Self-Insurer July 2010

July 2010

London:

Lots of Business and Plenty of Fun, Too The Paradox of

Recovery Auditing for Health Plans Providing ASO Services

We know what We you’re made of. you’re Ourself-funded self-fundedhealth healthplans plansare arecustom-fit custom-fitto tothe theunique uniqueprofile profile Our of a company’s health and well-being.

Find the balance between of a company’s health and well-being. Find the balance between cost containmentand andemployee employeesatisfaction satisfactiontoday. today.Visit Visithnas.com hnas.com cost containment learnmore. more.With WithHealthNow, HealthNow,everyone everyonebenefits. benefits. totolearn

Benefit Solutions Administrative and Partner Services Self Funded Plans Benefit Solutions Administrative and Partner Services Self Funded Plans

.

SIIA OFFICERS Chairman of the Board* Armando Baez, Vice President Global Benefits Group Foothill Ranch, CA President* Freda Bacon, Administrator Alabama Self-Insured WC Fund Birmingham, AL Vice President Operations* Alex Giordano, Executive Vice President / Chief Marketing Officer Starr Global Accident & Health Greenwich, CT Vice President Finance/CFO/ Corporate Secretary* Robert Repke, President Global Medical Conexions, Inc. San Francisco, CA

SIIA DIRECTORS Les Boughner, Executive Vice President & Managing Director Willis North American Captive and Consulting Practice Burlington, VT James E. Burkholder, President/CEO TPABenefits, Inc. San Antonio, TX John Jones, Partner Moulton Bellingham PC Billings, MT Daniel Lebish, President & CEO HM Insurance Group Pittsburgh, PA Steven J. Link, Executive Vice President Midwest Employers Casualty Company Chesterfield, MO

SIIA COMMITTEE CHAIRS Chairman, Alternative Risk Transfer Committee Kevin M. Doherty, Partner Burr & Forman LLP, Nashville, TN Chairman, Government Relations Committee Jay Ritchie, Senior Vice President HCC Life Insurance Co. Kennesaw, GA Chairwoman, Health Care Committee Beata A. Madey, Senior Vice President, Underwriting HM Insurance Group Pittsburgh, PA Chairman, International Committee Liz Mariner, Executive Vice President Re-Solutions Intermediaries, LLC Minneapolis, MN Chairman, Workers’ Compensation Committee Chris Mason, Chief Operating Officer USATPA, Inc., Syracuse, NY

July 2010

|

Volume 27

FeATureS

rePOrTS

12 SIIA Works with DOL to Assure Accurate View of Self-Insurance

6 ART Profile Q and A

14 London: Lots of Business and Plenty of Fun, Too 16 My TPA Really Sucks! What Happened?

20 The Paradox of Recovery Auditing for Health Plans Providing ASO Services 24 Labor & Management Form Coalition to Stabilize Workers’ Compensation Costs

July 2010 The Self-Insurer (ISSN 10913815) is published

monthly by Self-Insurers’ Publishing Corp. (SIPC), PO. Periodical Postage Rates paid at Tustin, California and at additional mailing offices.

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 2010 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 Editor - Gretchen Grote Design/Graphics - Indexx Printing Contributing Editor - Tom Mather and Mike Ferguson Director of Advertising - Justin Miller Advertising Sales - Amanda Perry Editorial and Advertising Office P.O. 1237, Simpsonville, SC 29681 • (864) 962-2201 Self-Insurers’ Publishing Corp. Officers (2010) James A. Kinder, CEO/Chairman Erica M. Massey, President Lynne Bolduc, Esq. Secretary 2010 Editorial Advisory Board John Hickman, Attorney, Alston & Bird David Wilson, Esq., Wilson & Berryhill P.C. Randy Hindman, Deloitte & Touche, LLP Armando Baez, Global Benefits Group The Self-Insurer P.O. Box 1237, Simpsonville, SC 29681 Tele: (704) 781-5328 • Fax: (704) 781-5329 e-mail: ggrote@sipconline.net.

8 From the Bench 22 ART Gallery

DePArTmenTS 2 President’s Message 4 Publisher’s Message 26 Chairman’s Report 28 Viewpoint

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: n International/national conferences and industry forums which provide educational opportunities, with substantial discounts on the registration fees offered to SIIA members. n Distributed monthly, The Self-Insurer, features useful technical articles as well as updates on topical issues of importance to the self-insurance industry. n 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

|

July 2010

1

President’s Message

A

h, summertime. School is out, vacations are beginning, and we have time to bask in the warm, lazy days of summer.

WAIT – am I dreaming? For our industry, there is no time to rest, and even though the heat may slow us down a bit, we have to keep moving.

As the 2010 President of SIIA, I have had the opportunity to meet many of the members of our organization, but more importantly I have been able to travel to all of the conferences that provide both educational sessions and networking venues.

The latest adventure was our recent trip to London for the SIIA International Conference.

I say this was an adventure, because travelling “across the pond” to interact with SIIA members from all over the world was a unique and eye-opening experience.

With over 100 attendees, this conference focused on the global challenges and opportunities that are facing the self-funded industry. Our sessions were spot on – and gave us all insight on the ever changing components that our membership sectors are involved in. We had the pleasure of having a tour of Lloyd’s of London, and our gracious hosts at Marsh provided a wonderful reception with a breathtaking view of The Tower of London and the River Thames. How’s that for experiencing the feel of London?

Liz Mariner and the members of the International Committee deserve a round of applause for putting this conference together.

Also, on behalf of the SIIA staff – Erica Massey and Amy Troiano – I want to give a special thanks to Dominic Hagger of RFIB for being our “legs” in London in helping with all the details.

Now, off we go to Chicago. The SIIA National Conference being held October 12-14 will truly be a tribute to the self-insured industry. Our theme “Sharing the Success of Self-Insurance” will be the highlight of many months of preparation to provide our membership with the latest information from our Washington office, state-wide issues, and of course, global self-insurance opportunity.

Enjoy the summer – we have lots to do!!

God Bless Our Troops,

Freda Bacon, President

2

www.siia.org

|

July 2010

“Traveling across the pond to interact with SIIA members from all over the world was a unique and eye-opening experience.”

Connect With THE World in

Connecting Employers and Self-Funded Vehicles with Alternative Risk Transfer Professionals

Hurry!

Time is limited to get your FREE listing!

Published by Self-Insurers’ Publishing Corp. in Partnership with Self-Insurance Institute of America, Inc.

For more information call Amanda Perry at (317) 635-2615

Publisher’s Message

A

s you may know, since 1984 the Self-Insurers’ Publishing Corp. has and continues to provide our readers and members of the Self-Insurance Institute of America, Inc. (SIIA) timely and informative industry information. Our award winning magazine The Self-Insurer is the oldest and most respected publication focusing exclusively on the self-insurance and alternative risk transfer market. Since 1984 The Self-Insurer has set the standard for all industry publications to follow. We at SIPC are very proud of our accomplishments over these past 25+ years of continued publication.

Like all businesses, there comes a time when changes are necessary to stay in front of the pack, and if you have been following our recent publications you know that changes are taking place every month to continue our leadership position. While we see others in the publishing business claiming to be the “source” or “exclusive” or “only” publication for the self-insurance industry those claims are just not accurate. The Self-Insurer was in fact the industry’s FIRST publication dedicated exclusively to the advancement of the entire selfinsurance and alternative risk transfer. Our roots date back to 1981, when the Self-Insurance Institute of America, Inc. was formed to represent the interest of employers, who elected to utilize risk financing outside the traditional insurance market. Originally created as an “Association Newsletter” within three years the newsletter transformed itself into a first class monthly magazine with editorial content guided by industry professionals, most of whom contribute and share their expertise on a purely “voluntary” basis. This truly makes The Self-Insurer the industry’s leading publication.

As we move forward to meet the information and educational needs of our readers and members of the oldest and most respected industry association (Self-Insurance Institute of America, Inc.) we are constantly reminded of changes taking place in our industry. As we all know, the most recent action of Congress relative to so called health care reform, a new and more challenging platform has been put in place which could have a material effect on employers’ ability to utilize alternative risk financing mechanisms to fund not only health benefits but virtually all forms of risk.

