Self-Insurer June 2011 by SIPC

June 2011

Corporate

HealtH Care Disjointed,

Disastrous

Dysfunctional,

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

JUNE 2011 | Volume 32

FeatureS

Vice President Finance James E. Burkholder, President/CEO TPABenefits, Inc. San Antonio, TX

artICleS 10 From the Bench: Intersection of ERISA and HIPPA in Subrogation Case Raises Interesting Issues

Executive Vice President Erica Massey Midland, NC Chief Operating Officer Mike Ferguson Simpsonville, SC

SIIa DIreCtorS Les Boughner, Executive VP and Managing Director Willis North American Captive and Consulting Practice Burlington, VT

overpayments… a part of every tpa’s life

Mather’s Grapevine

IRS Issues Guidance on Form W-2 Reporting for Health Coverage Costs

ART Gallery: Out West, is it art or is it ART?

By Adam V. Russo, Esq

Ernie A. Clevenger, President CareHere, LLC Brentwood, TN 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 CoMMIttee CHaIrS Chairman, Alternative Risk Transfer Committee Kevin Doherty, Partner Burr Forman Nashville, TN

SIIa leaDerSHIp

Corporate Health Care Disjointed, Dysfunctional, Disastrous – When you have done all you can do – what’s the next step?

2 President’s Message 36

Chairwoman’s Report

By William M Bennett, CFP, CFCI

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

June 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

June 2011

PRESIDENT’S MESSAGE

e probably didn’t invent grassroots politics in my old Brooklyn neighborhood but we had a very effective version of citizen campaigning. From the front stoops and kitchen windowsills, on the sidewalks and at the street corner Democratic Clubs, politics was both the public life and entertainment of the day. The book about Brooklyn politicking was titled “The Permanent Government,” which says it all. Of course then the politicians, party bosses and precinct workers were also our neighbors, fishing buddies and business owners – and all united under the blue and white flag of the Dodgers Republic. Politics was about real people trying to make a difference in real lives. Now we have lost that kind of touch in a high-tech world. Rather than gossiping with our neighbors we click on CNN or visit Fox News along with all the websites and blogs that serve our interests. But anyone who doubts the current effectiveness of grassroots politics has two examples to consider, one at each end of the political spectrum – Barack Obama’s 2008 election campaign and the 2010 rising of the Tea Party. In the former case, Obama’s e-mail machine made donors and voters out of millions of people, and then two years later the Tea Party rallied its own distinct millions – all with classic grassroots tactics. The elections of 2008 and 2010 reflected grassroots activism because in a democracy the real power resides in the people and public servants ignore them at their

June 2011

The Self-Insurer

peril. Messages from constituent voters, employers and supporters ring loudest in the ears of political leaders. SIIA leaders have long advised members to get involved in political issues that affect our industry – our very livelihoods. The Government Relations Committee has prioritized and directed the organization’s federal and state efforts to advocate our interests. Now, in effect, SIIA is expanding the Government Relations effort to include…everybody! All members are being enlisted for a national grassroots advocacy and political action network designed to support our professional lobbying capabilities. Mike Ferguson, chief operating officer, put it this way in communicating the new program: “My sense is that there is significant untapped political energy among our membership base. We now intend to cultivate this energy in a proactive way to help our members get more engaged with the political process in ways that will directly benefit the self-insurance/alternative risk transfer industry.” Mike said that two objectives of the grassroots outreach initiative would be to complement SIIA’s ongoing direct lobbying activities and, perhaps more importantly, strengthen members’ connection with the association. Supporting SIIA’s lobbying efforts is a hugely important goal. Our handful of talented and experienced lobbyists have been playing a David-vs.-Goliath role in supporting the interests of the employer-based self-insurance health system, the risk retention groups that provide coverage for businesses and professions, self-insured workers’ compensation groups and other forms of ART. Lined up against us on political issues are huge organizations whose lobbying assets number in the hundreds and whose budgets are counted in the millions. In order to remain effective in defending our interests all SIIA members will have to play their role. SIIA is now building a base of members who can be counted on to deliver grassroots political messages to their state and federal representatives in a variety of ways that will include face-to-face meetings with members of Congress in Washington DC or in their home districts. And members will be able to take leadership roles on host committees for political action events and take other pivotal roles. That’s the best kind of visibility a businessperson can achieve with their employers, clients and colleagues.You’ll not only be serving the interests of your profession and industry, but also your own career. Let’s let the politicians hear our messages loud and clear. That’s it for now,

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June 2011

ver payments… payments

June 2011

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a Part of Every TPA’s Life By Adam V. Russo, Esq.

he reality of the situation in the self funded world is that overpayments happen! In my experience, most overpayments made by plans occur from an honest mistake. The problem is that not all providers are willing to return the money without a nasty fight. They feel that the overpayment did not occur based on what they did and deserve to be paid. It is their position that they are entitled to the money and received payment in good faith. I have seen many occasions where a provider uses these funds to pay their own expenses and are unable to return the funds because they are already gone. The providers sit back and hope that you will never contact them because in our industry, overpayments in the thousands can be made to a facility with no punishment forthcoming. No other industry in the world allows for such things to occur. Many providers simply lack the resources to proactively identify and return overpayments. Thus, we must be on the lookout and understand the nature of overpayments themselves. Many overpayments are due to retroactively terminated members. For example, the plan participant may no longer be covered but the termination papers were not delivered to the claims processor in time. Overpayments also result from simple human mistakes and typos and this addresses one of the bigger problems our industry suffers from. The industry cannot address overpayments when the problem is often treated as a long standing family secret that nobody wants to talk about. Overpayments are a part of the claims process and administrators should do everything possible to recoup the funds. However, the reality is that a benefit plan assumes that if an overpayment occurs, then the

TPA made a huge mistake. The plan feels that the overpayment should never have occurred and admitting that overpayments happen is synonymous with sloppy claims processing. The truth is that allowing an overpayment to occur is not a sign of a bad claims processor. Failing to address overpayments that occur is a sign of improper claims handling.

While most TPAs make every attempt to recoup overpayments, the men are separated from the boys when they are not successful. What should the TPA now do? Should it inform their client plan that an overpayment was made and use aggressive tactics to recoup the funds or advise nobody and just close the case? The answers are much easier if a proper process is utilized to recover the funds. The key is to educate yourself funded benefit plans and assist them in understanding that overpayments occur for a number of reasons. Show your clients that an open, honest, overpayment recovery process will reduce the cost of their benefit plan. This way your clients realize that you are doing everything you can to ensure you only pay eligible claims and are watching their bottom line. The first step toward reducing overpayments is understanding how it happens so it can be prevented, identified, and pursued. It may be a failure to coordinate benefits, a duplicate payment to the same provider, or payment of charges outside of the plan’s terms. One of the largest culprits of overpayments out there arises from claim submissions submitted using procedure code bundling and unbundling that does not conform to National Correct Coding Initiative (“NCCI”) standards.There are plenty of qualified vendors with the skills and tools to assist your operation in identifying these claims pre and post payment. Most other overpayments arise from two entities being charged and paying for the same treatment, duplicate charges where one service or supply is billed and paid for twice by the same payer, and payment of excluded charges where a service appears to be covered until later facts show otherwise. The typical approach is for TPAs to utilize in-house staff for overpayment recovery efforts. When a provider is notified of an overpayment, the first response is usually that no overpayment was made. Establishing the legitimacy of a refund

