d21caed7/Presentation/ PublicationAttachment/54863dbf-eced42a6-9928-7dc8b9c2396f/SBC%20 Regulations.pdf. The various FAQs from the agencies can be found at www. ebsa.gov.

Other ppACA related items Federal Courts of Appeal Grapple With PPACA Constitutionality: DC and 6th circuit holds individual mandate under PPACA constitutional; 11th circuit holds individual mandate unconstitutional. IRS issues guidance on reporting the value of health coverage on the employee’s W-2 (which was delayed; reporting not required for

coverage beginning prior to January 1, 2012). See www.alston.com/files/ Publication/979511ea-c711-469c8bb2-3cdc000f9e15/Presentation/ PublicationAttachment/c9ee7b1b-c4b04ef7-b9e7-455a909fb8c0/W2%20 Guidance.pdf IRS requests comments on pay or play rules, CER fees, and premium tax credit. See www.irs.gov/newsroom/ article/0,,id=220809,00.html?portlet=6 for more information. HHS Issues guidance on establishing exchanges See http://cciio.cms.gov/ for more information.

transit parity and Dely in irs “smart Card ruling” expire December 31, 2011 On December 31, 2011, the current parity between the monthly limitation for parking ($230) and the monthly limitation for transit ($230) expires. Beginning January 1, 2012, the monthly

limitation for parking will be $240 and the monthly limitation for transit will decrease to $125. Also, every indication is the delay in IRS application of its 2006 transit “smart card” ruling (See IRS Notice 2010-94) will not be renewed for 2012.

the road Ahead!! The question on everyone’s mind – will there be any relief in 2012 or should we expect an equally busy year? You should expect an equally busy year. First, three PPACA related laws go into effect in 2012 or will have an impact in 2012: Comparative clinical effective research fees (applicable to plan years ending after September 30, 2012). This fee for the first year is $1 multiplied by the average number of covered lives and $2 multiplied by the average number of coverage lives for years thereafter. No fee is due for policy years ending after September 30, 2019. Collection of information for W-2.

The Self-Insurer

January 2012

SIIA New Members regular Members Company Name/Voting representative Sean Lynch, Director, Group Sales, Assurant Health, Marlborough, MA

employer Member Company Name/Voting representative Michael Woronka, COO, Action Ambulance Service, Inc., Wilmington, MA

The first W-2 on which the value of “applicable employer sponsored coverage” must be reported is the 2012 W-2, which is due no later than January 31, 2013. Health FSAs that have a plan year beginning on or after January 2, 2012 should amend their plans to comply with the new rule that limits Health FSA salary reductions elected during the 2013 calendar year to $2500. It is also expected that the Supreme Court will issue its ruling on the constitutionality of the individual mandate (and perhaps PPACA as a whole) during 2012. Benefit plan practitioners and plan sponsors must also begin to prepare for the expiration of the following benefit plan related tax provisions at the end of 2012: The educational assistance tax exclusion under Code Section 127. Unless extended, the tax exclusion otherwise made available under Code Section 127 for employer provided “educational assistance” will cease to exist in 2013. However, an income tax exclusion for employer provided educational assistance may still apply under Code Section 132 (e.g. for education required to maintain your job). The deemed earned income amounts increased under EGTRRA for dependent care assistance plans (and the dependent care assistance credit under Code Section 21) will expire (as will the increased amounts that may be taken into account to determine the Code Section 21 credit). If the increased amounts are not extended, the deemed earned income amounts for a disabled or full-time student spouse will decrease from $250 (for one child) and $500 (for two or more children) to $200 (for one child) and $400 (for two or more children). In 2012, we also may see regulations and/or guidance with respect to the following: • Final cafeteria plan regulations

Ellen Eldridge, Manager, Health Benefits Services, Adventist Risk Management, Silver Spring, MD

• Fully insured plan nondiscrimination rules • Final SOBC rules • Rules regarding the pay or play penalty, including guidance on calculating “fulltime employee” status • Guidance on “essential benefits” • Final HITECH regulations. Buckle Up!! If history is our guide, 2012 will prove to be busier than ever. 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 to Mr. Hickman at john. hickman@alston.com.

January 2012

The Self-Insurer

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Give your employees the cancer treatment plan they deserve. Give them CareEdge. to learn more and add careedge to your benefits portfolio, call 888-821-0864. or, visit us online at cancercenter.com/employer.

