Self-Insurer July 2011 by SIPC

July 2011

A Short-Cut for

Alternative Dispute Resolutions Self-funding CompanieS Looking to Detour from State Compensation Process

SIIA OFFICERS Chairwoman of the Board* freda Bacon, administrator alabama Self-insured WC fund Birmingham, al President* alex giordano, Vice president of marketing elite underwriting Services indianapolis, in Vice President Operations* John T. Jones, partner moulton Bellingham pC Billings, montana

JULY 2011 | Volume 33

FEATuRES

Vice President Finance James e. Burkholder, president/Ceo TPABenefits, Inc. San antonio, TX

ARTICLES 10

from the Bench: Keeping the Tpa interested after the Spec is Breached

Executive Vice President erica massey midland, nC

mather’s grapevine

Chief Operating Officer mike ferguson Simpsonville, SC

Court decision Clears The air (Somewhat) for Wellness programs

new RRg’s insureds use Captives to Reinsure 25% of Risks By Hazel Becker, Risk Retention Reporter

aRT gallery: new Start for Captive industry in Tennessee

SIIA DIRECTORS les Boughner, executive Vp and managing director Willis north american Captive and Consulting practice Burlington, VT ernie a. Clevenger, president CareHere, llC Brentwood, Tn

ADR: A Short-Cut for Self-Funding Companies Looking to Detour from State Compensation Process By Steven G. Kokulak

donald K. drelich, Chairman & Ceo d.W. Van dyke & Co. Wilton, CT Steven J. link, executive Vice president midwest employers Casualty Company Chesterfield, MO Robert Repke, president global medical Conexions inc. San francisco, Ca

SIIA LEADERSHIP

Beware of the Fiduciary

2 president’s message

By Adam Russo

SIIA COMMITTEE CHAIRS Chairman, Alternative Risk Transfer Committee Kevin doherty, partner Burr forman nashville, Tn Chairman, Government Relations Committee Jay Ritchie, Senior Vice president HCC life insurance Company Kennesaw, ga Chairwoman, Health Care Committee Beata madey, Senior Vice president, underwriting Hm insurance group pittsburgh, pa Chairwoman, International Committee liz mariner, executive Vice president Re-Solutions intermediaries, llC minneapolis, mn Chairman, Workers’ Compensation Committee Skip Shewmaker, Vice president Safety national Casualty Corporation St. louis, mo

July 2011

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 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 - Shane Byars 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 Committee John Hickman, attorney, alston & Bird david Wilson, esq., Wilson & Berryhill p.C. Randy Hindman, deloitte & Touche, llp Jason davis, global excel management, inc. The Self-Insurer

p.o. Box 184, midland, nC 28107 Tele: (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

July 2011

pReSidenT’S meSSage Let’s keep those grassroots green this summer

he news is full of ideas on how to spend your summer – as if we weren’t busy enough. i just hope to get a couple of fishing trips in before labor day, even though to tell you the truth the fishing is better when the weather begins to cool down. it seems that every magazine has to have a novel new idea of how you should spend July and august. lots of them are improbable adventures like motorcycle backpacking to Katmandu or eco-tourism in Southeast asia. me, i’ve found a more productive way to spend some time this summer. along with other Siia members i’m going to work on grassroots politicking for my favorite trade association. The Siia government Relations office is now compiling data that members have provided about their preferences for grassroots activities such as visiting their Congressional representatives, attending events of the Self-insurance paC or contacting lawmakers through phone calls, e-mail or plain old snail mail. While Siia has stimulated and led political involvement by members through the years, this is the bestorganized grassroots effort to come along. “not only will this grassroots support help our direct lobbying efforts, we believe it also provides you a greater connection to your association,” was the way mike ferguson put it in his letter to members inviting their participation. as we all are involved in our own busy worlds, it’s easy to overlook how important grassroots politicking can be. But think of it this way: it was just a couple of years ago during a long hot summer when a few activists joined together and called themselves the “tea party.”You had to explain that name to the kids who missed their history lesson about the Boston Tea party that kicked off the american Revolution with a protest against unfair taxation.

July 2011

The Self-Insurer

Whether or not you agree with their objectives or their tactics, you have to give the tea party credit for changing the political conversation in america. Because of their protests against running up greater national debt those grassroots activists caught the attention of millions of people and sent dozens of new members to Congress. i think Siia members have just as important a story to tell our representatives and our business colleagues – really, anyone who will listen. our industry provides better healthcare to many millions of people than any government program out there. We literally are the glue that employees and their families rely on to maintain employer-sponsored selfinsured healthcare plans. While self-insurance under eRiSa has long been the preferred method of larger employers to provide healthcare benefits, the increasing costs of healthcare and commercial insurance is now driving mid-sized and smaller employers to self-insured plans. Self-insuring removes two sources of bureaucratic interference with employee health plans – those of state and local government bodies and the commercial health insurance companies.You can tell your representatives that proactive employers are sponsoring self-insured plans that keep employees healthier through care management, disease management and nurse coaching – all bringing down costs while achieving better individual outcomes. it’s still important to tell our story. many in Congress and elsewhere believe the only good healthcare plans must have a government imprint. Convincing them that is not true will help protect the current employer-based healthcare system and lead the nation to true reform of healthcare costs.

another very timely and important effort this summer will be to lobby our Congressional representatives to support modernization of the liability Risk Retention act (lRRa) to allow risk retention groups to provide property coverage to their members and to assure a level playing field among nondomiciliary jurisdictions. Siia got this ball moving when HR2126 was introduced last month. mike ferguson noted at the time, “The fact that Siia has an increasing number of friends on Capitol Hill is a direct result of our robust government relations initiative, which includes direct lobbying, grassroots communication and financial support to key members of Congress provided by our political action Committee.” So join me in signing up for Siia’s grassroots political efforts. it will be good for your business and give you something to talk about what you did this summer. That’s it for now,

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

Still searching for solutions to today’s healthcare challenges?

It’s tough out there. With rising medical plan expenses and mini-meds in transition you need solutions now. Symetra can help. Whether your clients are moving to a self-funded medical plan—or already there and wondering how to handle unlimited lifetime and annual maximums—our stop loss policy can help cap their risk. And our fixed indemnity group insurance policy, Select Benefits, may be a good alternative to their mini-med. To learn more about our suite of healthcare solutions—including life and disability income insurance—contact your Symetra representative at 1-800-426-7784 or visit www.symetra.com.

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 Financial logo are registered service marks of Symetra Life Insurance Company. Reach for great things® is a registered mark of Symetra Life Insurance Company. LMC-5586 3/2011 The Self-Insurers’ Publishing Corp. All rights reserved.

The Self-Insurer

July 2011

ADR

A Short-Cut for

Self-funding

CompanieS Companie

Looking to Detour from State Compensation Process

By Steven G. Kokulak

July 2011

The Self-Insurer

lternative dispute Resolution (adR) is a system that brings conflicting parties to a quick mutual agreement so that both sides can avoid the costly litigation that goes hand-in-hand with settling workers compensation claims. for companies continuing to struggle with higher workersâ&#x20AC;&#x2122; compensation insurance premiums and mounting employee time away from the job, adR becomes part of a larger strategy that considers the injured worker to be a vital asset to business and someone in need of efficient, quality care so that they can return to work quickly. Statistics show that most lawsuits can be settled without litigation. adR circumvents the expensive, time-consuming, emotionally draining process and offers participants an opportunity to avoid the unpredictability of a court action and the possibility of obtaining closure with certainty about the outcome of a dispute. in fact, 95 percent of all federal cases are settled beyond the courthouse steps. Sometimes adR is used before a lawsuit is even filed or to head off pending litigation and bring about a negotiated resolution short of a full-blown trial.