Such action represents both risk as well as opportunities for employers and their partners to devise cost effective systems of risk management and financing. Rest assured, SIIA will continue to lead the way as they have done since 1981 as self-insurance became the risk-financing tool of choice. And, to this end, you can

4

www.siia.org

|

July 2010

count on us here at SIPC to do our part in keeping employers and their partners up to date with informative and cutting edge communications dedicated to advancing your interest.

To meet the ever changing risk management challenges, SIPC in cooperation with SIIA is taking steps to advance our network of readership well beyond U.S. borders. While we will continue to focus our editorial content solely on the self-insurance and alternative risk financing methods for managing risk for virtually all forms of coverage from health care, workers’ compensation, property/casualty, we will also expand our support of educational opportunities for all segments of the industry. In addition, as you know, recent steps have been taken by SIPC to expand the manner in which we deliver our products and services. The SelfInsurer, the only “official” publication

of the Self-Insurance Institute of America, is now being produced both in print and digital formats. In addition to the publication being part of the membership benefits for SllA members, with our expanded circulation, the publication is truly worldwide!

As one of the founders of the Self-Insurance Institute of America and having served as the CEO of the organization from the date of incorporation to the date I elected to step aside for the next generation of leaders back in 2006, I have never been so excited about the opportunities that lie ahead for SIIA and the industry it serves and I am proud to remain a part of this dynamic industry. While I stepped down as CEO of the trade association, I have retained my position within SIPC and will continue to participate and do my part to bring the success stories, informative and timely articles to SllA members and our expanded readership so that both SllA and SIPC remains the leading organization for the advancement of self-insurance and alternative risk transfer both domestically as well as international.

To meet the challenges and opportunities SIPC is taking steps to strengthen and build upon our solid frame built over the past 25 years by blending the old guard with the new.

To this end, I am pleased to announce Ms. Erica Massey; SIIA Executive Vice President, has been elected SIPC’s new president, effective

June 1, 2010. Ms. Massey, who has been directly involved with SllA for her entire career, has a true passion for this industry and with her broad knowledge of the industry I cannot think of a better person to help advance both SIPC and the entire self-insurance community.

With the announcement of Ms. Massey’s election as president of SIPC, Torn Mather, who has served as the president over the past 12 years will now serve as contributing author, industry historian and mentor to the “new generation” of leaders. Mr. Mather will continue to bring his 50+ years of industry experience to an expanded team of professionals SIPC has assembled.

Tom will continue to bring you informative and in some cases light-hearted or ironic commentary in his monthly address which will now be dubbed as “Mather’s Commentary” in each issue of The Self-Insurer. His way with words will no doubt blend the old with the new, as

he preaches (writes) about industry history and how it repeats itself. So, if you read his commentary closely you will find a vast amount of knowledge and perspective only to be learned from someone who as we say... been there, done that.

In closing, let me say congratulations to both Erica and Tom for their accomplishments of the past and what will certainly be their accomplishments in the future. No two people have the passion they posses to advance the interest of all stake holders within this dynamic and ever changing self-insurance and alternative risk transfer industry and for those readers who are members of SllA, you simply could not find a better organization to support. For those readers who are not members of SllA, may I suggest you visit its web site today (www.siia.org) and apply for membership status. SllA is the oldest, strongest, most respected and effective organization dedicated exclusively to protect the rights of business to fund risk

in the most economical manner. No other organization, domestic or international fights for your rights like SllA. They lead the way in legislative representation, litigation, ongoing education and networking opportunities connecting risk takers (employers) service providers and excess insurers. In my humble opinion, membership in SllA should not be an option but a requirement for all self-insurers. The cost of membership is a drop in the bucket compared to the savings and protection of your right to utilize alternative risk financing systems.

Only through your continued support can SllA meet the day-to-day challenges in protecting your right to fund risk as you would like. So to the members of SllA.... thank you for your ongoing support and to those who have yet to join .... please do so today.

James A. Kinder, Chairman of the Board/Publisher Self-Insurers’ Publishing Corp. (SIPC) n

The Self-Insurer

|

July 2010

5

ART Profile

QA and

This Q&A feature follows up on the recent ART Profile of EBMS Re, the captive formed by Employee Benefits Management Services (EBMS), a TPA of Billings MT that provides a layer of stop-loss coverage to its self-insured clients. Here, ART Gallery curator Dick Goff grills reinsurance intermediary Kyle Plath of Trean Corp. of Eden Prairie MN on some implications of this approach.

Dick: Right now everybody wants to talk about healthcare reform.

How does EBMS Re fit into that environment?

Kyle: It’s like the captive was intended to serve many of the same purposes but without government interference or money. EBMS Re has a seven-year history of successful operation and returning profits to its insureds and solves some of the same challenges that Congress tried to address.

Dick: That’s a big statement, Kyle.

Can you give us some specifics?

BenefiTs cAPTive is PRivATe secToR ResPonse To HeALTHcARe RefoRm Kyle: The captive is actually a perfect model of the kind of co-op that healthcare reform envisions. As it operates in the manner of a mutual insurance company, there is no problem with the loss ratio because profits are returned to policyholders in the form of lower premiums and higher self-insured retention levels.

Dick: How about the new provisions about lifetime benefits caps and pre-existing conditions exclusions?

Kyle: EBMS Re has been operating on a $5 million cap, and that will be removed as the pool is working so efficiently that a cap just isn’t an issue.

There has been no pre-existing condition exclusion.

Dick: It would seem that the larger the pool, the greater the effect on healthcare costs.

Kyle: When you look at the healthcare reform law, you don’t see any help for the cost side. What makes this captive program attractive is that employers see an opportunity to exert control on areas of the healthcare system.

Employers are coming together in a pool where all data is transparent and trends

6

www.siia.org

|

July 2010

in costs can be better addressed. This ties good performing groups to the program long term, recognizing that in the health arena a large claim or series of large claims can befall any policyholder.

Dick: Sounds like Congress could have saved a lot of money by turning to the private sector for reform.

Kyle: I really doubt that many in Congress know the private sector can do this.

These kinds of programs should be able to stay ahead of the curve as specific healthcare reform regulations are put in place. Policyholders will be working as a group to bring costs down and we don’t need the public sector to be involved.

Dick: The EBMS Re captive seems unique in taking out the captive formation costs for the policyholders.

Kyle: Exactly. This TPA put up substantial capital at the outset of the program in order to develop an alternative risk transfer mechanism that adds value to their clients. It’s not just a TPA trying to become an MGU in order to obtain an added revenue stream.

Dick: We sense a wave of new interest in benefits captives. Is that your experience as well?

Kyle: Definitely. Employers are looking for alternatives to the commercial stop-loss market in a way that addresses reform. But the advantages of this approach go beyond meeting government requirements. The captive program allows a collective pooling of risks in a layer that is higher than each participating employer would be willing to assume on its own. Reduced costs include premium expense to the commercial insurance market, decreased underwriting and administrative expense while allowing direct access to the professional reinsurance market.

Dick: What has to happen for ART programs to become more acceptable to the self-insurance industry?

Kyle: First, continual education through organizations like SIIA. Because of the political turmoil, groups and associations are constantly being approached by their members asking for alternatives. That increases the willingness of everyone to accept new models of structuring their risk. n

$

$ $ !

#

'

&

$

&

!

! !

" " &

#

( !

' & # ) # & !

& " '

& #& "

&

'

% * ! &

$ !!!& ! &

Leading the way in medical stop loss HCC LIFE HIGHLIGHTS

PRODUCT FEATURES

• Rated A+ (Superior) by A.M. Best Company and AA (Very Strong) by Standard & Poor’s.

Various product options provide groups with:

• predictable renewal programs.

• Backed by the financial resources of our parent company, HCC Insurance Holdings, Inc.

• the ability to lock in rates up to 120 days prior to effective date.

• Covers more than 10 million lives nationally.

• the ability to trade premium for risk on a dollar-for-dollar basis.

STOP LOSS HIGHLIGHTS • More than 30 years of experience in the stop loss industry.

• Direct writer, retaining all the stop loss financial risk.