The Self-Insurer

January 2012

How

International Medical Travel Can Work For You by Allison M. Repke

January 2012

The Self-Insurer

he cost of providing high quality healthcare in the United States is continuing to rise. Driving factors, including the aging population, the rise of serious health risks such as obesity, and the full impact of healthcare reform, are forcing employers and administrators to implement preventative measures. This trend will intensify as demand for healthcare services increases, and the number of medical providers continues to diminish. Higher deductibles, greater co-pays, and reduced benefits are the most common coping mechanisms. However, there is an alternative way to continue providing quality benefits for your members, while controlling high-claim costs, and maintaining your bottom line. If you have attended any recent SIIA conferences, you know that the self-funded community has been discussing international medical travel. While the benefits of a lowercost alternative have been established, the conversation has moved towards how a group can effectively implement an international provider network. There are several approaches to this, based on the needs of the particular population. Firstly, a group can analyze experience data to understand which high-dollar claims have the greatest impact on the plan. While it is not advisable to travel for all major medical procedures, there are some high-cost procedures that could be outsourced to an international provider for a fraction of the US retail cost. Most orthopedic, gastrointestinal, and some cardiovascular procedures are excellent options to consider. Additionally, providing treatments such as Bariatric surgery can help limit the costs associated with diabetes, heart disease, and other obesity related illnesses. Thinking critically about

your claim experience and carving out the most expensive or common procedures can have a significant impact on your planâ&#x20AC;&#x2122;s bottom line. Over time, this method of plan maintenance could lead to lower stop-loss rates, aggregate factors, and a more beneficial attachment point. Another way to harness the positivity of international medical travel is to provide plan-enhancing benefits such as dental, vision, and hearing. As you know, rising costs have caused these necessary medical treatments to be eliminated from many plans. By utilizing a foreign provider, one can offer benefits such as high-dollar dental care and hearing aids, which are usually too expensive for a member to afford on his or her own. This service is a great way to attract or keep valuable employees in an environment that typically does not offer such assistance. For some employers, focusing on the demographics of their population is the best way to utilize an international medical plan. If the group has a high number of foreign nationals, facilitating travel back to their home

country is a smart way to provide a benefit thatâ&#x20AC;&#x2122;s very attractive for the employees while also being costeffective. For example, if a group has a large Mexican-American population, working with a provider group from that region can be beneficial for all. Finally, most people know that medical travel has typically been known for elective procedures such as cosmetic surgery. While a plan sponsor may not want to have this covered, it can still be offered as an added benefit at no additional cost to the employer. In this situation, the member gains comfort by knowing that the provider has been thoroughly vetted. In turn, the employer is offering something unique in a market that is being stripped of all additional benefits. Not only has the US self-funded community been attempting to understand how to effectively work with an international provider, but many countries and hospitals have been working towards a greater understanding of our group health market. Over the past few years, representatives from Mexico, Costa Rica, Panama, Columbia, Singapore,

The Self-Insurer

January 2012

Thailand, New Zealand and many other countries have attended the SIIA national and international conferences. In particular, the Central and South American countries are very focused on entering the US market, and understanding how to best serve our needs. For example, many foreign hospitals have insurance departments that are able to establish credit, and interface with claim departments. This maintains the same claim processing methods that a TPA is used to working with domestically. The providers have international patient centers specifically focused on meeting the needs of foreign travelers. They are establishing outcomes data that is compliant with our record keeping requirements. All are currently approved by, or in the process of Joint Commission International certification. This is the highest international standard equal to our domestic standards. Some have established partnerships with US-based hospitals, with the knowledge that such relationships will increase consumer confidence. These actions have made it even easier for a US employer to work with a foreign provider.

Another advantage of working with a foreign provider is the fact that care is readily available - no waiting times or referrals are required. As demand for health services continues to grow, people will have increased difficulty obtaining the care they need. Some predict that the Boomer generation will be hit hardest by this situation, with age becoming a deciding factor in ranking those most in need of immediate care. If choosing to travel abroad, a hip or knee replacement is available to any individual who needs one, without being ranked in a queue.