Options for Resolving Disputes Typically, adR can arrive in either the form of mediation or arbitration. mediation is normally a voluntary process where two sides agree on a neutral party who listens to arguments separately and attempts to negotiate a settlement of a compensation claim by discussing the pros and cons of their positions on issues. The mediator tries to get the two sides to settle, but does not mandate a solution. arbitration is a process where both sides air their differences together

before the arbitrator, who then makes a binding decision on how the claim will be settled and what value will be assigned to the judgment, which can later be petitioned to the appellate court, but not at the statutory level.

ADR: Benefits without Bickering in most adR programs, each phase of the process must be completed within 30 days compared to court procedures, which can take upward of 2-3 years. face-to-face discussion is often the most promising way to remedy issues preventing settlement of a workersâ&#x20AC;&#x2122; compensation claim. Here, parties have the flexibility to control the procedures, select the method of ADR they want to follow, the length of time devoted to the hearing and, in mediation, even the outcome as opposed to the court system where judges control every aspect of the process. in a trial, there is typically a winner and a loser. Sometimes, the winner is not much happier with the outcome than the loser. adR can help all parties explore the issues in a predicated manner that leads to a better understanding and optimizes the likelihood of creative resolutions that meet their needs and achieve their goals. ADR also offers confidentiality without setting future precedent for both parties when arbitration, mediation and small trials are conducted in private, informal settings. These less confrontational environments are more conducive to productive business relationships that might otherwise be lost through the acrimony that frequently characterizes litigation. Complicated facts can also be sifted through and considered by professional third-party mediators and arbitrators who have training and industry expertise in adR rather than by judges or lay juries or commissions. adR can work particularly well in construction, where plenty of projects are stalled by disagreements among the general contractor, subcontractor and suppliers. Skilled construction mediators and arbitrators can serve as a platform for resolving differences efficiently and equitably when these disputes emerge before they get out of hand. Settlement values are usually determined by a number of common factors regardless of whether or not mediation or arbitration is chosen including employee

The Self-Insurer

July 2011

age, ability to return or continue to work, degree of disability incurred or the need for future medical attention. many jurisdictions have found adR to be an efficient and effective option to the court system as well as workers’ comp boards and industrial commissions which often are backlogged with cases that need to be settled. a number of jurisdictions have taken the additional step of recommending or even mandating that injury disputes target the adR process for mediation or arbitration before they can be presented to workers’ comp boards, industrial commissions or the courts.

early studies cited cost-effectiveness as the most predominant factor for the widespread growth of adR and others referred to the increasing number of legal mandates that require the use of mediation and arbitration to solve disputes including the Civil Rights act of 1991 and the americans with disabilities act, which both encourage the use of adR. Some states have evolved to allow unions and management to “carve out” through negotiation a workers’ compensation system that incorporates an adR program administered by the state, yet outside statutory jurisdiction. These programs have been found to reduce the number of disputes and shorten resolution time by allowing employers and unions to negotiate procedures. an early study by the California Workers’ Compensation institute showed the advantages of adR by comparing an insurance “carve-out” program’s closed claims to standard industry results and found a 25 percent reduction on average length of claims and a 39.5 percent savings on average total claim cost.

Benefit to Workers & Employers average Claim life Span in days

average Temporary Total disability Weeks

ADR Evolves State-administered workers’ comp systems got their start in the early 20th century and were designed to give employees sufficient medical care as well as monetary benefits for work-related injuries and to limit employer liability. Workers’ comp rates on projects can account for as much as one-third of the expense of a construction company employing higher-risk workers such as roofers and ironworkers. Therefore, it wasn’t long before many employers began voicing concerns about increased costs in their workers’ comp systems and an equal number of employees raised questions about delays and inadequate medical care. in 1993, California responded by becoming the first state to pass a bill enabling employers and unions in the construction and closely related industries to design and implement alternatives to workers’ comp provisions in place at the time. Roughly 10 years later, the bill expanded to cover all unionized industries in California. Since then, 33 additional states have followed suite and now have specific or ADR-enabling language on the books.

July 2011

The Self-Insurer

(includes Contested & non-contested Claims)

5.0

250

4.0

200

3.0

150

2.0

4.0

1.0

100

non-adR

109

1.0

0.0

221

adR

non-adR

adR

Source: National Electric Contractors Association Once a claim goes to litigation, costs go through the roof. The first statistic shows the average cost for a closed claim and the second represents the frequency of litigation (see chart below).

Benefit to Insurers average paid – Closed Claim Study 2003

frequency of litigation

$9,000

35%

$7,500

30% 25%

$6,000 $4,500 $3,000

20%

$7,634

15%

30%

10%

$1,500

$1,607

$0 non-adR

11%

5% 0%

adR

non-adR

adR

Source: National Electric Contractors Association private companies that have collective bargaining agreements between management and labor were the first to adopt ADR processes; however, leaner budgetary times began to make the multi-tiered mediation process lucrative for the public sector as well. a number of initiatives by Congress and the government encouraged the use of alternative methods of workplace dispute resolution throughout the executive Branch including the administrative dispute Resolution act of 1996. as of Jan. 1, 2000, all federal agencies were required to establish or make available an

WE JUST BULKED UP OUR STOP LOSS OFFERING.

100-250

Smarter just got a lot stronger.

Employer size

For more than 30 years, HM Insurance Group has helped thousands of companies

member companies have earned

500+

Employer size

have enhanced our capabilities with the

Stop Loss business. By adding their

record has muscle, too. HM’s

Employer size

protect their medical cost risk. Now we

recent acquisition of Mutual of Omaha’s

health care market. Our track

250-500

A- (Excellent) ratings from

With the addition of Mutual of Omaha’s Stop Loss business, we can serve even more group sizes.

A.M. Best. HM is a direct writer, and more than 99% of all claims

expertise and success with small and mid-sized

last year were processed in less than 10 business

groups to our outstanding large group plans –

days, with technical and financial accuracy

and by offering unlimited annual and lifetime

above 99%. To learn more about Stop Loss plans

maximums – HM is better positioned than ever

that fit more group sizes, visit

to serve the needs of regional TPAs in a changing

www.smarteranswersfaster.com.

STOP LOSS

| WORKSITE:

CRITICAL ILLNESS ACCIDENT DISABILITY INCOME TERM LIFE

LIMITED BENEFIT MEDICAL

MTG-1997 (8/10)

The Self-Insurer

July 2011

adR program during the pre- and formal complaint stages of the equal employment opportunity process.

endured. However, the ensuing adR agreement contributed to increased morale and productivity, and the shortened life of a claim.

on the municipal level, long Beach was the first California city to establish Based on success stories like long a workers’ compensation adR process Beach, adR is now encouraged in for public safety after frustrated officers cities and towns throughout the united complained about lengthy delays States, where chosen representatives because the “utilization review” process are successfully negotiating place had prolonged medical treatment consolidated labor-management disputes. at the same time, the city workers’ compensation agreements was required to cover 100 percent to insure police, firefighters and other of employees’ salaries while care and union workers at reduced rates. and disabilities were reviewed. as a result, often these premiums, 1:04 especially Ethicare_Ad factors_01_03.pdf 1 1/5/11 PM costs increased and lost productivity those self-funded, have proven to

FactorSolutions™ by

EthiCare

Proven Savings Strategies for patients with Hemophilia/Bleeding Disorders.

Our Average Monthly Savings Exceeds $35,000

CMY

Be Prepared.

Call our Pharmacist today.