The Self-Insurer

June 2011

request will be toughest task. Were the payments made by the benefit plan truly erroneous? A payment is only erroneous when made for an uninsured patient; for services not covered under the plan; payment is greater than the charged amount; or when the insurer was not obligated to make a payment. Even if you prove that an overpayment actually exists, providers will still refuse to refund you based on the timeliness of your request and the fairness doctrine. As we know, many overpayments are identified several months or years after payment was issued. It may no longer be possible for the provider to submit the claims to the correct insurer if they refund your plan’s money. The provider may not be able to locate the patient for payment or may have no money in the bank to actually pay you! The biggest obstacle is when the statute of limitations for legal

action necessary to collect payment has expired. There are laws in every state that limit how much time a plan has to demand an overpayment refund. I often wonder why providers don’t just reimburse the plan when it is clear that they were overpaid or should not have been paid. The argument is that since payment was made for medical services and supplies that were actually provided, the payment was not a windfall to the provider. This argument only addresses situations when the wrong payer made payment, payment was made for a termed participant, or for an ineligible claim. In situations where providers get paid twice or too much, they are clearly unjustly enriched and the excess does constitute a windfall. If the source of payment was improper but the amount paid was correct, providers will argue that although the plan sustains a loss by having made a payment it does not

owe, the provider will sustain a loss by returning the money. The best way to respond to this argument is to assure the provider that their services are valuable and the provider is entitled to reimbursement. But this is not at all the issue to be resolved. Explain that the issue relates not to whether the provider deserves to be paid, but by whom they should be paid. They provided valuable services to the patient who accepted their offer to provide services in exchange for compensation. Their contract is with the party that was enriched by their services – the patient and not the plan. The Plan received no consideration from the provider in exchange for the funds it paid and are unjustly enriched by the Plan. When the Plan is not the proper payer, the patient is responsible for the payment. Many providers will counter by stating equity dictates that the party

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June 2011

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To protect itself, a benefit plan should include strong provisions in its plan document to deal with overpayments. The plan document must include explicit language setting forth all of its rights in regards to the identification, pursuit, and recovery of overpayments. Plan documents must stop only including “right to refund” language in their coordination of benefits section. There are many situations where the plan overpays a claim because of fraud or misinformation. The existence of another payer for coordination purposes is irrelevant. Thus, the plan’s right to refund language should be in its own section. The language must state that if the benefit plan pays any claim in excess of the appropriate coverage amount, it may pursue a refund from another payer, the provider, or the participant. Do not limit the type of overpayment you can pursue or from whom you can pursue. Most self funded plans do not include offset language in their plan documents. Plans should assert the right to deny future claims to the provider until the funds denied equal the amount overpaid. In most cases, the threat to offset future claims will push a patient or provider to reimburse the plan. The plan language is of utmost importance because the Employee Retirement Income Security Act of 1974 (“ERISA”) provided that a selffunded benefit plan may enforce the terms of its plan document as written in Federal Court. The ability to remove these matters to Federal Court and enforce the plan

provisions are matters of established law. In Blue Cross & Blue Shield of Rhode Island v. Korsen, et. al., C.A. No. 09-317L, 2011 WL 160598 (D.R.I.), Jan. 19, 2011, the Federal District Court in Rhode Island heard a motion to remand a matter involving reimbursement of overpayments to State Court. Blue Cross & Blue Shield of Rhode Island (“Blue Cross”) sued two health care providers, alleging the existence of a billing dispute over services rendered. Blue Cross argued that the provider treated its subscribers with motorized massage equipment, a non-covered service, but then misidentified the service as mechanical traction in its bills to Blue Cross in order to obtain compensation. This fraudulent billing made in connection with over 1500 patients resulted in wrongful payments of $412,952.93. The question came to one of ERISA preemption and the Court decided that the issues related to the definition of eligible services and payable claims – are all based on plan language. The central dispute related to the definition of plan

creating the situation causing the loss be the same party that sustains the loss. In the end, it is the patient that was unjustly enriched, suggesting that the harmed plan should pursue the unjustly enriched patient or the other payer responsible for payment.

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June 2011

terms. The Court therefore denied the motion to move the case to State Court and placed its decision on ERISA preemption. It’s all about the language in the world of self funding so don’t mess it up! We all know that there is a serious industry issue relating to claims falling into a “gap in coverage” between the stop loss contract and the plan document. Every day I deal with situations where the plan document states the provider is to be reimbursed at a PPO rate, but the stop-loss contract states it will reinsure the plan at the mush lower U&C rate. Many TPAs resort to viewing the difference between the PPO rate that the plan paid and the U&C amount they can recoup from stop-loss as an overpayment. They will attempt to recoup the difference from the provider but in reality have a very slim chance of being successful in their

recovery attempts because there is a PPO agreement allowing for the specified discount.

of the overpayment, the type of overpayment, the strength of your language, and the age of the payment.

So to ensure that you receive your overpayment reimbursements in a timely fashion as often as possible, remember to make sure that the plan language is strong. Collect all the necessary information prior to sending your notices so that all of your weapons are loaded. Ensure that your plan language is cited in your correspondence as well as any applicable state and federal laws. Make sure you follow up frequently and take legal measures when necessary. Create a fool proof approach, teach your internal team the ropes, work with qualified external experts in the field to assist you in identifying and recovering overpayments, and apply the process consistently. Lastly, make sure you assess the value of your overpayment cases on the amount

Overpayment identification and recovery isn’t always easy but with the right education, training, state of mind, and process, you can make it a successful operation. n Adam V. Russo, Esq. is the Co-Founder and Chief Executive Officer of The Phia Group LLC; an innovative cost containment and consulting leader in the health insurance industry. In addition, Attorney Russo is the founder and managing partner of The Law Offices of Russo & Minchoff, a full-service law firm with offices in Boston and Braintree, MA.

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The Self-Insurer

9 AM June 2011 3/2/11 10:41 3/2/11 10:41 AM

Bench from the

Michael Friedman and John Eggersten

Intersection of erISa and HIpaa in Subrogation Case raises Interesting Issues

n Justin Quintana v. Kem Lightner, State Farm Automobile Ins. Co. and Ingenix, Inc., 2011 WL 876773 (N.D. TX), the District Court was faced with a straightforward issue – i.e., whether to remand Plaintiff Quintana’s claims to state court – but the substantive issues raised by the Plaintiff ’s allegations challenge some very standard claims adjustment procedures, and, if a decision on the merits gives Plaintiff the relief he seeks, could prove to have a significant impact on plan administration. In 2005, Quintana was injured in an automobile accident, and was covered under his employer’s self-funded health care plan (the “Plan”). He sued the driver of the car that caused his injuries. That driver was insured by State Farm Insurance Company (“State Farm”). State Farm then contacted Ingenix, Inc.

June 2011

The Self-Insurer

(“Ingenix”), the subrogation vendor for the Plan and inquired as to the Plan’s right to subrogation. Ingenix provided State Farm with what it said was a summary showing the dates of service, the claim number, the medical provider, the amount billed, the amount paid, the date of payment and the diagnosis codes, for medical expenses arising from the accident incurred by Quintana. After reviewing this data, Ingenix, on behalf of the Plan, entered into a settlement with State Farm for approximately onethird of the Plan’s payments. Upon learning of the settlement, Quintana’s counsel filed suit in state court against State Farm, Ingenix and Kem Lightner, a State Farm claims adjuster, seeking an injunction to prevent Ingenix and State Farm from communicating about Quintana’s medical information and seeking damages for violations of his right to privacy, conspiracy to violate his privacy, violations of HIPAA and intentional infliction of emotional distress. Ingenix removed the case to federal court because Ingenix claimed that the terms of the SPD controls its authority under the Plan and the “outcome of Plaintiff ’s claims.” Quintana sought a remand back to state court. After articulating ERISA’s complete preemption requirement for removal, the District Court reiterated the Fifth Circuit’s requirement for complete preemption set forth in Memorial Hospital System v, Northbrook Life Ins. Co., 904 F.2d 336 (5th Cir., 1990) – (i) the state law addresses areas of exclusive federal concern, and (ii) the claim directly affects the relationship with traditional ERISA entities. Ingenix argued that the first prong is satisfied because Quintana’s causes of action seek benefits under

an ERISA-regulated employee benefit plan, but the Court disagreed. It did not see Quintana as seeking a right to Plan benefits, but rather seeking redress for Ingenix’s allegedly tortious conduct in disclosing his medical claims to State Farm. “Quintana is neither attempting to recover benefits nor alleging a violation of the terms of the Plan. He is, moreover not disputing the Plan’s right to subrogation. Rather, Quintana is asserting an independent right to privacy.” As for the second prong, the Court held that Ingenix was not any of the traditional ERISA entities – i.e., the plan, a plan sponsor, participant, beneficiary or fiduciary. As the Plan’s subrogation vendor, Ingenix fell into none of these protected categories. Thus, the Court held, neither of the requirements for complete preemption are satisfied, and the case must be remanded back to state court. We would note, however, that the Court failed to reference whether Ingenix had a valid Business Associate Agreement with the Plan, and if it had, whether that would have been sufficient to render it an “official” ERISA entity. While subrogation vendors should have such agreements in place, we doubt it would be sufficient to render them an ERISA entity for purposes of the preemption analysis.