• Claim turnaround averages seven days or less.

• Access to numerous resources to manage large claim situations.

For producer use only. Not for public distribution. msl2141 (2/10)

For more information, contact HCC Life at (800) 447-0460.

Or, visit us online at www.hcclife.com.

SIIA_HalfPage_BW_Ad_0210.indd 1

02/22/2010 2:40:16 PM

The Self-Insurer

|

July 2010

7

Bench from the

By Thomas A. Croft, Esq.

s

ometimes these stop loss cases are just plain easy.

Consider, for example, Federal Warehouse Co. v.

Nationwide Life Ins. Co, No. 2:08-cv-275, in the United States District Court for the Southern District of Ohio, Eastern Division (May 24, 2010), where the nub of the dispute came down to whether the group had “Paid” a large claim within the Benefit period of the Policy or not. Here are the operative facts, as taken from the Court’s opinion: Federal Warehouse (“Federal”) had a stop loss contract with Nationwide, issued through its MGU, with an incurred window of July 1, 2005 – June 30, 2007 and a Paid window of July 1, 2006 – June 30, 2007 (sounds like a 12 month run-in and no run-out to me), providing for both specific and aggregate coverage.

A Covered Person under Federal’s Plan had been hospitalized several weeks at St. Louis University Hospital, and was not expected to survive much longer.

Federal had decided to change stop loss carriers, and was aware that the claims for this person would not be covered under the new policy to become effective July 1, 2007 (whether the claims for this individual had been lasered by the

8

www.siia.org

|

July 2010

new carrier or whether Federal did not purchase run-in coverage is not clear).

To protect itself against a loss of stop loss coverage for the individual’s claims, Federal sought and obtained an interim bill from the hospital on June 28, 2007 in the amount of $498,742.71, and actually transferred funds in that amount to the Plan account. HCH, Federal’s TPA, instructed its third party claims processing service to process a check for the full amount owed to St. Louis University Hospital, which it did on June 29, 2007—one full day before the expiration of the Benefit Period. The problem was that the checks were not mailed out until six days later, on July 5, 2007. (The Court’s opinion does not elaborate as to how or why this happened).

After the specific claim and the portion of the aggregate claim relating to this patient were denied as not having been paid within the terms of the stop loss contract, Federal filed suit in federal court against the stop loss carrier for breach of contract and for vexatious refusal to pay, alleging an entitlement to attorneys’ fees, costs and punitive damages. It also sued the MGU on the theory that it tortiously interfered with Federal’s rights under the stop loss policy as a part of a “vendetta” against the TPA’s clients.

The stop loss carrier and MGU filed Answers to Federal’s Complaint, denying the material allegations thereof, and then moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). Procedurally, such a motion is close kin of a motion to dismiss for failure to state a claim upon which relief can be granted under Federal Rule 12(b)(6).

Essentially, it asks the Court to indulge the Plaintiff by accepting the truthfulness of all the factual matters alleged in the Complaint for purposes of deciding the motion only, and then rule that, even if everything Plaintiff claims is true is true, the Plaintiff still loses. As we have characterized these kinds of motions before, they are essentially “So what?” motions, designed to bring an end to the litigation even before any discovery is done.

Federal argued that the various provisions of the stop loss policy were ambiguous, and must be construed to find coverage. At least as described by the Court in the opinion, none of these arguments were remotely compelling in my view. To the contrary, the policy provisions regarding payment are, to my eye (and, apparently, the Court’s) quite clear: Pay, Paid, Payment means actually funded by means of drafts, checks or

electronic fund transfers that are Issued by the Policyholder, received by the payee and Honored. When the preceding requirements are met, the date of payment is the date the draft, check or electronic fund transfer is Issued, provided it is delivered and Honored within 30 days of the issued date. In the event the draft, check or electronic fund transfer is not Honored within 30 days of issue, the date of payment becomes the date the draft, check or electronic fund transfer is Honored.

Issued means the date: (1) the Policyholder directly tenders payment by mailing (or other method of delivery) to the payee a draft, check, or electronic fund transfer, and (2) the account upon which the draft, check, or electronic fund transfer is drawn contains, and continues to contain, sufficient funds to permit the check or draft to be Honored.

Thus, “payment” occurs on the date a check is mailed or otherwise delivered, except in the case where the account on which it is drawn is under-funded or where the check does not clear for more than 30 days after issuance. In the latter two cases, the “paid” date is later than the mailing/delivery date. Put most simply, under no circumstances is an item “paid” before it is mailed or otherwise delivered to the payee.

Beyond its ambiguity arguments, Federal contended that the carrier had reimbursed it for stop loss claims where the claims were incurred just prior to the end of the contract period but checks were not mailed until shortly after it expired.

The Court rejected this argument on two bases: first, that the stop loss contract language was unambiguous, such that under Illinois law a prior departure was irrelevant; and second, that the stop loss policy had a clear non-waiver clause, to wit: Waiver: Failure of the Company to insist upon the Policyholder’s strict compliance with any requirement or condition of this Contract at any time or under any circumstance shall not constitute a waiver of such requirements or condition by the Company at any time under the same or different circumstances.

In simpler terms, the clause means “Just because we didn’t enforce this before doesn’t mean we can’t enforce it now.”

While many policies I have seen have a

6/24/09

11:40 AM

Page 1

©2009 Virginia Health Network

VHN_SelfInsurer_4.5x6.75_bw:Layout 1

YOU SAY,

“I could use a creative way to attract new health-plan business.”

WE SAY,

“We crafted a lower-priced PPO network.

How’s that for creativity?”

When a client wants to self-insure for the chance to keep the insurer’s profit, VHN PLUS provides the opportunity.

For the client’s employees, it provides over 12,000 healthcare professionals and 80-plus hospitals in network. To learn more, including how to use VHN PLUS through fully insured carriers, please visit www.vhn.com/plusnetwork; or contact Jim Gore at jgore@vhn.com or 800-989-3837 ext. 105.

And put our creativity to work for you.

7400 B EAU FONT SPR I NGS DR IVE, SU ITE 505 R I C H M O N D , V I R G I N I A 2 3 2 2 5 • www.vhn.com

similar provision, some don’t. This case illustrates how it can be helpful to include such a paragraph in the policy form.

Finally, Federal attempted to invoke the “clerical error” provision in the policy, which also contained an unfortunate reference to “inadvertent delay,” arguing that it somehow excused a failure to pay claims within the parameters of the stop loss contract. The Court rejected this claim as well, noting “the Court questions how the delay in placing the checks in the mail could possibly be considered ‘inadvertent.’ HCH and Federal were fully aware that unless the Loss was “Paid”

within the Benefit Period, the Loss would not be eligible for reimbursement.”

Having concluded that the Plaintiff’s Complaint deserved a “So What?” response, the Court dismissed all claims against both the carrier and the MGU. This kind of outcome demonstrates the value in not simply paying every claim that comes in the door for fear of incurring legal fees. In many cases, the legal system can and will reach the right result, and in especially clear cases, this can occur relatively early in the litigation process, as it did here. n

The Self-Insurer

|

July 2010

9

Richard (Dick) L. Ridder

T

he officers, staff and members past and present of the Self-Insurance Institute of America, Inc., morn the loss of Mr. Richard L. Ridder, who passed away at his home in Indianapolis, Indiana on Saturday, May 29, 2010. We pass on our regrets to his wife of 26 years, Mary Ann Ridder, his many children, grandchildren, friends and relatives.

A true adventurer at heart, Dick as a teenager traveled the US and other lands, returning home to attend Indiana University until enlisting in the United States Army where he spent many years moving up the ranks, serving our country with pride and earning the rank of Lieutenant Colonel. He eventually retired from the Indiana National Guard as a Major.

Professionally, Dick worked in the insurance industry and in 1990 partnered with his wife Mary Ann and his son Kurt in founding Spectrum Underwriting Managers, based in Indianapolis. Dick was instrumental in the success of Spectrum and early on the company became members of SIIA. Mary Ann Ridder became President and Chairman of SIIA in 1991-1992 and son Kurt eventually followed as President and Chairman in 2002-2003.