January 2012

The Self-Insurer

Furthermore, the medical travel trend has been identified as one of the fastest growing emerging markets. Even if you aren’t considering an international medical benefit, hundreds of thousands of people already are, and soon it will become a widely recognized and accepted medical practice. The reasons for this are many. Working with international providers is a cost-effective and simple way to manage rising expenses, while enriching a benefit plan. The level of care is exemplary, and many facilitators manage and oversee all aspects of the care experience, making it worry-free for all involved. There are several SIIA members that provide international medical travel and facilitation services. You’ll find them at the upcoming International Conference in Coral Gables, Florida June 5-6, 2012, along with a number of providers from Latin America. Engaging with these people is a good way to begin understanding how medical travel can work for you. n

Additionally, the services of an international provider have features that are uncommon in the US. Transparent package pricing is one of the most striking differences. While I’m sure anyone reading this has a story about the frustrations of obtaining price data from a US provider, or being overcharged for medical services or equipment, there is no such situation when working with a foreign hospital. All charges are communicated up front, allowing both the employer and traveler complete control over the cost of a procedure. Many times, there is financing available for someone seeking care he or she cannot currently afford.

While the situation today is not as dire as illustrated above, it is imperative that employers, administrators, and all involved in the provision of health benefits be forward thinking about the ultimate effects of healthcare reform, and other influencing factors. Many signs point to the fact that the healthcare situation in the United States is going to get worse before it gets better, and we must all consider how to manage the problem before it becomes one.

Allison M. Repke is the Director of Operations for Global Medical Conexions, an International Select Provider Organization that facilitates medical travel for the group health market. You can reach her at arepke@ globalmedconex.com.

HEALTHCARE SOLUTIONS T H E S Y M E T R A W A Y:

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Symetra Stop Loss, filed as a group Excess Loss policy, and Select Benefits group insurance policies are insured by Symetra Life Insurance Company, 777 108th Ave. NE, Ste 1200, Bellevue, WA 98004 and are not available in all states or any U.S. territory. Policies may be subject to limitations and exclusions. Select Benefits is not a replacement for major medical insurance or other comprehensive coverage. Symetra® and the Symetra logo are registered service marks of Symetra Life Insurance Company. LMC-5586 3/2011 Self-Insurers’ Publishing Corp. All rights reserved.

The Self-Insurer

January 2012

CHAIRMAN’S REPORT Alex Giordano

hang together to survive 2012

ertain years remain memorable for their historic events. I’m thinking of years like 1776, 1861, 1929, 1941 or 2001 when the Twin Towers went down. I believe when the history of this era of our industry is written, 2012 will be memorable for its lasting effect on our business.

Our New Year presents a remarkable set of challenges for our industry – and, of course, with each challenge there is also an opportunity. This is a year when we will all benefit by sticking together and sticking to our guns. Two especially important events will occur this year. In the spring, the Supreme Court will hear arguments about overturning the federal health reform law. And in the fall we will have a national election. In my mind those two events are linked, and the first will likely have a great effect on the second. But there is more. SIIA is working to defend stop-loss insurance against a growing list of detractors. These are working against us nationally, as in the case of the National Association of Insurance Commissioners, or state-by-state, most recently in New Jersey. My experience in the stop-loss industry has taught me that people in government don’t just wake up one morning and decide to make war on stoploss carriers and policyholders. It is my opinion that they are prompted to do that by voices coming from the enemies of self-insurance. I don’t have to list them, you know who they are. By undercutting stop-loss they are attempting to cut the legs out from under self-insurance. There are major challenges embedded within federal healthcare reform. The Patient Protection and Affordable Care Act (PPACA) would change the landscape of health insurance if it reaches its complete implementation by 2014. Along the way there are additional costs to bear and regulatory hoops to jump through. All of these require the vigilance of SIIA as the leading defender of self-insurance and alternative risk transfer. We hope 2012 will be remembered for the year that risk retention groups gained the ability to expand coverages and the protection of the federal government against abusive actions by state regulators. SIIA was instrumental in introduction of the House bill to accomplish that last year, and we anticipate further progress this year.

personally to let them know how important self-insurance is to the many thousands of employers who provide health plans for millions of employees and their families. The Legislative & Regulatory Conference will prepare you to do that. As Benjamin Franklin said when he and his comrades became the king’s outlaws in signing the Declaration of Independence in 1776, “We must all hang together, or assuredly we will all hang separately.”

There are other challenges from the alphabet soup of government: HHS, DOL and IRS, for example. Regulations and new tax rules could have great effects on our industry. The most important thing that SIIA members can do today to make 2012 a great year to remember rather than a disastrous one is to register for SIIA’s Legislative & Regulatory Conference in Washington DC this March. That’s a great month to have this meeting because we’ll get our marching orders for the rest of the year. This is the year that SIIA members will need to pick up the phone, write letters and e-mails and, especially, engage your government representatives

January 2012

The Self-Insurer

January 2012