350 Clark Dr, Ste 104 Budd Lake, NJ 07828

July 2011

The Self-Insurer

(888)838-4422

The Process Efficient medical care delivery can only be guaranteed through agreed upon providers, evaluators, vocational rehabilitation providers and early return-to-work programs. in most instances, disputed claims bypass workers’ comp boards and proceed to a time-sensitive, three-step resolution process agreed upon by both management and labor. The Ombudsman, the first step in the process, is responsible for operating the adR program. once an injury occurs and a claim is file, the adR dispute system begins to work toward an expeditious and equitable settlement between the disabled worker and the insurance company. The “ombudsman” plays an active role in accelerating the process and answering any questions from involved parties before a decision is made to move forward or not with mediation or arbitration. if a workers’ compensation claim moves toward mediation or arbitration, both sides can enlist counsel, but attorneys cannot be present until the final stage of binding arbitration, saving more money, time and possible adversity.

be competitive while driving better medical care and claims handling that enables employees to get back to work sooner.

www.ethicareadvisors.com

The benefits of this are clear: Both sides save on legal expenses; the employee needing care gets it more quickly and without having to wait for hearings to be scheduled and adjourned in the state system; and the employer and employee begin to trust each other. Throughout the process, it is critical for the employee to understand that the “ombudsman” is there to help. employers, on the

other hand, must recognize that the case will not likely snowball into a third-party lawsuit, unless there is a truly significant injury. With more employers utilizing privately handled adR for claims, the cost-savings will have a positive effect on the state budget because fewer judges, clerks and court officers will be needed when claim counts are reduced. and those claims that do remain in the system will move to resolution more quickly and efficiently. This process is a win-win for every stakeholder other than trial lawyers, the employee or the provider who wants to take advantage of the system, and state boards that do not want to relinquish control and do not trust employee and employer to work out their disputes without oversight.

A Rare Solution: Everyone Wins adR is that rare thing: a solution where everyone wins. it should be seen as part of an overall strategy for preventing disputes rather than just a faster way to resolve them. Employers benefit from enormous cost savings; injured employees benefit by receiving a high level of assistance and better care delivery; and unions benefit by reaping rewards from improved relationships with management. An injured worker is not a liability, but someone in need of efficient, quality care so they can safely and quickly return to work. as part of an overall health management strategy, adR means lower medical expenses and less chance of litigation.

allowing them to make key decisions on benefits, administration and financing. With lower claim costs, employers ultimately save money and gain greater flexibility – an emblematic benefit of self-funding. in the long run, this is how employers who self-fund their employee medical coverage offerings – including workers comp plans – can take control of their bottom-line and be part of the healthcare reform solution. n About the Author: Steven G. Kokulak is vice president of Workers’ Compensation & No-Fault at MagnaCare. Prior to this, he served as litigation counsel for Liberty Mutual in New York City. He earned his J.D. from Brooklyn Law School and his B.A. from Fordham University.

adR especially gives those employers who choose to self-fund health insurance coverage something they’ve grown accustomed to – flexibility and control – while, at the same time limiting their liability and saving money by

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

ABigKahuna If you need stop-loss coverage to protect your self-funded health plan, you can’t afford to partner with anyone but a leader—like Sun Life Financial. Not only can we offer you fair, predictable rates at issue, we can put your mind at ease with a rate cap and no new lasers at renewal, guaranteed in writing. For details, contact your benefits broker or call 866-683-6334. Group Life • Group Dis ability • Group Dent al • M edi cal S top- Loss • Vol unt ar y Benef i t s

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)

The Self-Insurer

July 2011

Bench from the

Thomas A. Croft Esq.

Keeping the TPA Interested After the Spec is Breached

ne of the “real world” things i have learned in this business is that many TPAs believe that, once a claim has reached the specific deductible on a stop loss policy, it becomes the stop loss carrier’s problem. and many mgus and carriers seem to behave as if this mistaken assumption is true. The result is that mgus/carriers are tempted to become too involved in the ongoing management of a claim while Tpas are tempted to shirk their responsibilities to their client and “delegate” upstream their responsibilities to the mgu/carriers. Succumbing to either of these temptations is legally inappropriate.

TPAs, as agents for the group and/or its Plan, have fiduciary responsibilities to their clients. In some arrangements, these fiduciary responsibilities arise under eRiSa, in other instances under state law. But no matter the source of the obligation, Tpas have a duty to perform their functions with due diligence so as to minimize overall costs to the plan. This typically means proactively searching for discounts, negotiating with providers, implementing case management where appropriate, and a host of related activities that the Tpa either performs itself or through vendors it engages to assist it. The financial incentive to perform these functions is one of cost containment for the Tpa’s client, and ultimately for the client’s approval of the Tpa’s work and renewal of its contract. But once the spec is breached on a given claim, why should the group, the plan, or the Tpa care any longer about cost containment?

July 2011

The Self-Insurer

indeed, if the risk has truly been transferred to the stop loss carrier, why does the Tpa have any interest at all in the ongoing management of the claim? i submit that the theoretical answer lies in the reimbursement character of the stop loss contract while the practical answer stems from business considerations. There is no such thing as a “partially self-funded” plan: there are fully insured plans and self-insured plans. Stop loss contracts are issued to fully self-insured plans to provide reimbursement cover for large claims (via specific coverage) or an abnormally large number of smaller claims (via aggregate coverage). The key here is the reimbursement structure of either type of coverage – in the first instance the plan must decide to pay a claim before

it can be considered for reimbursement. The decision to pay a claim is a fiduciary one which must take account of the benefits as set forth in the Plan and the limits, such as uCR, that the plan likewise contains. and the decision to pay a claim under the Plan is, by definition, a fiduciary decision. These decisions cannot be delegated to others in any legally effective way. This is why the risk above the specific deductible or the aggregate attachment point is never truly “transferred” to the carrier. indeed, if the carrier were to become insolvent after a claim breached the specific deductible, a plan would hardly have a defense to a claim for excessive overpayments to providers based on the fact that it believed stop loss coverage was in place. The existence of stop loss coverage does not render a self-insured plan any less self-insured. in short, the existence of reimbursement coverage in the form of stop loss insurance does not relieve Plan fiduciaries of their obligations to pay claims in accordance with the terms of the plan.

The practical reasons for continuing Tpa involvement in cost containment after the spec has been breached are many. even if covered by the stop loss carrier, excessive claims do not bode well for the group at annual renewal time when the group’s risk is reunderwritten. To this very real extent, sloppy or inattentive administration of claims at the plan level can cost the group money in the long run even though the claims are being honored by the carrier. in addition, there is a substantial risk that the carrier may invoke its own stop loss policy exclusion (for example, a stop loss policy uCR exclusion) in defense of a denial of excessive payments to providers. This, of course, leaves the Tpa in the untenable position of having used its client’s money to pay a claim that is not going to get reimbursed under the stop loss contract. a third reason is less obvious but important: preserving the good working relationship between the mgu and the Tpa. goodwill in this relationship can count for a lot. Claims

from “good” Tpas may receive less scrutiny generally than those from Tpas with lesser reputations for effective cost containment because a level of confidence in the TPA’s usual work has been earned over time. also, an mgu may be more inclined to grant an exception for an otherwise uncovered claim if the Tpa-mgu relationship is a solid and longstanding one. and, as noted above, underwriting discretion is more likely to be exercised in favor of a group whose Tpa has a good working relationship with the mgu. When Tpas poorly manage claims from a cost containment perspective, carriers/mgu’s penchant for cost containment may lead them in some instances to cross the line from being a resource for the Tpa to managing the claim itself. This, as i have noted in previous articles, poses real risks for the carrier/mgu in terms of ERISA fiduciary status and the host of undesirable consequences that flow from that status. it must be the Tpa

A Revolutionary Passion for Savings

Reducing the Cost of Health Plans Through Innovative Technologies, Legal Expertise and Focused, Flexible Customer Service.