10

www.siia.org

|

July 2010

Though Dick had retired in 2001, he retained his involvement as Chairman Emeritus of Spectrum and often visiting with the employees. He was well liked by all. At the many meetings and conferences held by SIIA Dick was known as a man of honor who lit up the room with his sense of humor. He was often the center of attention, telling stories and jokes and making those present smile and laugh.

He and Mary Ann and family continued his love for the adventure of travel for many years, visited England, France, Italy and other countries. But his first love was his City of Indianapolis where many suggested he should be a tour guide. He felt honored and blessed to be part of this country and did his part to support what he believed to be the core values America was built upon.

Funeral services were held on June 7, 2010 in Indianapolis and entombment was at the Field of Valor Mausoleum of Crown Hill Cemetery. Memorial contributions can be made to the Salvation Army or the Armed Forces Relief Trust.

For all of us who knew him, just hearing his name brings us a warm heart and a smile.

The Self-Insurer

|

July 2010

11

SIIA Works with DOL to Assure Accurate

view of

Self-Insurance

T

he future standing of self-insurance in the context of federal healthcare reform may be determined in large part by a meeting that SIIA held last month with high officials of the Department of Labor.

SIIA carried a pivotal request that the DOL assess self-insured employer-sponsored healthcare plans on a broader basis than is described in the Patient Protection and Affordable Care Act (PPACA). The law specifies that the DOL conduct a study of self-insured healthcare plans and report its findings to Congress next March.

In the DOL meeting SIIA offered its assistance to shape the study for the most accurate portrait of self-insurance. Indications were that the offer was accepted.

“We are very pleased that DOL leaders were receptive to our offer of assistance and we look forward to working with them over coming months,” said SIIA Chief Operating Officer Mike Ferguson. “This is a vital effort for SIIA to help DOL to accurately portray self-insurance to Congress and the American public,” he added.

12

www.siia.org

|

July 2010

The meeting was prompted by the requirement of the PPACA that DOL must access information about self-insurance from the Annual Return/ Report of Employee Benefit Plan – Form 5500. “Data included in this report is extremely narrow and does not give justice to the value of self-insurance particularly regarding financial stability, the high quality of healthcare and the advantages to employer sponsors of benefit plans,” Ferguson said.

“We were gratified that DOL personnel agreed that, without broadening its view, the report could suffer from significant gaps in key information and paint an inaccurate portrait of selfinsurance,” Ferguson added.

The SIIA delegation, which included Government Relations Committee Chair Jay Ritchie along with our lobbying staff, learned that DOL would work with us in putting together the methodology and structure of its report. The study will be on a fast-track schedule to comply with its required report to Congress during March of 2011.

SIIA provided detailed explanation to support taking a broader view of self-insurance than the one required

report form would provide. These are summarized as: Plan Type – Self-insured benefits tend to be more cost-effective than traditional fully-insured plans due in large part to the regulatory certainty and uniformity provided by ERISA as well as the lack of a profit motive.

Participants – It was recently reported that 80 million Americans receive their healthcare coverage through self-insured employer-sponsored plans.

Benefits – While commercial health insurers generate more revenue when plan costs rise, employer-sponsors of self-insured plans have direct financial incentives to lower plan costs. Selfinsured plans are responsible for most of the innovative prevention and wellness programs in place today.

Funding – Self-insured healthcare plans are sponsored by employers who have both the financial means and the liquidity of cash flow to maintain the plans. Plan funds are kept separately from other business related accounts and at a level to assure solvency.

Assets – Plans that place their assets in trusts often have independent audits

performed either voluntarily or, in certain cases, in compliance with Federal law.

Liabilities – SIIA recommended to the DOL that all aspects of plans’ funding arrangements, including trusts and reserves, are documented and used for comparison with a plan’s expected liabilities.

Contributions – Employers that offer self-insured healthcare benefits typically pick up a higher cost share of health premiums for employees than fully-insured employers do. Self-insured employers also tend to offer higher levels of coinsurance, lower required deductibles and more generous coverage of prescription drugs.

SIIA is also working to assure the accuracy of another report – this by the Department of Health and Human Services (HHS) – that will survey the group health benefits market and compare self-insurance with other forms of coverage.

These meetings and the ongoing efforts of SIIA’s fulltime lobbying staff further cement the association’s effective presence in Washington, DC, to influence government actions in defense of members’ interests. n

What will you feel like when you offer Sun Life’s Medical Stop-Loss?

ABigKahuna As one of the nation’s top providers of Medical Stop-Loss, Sun Life Financial can help you stand out from the crowd. You can protect your clients from unexpected liability with our renewal guarantees—in writing. Not only will you be able to hook your clients’ interest with our No New Lasers at Renewal guarantee, you'll be able to reel in their loyalty with our Renewal Rate Cap. For details, visit www.sunlifemomentum.com or call 866-683-6334.

Group Life • Group Dis ability • Group Dental • Medical Stop-Loss • Voluntary Benefits 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 20154 3/09 (exp. 3/11)

The Self-Insurer

|

July 2010

13

London:

Lots of Business and Plenty of Fun, Too Armando Baez, Special Correspondent

s

IIA’s International Conference in London last month provided all the important information anyone could ask for during its three-day schedule but with enough social and cultural highlights to make it all seem to be fun.

I was especially impressed by the visit to Lloyd’s of London, which serves as the cornerstone of both the conventional and self-insurance industries. At Lloyd’s you see the hundreds-year-old ledger book where claims were written along with the bell that tolls for catastrophes at sea or elsewhere. Even today, business on the floor of Lloyd’s progresses manually among the underwriters and other specialists.

And the opening reception provided an image of London on a clear summer evening on the Thames River with Tower Bridge and other landmarks illuminated, viewed from our vantage point in the Marsh Building where we were graciously hosted by our colleague Greg Arms.

Among memorable business presentations, Alan Fleming, AIRMIC Vice President, explained the latest

14

www.siia.org

|

July 2010

on “Solvency 2,” the proposed new European market regulatory framework to be applied to both insurers and reinsurers to improve their international competitiveness and establish a true level playing field.

Alan explained that this new regulatory framework is meant to assure

Cocktail reception sponsored by MARSH

that an insurer or reinsurer must possess sufficient capital to give no more than a 1 in 200 chance of insolvency over the next year, calculated using either a standard formula or an internal model.

He pointed out that the internal model is likely to give lower capital requirements and will be used by the big players.

Another captivating session was conducted by Andrew Maynard, a key member of the Catlin Group. Andrew’s topic, “Structuring Reinsurance for Global Employee Benefits Plans in Captives,” was helpful since many companies continue to explore the advantages of using captives for the financing of self-insured risks.

Andrew’s main argument was that although it may seem obvious that a captive exists to assume risk, it is clear that the world’s regulators are looking closely at vehicles whose real purpose may be tax avoidance.

Other noteworthy sessions were provided by: Gregory Daboni, Divisional Director, Healthcare Assicurazioni Generali – UK Branch, who helped us better understand the differences in underwriting risks in the industrialized vs. third world.

Ori Karev, CEO of United Healthcare’s International Division, who described the various differences in managing risks for domestic and expatriate populations in various countries and regions.

John Latter, head of Multinational Insurance Proposition, Zurich Financial Services Group, who explored the differences in taxation issues across frontiers and reminded us that “conducting the business of insurance is more than just writing risks – it also involves claims, risk management, billing, plan issue, etc.”

Dominic Hagger, Director – RFIB Non Marine, RFIB Group Ltd., a leading Lloyd’s Broker, who helped us survey the reinsurance market and reassured us that results to date show that the underwriting cycles are moderating historically and that we are not yet out of the soft market environment.

Greg Arms, Global Head, Employee Benefits Practice, Marsh, who helped us determine how best to structure an international self-insured plan.