While we can only speculate how a Texas state court might resolve Quintana’s claims, the District Court here touched upon what may be key issues in that forum. One observation made by the District Court was that Ingenix and State Farm could have communicated about the Plan’s subrogation rights without disclosing Quintana’s medical records. Ingenix claimed that it never disclosed medical records, but only provided summaries of key claims data. While that is a factual matter the state court will have to address, it is not obvious to us how two parties can resolve a subrogation/ reimbursement matter without disclosing the information provided by Ingenix, or information very similar to that, no matter how the records from which the data was derived is characterized. In short, it appears that Quintana’s PHI was disclosed by Ingenix to State Farm. If a state court agrees with Quintana that such disclosure amounts to a tortious invasion of privacy that could put severe limitations on the Plan’s subrogation activities. The District Court also characterized Quintana’s allegations against Ingenix as “exceed[ing] the scope of its authority under the Plan.” Because this issue was not directly addressed in this decision, there was little investigation as to the nature of Ingenix’s authority

under the Plan (or its Business Associate Agreement) or the scope of its disclosures to State Farm. From the brief summary of its disclosures in a single footnote in this decision, we would be hard pressed to conclude that the disclosure here was excessive, but what facts will emerge in a state court trial cannot be known. If Ingenix did disclose more than was necessary to accomplish the purpose of addressing State Farm’s subrogation inquiries and to negotiate a reasonable settlement, then perhaps a basis does exist for a finding of tortious conduct. From the brief description of what Ingenix said it disclosed, noted above, it did not sound that way to us, but that may not be the whole story. Finally, the District Court here noted that the Fifth Circuit has held, along with all other circuit courts to have addressed the issue, that there is no private right of action under HIPAA. So even on remand, Quintana’s HIPAA claims may fail. The more interesting issues may be, however, whether this case will ultimately be decided under HIPAA or state law standards. Admittedly, we are not familiar enough with Texas state privacy laws as applied to medical information arising in the context of insurance claim adjudications and subrogation settlements, but if they are “more stringent” than HIPAA’s standards then they will control. But if

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June 2011

such state laws control as a matter of HIPAA preemption, there may be an issue of whether they would control as a matter of ERISA preemption – i.e., might ERISA preemption be a defense here to the application of Texas state privacy law to the Plan’s subrogation rights, even after removal to state court?

We obviously do not know how this case will finally be resolved, but for those who administer self-funded plans, or whose business is heavily involved in subrogation matters, this case might be worth monitoring. State courts can often come up with counter-intuitive results, even after all appeals have been exhausted, that create obstacles and difficulties for plan administration – even when it comes to ERISA plans. Should the Texas courts unduly limit what medical information can be disclosed by plan administrators for subrogation purposes that would be significant.

If, however, the HIPAA standards apply the appropriate standard of care here, then disclosures for purposes of payment (which subrogation discussions most likely are) are allowed without the authorization of the individual whose PHI is being disclosed. Then the issue would be whether the disclosures made by Ingenix were the minimum necessary to accomplish the payment purpose at hand, in which case the HIPAA issue would come full circle to the ERISA question noted above – did Ingenix disclose more than it was authorized to disclose under the Plan or more than it needed to in pursuit of the Plan’s subrogation rights?

Courts look at What the administrative record actually Says Most of us don’t like to be second guessed, and ERISA claims administrators are probably no different, though it is their lot in life that federal law gives claimants the right to ask courts to do precisely that. In most cases, however, claims administrators have some control over what actually gets second guessed – i.e., they have a hand in creating the administrative record that a court reviews. We offer no comment as to whether the external review procedures required under the Affordable Care Act would effectively limit that control. In the present context, however, it would, therefore, seem to be common sense that when making claims decisions, the administrator carefully review the administrative record and base its determination on what is in that record. In Corey Wrenn, individually and as parent and next friend of S.W., a minor v. Principal Life Ins. Co. and Principal Financial Group, 2011 WL 710203 (8th Cir.), Principal’s failure to do just that resulted in a determination that their denial of benefits was arbitrary and capricious and an order that judgment be entered in favor of the Plaintiff.

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June 2011

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S.W., a 15 year old girl, suffered from an eating disorder that led to an emergency hospital admission. At the time of the admission, she weighed just 77 pounds. The focus of her admission was to improve her caloric intake and limit her physical activity in an effort to increase her body weight. Her doctors thought she could be discharged if she got her body weight up to 89 pounds, but they felt that the desirable target weight would be 105. S.W. remained in the hospital for 40 days before her doctors deemed her ready to be discharged. When she was released from the hospital, she began treatment in the hospital’s outpatient program for eating disorders. At discharge, S.W. weighed 91.8 pounds.

S.W. was covered under her father’s employer’s group health plan that was insured by Principal. Principal’s policy had a limit of “not more than 10 days of inpatient services each calendar year for each insured person” for mental health, behavioral, alcohol or drug abuse treatment services,” and it also provided that “in the event the Member or Dependent receives Treatment or Services for more than one condition during the same period of time, the benefits will be based on the primary focus of the Treatment or Services, as determined by The Principal (emphasis added by the Court).” Because S.W.’s hospital admission occurred at the end of 2006 and extended into 2007, Principal paid for 20 days total, but no more, on the basis that “the primary focus” of S.W.’s hospitalization was mental health treatment. This left $44,260.63 to be paid by S.W.’s father, Corey Wrenn. Reviewing Principal’s decision under an abuse of discretion standard, the Eighth Circuit noted that for Principal’s denial of coverage to be “reasonable” there had to be substantial evidence in the record that the primary focus of her hospitalization was mental health treatment, which the Court characterized as “treatment designed to alter her behavior.” What the Court found in the record was (i) that severe malnutrition was the reason for her admission, (ii) to the extent the treating physician’s intent can be gleaned from the record, the primary focus was on her physical health, (iii) the criteria for her discharge were directly tied to her physical health, i.e., her weight gain, not her mental health, (iv) that if her problem had been mental health, there is no evidence that it could not have been treated on an outpatient basis, and, thus, was not the basis for her hospitalization, and (v) the decision to discharge S.W. was not connected to nor dependent on progress made in her mental health treatment. In fact, it appeared that her ability to control urges to restrict food

June 2011

The Self-Insurer

intake did not show much material improvement before she was discharged, and that those were the primary focus of her follow-up outpatient treatments. Whether the Court gives little attention to Principal’s explanations as to why it read the record very differently because Principal did not give much explanation or it found its rationales to be not credible is not clear form the decision. What does come across is that the Court concluded that Principal had characterized S.W.’s eating disorder as a mental health issue, and did not review with any care what her physicians said about her treatment, what they were trying to do for her and why it required such an extended hospital stay. Because the Court found Principal’s denial to have no basis in the administrative record, it was held to be arbitrary and capricious. When reviewing a decision such as this, we are left to wonder whether Principal was so dominated by this idee fixe that eating disorders are mental conditions (which they well might be) that it could not see that the primary purpose of S.W.’s hospitalization was to increase her weight and improve her physical condition so that she would be able to address those conditions through outpatient treatment, or whether there was greater support in the record that they could have made use of. In any event, the lesson is clear – when denying a claim, review the record for whatever elements support your conclusion, base your determination on those factors, and explain in your decision why any contrary evidence is either not worthy of credence, is of lesser weight, is not as clear cut as is the evidence supporting your decision, speaks to a tangential issue, or any other viable reason why it is not determinative. In short, the lesson is that of the popular TV series, CSI, go where the evidence leads, not where you think you want to end up. n