Claims Recovery Services

Plan Document Services Document Assessment

ASA & 3rd Party Agreements

Phia Rewind™ - 2nd Pass Audit

Plan Review & Revision

Gap Free™ Review

Overpayment Recovery

Custom Plan Design

Balance Billing Disputes

Attorney Consultation

Compliance Updates

Stop-Loss & IRO Relations

Coordination of Benefits

ERISA & PPACA

Claims Consultation

Subrogation & Reimbursement

Consulting Services

Visit www.phiagroup.com to Download Our Webinars

Next Webinar - September 21, 2011 1-2 PM EST The Phia Group, LLC | 163 Bay State Drive Braintree, MA 02184 | Phone: 866-THE-PHIA | Email: info@phiagroup.com

The Self-Insurer

July 2011

that employs the cost containment vendors, and the Tpa that pays for those vendors’ services, at least in the first instance. A carrier may choose to treat all or part of such costs as eligible for reimbursement under the stop loss contract, but it should never retain or pay those vendors directly, just as it should never pay (or negotiate with) a provider directly. Too much direct involvement in claim management is risky business for any mgu/carrier, and must be avoided. in sum, there are good legal and practical reasons for the Tpa to remain “interested” in claim management after the specific deductible has been reached, and equally good legal reasons for the mgu/carrier to stay out of the business of claim management even though the claim appears to be “on its nickel” after the spec has been breached. n

Integrating medical and business solutions for your organization CPR Risk Management Services include:  Case Management  Utilization Management  Disease Management  Medical Underwriting/Cost Projections  Claims Management  Medical Review  Hospital Bill Audits CPR Risk Management, Inc. services a wide spectrum of clients ranging from employer groups to reinsurers, including stop loss products and first dollar products. We provide quality medical management services, focusing on best practices, superior turn-around time and quality customer service. For more information call or visit our website. Mary Pozuelo RN, LHRM, CMS Chief Executive Officer 1-727-565-2992

Merry Gann RN, LHRM, CCM, ABDA President 1-727-565-2993

www.cpr-rm.com

July 2011

The Self-Insurer

31st AnnuAl Self-inSurance inStitute of america, inc.

NatioNal EducatioNal coNfErENcE & Expo J.W. Marriott Desert Ridge Resort & Spa • Phoenix, AZ • October 9-11, 2011

The Self-Insurer

July 2011

BEWARE of the

July 2011

The Self-Insurer

By Adam Russo

here isn’t a third party administrator (“Tpa”) who hasn’t been in the dire situation of paying a claim that should not have been paid or was overpaid. There isn’t a Tpa that hasn’t overlooked a subrogation opportunity or recovered too little from an overzealous personal injury attorney. What Tpa’s plan building team has never failed to update a plan document with the most recent amendment according to a state or federal mandate? Or better yet, what about the employee benefit plan that still utilizes a plan document that hasn’t been updated since 2002? How about when claims are paid in accordance with a preferred provider organization (“ppo”) network agreement even though the discounted rate still exceeds the maximum allowable amount payable by the plan? lastly, every Tpa has been faced with actually auditing the claims in question, paying the hospital less than what was charged in accordance with the plan document, only to discover the hospital balance billing the patient two years later and suing the plan who no longer has stop loss coverage available. at some point in every one of these situations, someone made a mistake… but who? Who is responsible and who should be held accountable? The simple answer is that the fiduciary can be held liable, but figuring out who is the fiduciary is far from simple. What people need to understand is that the fiduciary is not identified by title alone; rather by tasks that they perform. We all remember that TV show starring Tony danza - just who is the boss? over the past few years, i have attended more conferences and industry events than i can count, yet i don’t recall seeing many sessions involving fiduciary duties and the issues Tpas and other service providers face

if there is a breach of those duties. This topic needs to be widely addressed, and soon. fiduciary duties are probably the second biggest risk, behind cost exposure, for a self funded plan, but it seems that nobody really wants to discuss it. in the fully insured world an employer never has to worry about a fiduciary duty. They pay the premium every month and hope for reasonable rate increases. But with the rising cost of healthcare, and the ever increasing challenges brought about by health care reform, the risks fiduciaries face are growing year after year. i deal with more cases now than ever before where the line as to who is responsible

for a specific issue is becoming increasingly blurred. There isn’t a week that goes by where i don’t have to review the department of labor’s (dol) guidelines to assist employee benefit plans understand their fiduciary responsibilities. The dol states that having discretion in administering and managing a plan or controlling the plan’s assets establishes that person as a fiduciary to the extent of that discretion or control. Therefore, fiduciary status is based on the functions one performs, not just a title one holds. While a Tpa that solely performs ministerial tasks, such as processing checks, is not a fiduciary, that can quickly change if someone at the Tpa is making decisions regarding a participant’s eligibility for benefits. A fiduciary is simply a person that is exercising discretion or control over the plan. Seems like a pretty broad brush to me. fiduciaries act solely in the interest of plan participants and their beneficiaries with the exclusive purpose of providing benefits while carrying out their duties prudently. A fiduciary is supposed to follow the terms set forth in the plan document, and only pay

Don’t Trust Your Claims Negotiations to Inexperience Our negotiators have many years of experience assisting payors of health insurance claims and their clients with their financial case management.! Claim Negotiations • Pharmacy Consulting • Repricing • Disease Management DRG Validation • Medical Bill Review (Audit) Medical Peer Review URAC Accredited Independent Review Organization (IRO) Case Management Utilization Review Data Mining/Claim Scrubbing 3 Star Preferred Provider Network (PPN) Transplant Networks

Phone 301.963.0762 • Fax 301.963.9431 Visit us on the Web at www.hhcgroup.com

The Self-Insurer

July 2011

reasonable plan expenses. in addition, the duty to act prudently is one of a fiduciary’s central responsibilities under eRiSa, as it focuses on the process for making fiduciary decisions. if you are a Tpa and read these dol guidelines, you have to wonder to what liability you have exposed yourself. doesn’t every Tpa exercise some level of discretion over a claim’s eligibility for payment, interpretation of the plan language, or some other form of case management? The same can be said about any vendor that works on behalf of a plan. if the patient is injured while drinking and driving, a Tpa will typically deny the claim based on an illegal acts exclusion once they receive the accident details. So who is making the claim decision - the Tpa or the plan? This decision maker is a fiduciary, regardless of what your administrative services agreement (“aSa”) may say. Therefore, it is very important to spell out exactly who

performs which tasks in your aSa to ensure that you are not voluntarily accepting fiduciary responsibilities. many courts across the country have found that everyday claim decisions requiring a basic interpretation of the plan and claim details will expose TPAs to fiduciary breaches. one case in particular back in 2010 truly opened my eyes to many other possible scenarios. in Hartsfield, Titus & Donnelly LLC v. Loomis Co., 2010 u.S. dist. leXiS 13410 (DC NJ 2010), Hartsfield, the plan sponsor sued loomis, its Tpa, because the Tpa made payments in excess of the $35,000 limit allowed under the plan in three instances – two infertility claims and one substance abuse claim. While this type of mistake doesn’t happen every day, I would be hard pressed to find a TPA that hasn’t made an overpayment based on plan terminology. Hartsfield sued Loomis for failure

to exercise due care, a breach of fiduciary duty under ERISA. Hartsfield also brought claims for failure to administer the plan according to its terms, an eRiSa breach of contract, a common law breach of contract, and a breach of implied covenant of good faith and fair dealing. The Court found that loomis was a fiduciary under ERISA because it failed to properly process claims as it paid claims excluded under the terms of the plan. The court stated that loomis did not act with care and prudence and held that loomis owed a fiduciary duty to the Plan and failed to meet its obligations as failure to properly process a claim is a fiduciary breach. Basically, this case exposes every TPA to fiduciary breaches as claims processing errors happen. This type of mistake is merely a human error, and when your claim examiners handle thousands of claims each week, errors are bound to happen.