Conference participants felt they earned at least a master’s degree in global risk management over the three-day conference. Everyone I talked to was enthused about putting their new knowledge to work when they returned to their offices. To my view, that’s the best tribute for any business educational event. n

A special thanks to the SIIA International Committee: Chairperson – Liz Mariner, Executive Vice President, Re-Solutions Intermediaries, LLC David Angelone, Partner, One Hundred Years, LLC Dominic Hagger, Director, RFIB Non Marine RFIB Group Limited Gary McGeddy, Executive Vice President, Fairmont Specialty, a Div. of Crum & Forster Greg Arms, Global Head, Employee Benefits Practice Marsh Inc. Steven Jacobson, CEO, Olympus Managed Health Care Andreas Opitz, General Manager, BDAE Holding GMBH Mark Carney, President & CEO, HCC Medical Insurance Services Chacko Kurian, President & CEO, Complete Health Systems, LC Jeff Ward, Member & Director of Assurance Services, Stone Carlie & Company, LLC Danai Chandrangam, Medical Destination (Thailand) Ltd. Todd Leong, Medical Destination (Thailand) Ltd. Patrick Leroy, CEO, Europ Assistance Holdings Ltd. Michael Feighan, Vice President - Worldwide Underwriting, Chubb Accident + Health John M. Lord, Senior Vice President, Zurich Accident & Health Domenic Herberz, Project Manager, BDAE Holding GMBH

Erica Massey, SIIA – Bob Repke, Global Medical Connexions – Freda Bacon, ASIWCF – Nigel Wallbank, Cevian

Dominic Hagger, RFIB – Freda Bacon, ASIWCF - Armando Baez, Global Benefits Group (China) - Greg Arms, MARSH

Giorgio Daboni, Divisional Director, Healthcare Assicurazioni Generali - UK Branch Generali Employee Benefits

The Self-Insurer

|

July 2010

15

my TPA really Sucks!

By Steve Rasnick

What Happened?

i

really don’t mean to pick on TPA’s because the same statement could be made for all businesses and business relationships, including insurance agents. In fact, I began to think of this issue as I focused on the fact that on 2/1/10 my TPA celebrated its 13th year of business in Southwest Florida. Thirteen wonderful years serving customers, many of whom who have been with me for all thirteen of those years; but why not all of them? Aren’t long term business relationships supposed to be like fine wines, getting better with age? Why have some of mine, and I would imagine some of yours, turned to vinegar over the years? I think that the answer is intriguing, and it is the pursuit of this answer that caused me to write an article which is only tangentially related to health insurance.

I am from the old school. I believe that you do a good job and you earn the right to establish and sustain a business relationship. I believe in loyalty and that if you do a good job, your client will be loyal to you, much as I treat the staff who work for my organization.

Do a good job and you will have a job for life, but do a bad job and you will no longer earn the right to keep your job. But that’s not the way it always works today, is it?

Notwithstanding the fact that we provide excellent service to our clients, (perhaps a somewhat biased statement) we have lost customers over the years and virtually all businesses experience similar loss. Why do we lose some business relationships and retain others? Why do some customers choose to retain your services and why do others choose to fire you? What is the difference between a good business relationship and one that is in jeopardy? Is it a lack of customer loyalty or is it malfeasance on your part? Perhaps all business relationships are in jeopardy from the beginning? Are there identifiable external and internal factors that influence this process? The answers are really easy. Yes, no, sometimes, maybe, never and perhaps, in no particular order!

Let’s first take an honest look at some of the more obvious reasons that business relationships end.

You may really suck at what you do and each time a customer fires you, they are sending you a message. Perhaps it’s time to find another career?

The economic downturn has caused many businesses to revisit their business relationships in an effort to reduce costs. It really does not matter how valuable your services may be, if a customer cannot afford you, or if they assign a greater value to other types of services, your services may no longer be necessary. Conversely, in an effort to reduce costs, perhaps your service levels have also been reduced and customers no longer appreciate your value proposition. Just drive around the area and look at all of

16

www.siia.org

|

July 2010

the restaurants that have closed since the economy went into a downward spin, restaurants that you had to beg for a table two years ago. What happened?

Maybe your competition had adopted a superior business model and is simply moving forward more quickly than your organization?

Perhaps you associate with customers or vendors that simply see a business relationship differently than you.

Years ago, when I was with the Travelers Insurance Company, we hired a consultant to help us develop our Managed Care and Employee Benefits Sales Strategy and help define our value proposition in a marketplace that was exploding with many carriers offering exactly the same products, simply packaged differently. This was several years after we spent millions to acquire an existing HMO only to sell it back to the management two years later for a penny. Personally, I think they paid too much, but I digress. The consultant was Dr. Benson Shapiro, then a Professor at the Harvard Business School and an expert on developing and sustaining a business strategy and customer relationships. To this day, his core principals have guided me in building and operating my business.

In 1987, Dr. Shapiro joined with several of his peers and authored an article, “Manage Customers for Profits (Not Just Sales)”, which was published Continued on page 19.

Practicing the ART of Imagination® The Taft Companies provide Alternative Risk Transfer (ART) solutions and captive management services within Bermuda and U.S. captive insurance company domiciles. It also provides access to the Bermuda market as a licensed Bermuda broker. Its services include captive feasibility studies; formation and management services through its subsidiary companies, as well as structuring reinsurance designs and placement.

W. A. Taft Insurance Brokers Ltd. is a Bermuda-based licensed broker. As an independent non-aligned entity, Taft provides brokers and captives access to the most innovative and entrepreneurial insurance market in the world.

Our Offices The Taft Companies, LLC 901 Dulaney Valley Rd · Suite 610 · Towson, MD 21204 P (877) 587-1763 · F (877) 224-0876 W. A. Taft & Company, (DC) LLC W. A. Taft & Company, (MT) LLC W. A. Taft & Company, (SC) Ltd., LLC W. A. Taft & Company Ltd. (Bermuda) W. A. Taft Insurance Brokers Ltd. P (441) 295-8495 · F (441) 292-1196

Bermuda · Kentucky · Montana · South Carolina · Washington, DC

www.taftcos.com · 877.587.1763

www.taftcos.com · 877.587.1763 Bermuda · Kentucky · Montana · South Carolina · Washington, DC

18

www.siia.org

|

July 2010 www.taftcos.com

· 877.587.1763

Continued from page 16. in the Harvard Business Review in October of 1987 and was the primary tool he utilized in helping us develop our business strategy. Although his article focused on small manufacturing companies, I believe that it has relevance to all customer relationships, irrespective of the industry, including the sale and purchase of health insurance and TPA services. The only time I have made mistakes is when I have strayed from his core principals.

(OK, truth be told, I have made lots of mistakes on my own, but the worst have been when I have failed to heed Dr. Shapiro’s advice.)

According to Dr. Shapiro, customers, and all business relationships fall into one of the following four quadrants that are defined primarily by the cost to serve, as well as, a willingness and/or ability to pay a fair price to receive high quality services.

His Customer Matrix follows: High P R i c e s e n Low s i T i v i T y

carriage Trade

Passive

Bargain Aggressive Basement

High

Low cosT To seRve

Over the years, I have attached different labels to the quadrants. However, any customer relationship which starts above the horizontal mid-point is generally characterized by willingness and/or an ability to pay more for services. Any relationship which falls to the right of the vertical axis is generally characterized by a higher cost to serve. Conversely, relationships which commence below the horizontal axis have a diminished willingness or capacity to pay for your services. Below the mid-point and to the right of the vertical axis combine low fees and a high cost to serve, a very undesirable combination that is doomed from the beginning. However, according to Dr. Shapiro as well as my own personal experience after charting years of my own business relationships, over time, there is always an inexorable downward movement to the right. If left unchecked, all of your customer relationships will ultimately have a high cost to serve and will be less willing to pay you adequately for your services.

To further explain, a customer in the Carriage Trade quadrant would demand and pay for high quality services whereas a customer falling in the Passive quadrant would be willing to pay more, but at the same time, would have a lower cost to serve. While this may seem like an enigma, there are many customers that fall in the Passive quadrant, paying more and demanding less. Perhaps they assign a low value to the service and do not value it enough to aggressively negotiate. However, whatever the reason, customers that fall in this quadrant are those that you are most likely to lose. What is your value proposition for them?