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Symetra Stop Loss, filed as a group Excess Loss policy, and Select Benefits group insurance policies are insured by Symetra Life Insurance Company, 777 108th Ave. NE, Ste 1200, Bellevue, WA 98004 and are not available in all states or any U.S. territory. Policies may be subject to limitations and exclusions. Select Benefits is not a replacement for major medical insurance or other comprehensive coverage. Symetra® and the Symetra 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

June 2011

MATHER’S GRAPEVINE

y wife and my daughter have birthdates just two days apart in early November. Back in the days when Ann was still living with us I made this easy for myself by telling them I’d take them anywhere they wanted to go but on the same night. In late October 1988 they got together and told me they wanted me to take them to Macy’s Department Store. I agreed to this but was a little perplexed about a night out with two professional shoppers. But what the heck, the new Macy’s was just three miles from our home. That’s when they inquired as to when I was going to make the flight arrangements! I suddenly realized that this time around I was in serious trouble. The next thing I knew we were waltzing down 34th Street in Herald Square to Macy’s in New York. Later that first day we took a carriage ride through Central Park and then off to dinner at Windows on The World atop the World Trade Center. The views of the New York skyline were spectacular, the food was outstanding and the sparkling wine was just the right touch for my daughter’s 21st birthday. The bill was equally impressive. These are truly fond memories to be sure. Then came the day when millions of Americans watched in horror as those same Twin Towers came crashing down on September 11th, 2001 in an act of terrorism that will live on forever in the annals of history, causing the deaths of nearly 3000 people in attacks that day in New York, Washington and Pennsylvania. Recently the leader of the al Qaeda terrorist clan responsible for this maniacal destruction was killed following a decade long search for justice. His passing was celebrated widely across the globe but there are many things we must not forget. Those of us in the insurance business should be well aware of them as they still exist and will into the foreseeable future. The continuing costs are almost unbelievable. Beyond the tragic deaths, the injuries suffered on 9/11 continue and unfortunately are largely forgotten by the public. The workers compensation impact is staggering to say the least. It is estimated that ten years later, more that 60,000 rescue workers, fire, police and construction workers are still being monitored and treated at an estimated cost of $20 million dollars per month from the effects of the dust and debris from the nearly 100 tons of asbestos used in the construction of the Towers, a commonly used substance in the 1960s. The liability lawsuits rage on as they have from the day following the attack. The James Zadroga 9/11 Act, recently passed by the U.S.House, provides $7.4 billion dollars for future claims. The world famous architect Minoru Yamasaki, designer of the Towers, died years ago but his firm was still undergoing legal challenges in

June 2011

The Self-Insurer

2009 for the use of asbestos along with the manufactures of the material itself. The plaintiff bar has had a decade long field day that continues on. Property damage losses have reached $22.7 billion dollars with roughly $19 billion in insured losses, second to only Hurricane Katrina. Additionally, more than 38,000 claims have been filed to date under personal, commercial and auto coverage’s for damages in the immediate area, with the costs again running into the billions. Should we as Americans rejoice over the recent death of Osama bin Laden? Yes, I think we should. But let us not forget that this is not going to go away. The events of 9/11 are certain proof that freedom and democracy have a very high price, not just in life and limb, but in hard earned American dollars. We must do everything we can to prevent that from happening again, as it most likely will. The entire insurance industry should be in full support of our government’s efforts to do so. And we the people must help in any way we can. n

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Corporate

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Disastrous

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June 2011

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tHe ISSueS

hree better words could hardly be found to describe the current status of Corporate Health Care. What used to be a difficult time annually for most employers has turned into a nightmare that seems to have no end in sight. For those who had the foresight in the past to actually develop a “corporate strategy” for their medical plan, the realization has come that it is impossible to move forward with the new law and lack of direction. After all if the staff of the members of congress, who help clarify and develop regulations from the laws that are passed, have said they are not sure of the congressional intent of various sections of the law, how can a business person put themselves inside the heads of the architects of such a piece of legislation and move forward with confidence? “Will plans continue to raise prices? Will some people continue to lose coverage? I think the answer is yes,” said Nancy-Ann DeParle, head of the White House Office of Health Reform. “It is something we are concerned about.” What is truly amazing is that a couple of the major culprits of escalating medical costs were never addressed or even acknowledged. The thought that relatively new and innovative programs, such as CDHPs, are forced to continue to deal with medical industry business models that are 100 years old and expected to survive is ridiculous. Recognize that at this point in time health care providers only make money when individuals walk through their doors. “Fee for service” encourages excess treatments and tests and does absolutely nothing to encourage a preventive and compliant attitude by the patient. We can add to this problem the

fact that out of 9,000 codes (CPT4) developed for paying for medical procedures, codes controlled or utilized by AMA, CMS and insurers, none provide reimbursement to lower an individual’s risks or monitor compliance of the patient. This is a model that causes health care providers to profit from sickness rather than wellness. It does not pay for risk reduction! 70% of all healthcare costs are caused by chronic diseases. This is a number that will grow with the aging of the workforce. There are 90 million Americans with chronic conditions – over 1/3 of young adults aged 18 to 34 and 2/3 of adults aged 45 to 64 have at least one chronic disease. This is where the consistent claims come from and where there is a significant opportunity to begin to cut costs. Projected costs for chronic conditions are in excess of $659 billion with 1/3 of those dollars being in indirect costs (lost time, lost productivity, lost wages, etc). Chronic diseases/conditions are further exacerbated by controllable lifestyle behaviors – physical activity, healthy diet, use of tobacco and hazardous and harmful drinking. It is interesting to note that of working Americans, there is an average of 17% who are asymptomatic (not aware they have an issue) and it is not until a significant event occurs (heart attack, diabetic coma, stroke, etc) that the problem comes to light. This population provides a major opportunity to eliminate or reduce current and future medical expenses. Of the chronic issues, there are five that account for the majority of the costs – diabetes, congestive heart failure, coronary artery disease, asthma and depression. The direction of all of these can be altered significantly by engagement, education, implementation of proven protocols and patient

compliance. Otherwise, the problem(s) will remain in a state of free-fall with disastrous results for the employee, the family and the employer. In short, any strategy for corporate health care that does not include a plan for changing the way chronically ill employees and dependents are engaged, educated and cared for will continue to experience “more of the same”. Employers function best by keeping employees as healthy and productive as possible. They spend many dollars and hours trying to attract, train, improve and retain a desirable workforce. No single player in health care has a more vested interest in the health of individuals and their families than the employer – not hospitals, doctors, insurers or any other provider of services. The potential impact on productivity and hard costs is major. One major ingredient to add to the mix is the fact that there is a significant shortage of primary care physicians and the situation is getting worse. Total costs to become a primary care physician are approximately $600,000. Students are simply opting to attend a little longer in order to specialize and make significantly more money than they would in family practice. The new healthcare law will introduce 18,000,000 more individuals into a system that is already strained. “If the Health Care Reform Legislation works as intended, we will have a population able to pay for services and inadequate numbers of physicians to provide those services” . Some 56 million Americans don’t have a regular doctor. And when you open up more health care access, the scarcity increases. Jack Colwill, professor emeritus of family and community medicine in the MU School of Medicine, and his research team found that the U.S. could face a shortage of up to 44,000 family physicians and general internists in less than 20 years.