Bring in something NEW, ARMSRx Pharmacy Benefit Consultants ARMSRx is a pharmacy benefit consulting firm (not a pharmacy benefit manager) that has been helping employer groups, brokers and consultants save money and understands the complex intricacies of their pharmacy spend 24-7. The fast moving ever changing pharmacy benefit landscape takes 100% dedication and expertise. ARMSRx Pharmacy Benefit Consultants works with you to give you the information to make educated decisions for yourself and your clients at a fraction of the cost of many national consulting firms. Most prescription benefit programs are based on financial arrangements that are complex, hidden and highly profitable to the Pharmacy Benefit Managers (PBMs). Using real numbers and real facts take the guessing game out of your pharmacy expenditures with real answers. ARMSRx Pharmacy Benefit Consultants wants to serve you by making you the pharmacy benefit expert! 800.578.9714 or www.ARMSRx.com PHARMACYCONSULTANTS

July 2011

The Self-Insurer

Can Your Plan Withstand Unlimited Risks?

35 th

y ers–ar v i n An– Est. 

You can risk less by knowing more. Health reform could drive catastrophic medical claims and costs to record levels. Now, with self-funded health plans removing benefit maximums, one of the only things standing between unlimited exposure and an employer’s liability is the security of medical stop loss insurance coverage. Risk less by knowing more about your stop loss insurance carrier.

The product portfolio offered by the companies of OneAmerica®

Medical stop loss insurance Life insurance & annuities Employee benefits Asset-based long-term care solutions

R.E. Moulton, Inc.:

401(k), 403(b) & 457

• Trusted for 35 Years. • Clear, Consistent Contract. • Flexible Philosophies. • Financial Strength.

Defined benefit & esop

Contact R.E. Moulton, Inc. at 781-631-1325 or visit us at remoultoninc.com.

Life Insurance | Retirement | Employee Benefits www.OneAmerica.com —--

The companies of OneAmerica®: American United Life Insurance Company®, The State Life Insurance Company, OneAmerica Securities, Inc., McCready and Keene, Inc., R.E. Moulton, Inc., Pioneer Mutual Life Insurance Company and AUL Reinsurance Management Services, LLC. © 2010 OneAmerica Financial Partners, Inc. All rights reserved. OneAmerica® and the OneAmerica banner are all registered trademarks of OneAmerica Financial Partners, Inc.

The Self-Insurer

July 2011

There may be several individuals at an employee benefit plan that have discretionary authority over administration of the plan. anyone who decides to pay or deny claims, determines how claims are processed, or decides what Tpa or stop loss carrier to contract with is a fiduciary. Having any discretion in administering a plan, or controlling the plan’s assets makes one a fiduciary to some extent. Now that we understand how easy it is for a TPA to be deemed a fiduciary without even knowing it, every reader should be thinking of ways to ensure that the fiduciary responsibilities go back to the plan sponsor. It is their money so they should be the ones making and being held accountable for all decisions. The line is crossed too often, and we need to get Tpa’s back on their side of the fence. The key to determining whether entities are fiduciaries is whether they are exercising control over the plan or just making ordinary business decisions. By ensuring that the plan sponsor sets the terms of the plan by having the final word on what will be included and excluded in the plan document, as well as the final word when it comes to payment of claims, you ensure that they retain their discretionary authority. It must be the fiduciary that interprets the terms of the plan in light of particular facts and makes all but the basic decisions. even though they may want the Tpa to take on these roles, you need to make the lines clear. The bottom line is that the plan sponsor should have the final say at all times, and their TPA should get the plan administrator’s approval on claims. i realize that by now you are saying to yourself, this simply isn’t how it’s done in the real world. let›s say an out of network claim is submitted to the Tpa, it may be negotiated internally or referred to an outside auditing firm to decide what the usual and customary payment should be. The stop loss carrier may be involved since

there may be reimbursement due to the plan, but who is contacting the plan fiduciary to sign off on the payment to the hospital? The truth is you don›t want to get the plan involved unless you have to. no news is good news, but should that be the way? The best approach in the real world is to get all of these scenarios sorted out in the administrative services agreement so the Tpa can say that they are following the orders of the plan sponsor. The duty to act prudently is one of a fiduciary’s main responsibilities under eRiSa. it requires expertise in a variety of areas and focuses on the process for making decisions. Thus, based on the recommendations of the dol, it is clear that every decision on claims should be documented. i cannot even tell you the number of times i have had a client tell me that they were told to do something over the phone. No email confirmation, no written proof… nothing.

EthiCare Advisors, Inc. Medical Claims Settlement Specialists

Paying The Claim Correctly Is The Focus Cost Containment Is The Result T EthiCare Advisors L Helps You Focus On The Results

Call: 888-838-4422 www.ethicareadvisors.com info@ethicareadvisors.com

July 2011

The Self-Insurer

We have all heard the news stories of employees filing lawsuits against their employers and brokers for breaching their fiduciary duties in the management of their retirement funds. it doesn›t seem like a big stretch to see a scenario where plan participants pursue similar claims on their health benefit plan funds. Take a look at the union issues in Wisconsin and the collective bargaining problems across the country as an example of what can happen. if a union sees that its plan fees and co-pays will increase, the union may ask why the plan is paying so much money on their provider claims and start auditing the larger bills in question. The outcomes will be based on whether the plan fiduciary is spending the assets of the plan prudently. The fact that we haven›t seen much of this yet is surprising to me. every plan administrator and fiduciary needs to monitor their claim payments more closely. The growth of the self funding industry and the desire to separate ourselves from the fully insured industry is calling for such action. fiduciaries are recognizing their obligation to protect their plan participants, prudently manage plan assets, and focus on fiduciary responsibility. The problem is that there are many plan fiduciaries failing to do so, but thankfully, many Tpas in the industry are beginning to focus on plan savings instead of just auto adjudication and adjusting their aSas and payment structures to reflect this.

i ask all of you to review your claims payment practices, ensure that your claims procedures are in accordance with the terms of the plan documents, and confirm that the plan administrator is the only one interpreting the terms of the plan and has final discretionary authority as it applies to the payment of claims. processes must be in place to ensure that benefit plans are paying for only what the terms of the applicable plan document allow. if we can do this as an industry, then the future of

self funding will be even brighter than any of us can imagine. employers will see that we care how their dollars are spent and that we will use our expertise and innovation to reduce the cost of health care for all. n

following the terms of the plan document is an important responsibility as it serves as the foundation for plan operations. if a plan administrator takes action that is not included in the plan document, that action is a breach. if you use plan funds to do something not agreed to under the terms of the contract, as the plan document is itself a contract, then you can be exposing yourself to fiduciary problems as well.

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

The Self-Insurer

July 2011

maTHeR’S gRapeVine

ver a half-century ago when i arrived at work one morning to my job as a parts expeditor and buyer for the Holly Carburetor Company, i was taken back a bit with the news that we were going to have something called a computer system installed to help us with our work. actually it was for not just our work, but the many operations of the company in its five manufacturing plants across the country. as the days and weeks went by, construction began on this mysterious system in a building that measured over 5000 square feet in size, equipped with all manners of fire protection systems and a cooling system to reduce the heat generated by the system with its rows of hundreds of vacuum tubes, card punching equipment, print machines and operating keyboards. finally after months of construction we were taken on a tour of the facility with the manager of the system, Charlie by name, who described to us in great detail how the thing worked and how it would help us in our jobs. The system was call a univac and it was considered to be the latest in the burgeoning world of the computer age in the late 1950’s. Charlie left us with one final thought. “This thing” he said “is so damn fast in what at does we think we will be able to do the entire company payroll in a single night!” needless to say, we were impressed. We all went out to lunch and as i recall it was the

July 2011

The Self-Insurer

subject of conversation for at least five minutes, until we shifted to Tiger’s baseball and other more important issues of the day. five years later when i was working as a cop in a local police department, my lieutenant arrived one day to report that he had just gotten word that the State was computerizing their records for license plate registrations and that soon we could pitch out the dozens of registration manuals we kept shelved in the headquarters building that needed to be thumbed through each time were received a call from a patrol car on the road.

eventually i entered the insurance business as a claims investigator for the allstate Insurance Company. In our branch office we could access insurance information from the home office computer.Then down the line as a safety engineer for the Zurich-American insurance Company, we actually had desktop screens that we used for a variety is issues. In the late seventies, as we were installing desktop computers in our new offices at Hewitt-Coleman and associates, i clearly remember the then president, Jim duff, saying “Tom, the day will come when we will become a paperless society, and that’s when you can retire.” needless to say, that day may never come in my time, but as i was putting this thing together it occurred to me that all of the more than half-century of equipment i have spoken of here could be replaced by a hand held instrument of thousands of times more speed and reliability at the cost of a couple of hundred bucks! as we move forward into the future of the insurance business, the medical delivery system, and all the other advances coming down the line, we will see things happening that we haven’t dreamed of yet, not unlike my first view of the Univac system all those many years ago. in the meantime we should all keep in mind that with all of its modern advances, one very important old-fashion issue remains. let us not become so cyber-spaced and one-dimensional as to lose our ability to communicate in a sensible, intelligent and humane way with our fellow men and women in all of the many branches of our industry and the people they serve. n

Mind over risk: The secret weapon of visionaries, leaders and the people who insure them.