While I do not believe that any customer would be willing to admit that they are willing to forgo good service for a low price, the Bargain Basement quadrant, the fact does remain that this is a characteristic of many organizations, such as not for profits or governmental entities, which may have diminished funds to spend. Those with adequate size to demand higher levels of service may ultimately move into the Aggressive quadrant, but if your pricing for them was based upon Bargain Basement requirements, the relationship is doomed to fail due to pricing inadequacy or poor service.

The reason that there is almost always downward pressure to the right has to do with your value proposition. As a TPA, for example, when I establish a new customer relationship, my value proposition has never been higher. I have solved a problem for my new customer, perhaps by lowering their insurance costs, solving administrative issues or implementing new and more effective plan design solutions for their employees. However, if I do my job correctly, over time I will educate my customer and what may have been confusing or complex, I will have clarified and made less complex. At the same time, my competitors will also call on my customer saying that they can do it better and cheaper, and if I do not find a way to reestablish my value proposition, I will lose the relationship to the

lower cost competitor. As Forrest Gump says, “it happens.”

I recently lost a small case I had had for almost ten years, over an amount which was less than 1% of their total plan costs. Looking back, when I first developed the relationship, they had serious problems. Small groups had few insurance alternatives, especially those with a high percentage of retirees. Plan costs were increasing rapidly and they were a perfect candidate for all of the new and creative ideas that I had. I changed their method of financing the cost of their health insurance program, counseled them on new and innovative consumer directed plan designs, implemented a chronic disease management program and successfully reduced their insurance plan costs to a rate far below normal inflation.

However, I still lost them for less than 1% of their total plan costs, and they liked me. Why? Because my value proposition, which was still in the Carriage Trade quadrant, differed from theirs, which now was far more aggressive, due in part to the economy and partially because the value proposition of my contact at the company had changed to accommodate an aggressive Board, and I was not perceptive enough to notice it and react accordingly.

Whether we recognize it or not, in business relationships, we are all more comfortable playing in a quadrant that is similar to our own quadrant. My value proposition is characterized by being creative, innovative and consultative, and I definitely feel more comfortable operating in the quadrants above and to the right of the mid-point. I will make a concerted effort to avoid those below and to the left of the mid-point. However, there is substantial room for error since most business relationships fall within the “gray area” close to the mid-points. Nevertheless, there will always be a tendency to move down and to the right, irrespective of where you start, but you can make a difference!

Whether you’re a buyer or seller of products or services, I suggest that you determine which of these four quadrants accurately describe where you are most comfortable. Then, surround yourself with business partners or vendors who share similar characteristics. In order to determine where you fall, examine historical failed business relationships, plotting where they started and where they ended. I feel certain that you will determine that the relationship moved down and to the right, over time. Then, take a similar look at relationships which have stood the test of time, and if one of them happens to have been your TPA, the next time you see them, give them a big hug for offering and sustaining a high value proposition! n

The Self-Insurer

|

July 2010

19

The Paradox of

Recovery Auditing for Health Plans Providing ASO Services This article is reprinted with the permission of Connolly, Inc and Managed Healthcare Executive website where is first appeared.

i

t’s no secret that health insurance claim errors resulting in hundreds of millions of dollars in overpayments are a fact of life for large health plans. In fact most large health plans have internal teams and outside vendors to help identify and recover those overpayments. However, when the health plan is providing administrative services only (ASO) for self-funded plans, the incentive to recover overpayments decreases.

Why? There are a number of reasons. First, if the health plan recovers overpayments and returns them to the plan sponsor, is the health plan admitting to making a mistake? Second, if the health plan uses an outside recovery audit firm to unearth the overpayment, who pays their bill? Does the health plan pay it? Does the health plan pass the cost over to the plan sponsor? Third, there is at least some likelihood that a client confronted with recovery audit costs might say, “The health plan made the mistake, the health plan should pay for it!”

This is the paradox faced by health plans today. Despite a seemingly significant volume of claims overpayments, there is very little being done to recover them, consequently costing the plan sponsors millions of dollars every year. In fact, it is estimated that nearly $1 billion dollars is lost annually due to overpayments, in spite of various pre-payment systems and processes in place to mitigate those losses.

How should health plans deal with this overpayment paradox? Let’s review each reason for the paradox in detail: Reason #1: If the health plan

20

www.siia.org

|

July 2010

recovers overpayments and returns them to its customer, is the health plan admitting to making a mistake?

Let’s face it, whether we like it or not, overpayments are endemic to any large medical insurance operation, sometimes as much as 5% of paid claims. To miss recovering those overpayments means that plan sponsors are losing tens of millions of dollars. Many plan sponsors are beginning to recognize that a portion of their paid claims dollars are being overpaid and not recovered, and they are demanding the implementation of recovery efforts. The health plan

that does not facilitate the recovery of overpayments will be at a competitive disadvantage in the marketplace.

Reason #2: If a health plan uses an outside recovery audit firm to uncover the overpayment, who pays their bill?

Does the health plan pay it? Does the health plan pass the cost over to its selffunded client?

The answers to these questions obviously depend upon the nature of the health plan’s relationship with the plan sponsor. The closer the partnership, the better the odds that recovery audit expenses can be passed along to the

client. After all, the dollars • Phase IV – Obtain returned to the sponsor are full support from an expert likely to dwarf the recovery recovery audit costs by a factor of as much firm to identify as 4 to 1.

Paid medical claims in the amount of: ..................... $100B overpayments and Reason #3: There is at Half of the paid medical claims are self-insured: ....... $50B recover them least some likelihood that This four-phase Assuming an error rate of:.............................................. 2% a client confronted with recovery approach, recovery audit costs might Overpayments could be: ................................................ $1B implemented over say, “The health plan made time, will maximize the mistake, the health plan increases the probability of insulating the recovery of claim overpayments. should pay for it!” clients from competition.

A health plan should question where However, there is always the they are in their approach and possibility that the plan sponsor will Where to Start? determine their end goal in order to refuse to pay the recovery costs. The Once committed to recovering maintain or increase both their market health plan may be able to overcome that overpayments, the health plan should competitiveness and client service levels. objection in one of three ways: take a four-phase approach to identify • By explaining that many and recover claim overpayments for its Summary overpayments are unavoidable self-funded clients. Each subsequent Claim overpayments are inevitable and not always the fault of phase represents an increase in the and cannot be ignored. But by being the health plan (for example, process maturity level of the health plan’s proactive and putting a recovery effort where membership information recovery initiative: in place, both the health plan and its was not communicated to the • Phase I – Reactively investigating client will benefit. The plan sponsor health plan, resulting in improper and recovering overpayments realizes immediate dollar savings to the coordination of benefits) bottom line as well as future savings, and only after they are surfaced • By recognizing that the identification of an overpayment often provides the opportunity to understand the root cause of the mistake and implement process improvements to mitigate future errors • By citing the incredible return on investment of a recovery audit • By understanding the value a recovery audit in improving payment accuracy and the overall quality of work performed Ideally, and with a little enlightenment by the health plan, the plan sponsor client will recognize that the recoveries realized far outweigh any associated fees.

The Benefits of a Recovery Program Recovering overpayments is a medical cost containment best practice and is the health plan’s ASO business can be as • Phase II – Proactively identifying an excellent way for the health plan competitive as possible. overpayments internally and to demonstrate that it is providing the This article was submitted by Kevin best service to its clients. The dollars recover them Clark, Vice President of Marketing for recovered can be passed on directly to • Phase III – Obtain limited Connolly Inc. Connolly Healthcare, a the plan sponsor. The health plan owes division of Connolly, Inc. is the recovery external support to identify it to its clients to lower costs and make audit expert that uses advanced data overpayments in specific areas processes as efficient as possible. Future mining techniques to identify and and recover them (e.g., contract savings can also be realized as process recover a broad range of erroneous compliance, high cost drugs, improvements are put in place. By medical claim payments, all with a COB, terminated members) proactively addressing the plan sponsor’s high sensitivity to important claims overpayments, the health plan provider relationships. n

estimated overpayments in the United states

The Self-Insurer

|

July 2010

21

ART Gallery

By Dick Goff

iRs code 831(B) cAPTive APPeALs To BoTH Risk, finAnciAL sPeciALisTs

T

he world is conveniently organized into specialties. That’s why you can’t buy cream puffs at a car dealer or Frisbees at a furniture store – unless one of those is having a really quirky promotional event.