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June 2011

areas to take Into account: Accessibility, affordability and accountability are three areas that can help address these obvious problems that continue to elude legislators and even service providers. These are not difficult to understand. accessibility pertains to a number of situations such as not wanting to spend a lot of time either in route to the provider or waiting in the office – or even worse, not being able to get in to see the physician when a person has an acute need. We have already seen that the primary care provider base is eroding and with the new law, the situation will do nothing but escalate. affordability is another issue that touches virtually every working American.

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June 2011

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Decisions are made every day to avoid seeing the provider since the symptoms are not “too bad” and the cost is just too much with deductibles and copays. The possible result is a large claim in the future and a big expense to the health plan. In most cases this could have been avoided with early detection and early intervention. It is further complicated by those who have to clock-out for the visit yet cannot afford to lose wages. accountability looms about as large as the other two issues when it comes to an impact on the risk level of an individual and makes even less sense. Getting individuals to make sure they are adhering to the treatment regimen of prescription drugs, lifestyle changes and monitoring is often an impossibility. For whatever reason, it often requires a serious relationship with a compassionate medical team who can take time with education and oversight to get many individuals engaged. If that is accomplished there is no question about the favorable results for the individuals, the employer and the medical plan. However, remember that providers are not reimbursed for those educational and monitoring functions so it rarely gets done and the system inadvertently keeps the patient in a “sick state” since that is what gets reimbursed. The fact is you cannot create accountability with a set of instructions and then wait till the next visit to assure compliance. Compliance is a major issue when it comes to both morbidity and mortality. Estimates of over $100 billion a year are incurred as a result of adverse outcomes such as hospitalization, development of complications, disease progression, premature disability or death. • Approximately 125,000 people with treatable ailments die each year in

the USA because they do not take their medication properly. • Fourteen to 21% of patients never fill their original prescriptions. • Sixty percent of all patients cannot identify their own medications. • Thirty to 50% of all patients ignore or otherwise compromise instructions concerning their medication. • Twelve to 20% of patients take other people’s medicines. • Hospital costs due to patient noncompliance are estimated at $8.5 billion annually. Studies show there is a 5.6% decrease in annual healthcare costs for every 10% increase in the number of filled prescriptions for target medications. This does not include savings for lifestyle changes or other treatment recommended by the provider.

Considerations: 1. As long as a medical plan continues to be held ransom to a system that embraces the fee-forservice business model, it will never be able to gain control and manage even a part of the incurred costs. The best that can be hoped for is the ability to “shift costs” under traditional methods. While many brag about the discounts available under negotiated networks the fact is the motivation for multiple visits and tests still exists. The logic is strange in terms of discounting services that theoretically you should not need nearly as much with the right program. It will not be until a program is able to integrate a fixed cost provider, at least partially, that relief will become obvious. The motivation for that segment is then gone for productivity and the focus is on managing risk through engagement, education and compliance. 2. Accessibility and affordability can

both be addressed by making sure a clinic with a fixed fee provider is in close proximity to the employee base – one with valid scheduling and available to the whole family. With primary care capabilities the focus is on managing individuals with chronic conditions, preventing individuals from getting chronic conditions and performing nonacute procedures for others. In other words, a facility that can be considered a “medical home”, knows the individual holistically and not just as a set of symptoms or diagnosis. “The problem of overuse of acute care hospitals and medical specialists in the management of chronic illness is rapidly getting worse”, said Dr. John Wennberg – Dartmouth Medical School, Dartmouth Atlas Studies 3.Accountability is gained with such a facility by virtue of the shift in focus to that of managing a person’s condition, getting them well and

The Self-Insurer

June 2011

keeping them well. With a personal medical team monitoring progress, compliance and accountability is established and outcomes are improved through risk reduction.

Solutions: A major question comes to mind for employers in determining alternatives to the traditional approach to employer sponsored medical plans – how can we move into primary care for our employees and their dependents, get away from 100% “fee-for-service model” and reduce costs? The second question is not “How can we afford healthcare?” but “How can we make healthcare affordable?”. After understanding components of healthcare that impact costs and ultimately the employees’ health and productivity it is obvious that somehow getting into providing or directing primary care for the workforce makes sense. “There’s only one way to avoid paying more and more for the healthcare system, and that’s for corporations

to get back into the health-care business” John Shiely, CEO, Briggs & Stratton Corporation Employers are beginning to realize what a dysfunctional system we are dealing with in healthcare but have been at a loss in terms of how to deal with it. “Instead of continuing to outsource employee health to an utterly dysfunctional supplier, the best hope for rebuilding this nation’s healthcare system is for our companies and business leaders to take a more proactive role” says Clayton Christenson, Business Professor at Harvard Business School. Such a move is being considered across the nation by many employers and a large number have already implemented the concept and are reaping the rewards. Only by adopting this or a similar concept and coordinating plan design and outcomes can an employer begin to positively impact those who are responsible for the largest portion of costs in corporate healthcare in a way that does not violate HIPPA but gives an opportunity to reduce costs, improve the employee/dependent quality of life and improve productivity. No decision is a decision! Without action on the part of the employer, the same conversation will be held year after year with costs escalating and corporate profits and productivity declining. n Bill started one of the early TPAs and became the largest administrator of Flexible Benefits before the firm was purchased by a major carrier. Since then he has concentrated on the transformation of healthcare through the development of programs that address the issues of accessibility, affordability and accountability for those with chronic conditions. This is integrated with his ability to plan, implement and oversee onsite clinics and results in the reduction of healthcare costs for employers and employees, reduction of employee risk levels and increases productivity for employers. He is also past President and Chairman of the SIIA. Bill resides in Atlanta, GA and can be reached at aurg@mindspring.com.

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June 2011

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June 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.

June 2011

The Self-Insurer

IrS Issues Guidance on Form W-2 reporting for Health Coverage Costs

he Patient Protection and Affordable Care Act (PPACA) requires for the first time that the value of employer-sponsored health coverage must be reported on employees’ Forms W-2, even though the health coverage is excludable from gross income and wages for employment tax purposes. The definition of employer sponsored coverage for purposes of the W-2 reporting requirement is generally the same as that used under PPACA’s “Cadillac plan” tax, which is not effective until 2018. PPACA provides that the W-2 reporting requirement is effective for taxable years beginning on or after January 1, 2011. Last fall, in order to provide time for employers to make payroll systems changes to comply with the requirement, the IRS issued Notice 2010-69 providing that W-2 reporting for 2011 was voluntary. The IRS recently issued Notice 2011-28, which provides guidance for complying with the new reporting requirement, as well as a formal delay in implementation – employers are not required to include the cost of employersponsored coverage on any Form W-2 required to be issued before January 2013. Thus, the reporting requirement will first apply with respect to coverage provided in 2012. Additional transition relief is provided, including an exception for certain small employers. Notice 2011-28 contains helpful guidance, but many issues still are not resolved.

The reporting requirement has a number of implications for employers: • The penalties for failure to comply with the new requirement are the same as those applicable to W-2 reporting generally, which range between $30 and $100 per W-2, depending on the length of time the employer fails to comply, with capped penalties for small businesses. • Employers need to begin to modify their systems now so that they are ready with required information for the January 2013 Forms W-2. In particular, employers (and payroll agents) must implement a system to determine what coverage is subject to the reporting requirement for each employee, determine the cost of the coverage, and report the aggregate value of such coverage.

Which employers will have to report the cost of employer-provided group health plan coverage? In general, all employers, including governmental employers and taxexempt entities, are subject to the reporting requirement. However, the reporting requirement is deferred at least for one additional year for small

• Further systems changes may well be required when the IRS issues guidance with respect to the Cadillac plan tax for 2018 and issues left open by Notice 2011-28 are resolved.

employers (meaning employers who

• Employees understand that Form W-2 includes information regarding taxable compensation – employers should consider whether further employee communications are needed in order to prevent confusion.

may apply the reporting requirement

This advisory provides further discussion of the guidance provided in Notice 2011-28.