For firms with self-funded health plans, the potential risk of a catastrophic loss can shatter an enterprise. Protect your greatest assets, the people who keep the wheels of your company in motion. With over 30 years of Medical Stop Loss experience and the financial stability to earn ratings of A+ (Superior) by A.M. Best Company, AA (Very Strong) by Standard & Poor’s and AA (Very Strong) by Fitch Ratings, we’re uniquely qualified to provide coverage for businesses that dare to be extraordinary.

HCC Life Insurance Company

The Self-Insurer

July 2011

ppaCa, Hipaa and fedeRal HealTH BenefiT mandaTeS:

Practical

Q&A

By John Hickman, Esq.

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

July 2011

The Self-Insurer

Court Decision Clears The Air (Somewhat) For Wellness Programs

mployer wellness programs face a number of potential compliance issues under a variety of federal (e.g., Hipaa, gina, affordable Care act) and State law provisions. Recently, the equal employment opportunity Commission (eeoC) and private litigants have challenged employer sponsored wellness programs that offer incentives for providing biometric and other health-related information under the americans with disabilities act (ada). The eeoC is the federal agency charged with enforcing the ada. The 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. This raises concern with respect to the vast number of employers implementing wellness programs with a financial reward (or surcharge) for participation (or non-participation). (e.g., does a participation incentive of a 20% medical premium discount essentially force employees to participate in the wellness program?) Nonetheless, such financial components are almost universally included as part of employer sponsored wellness programs. earlier this Spring, a federal district court in florida handed down a ruling which, if followed by other courts, provides

employers with some breathing room under the ada. in this article we summarize the court’s ruling and briefly discuss its potential impact on the design of employer sponsored wellness programs.

other words, the court did not even need to address whether the financial incentive rendered participation in the arrangement “involuntary.”

Seff vs. Broward County

The Safe-Harbor Exception

(ii) “based on underwriting risks, classifying risks or administering such risks”; and

The safe-harbor exception protects employers and plan administrators (and other covered entities under the ada) from “establishing, sponsoring, observing

(iii) “based on or not inconsistent with State law” and is not used “as a subterfuge to evade the purposes” of the ada prohibition.

in 2009, florida’s Broward County adopted a wellness program as part of its consumer driven health plan’s open enrollment process. Just like countless other employer plans around the country, Broward County’s wellness program consisted of a confidential health risk assessment questionnaire and confidential biometric screening for glucose and cholesterol levels. employees who completed the program and were identified as having one of five disease states – asthma, hypertension, diabetes, congestive heart failure, or kidney disease – were given the option to participate in a disease management coaching program, after which the employee was eligible to receive relevant medications at no additional cost. participation in the wellness program was not required for coverage under Broward County’s group health plan, and Broward County (as employer/plan sponsor) received only de-identified aggregate data that it might consider in creating future benefit plans. In mid-2010, a financial incentive component was added so that those who declined to participate in the program incurred a $20 charge on each of their bi-weekly paychecks. Just a few months later, Broward County found itself the defendant in a class action lawsuit claiming that it violated the ada prohibition. 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” exception to the ada prohibition. in

or administering” a wellness program if the program is: (i) part of “the terms of a bona fide benefit plan”;

Aegis Administrative Services, Inc., Third Party Administrator specializing in: ❖ Self Funded Health Plans ❖ Limited Benefit Plans (Mini-Meds) ❖ Municipalities ❖ Companies ❖ Taft-Hartley ❖ Low Cost Pharmacy Plans ❖ Low Cost Dental Plans ❖ Custom Benefit Plan Designs ❖ Cost Containment Specialist

❖ Stop Loss ❖ Network Access ❖ Specialty Carve outs ❖ Hybrid’s ❖ Benefit Enrollment System ❖ Utilization Review ❖ Case Management ❖ Fully Insured Plans ❖ Indemnity Plans

6970 W. Diversey Avenue • Chicago, IL 60707 Telephone:

Toll Free:

773.889.2307

888.881.2307

Put our knowledge to work for you. Visit us online at: www.aegisadmin.com

The Self-Insurer

July 2011

applying these requirements to the Broward County wellness program, the court ruled that Broward County’s wellness program was part of the County’s group health plan and therefore met requirement (i) above because the insurer under the plan pays for and administers the program under its healthcare contract with the County; only those enrolled in the County’s health plan may participate in the wellness program; and the County included a description of the wellness program in its benefits plan handout. The court also found that there was a “strong argument” that the wellness program itself is a bona fide benefit plan because it offers benefits – disease coaching and medication cost waivers – for certain participants. The court found that the purpose of the second requirement is to permit the development and administration of benefit plan in accordance with

accepted principles of risk assessment. This, requirement (ii) was met because the program’s ultimate goal is to sponsor insurance plans that maintain or lower its participants’ premiums. More specifically, the court stated that Broward County’s wellness program renders aggregate data which the County may analyze when developing future benefit plans and uses to classify various risks on a macroscopic level so it may form economically sound benefits plans for the future. finally, the court stated that requirement (iii) was met because there is no florida law that is inconsistent with the wellness program and the plaintiffs did not allege any sort of subterfuge to avoid the purposes of the ada. further, the court stated that it was hard to see how the wellness program relates to discrimination in any way and, rather, is “enormously beneficial” to all employers of the County.

Is the Voluntary/ Involuntary Analysis Still Relevant? only one other court has applied the approach adopted in Seff vs. Broward County, 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 offered financial incentives based on the “voluntariness” of the arrangement. nonetheless, Seff vs. Broward County provides employers some breathing room, and an alternate approach to support the validity of their wellness programs. n

Considering a change in your PBM for 2011? Complimentary Pharmacy Performance Analysis A free analysis, independently verified by a leading actuarial firm, reviews your recent Rx performance claim-by-claim and quantifies the savings that could be achieved through our “lowest total cost” formulary managemant and agressive contracting terms. Then take a closer look at Depot Drug. We’ve been successfully keeping costs down and member satisfaction high since 1947 and are confident that we can successfully implement and manage your prescription benefit management services as well.

Guaranteed savings are then projected based on the results of this analysis.

YOUR PLAN MEMBERS WILL RECEIVE: • Discounts and rebates similar to big name PBMs • Retail network of over 64,000 pharmacies • State of the art mail order facility • Complete portfolio of targeted clinical management services • Reporting capabilities

July 2011

The Self-Insurer

For more information, call (800) 877-0618 today or visit www.depotdrug.com

1% of your plan membership will have cancer, and will represent 15% of your claims cost. The cost of cancer care is expected to rise 27% over the next 10 years.

Are you partnered with the right oncology care management team?