That’s why the main stream of financial management comprised of accountants, attorneys and the like has not generally latched onto one of the most valuable risk management concepts: a special kind of captive insurance company that provides for tax-advantaged growth and disbursement of money while also being a significant risk management tool for small businesses.

A captive organized under IRS code 831(b) provides dual financial and risk management benefits for smaller privately owned companies. In our world, think of a self-insured employee healthcare plan or workers’ compensation plan funded by specific levels of self-insured risk or high deductibles before any stop-loss or traditional insurance kicks in.

If the self-insured or high deductible risk is insured through an 831(b) captive, premiums paid by the company are immediately deductible up to a maximum level of $1.2 million. That allows the company to cover business risk on a tax-deductible basis while still enjoying the flexibility and lower cost of self-insurance or high deductible plans.

And that’s not all, folks. An 831(b) captive is taxed only on its investment income. Under this funding structure the significant advantage is that the captive is able to accumulate surplus from underwriting profits free from tax.

That’s the input side of an 831(b) captive: tax deductible premiums paid into it by the company and tax-free growth of underwriting profits. The output side is just as compelling: Annual dividends may be declared to the captive’s owner taxed at the prevailing captive gains rate.

For these reasons, an 831(b) captive is an ideal structure to be used for estate planning, company perpetuation, key employee benefit/compensation packages or even balance sheet risk(s) funding. The soft costs associated with the captive’s trust or group of family trusts would be contractual liability policy to the plan formation are just the nominal more effective. sponsor to reimburse its liability for price of admission to a longfinancial obligations to the plans. In term tax-advantaged vehicle for Of course, any captive insurance some cases a fronting company may be growth and transfer of wealth. company must pass the IRS litmus tests preferred.

Plus, those startup costs may be of risk transfer and risk distribution. reimbursed by the captive at a As employee benefits or workers’ comp Even your most enthusiastic later date. plans clearly cover third party risk, insurance professional would agree that they are ideal to insure their SIR or Under these long-range the world would be a better place if all deductible through an 831(b) captive. financial management plans the risks were eliminated. But as long as we 831(b) captive is better owned have to deal with risk, we may as well Rather than being owned by the by an entity other than the do it as financially advantageously actual ERISA or workers’ comp trusts, insured’s company – a family the 831(b) captive would issue a as possible. n

22

www.siia.org

|

July 2010

IN THE BLINK OF AN EYE, LICKETY-SPLIT AND ASAP. (THIS IS HOW FAST YOU CAN EXPECT SMARTER ANSWERS FROM HM.)

You can also expect service, support and more.

When it comes to building your Stop

our new Worksite Advantage and Limited Benefit Medical products have the best features of

Loss, Worksite or Limited Benefit

group and individual voluntary platforms. We’re

Medical business, speed sells.

smart about client relationships, too. That’s why

For nearly 30 years, top brokers

you can trust us to protect your reputation by

and sales consultants have

evaluating your clients’ needs, and delivering

trusted the experts at HM

unmatched support at every step of the sale.

Insurance Group to provide them with knowledgeable advice, nationwide support and specialized services. In

For an even quicker way to learn about Smarter Answers Faster, visit smarteranswersfaster.com.

addition to our industry-leading Stop Loss product, STOP LOSS

| WORKSITE:

MTG-1293 (R4/09)

CRITICAL ILLNESS ACCIDENT DISABILITY INCOME TERM LIFE

|

LIMITED BENEFIT MEDICAL

Labor management

&

Form Coalition to Stabilize WorkerS’ CompenSation CoStS

A

By Michael A. Schroeder

coalition is an alliance among individuals or groups, during which they cooperate in joint action, each in their own selfinterest, joining forces together for a common cause. Labor and management in the building trades of West Virginia have done exactly that in their joint effort to control the costs of workers’ compensation insurance. Recognizing the benefits of training, drug testing, and proactive communication in the objective of reducing workers’ compensation injuries, labor and management have combined efforts and created an insurance program that returns the benefits of reduced workers’ compensation losses.

The insurance program is known as a Group Captive, and it not only provides the essential coverage for workers compensation but rewards participants with superior training and loss prevention.

The Alliance Too often the discussion in the media on the topic of labor and management is focused on their conflict. Disagreements surrounding collective bargaining, organizing, political fundraising, benefits, and foreign competition fill the papers.

After a heavy dose of this conflict, it’s easy to forget the parties and people involved share a lot in common. The craftsman is an employee of the employer contractor. In other words, they work at the same company with common goals and objectives.

Both work together in bidding and completing a construction project that offers compensation and personal satisfaction.

Each gain when the project is completed timely and under

24

www.siia.org

|

July 2010

budget; the contractor employer through profits and the tradesman through improved wages and benefits. It is undeniable that when construction projects are not profitable, labor and management both lose.

When the employer and its employee look for ways to work together in an effort to jointly improve their self interest, the cost of operating the business inevitably presents itself. One operating expense where the tradesman and contractor can come together is workers’ compensation insurance. The expense of funding losses arising from injured workers is no small part of a contractors operating budget. This is especially true for contractors employing the building trades whose skill and training demand a higher wage. With workers’ compensation insurance premium determined by multiplying a premium rate by payroll, union contractors pay more for workers’ compensation insurance than their competitors employing lower wage non-union labor even though union tradesmen’s training and focus on safety would suggest a more attractive claim outcome. The insurance pricing anomaly union contractors present can be mitigated when labor and management cooperatively share risk through a Group Captive.

Joining Forces Even before the Group Captive was implemented, the building trades in West Virginia joined forces with contractors in the development of a first class training program in response to claim activity on the individual job sites. The claim activity monitoring started as a method to quantify the benefits of and need for specific training topics. Certified, experienced experts regularly provide hands on instruction to apprentice as well as veteran craftsmen. The training includes coursework in equipment operation, safety, and loss prevention.

Thousands of hours are dedicated to the development and improvement of the skills deployed on every construction project. This is unique to the union labor market as the higher wages in part fund specialized apprentice training facilities for the aforementioned trainers to educate apprentices and craftsman.

Labor and management also joined forces in developing a credible drug testing program that provided both labor and management with confidence in the accuracy, fairness, and completeness of the testing. While the Department of Transportation programs test based on a five panel screen, the building trades in West Virginia perform a higher level of testing.

These programs continue to improve through regular meetings where labor and management share ideas, obstacles, and solutions for the delivery of the most effective training and safety programs available. These meetings take place at least quarterly and maintain as their objective an open dialogue on the challenges confronting the participants.

Challenges are best solved face to face with candid discussion. This works for training curriculum, drug testing, communication, and safety. In fact, the benefits from open, clear, and regular communication are further embraced by labor and management in this insurance program through the implementation of a trouble shooter. The trouble shooter’s job is to make sure the back to work, claim adjudication, fact gathering, and loss prevention programs that are available to the contractors are deployed timely and efficiently. A combined force of labor and management is focused on the reduction of workers’ compensation expense.

Realize the Return With the groundwork laid for the effective control of workers’

compensation costs by labor and management’s cooperative efforts, an insurance program that offered the participants the greatest return for their outstanding loss results was needed. A Group Captive offered the employer contractors the best opportunity to realize a return of underwriting and investment income from their workers’ compensation premiums. A Group Captive is an insurance company that is owned and/or controlled by its insureds. In this case, the insureds are employer contractors, and they are the participants of the Group Captive.

Group Captive participants purchase insurance the same way they do in the standard market; they send in their underwriting information, receive a quote and bind coverage.

A Group Captive insurance program provides the necessary infrastructure for the delivery of claim payments, including a claims administration or TPA company, an insurer to issue the policies and a reinsurer to cover the large or unforeseen loss events. The Group Captive then adds a Captive insurance facility that is controlled by the group to assume a portion of the risk that is typically retained by the insurer. The Group Captive functions like any other insurance company and reports to its owner contractors its financial performance with premium earnings, loss payments, expenses, and investment performance activity.