January 1, 2014. Until future guidance

issued fewer than 250 Forms W-2 for the prior year). Future guidance to small employers for Forms W-2 required to be issued on or after is issued, however, small employers

What is the reporting requirement?

are exempt from the reporting

The reporting requirement is informational only and, according to the IRS, is designed to enable employees to determine the value of the coverage received through their employer. The new reporting requirement does not cause excludable employer-provided coverage to become taxable.

requirement. Federally recognized

When is the requirement effective? The requirement applies with respect to Forms W-2 required for 2012. Employers are not required to report the cost of health coverage on any Forms W-2 required to be furnished before January 1, 2013.

Indian tribal governments are also not subject to the reporting requirement.

What is a “group health plan” for W-2 reporting purposes? The reporting requirement applies with respect to coverage under employer-sponsored group health plans.

Where must the cost of employer-provided group health plan coverage be reported?

For this purpose, a group health plan

Starting with the Form W-2 that must be provided for 2012 in January 2013, employers must report the “aggregate cost” of “applicable employer sponsored coverage” on Form W-2, box 12, using code “DD.” There is no corresponding requirement to report health care costs on the corresponding Form W-3 (Transmittal of Wage and Tax Statements).

of, or contributed to by, an employer

is a plan (including a self-insured plan) (including a self-employed person) or employee organization to provide health care (directly or otherwise) to the employees, former employees, the employer, others associated or formerly

What employees are covered by the reporting requirement?

associated with the employer in a

Employers do not have to report coverage for anyone to whom they would not otherwise have to provide a Form W-2. Thus, for example, no additional reporting is required for coverage provided to retired former employees unless a Form W-2 is otherwise required (such as for the last year of employment).

For purposes of determining whether

See further discussion below on reporting when an employee terminates employment during the year.

and any applicable guidance, including

business relationship, or their families. a specific arrangement is a group health plan, employers may rely on a good faith interpretation of the statute guidance under COBRA.

The Self-Insurer

June 2011

What coverage must be reported? The IRS requires that employers report the aggregate cost of “applicable employer provided coverage,” which generally means all coverage under a group health plan made available to the employee by the employer, regardless of whether it is excludable from income. The Notice provides certain exclusions and transition rules. The following types of coverage do not have to be reported: • contributions to an Archer MSA or a Health Savings Account (HSA); • salary reduction contributions to a health FSA (see further discussion below on calculating cost where employer flex credits are provided); • specified disease (e.g., cancer) and fixed indemnity (e.g., hospitalization per diem coverage) coverage – but only

if such coverage is funded on an after-tax basis; thus, specified disease and fixed indemnity benefits paid for by the employer or through employee pre-tax salary reduction (i.e., through a cafeteria plan) must be reported;

• automobile medical payment insurance; • credit-only insurance; • coverage under a plan of a self-insured employer that is not subject to any federal continuation coverage requirement (e.g., church plans);* and

• stand-alone dental or vision coverage (see further discussion below relating to self funded coverage);* • coverage under an HRA (i.e., if the only employer provided coverage is an HRA, no reporting is required);* • coverage under a multiemployer plan;* • long-term care coverage; • coverage for accident and/or disability income insurance; • coverage issued as a supplement to liability coverage;

• coverage provided by a federal, state or local government to members of the military and their family. *The exclusions marked with an asterisk are provided on a transition basis and apply at least with respect to Forms W-2 required for 2012. Future guidance from the IRS may limit the availability of some of this transition relief. Any future guidance that is more restrictive will be prospective only.

• liability insurance;

The value of on-site medical clinics must be reported.

• worker’s compensation or similar insurance;

Note on dental and vision coverage: The Notice departs from the normal

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June 2011

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definition of stand-alone vision and dental coverage that is an “excepted benefit” under HIPAA. Under the Notice, vision and dental provided under a separate contract or policy of insurance is permanently exempt from reporting. Coverage that is not provided under a separate contract or policy but that is not integrated into a group health plan is exempt from reporting, but potentially only on a transition basis.Thus, future guidance may change the exception for non-integrated coverage. Hopefully, this disparity will be resolved, so that all vision and dental that is an excepted benefit will be exempt from reporting.

What cost must be reported and what are permissible calculation methods? The entire cost of applicable employer coverage must be reported to the employee, without regard to whether (i) the employer or employee pays for the coverage; (ii) the coverage covers just the employee or the employee, his or her spouse and any dependents; or (iii) a portion of the coverage is taxable to the employee (e.g., coverage provided to a nondependent adult child over age 26 or to a non-tax-dependent domestic partner).

the premium charged by the insurer for the employee’s coverage for the applicable period. • Modified COBRA Premium: For employers who subsidize the cost of COBRA, report the cost of coverage by using a reasonable good faith estimate of the COBRA applicable premium. If the actual premium charged is equal to the COBRA applicable premium for a prior year, report the cost of coverage by using the COBRA period for each period in the prior year. • Composite rate: Report the cost of coverage by using the same reportable cost for a period for (1) the single class of coverage under the plan; or (2) all the different types of coverage under the plan for which the same premium is charged to employees, provided that this method is applied to all types of coverage provided under the plan. An example of a plan with a composite rate would be a plan that charges a self-only rate, a self-and-spouse rate and a family rate, regardless of how many members are in the family. If the cost of coverage for a period changes during the year, the reported amount must reflect the increase or decrease for the periods following the change.

Calculating aggregate cost of coverage may be difficult for certain types of coverage Calculating the aggregate cost of coverage for insured health coverage will be fairly straightforward. On the other hand, self-funded plan coverage will require that COBRA rates be utilized, and for many types of coverage (e.g., HRA, employer clinic, EAP and wellness benefits) there is no clear guidance as to how coverage costs should be determined. Fortunately, for HRA benefits, the IRS has provided some transition relief whereby no amount is required to be reported pending

The IRS provided four methods that employers may use to calculate the cost of coverage. Employers may use different methods for different plans, provided that they use the same method for every employee receiving coverage under the same plan. • CoBra applicable premium: Report the cost of coverage by using the COBRA rate for that period. A good faith estimate of the COBRA premium may be used. • premium Charged: Report the cost of coverage by using

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June 2011

further IRS guidance. Other types of self-funded coverage must be included – even though there may be no convention as to how to value such coverage. For health FSAs, the amount of any salary reduction election is not reported on Form W-2. For most FSA arrangements that are funded by salary reduction, any salary reduction amounts would merely be excluded from the total amount reported. Where the FSA is funded by flex credits (expressed as a fixed amount, or as formula such as matching salary reduction) if the amount in the health FSA exceeds the aggregate salary reduction amount (for all qualified benefits), then the excess of the health FSA amount minus the employee’s salary reduction for the health FSA must be included in the total amount reported.

What reporting is required when an employee has a change in

coverage or employment during the year? If an employee enrolls in, terminates or changes coverage during the year, then the amount reported must take into account the change in coverage for the period. For changes during the middle of a period, the employer can use any reasonable method to determine reportable cost for such period, including averaging or prorating the reportable costs, as long as the employer uses the same method for all employees it covers under the plan. If an employee terminates employment before the end of the year, the employer may use any reasonable method of reporting the cost of coverage, provided that the same method is used for all employees in the plan. If a terminated employee requests a W-2 prior to the end of the calendar year in which they terminated employment, the employer does not

have to report the cost of coverage on that employee’s W-2, and does not need to issue a separate W-2 solely for purposes of satisfying the health coverage reporting requirement.. If an employee has multiple employers during a calendar year, each employer must report the cost of coverage. However, if the employee has a “common paymaster” among the multiple employers, only the common paymaster must report the cost of the coverage. If an employee transfers from a predecessor to a successor employer, the successor employer can report the cost of coverage for both employers.