Comprehensive

Oncology Care Management™ Comprehensive Oncology Care Management by AWAC provides a clinically accountable solution focused on promoting cost-effective, safe, and integrated care management for patients living with cancer. Our program is a unique closed-loop solution that includes: • Prospective clinical review of ordered treatment for alignment with evidence-based medicine • After-care review of claims to ensure cost and care strategies are reviewed • Identification of cost-containment strategies throughout course of care

Honored by the NCCN Recognition Program

877.494.2403

l www.oncology.awacmd.com

Accountable Care Solutions™ powered by

The Self-Insurer

July 2011

neW RRg’S inSuRedS Use

CAPTIVES to Reinsure

25% of RiSKS By Hazel Becker, Risk Retention Reporter

medical malpractice insurer that combines the risk retention group structure with reinsurance through captives owned by its insured physician groups has started issuing policies and expects to write more than $5.0m of business by the end of the year. Physicians Benefit Resources RRG, Inc. (PBR) received its certificate of authority from the nevada division of insurance on July, 20, 2010 and wrote its first policy effective May 1, 2011, according to mark Sims, Ceo of Captive Transactions inc., the RRg’s exclusive sales agent. another policy is expected to be issued by July 1, and two additional groups are now in the underwriting process, which would bring the number of insureds to more than 120 physicians when those four

July 2011

The Self-Insurer

policies are all in effect. although, according to Sims, “it has taken longer than we thought it would because we ran into the situation of the soft market for medical malpractice insurance.” Sims projected that the RRg would be well beyond its first-year premium target of $5.0M by the end of 2011. PBR expects to grow at $5.0m per year thereafter. under the RRg’s unique structure, each insured physician group sets up its own captive to reinsure 25% of the group’s risk. in turn, the captive cedes 30% of its risk to a shared risk pool. pBR retains 10% of the risk from each policy and places the remaining 65% with commercial reinsurers in the lloyd’s market. However, the doctors’ captive receives 40% of the premium flow, while the commercial reinsurer receives 25%. The RRg retains 35% to cover its administrative costs as well as its risk. The idea behind pBR’s structure came about when Sims was working with a small company that set up captives to insure physician groups’ malpractice risks during the hard-market conditions of 2003-2004. They encountered some difficulty, however, because some hospitals “had problems accepting the paper written on the small companies.” The pBR structure was designed to “have the best of both worlds, the strength of the RRG and flexibility of the captive,” Sims said. “The way pBR works, with the doctor group captives writing some of the reinsurance, each doctor group would have skin in the game and retain the rewards from practicing good risk management.” “it all came about because of the frustration of doctors who were in practices

with strong risk management programs and low claims histories but who were paying high premiums in the hard market with no opportunity for financial rewards for a practice lifetime of good risk management. This structure allows them to have their own company and reinsuring captive insurance company that they own, but they can carry a portion of the overall risk and affect their long term outcome by controlling risk and claims management.” The pBR structure offers physician groups “the maximum benefits attainable,” Sims said, because they use their own captive insurance company while having the strength of a wellcapitalized RRg built on the model approved by the national association of insurance Commissioners. Sims said pBR’s market consists of physician groups paying more than $250,000 in annual malpractice premiums that meet the company’s underwriting criteria and agree to participate in its risk management and event management programs. He acknowledged that set-up fees for the captives are high – beginning at $57,500 plus capitalization costs as low as $10,000 for some international domiciles – and ranging from about $100,000 to $150,000 to capitalize and establish a domestic captive. in addition, initial costs include 6% of mature premium to buy into the RRg. Captive Transactions refers physician groups to third-party management companies to help them set up and manage their captives. The captives, including those domiciled offshore, elect to be taxed as u.S. companies under Section 831(b) of the tax code, which allows small companies to pay taxes only on their investment income. When it received its certificate of

authority, pBR was fully capitalized by a few doctors that put up $500,000 cash for its nevada-required capitalization. The original financing also included a $700,000 letter of credit for formation costs. The RRg writes only claims-made policies and allows physicians to choose retroactive effective dates “so they don’t have to pay a tail premium to the departing carrier,” Sims said. “We will require a tail with any departing physician, but we’ll leave it up to the captive owners whether they want to charge the doctors for the tail.”

Kronawetter, Cpa, of albright, persing & assoc., Reno, nevada. its reinsurance trust is at Comerica Bank in detroit. n

This article was originally published in the June 2011 issue of The Risk Retention Reporter. The Risk Retention Reporter is the leading monthly journal for the risk retention marketplace. For more information about the Risk Retention Reporter, visit the website: www.rrr.com.

in addition to Captive Transactions, pBR is receiving captive, claims, and risk management services from Sedgwick Claims management Services inc. of dublin, ohio. Reinsurance was placed through lloyd’s Catlin Syndicate 2003 with brokering services provided by uSa Risk group inc. The RRg’s chief underwriter is Becky Smith of Sterling Smith insurance Services inc., Boise, idaho. actuarial services are provided by actuarial and Technical Solutions of Ronkonkoma, new York. Kutak Rock provided legal services for the RRg’s formation. The group’s auditor is eric

The Self-Insurer

July 2011

ART galleRY By Dick Goff

New Start for Captive Industry in Tennessee Continuing an occasional series profiling U.S. captive domiciles

revitalized captive industry a key component of his first legislative package. When

insurance, the aRT industry got the impression that he meant business.

he appointed ms. mcpeak as Commissioner of the department of Commerce and

ong known as the Volunteer State, Tennessee appears to be attracting members of the aRT industry to volunteer at its borders as the state begins to accept captive insurance license applications this summer under a new legal and regulatory framework. Tennessee is open for captive business in a big way following passage of first-year Gov. Bill Haslam’s captive modernization legislation that will be implemented by new insurance commissioner Julie mix mcpeak. not many in the industry recall that Tennessee was a u.S. captive domicile before Vermont or any of the other states or districts other than Colorado. Yes, Tennessee and Colorado were first on the captive bandwagon in the 1970s and then Vermont adopted a captive law in 1981 that looked a lot like the Tennessee law. But Tennessee’s head start was fated to lose momentum under succeeding indifferent political leadership teams. from a high of about 15 captives in the late 80s, the state’s roster of licensed captives fell to a third of that number before gov. Haslam’s election last year. The new governor made a

July 2011

The Self-Insurer

Julie, of course, is the former Kentucky insurance commissioner who led the establishment of the captive industry in that state. She later joined the nashville law firm Burr Forman and SIIA members will recall her scintillating presentations at national conferences. Julie took a volunteer role for Siia as its representative to the national association of insurance Commissioners (naiC) for its deliberation of new risk retention group regulations. Now, of course, she is a full-fledged member of the naiC and we anticipate she will be an effective advocate for RRgs on that body. Kevin doherty, a partner of Burr forman, who serves as chair of Siia’s aRT Committee, must feel like the godfather of a burgeoning captive industry. He worked with Julie during her time with Burr forman and then helped create the legislation to modernize the domicile’s captive regulations and increase its appeal to the industry nationwide. and he also is quick to point out that nashville is conveniently and centrally located. “draw a 600-mile radius around nashville and the circle will include about 60 percent of the u.S. population,” he says. But it was another industry that first promoted Nashville’s centrality. When the “grand old opry” radio show was broadcast by WSm-am radio, it made nashville famous as “music city u.S.a.” and a cultural icon and an entire entertainment industry were born.

and there is an insurance angle to that story, Kevin is quick to point out. Radio call letters WSm stood for “We Shield millions,” the slogan of the old nashville life and Casualty Co. that owned the radio station and subsequently became part of aig. Where else than the aRT gallery can you learn such fascinating trivia? Kevin is happy that Tennessee companies that have formed their captives in other domiciles may now have the option to come home. and he jokes, “we’ll even accept carpet baggers from up north.” The captive modernization law that was passed this spring is among the most advanced in the u.S., with all the current features that are attractive to new captives. These include segregated incorporated cells, special purpose captives and branch captives. a unique feature will offer direct writing of workers’ compensation captives for qualified self-insurers.