Through retaining risk in the Captive and the application of programs designed to prevent and reduce workers’ compensation losses, the Group Captive participants may experience underwriting results enabling a return of underwriting and investment income.

Without the Captive participation by the employer contractors, these positive underwriting outcomes would have inured to the benefit of the insurance company alone. The return of underwriting and investment income obviously reduces the union contractors’ expense of insuring their workers’ compensation and offers a cost advantage over traditional insurance coverage.

Does It Work?

The proof is in the numbers. Are the employer contractors realizing a savings over buying traditional workers compensation insurance? A review of historical premiums and losses for more than 30 different union contractors were revealing. On average, the employer contractor could realize between a 20 and 30 percent expense reduction by participating in the Group Captive. This revelation is causing the idea to flourish with more than thirty contractors applying for participation in the West Virginia Group Captive. Indeed, the Group Captive approach is spreading to neighboring states where the same labor management coalition is taking hold. An exciting development that truly can be described as a “win win” for all involved.

Mike Schroeder is President of the Roundstone organization. Mike offers over twenty years of insurance industry management experience with responsibilities in the captive market, self insurance pools and trusts, publicly held insurance companies and the regulatory environment. Mike can be reached at 440-617-0333 or MSchroeder@ RoundstoneInsurance.com. n

The Self-Insurer

|

July 2010

25

Chairman’s Report

By Armando Baez

neWs mAde London confeRence TimeLy

A

s I prepared to attend SIIA’s International Conference in London last month a number of interesting items crossed my PC screen.

The first, from an article in Reuters, explained the latest developments in Canada and discusses how “pressured by an aging population and the need to rein in budget deficits, Canada’s provinces are taking tough measures to curb healthcare costs, a trend that could erode the principles of the popular state-funded system.”

The article points to the following steps being considered to maintain the state-run health system’s solvency: Ontario said earlier this year it would halve generic drug prices and eliminate “incentive fees” to generic drug manufacturers.

British Columbia is replacing block grants to hospitals with fee-for-procedure payments.

Quebec has a new flat health tax and a proposal for payments on each medical visit.

A few provinces are also experimenting with private funding for procedures such as hip, knee and cataract surgery.

In some ways the Canadian debate is the mirror image of discussions going on in the United States. Canada wants to prune its state-run system. The U.S. aims to create a statebacked safety net.

Then, from across the Atlantic, comes a report from

26

www.siia.org

|

Associated Press about the state of welfare benefits across Europe.

According to AP, the generous lifelong benefits that have become a defining feature of modern Europe is coming under its most serious threat in decades because of Europe’s sovereign debt crisis. The AP reports that deep budget cuts are underway across Europe. Although the first round is focused mostly on government payrolls, welfare benefits are looking increasingly vulnerable.

“The current welfare state is unaffordable,” the AP quotes Uri Dadush, director of the Carnegie Endowment’s International Economics Program. “The crisis has made the day of reckoning closer by several years in virtually all the industrial countries.”

In the U.S., the government is

moving toward the long-term creation of a similar state-run and controlled system and moving away from the private, employer-based healthcare benefits system. Yet the warning signs that the same thing could happen here are there for all to see. Here is one example: The Boston Globe reported that the four largest health insurers in Massachusetts – Blue Cross Blue Shield, Harvard Pilgrim Health Care, Tufts Health Plan and Fallon Community Health Plan – lost a combined $152 million in the first quarter of 2010. The companies stated that $116 million of those losses were directly caused by the April 1 institution of price controls by the state’s insurance commissioner. This is exactly what insurers predicted would happen when they filed a lawsuit in Boston last month.

SIIA’s Global Tutorial I saw my trip to London to attend SIIA’s International Conference as a perfect opportunity to find out for myself what is really happening around the world.

This was SIIA’s third annual conference focused on the international market and by all measurements it was a terrific success. Most impressive of all was the faculty of top-level leaders from the host country, Europe and elsewhere. Some key elements of their presentations are highlighted in conference coverage elsewhere in this issue.

The conference was held in the delightful Grange City Hotel, a unique facility ideally situated within walking distance of Lloyd’s and with a panoramic view of the Tower of London and famed Tower Bridge. The conference was designed by SIIA’s International Committee to highlight the latest information on underwriting and financing of self-insured risks.

As someone who spent several years developing and chairing SIIA’s International Committee, I continue to be impressed by the work of the committee under the leadership of Liz Mariner, executive vice president of ReSolutions Intermediaries, LLC. This conference helped to convince me that my original vision of a worldwide reach for SIIA is correct. This has proved to be a time of increased globalization with the emergence of a truly international economy and a multinational approach to business. Those of us who work to help our clients manage and finance their insurable risks need to be more aware of the requirements of global risk management. The SIIA international track is an enjoyable and certain way to gain this important expertise.

Saludos,

July 2010

NC O

30th Annual

ce &

Ex p o

n a o i l Ed t a N u

er

en

a c

l C a o n n o i f t

Sharing the Success of Self-Insurance… With You October 12–15, 2010 Sheraton Chicago Hotel & Towers Chicago, IL www.siia.org © 800-851-7789

NC Overview Brochure.indd 1

3/18/10 11:54:30 AM

Viewpoint Tom Mather

A

bout three thousand years ago the Greek philosopher Heraclitus made the observation that “Nothing Endures but Change.” In all of those passing years nothing ever said by anyone could have been more on point. Some change is not for the better however most change is. Such is the case with this message today.

About a dozen years ago I was contacted and offered the job as Managing Editor for this publication, a task that I had some doubts about, even though I had been peripherally involved in the Self-Insurer since its inception back in the early 80’s. What evolved from this was for me perhaps the most interesting and personally rewarding time of my business career. But as with all things in life, the time for a change has come. I have stepped down as Managing Editor for all of the SIPC publications as of June 1, 2010. I will however continue as a contributing writer for the magazine for a period of time into the future. So the torch is passed to the next generation, and one that I can assure you has the talents and knowledge to proceed into the future with great skill and a bright future in the production of these publications.

Our new Managing Editor, as of June 1st, is Gretchen Grote.

Prior to her appointment as Managing Editor Gretchen served as a Client Services Associate in SIIA’s Legislative Office in Washington, DC. Gretchen’s prior experience also includes working for Strategic Health Development Corporation, a managed care company, and serving in the Underwriting Department of International Funding Ltd., a MGU. Gretchen is a graduate of the University of WisconsinPlatteville, with a degree in Communications.

As a personal note, in the years that I have worked with Gretchen in many matters involved in the production of our publications, I have had first hand knowledge of her timely approach to matters, excellent writing skills and the desire to get the job done on time.

As an added note, she possesses a skill that is essential to anyone in the position of being an editor. She has a marvelous sense of humor. In the future, contributors to our publications are asked to deal with Gretchen directly as they have with me in the past. I can assure you that you will be pleased with her response to you in every matter.

“What evolved from this was for me perhaps the most interesting and personally rewarding time of my business career. “

Contact Info: Gretchen Grote ggrote@sipconline.net Tom Mather Contributing Editor

28

www.siia.org

|

July 2010

BRCH

Prices Vary... A Lot.

Offer an Employee Benefit That Impacts Your Bottom Line.

As a self-insured employer, you care about

Introducing change:healthcare. We identify

customizing insurance to fit your needs and

immediate healthcare savings in your existing

you care about creating the right options for

plan design and show where your employees

your workforce. But, let’s face it, you also

can get the best price for their current

care about your bottom line.

prescriptions and services.

Know More. Pay Less. www.changehealthcare.com

BRCH011.indd 1

800.655.0732 ext 4

sales@changehealthcare.com

BRCH011 - SIIA Full Page Ad

BRCH011 (06/09/10)

6/9/10 11:11 AM

Ever get the feeling that those big claims are going to eat you up?

What you really need is a partner specialized in delivering true value in large claim management – both in- and out-of-network!

Global Excel. Come talk to us.

Global Excel Management Inc. Toll Free: 877-298-3623 | Tel.: 819-566-1130 www.globalexcelusa.com | information@globalexcel.com 50 01 ADV EUS 0710 SIM

COST CONTAINMENT DONE RIGHT