For what time period must coverage be reported on the W-2? The employer must report the cost of coverage on a calendar year basis, regardless of the plan year used for the health plan. n

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June 2011

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art GALLERY By Dick Goff

out west, is it art or is it art? Continuing an occasional series profiling U.S. captive domiciles

or great Western art check out the work of masters such as Frederic Remington or Charlie Russell. And businesses looking for great western ART shouldn’t overlook the Montana captive domicile. The ART world is learning that a domicile doesn’t have to offer palm trees and beaches to lure captive insurance companies from far and wide – and even Vermont will admit that Montana has much better skiing. After the state established the domicile in 2001 it grew to 15 captives in five years and accelerated to 68 licensed companies early this year, with a few more in the pipeline. Brenda Olson, chair of the Montana Captive Insurance Association (MCIA), points out that the state is home to captives insuring the expected industries of manufacturing and health care, but also western-style ranching and trucking. Full disclosure: I have been a member of the MCIA board since its inception and a big fan of Montana since my son Jon went off to study at Rocky Mountain College in Billings – at least that’s what he said he was going to do. He has long since graduated but I’m the one who keeps returning to the state. Captives located in Montana are a combination of homegrown businesses and those who have relocated from elsewhere. TPA Employee Benefit Management Services, Inc., moved to Montana from the Cayman Islands just last year. EBMS manages self-funded health benefit programs and started its captive to provide stop-loss insurance for the plans. From my viewpoint, Montana offers a special atmosphere where people are encouraged to succeed without the edginess of some higher-density states. Even in the Montana Office of the Commissioner of Securities and Insurance, the traditional insurance regulators play nice with the captive folks – my, how that can help business move ahead. “MCIA has been a great partner of the regulators,” says John Jones, partner of Moulton Bellingham PC of Billings, whose legal practice has long involved captives and who now serves as vice president-operations and board member of SIIA. Jones says that the spirit of Big Sky cooperation has included the state legislature which quickly recognized ART’s economic development opportunities. That also apparently extends to the insurance industry in general: “Any lobbying against captives by the ‘traditionals’ has gone away – they’re not pushing back,” he observes. This year Montana became one of just a few U.S. captive domiciles to pass legislation allowing incorporated protected cell captives. Brenda Olson of MCIA told Montana legislators that allowing captive cells to be incorporated as separate legal entities “would give owners/insureds greater regulatory and legal certainty.” Apparently the lawmakers were listening when she said, “Montana competes with over 25 states as a domicile for captives and risk retention groups. Montana

laws must be kept current and offer flexibility in accommodating a variety of captive business plans to address changing business needs.” Montana’s economic impact of the captive industry includes nearly $2 million in annual tax revenues and millions more for Montana firms that provide management services, audit, legal and actuarial work. Captive tourism is another revenue source as companies convene their annual meetings and as MCIA stages two annual industry conferences. In my view Securities and Insurance Commissioner Monica Lindeen has embraced the captive industry while also delegating operational authority to key professional staff including captive coordinator Steve Matthews, who was recruited from another U.S. domicile. As the U.S. ART industry has evolved in recent decades, it has become apparent that it is easier for a state to start up captive business than to maintain it into maturity, as political environments and economic development strategies are caught in the winds of change. Montana, now nearing maturity as a seat of captive business, is a good example of how to start a domicile and keep it running right. In the ART world, it could become a masterpiece. n Dick Goff is managing member of The Taft Companies LLC, a captive insurance management firm and Bermuda broker at dick@taftcos.com.

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June 2011

InSIDer INFORMATION 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 is the largest independent North American provider of claims and productivity management services. The acquisition of Selective Settlements brings to Sedgwick CMS powerful claim settlement tools, unique expertise in consultative approaches to resolving claims, and a wider range of settlement options for Sedgwick CMS clients and claimants that are beneficial to all parties. “Like Sedgwick CMS, the professionals at Selective Settlements are committed to delivering excellence for everyone involved in the claim settlement process,” said Sedgwick CMS President and CEO David A. North. “For more than 30 years, Jim Ebel and his team of talented consultants have helped clients manage their claim-related expenses and guided claimants in reaching structured settlements that address their long-term needs. This expertise is a natural fit for Sedgwick CMS’ mission of pursuing fair claim outcomes and will help us provide a higher level of service to our clients and their claimants.”

June 2011

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“We have always been proud to serve our clients with outstanding solutions, tools, and people,” said Selective Settlements President Jim Ebel. “Our relationship with Sedgwick CMS will provide additional resources for the expansion of our structured settlement capabilities, and they share our commitment to fair outcomes for both the clients and their claimants.” Sedgwick CMS will retain all employees of Selective Settlements, as of closing.

Sedgwick CMS puts the power of viaone® at Your Fingertips on ipad MEMPHIS, TN – Sedgwick Claims Management Services, Inc. continues to lead the industry with the latest version of its web-based proprietary risk management information system (RMIS), viaOne, for the Apple iPad. “By combining the strength of viaOne with Apple's cutting-edge iPad tablet, Sedgwick CMS has literally put at our clients’ fingertips the power to proactively manage their risk management programs,” said Patrick Funck, chief information officer for Sedgwick CMS. “These web-based services offer our clients the unique opportunity to customize their handson experience with quick access to the risk management tools that can help them visualize and analyze their claims,” Funck said. Additional viaOne enrichments already in development will be announced and made available to Sedgwick CMS clients during the next six months, Funck said. For more information see www. sedgwickcms.com.

aul retirement Services appoints Scott pawlich to lead Detroit sales office. The retirement services division of American United Life Insurance Company® (AUL), a OneAmerica company, has selected Scott Pawlich to be its regional sales director for Michigan. Pawlich is an established sales strategist with a proven ability to develop and implement employee retirement programs within the state of Michigan. “I am excited to have Scott join our organization,” said Bill Yoerger, senior vice president of AUL Retirement Services. “Scott is a top sales consultant in the institutional and trust marketplace and will play a big role in helping us deploy our new trust solution that came as a result of our McCready and Keene acquisition.” Previously Pawlich was vice president for institutional sales for Diversified Investment Advisors. Prior to that, he was managing director of institutional sales for MassMutual Retirement Services in Michigan. Pawlich resides in Rochester Hills, Mich., and will work out of AUL’s Detroit office where he will oversee all sales, marketing and service functions and provide support to 401(k), 403(b), 457 and defined benefit financial professionals throughout Michigan. He will report to Mark Glavin, AUL’s vice president of national sales and service distribution. Pawlich has a degree from Eastern Connecticut State University. About AUL American United Life Insurance Company® (AUL) is the founding member of OneAmerica® and

products include retirement plan products and services; individual life insurance, annuities, long-term care solutions and employee benefit plan products.

senior debt rating of OneAmerica Financial Partners, Inc to “a-” from “bbb+” and the debt rating on the outstanding surplus notes of AUL to “a” from “a-” The outlook for all ratings is stable. OneAmerica becomes only the second life insurance organization to receive a ratings upgrade to A+ (Superior) from A.M. Best since the beginning of the financial crisis in 2007.

About OneAmerica

a.M. Best Co. upgrades the financial strength rating of oneamerica companies to a+ (Superior); Issuer credit and debt ratings also receive upgrades

OneAmerica Financial Partners, Inc., is headquartered in Indianapolis, IN. The companies of OneAmerica® can trace their solid foundations back more than 130 years in the insurance and financial services marketplace. OneAmerica’s nationwide network of companies offers a variety of products to serve the financial needs of their policyholders and other clients. These

Indianapolis, IN – A.M. Best Co. has upgraded the financial strength rating of American United Life Insurance Company® (AUL) and its affiliates The State Life Insurance Company and Pioneer Mutual Life Insurance Company to A+ (Superior) from A (Excellent). A.M. Best also upgraded AUL’s issuer credit rating to “aa-” from “a+”, the issuer credit rating and

is focused on providing a strong portfolio of products for individuals, families and small businesses. AUL uses a national network of experienced professionals utilizing an extensive menu of financial products, including life insurance, annuities and employee benefit plan products. The company helps consumers prepare for tomorrow by helping to protect their financial futures.