Global Healthcare, Inc.

International Medical Travel Services Help your clients make the most of their health care dollars. l Affordable Services – Low-cost alternatives to steep U.S. health care costs l Choices – From life-saving surgeries to elective procedures l Credentialed Providers – All hospitals site-visited and JCI accredited l Excellent Service – 24/7 call center; Spanish-speaking representatives With more than 30 network hospitals and growing, Companion Global Healthcare offers the best in employee benefits consulting and overseas medical and dental tourism. Introduce your clients to a world of employee health care options and savings — introduce them to Companion Global Healthcare.

Companion Global Healthcare®

800-906-7065 CompanionGlobalHealthcare.com

Kevin recalls that gov. Haslam and ms. mcpeak exercised all their political muscle in lobbying for the new law. “it wasn’t that legislators weren’t in favor of captives, but they just needed a thorough education about them,” Kevin says. “in the end, the law passed unanimously in both houses.” Kevin is instrumental in organizing a new Tennessee captive industry association that he hopes will be up and running in time for an inaugural meeting this fall. Tennessee appears to be getting it right in setting up a professional captive team and is throwing out the welcome mat for existing and prospective captive insurers. and on your way there, pick up a pair of boots and a guitar. n Dick Goff is managing member of The Taft Companies LLC, a captive insurance management firm and Bermuda broker at dick@taftcos.com.

The Self-Insurer

July 2011

INSIDER infoRmaTion PHX Announces Establishment of Customer Advisory Council Bedminster, n.J. – pHX, a leading provider of healthcare cost management solutions announces the establishment of the pHX Customer advisory Council (CaC). The members of the council will serve as advisors to the pHX senior leadership team providing insight into customer needs, market level issues, strategic opportunities and product development. The structure of the program ensures that pHX has a formal process to collect valuable "voice of the customer "input which is critical to maintaining its "Customer focused" business imperative. This vehicle also provides a

July 2011

The Self-Insurer

safe forum for an open dialogue between pHX customers where they can share best practices, partner interdependently and collaborate on solutions to mutually shared business issues. The pHX Customer advisory Council will consist of a core of up to 20 active members representing the broad demographic profile of its Customer base. over time it will be augmented with key opinion leaders, industry advisers and subject matter experts.

automation with professional services to deliver a timely, centralized approach to healthcare cost management. pHX portfolio of services include: data analytics, benchmarking, predictive modeling, ppo network management, clinical bill review and audit, out-of-network negotiations and claims editing. for more information, please visit www.phx-online.com.

About PHX

Sedgwick CMS Acquires the Assets of Cambridge Integrated Services Group, Inc.

premier Healthcare exchange ('pHX") was incorporated in 2001. The company provides advanced cost management solutions for health plans that combine claim processing

mempHiS, Tn – Sedgwick Claims management Services, inc. (Sedgwick CmS) announced that it has acquired the assets of Cambridge integrated Services group, inc. (“Cambridge”)

including the stock of Cambridge galaher Settlements & insurance Services, inc., a direct, whollyowned subsidiary of Cambridge. The agreement signing and closing occurred simultaneously today. Sedgwick CmS will extend employment offers to all of the talented employees of Cambridge, adding to the intellectual capital and sharing of best practices that will ultimately benefit both organizations. The addition of the Cambridge employees to the Sedgwick CmS family also means that existing service teams will remain in place without interruption, and the clients of Cambridge will continue to work with the same trusted teams they work with today.

Sedgwick CMS Acquires Selective Settlements International, Inc.

memphis, Tn and naperville, il – Sedgwick Claims management Services, inc. acquired Selective Settlements international, inc., commonly referred to as Selective Settlements. Selective Settlements is a national provider of professional services related to the structured settlement process. The company specializes in facilitating the negotiation of settlements in cases of personal injury, wrongful death, medical malpractice, workers’ compensation, and others. Sedgwick CmS will retain all employees of Selective Settlements, as of closing. About Sedgwick CMS Sedgwick Claims management Services, inc. is the leading north american provider of innovative claims and productivity management

solutions. Sedgwick CmS and its affiliated companies deliver costeffective claims administration, medical management, risk consulting, and related services to clients through the expertise of approximately 8,500 colleagues in more than 170 offices in the u.S. and Canada. The company specializes in workers’ compensation; disability, fmla and other employee absence; general, automobile and professional liability; and warranty and credit card claims services as well as medicare compliance solutions. Sedgwick CMS and its affiliates design and implement customized programs based on proven practices that meet client needs. for more see www.sedgwickcms.com.

Watching WAISTLINES is good for the BOTTOM LINE. are productive employees. That’s why

create and maintain a culture of wellness that keeps health

Principal Wellness Company developed a comprehensive

care costs down. It’s customizable, easy-to-implement and

solution – a year-round program designed to keep your

affordable. Which may be just

organization healthy. Through preventive screenings,

what the doctor – and your

education and one-on-one consultations, we can help you

business ordered.

HEALTHY EMPLOYEES

Contact your financial professional, visit principal.com/wellness or call 1-877-265-9460 for a local wellness representative.

Not a complete description of the benefits, exclusions and limitation of the products described here. Principal Wellness Company is a member of the Principal Financial Group.® AD2121 | IN18332

The Self-Insurer

July 2011

SIIA New Members

emploYeR CoRpoRaTe memBeR Voting Representative/ Company Name

RegulaR memBeRS Voting Representative/Company Name Bennett pugh, attorney, Carr allison, Birmingham, al

Robert Ruryk, president & Coo, north american Risk Services, altamonte Springs, fl

Jonathan Spero, m.d., president & Ceo, inHouse physicians, St. Charles, il

andrew Cavenagh, president, pareto Captive Services, llC, Conshohocken, pa

Kevin Hill, president, integrated Care management (iCm), alpharetta, ga

Sheryl Simonton, Benefits Manager, Helmerich & payne, inc., Tulsa, oK

Timothy Coomer, Ceo, Sigma actuarial Consulting group, inc., Brentwood, Tn

gina mulkey, Manager, Employee Benefits, WinCo foods, Boise, id

Kevin Seelman, Vice president, lockton dunning, dallas, TX

Brenda Villella, marketing & Sales Support manager, The assist group, lakewood, Co

ConTRiBuTing CoRpoRaTe memBeR Voting Representative/ Company Name

Bill low, president, medical Review institute of america, Salt lake City, uT

Jim Knoepfler, Director, TPA, Wellmark, inc., des moines, ia

melven nehleber, president, accessonTime, lake mary , fl

PROVIDING SERVICE TO THE SELF INSURANCE INDUSTRY FOR OVER 33 YEARS IN OVER 30 STATES Audits Tax Preparation, Compliance and Minimization NAIC Annual Statements, assistance and preparation Management Consultation Expert Witness Regulatory Matters

Contact: William L. Shores, CPA 17 S. Magnolia Ave. Orlando, Florida 32801 (407) 872-0744 Ext. 214 Lshores@shorescpa.com

July 2011

The Self-Insurer

July 2011

GEMCode is a code editing and support product that generates savings with minimal noise so that you can fulfill plan administration requirements. It has dedicated databases for both professional and facility editing, and actively cross-references 16 million data elements and the unique patient history for possible coding issues and abuses. GEMCode is a superior option for the discerning buyer. Find out more at www.globalexcelusa.com

GEMLive™ GEM-MD™

MyGEM™ GEMScreen™ GEMLive™

QuickGEM™ GEMDeal-IN™ GEMScope™ StrataGEM™ Global Excel Management Inc. Tel.: 866-566-1130 www.globalexcelusa.com | information@globalexcel.com 50 01 ADV EUS 0711 SIM

COST CONTAINMENT DONE RIGHT