In a statement, A.M. Best noted that “the ratings actions reflected OneAmerica’s solid risk-adjusted capital position, strong consolidated top-line revenue growth and consistently favorable operating performance across its core business lines.” A.M. Best went on to note that OneAmerica’s investment portfolio has continued to perform significantly better than most of its peers and that “OneAmerica’s mutual

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June 2011

holding company structure facilitates a strategy focused on long-term financial strength.”

one Call Medical acquires Diagnostics plus Parsippany, NJ – One Call Medical (OCM), the nation’s leading provider of specialty services to insurance payers, announced its acquisition of Diagnostics Plus, a provider network for advanced radiology and electrodiagnostic services, including MRIs, CT scans, and electromyography (EMG). From One Call Medical’s portfolio of value-added specialty claims services, this acquisition solidifies its network as the largest and most experienced in offering diagnostic testing to workers’ compensation. “Diagnostics Plus is one of the leading providers of medical imaging and diagnostic services,” said Kent Spafford, chairman of the board at One

Call Medical. “By integrating Diagnostics Plus into One Call Medical’s rapid care coordination model, clients can expect the same level of response, service, and efficiency.” In addition to growing its portfolio of services, OCM is committed to strengthening its diagnostic network and referral management capabilities, so payers benefit from maximum savings, the best providers, and accurate diagnostics at the outset of claims. In workers’ compensation, diagnostic testing is the first critical step to appropriate, cost-effective treatment of injured workers, and helps payers avoid seemingly simple claims “exploding” to become chronic, long-term, and expensive. Based in Sunrise, Florida, Diagnostics Plus’ network is comprised of quality physicians and state-of-the-art equipment. It maintains high standards for patient care and customer service,

and delivers a reliable, efficient, and cost-effective diagnostic referral process. More information about One Call Medical can be found at www. onecallmedical.com.

Sun life Financial’s Employee Benefits Group Wins plain language award Wellesley, MA –The Employee Benefits Group division of the U.S. business group of Sun Life Financial (NYSE:SLF, TSX:SLF) has received a 2011 ClearMark Award recognizing excellence in plain language communications for its Personalized Group Enrollment Kit, an educational booklet on Sun Life’s voluntary employee benefits. Annually recognizing the nation’s best plain language documents and web sites, the ClearMark Awards are

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

June 2011

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judged by a panel of international experts appointed by the Center for Plain Language (Washington, DC). Judges praised Sun Life’s enrollment kit for “great, clear action steps, useful worksheets, and consistent structure.”

us with a ClearMark Award for achieving this goal.”

The kit evolved from Sun Life’s plain language initiative, part of its "Get to Know Sun Life" brand campaign. The firm’s Annuities Division has "As voluntary group benefits also contributed to the initiative, by gain popularity, we’ve committed launching new resources conveyed in to providing plan sponsors best-inplain language: a printed kit enabling class communications tools to help advisors educating clients on the employees choose the most suitable role annuities can play in retirement benefits options given their needs,” income planning, an easy-to-read says Sun Life's Group Employee variable annuity customer statement. Benefits Marketing Director Tricia A video introducing variable annuities Conboy. “We’re honored that the is also planned. For more information, Ethicare_Ad factors_01_03.pdf 1 1/5/11 1:04 PM Center for Plain Language recognized please visit www.sunlife.com. n

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SIIA New Members REGULAR MEMBERS voting representative/ Company name Luke Schafer, Benefit & Risk Management Services, Inc., Folsom, CA Rick Brush, Director, Business Development, Bickmore Risk Services, Sacramento, CA Steven Lash, President & CEO, Satori World Medical, San Deigo, CA

EMPLOYER CORPORATE MEMBER voting representative/ Company name Michael Meyer, Aurora Consultants LLC, Duarte, CA Stacy Kohlnhofer, Executive Director, Recovery & Claims Svcs., Mayo Clinic, Rochester, MN Kathy Flaherty, VP, Human Resources, Oxbow Carbon LLC, West Palm Beach, FL

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June 2011

You are cordially invited to be included in....

THE

Directory 2012

Twenty-Fifth Annual Edition

June 2011

Published by Self-Insurersâ&#x20AC;&#x2122; Publishing Corp. in Partnership with the Self-Insurance Institute of America, Inc.

The Self-Insurer

THE Directory

2012 Users Directory Application for Listing Section A: Company Name: CCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCC Address: CCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCC City: _______________________________________________________________________ State: _____________ Zip: ___________ Telephone: ______________________________________________________ Fax: __________________________________________ Contact: CCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCC Title: CCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCC E-mail: ____________________________________________________________ Website: ___________________________________ Year Business Started:_____________________________ Number of Clients:______________Number of Employees (your staff) ________

Section B: Please include our listing in the following section(s): 1. Third Party Administrators (TPA) – Life and Health/Employee Benefits 2. Third Party Administrators (TPA) – P&C/Workers’ Compensation/Captives 3. MGU/Medical Stop-Loss Carriers – Life and Health/Employee Benefits 4. MGU/Excess Insurance Carriers – P&C/Workers’ Compensation/Captives 5. Medical Provider Networks/Onsite Clinics 6. Technology Vendors 7. Broker/Consultants 8. Utilization Review/Case Management 9. Attorneys 10. Financial Services 11. Actuaries/Accountants/Auditors 12. Consumer Driven Health Care Services 13. Captive Management Services/ Risk Retention Groups (RRGs) 14. Reinsurance 15. International 16. Subrogation 17. Loss Prevention/Control Services 18. Publications/Resources

q q q q q q q q q q q q q q q q q q

Section C: Listings

Your company’s listing in THE Directory is complimentary for SIIA members and $195 for non-members. However, you can add additional listings for $49 each for SIIA members and $99 each for non-members. If submitting a description, please attach a separate sheet with your company’s product service offering information, or, email to sbyars@siia.org.

Listings Member Listing Complimentary (50-Word Description) Additional Listings $49 =_________ Section C Subtotal $__________

Non-Member $195 =_________ $99 =_________ $__________

Section D: Advertisements 1/2 Page Half page ad size is 7-1/4” x 4-7/8” 4-Color $1,100 Full Page Full page ad size is 7-1/4” x 10” Inside Front Cover 4-Color $2,500 Inside Back Cover 4-Color $2,000 Interior Page 4-Color $1,500 Section D Subtotal SECTION C & D TOTAL

$_________

$_________ $_________ $_________ $__________ $__________

*IMPORTANT* “Company Description Details”

1. 2. 3. 4.

It is extremely important that the information your company submits is correct for THE Directory listing. Neither SIIA nor SIPC will be responsible for any errors of any kind when your description is submitted. DESCRIPTION FORMS MUST BE COMPLETED EITHER VIA THE SIIA WEBSITE www.siia.org/directory or EMAILED TO directory@siia.org NO FAX DESCRIPTIONS WILL BE ACCEPTED! ALL DESCRIPTIONS MUST BE TYPED (NO HAND WRITTEN DESCRIPTIONS WILL BE ACCEPTED) THE ABSOLUTE DEADLINE IS 8/1/11 FOR ALL DESCRIPTIONS. IF YOUR COMPANY’S DESCRIPTION IS NOT SUBMITTED BY 8/1/11, YOUR DESCRIPTION RIGHTS WILL BE FORFEITED.

Application Submitted by: Name _________________________________________________________________ Telephone ____________________________ Fax ______________________ E-mail _____________________________

Payment Information:

q Enclosed is my check payable to SIPC in the amount of $______________ q Please charge the following: q VISA q MC q AMEX q Discover

Cancellation Policy: Written cancellation postmarked or faxed on or before 8/1/11, will receive a 50% refund. Sorry, all cancellations after 8/1/11 are not eligible for a refund.

Credit Card Number CCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCC Card in the Name of _______________________________________________________________ Exp. Date __________ Billing Address CCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCC City ___________________________________________________________ State ___________ Zip _______________ VAL Code (last 3 digit number on reverse side of card) __________________________________________________________________ Authorized Signature ______________________________________________________________ Date ______________ Application must be received by August 1, 2011. Submit completed application along with appropriate payment to: SIPC Processing Center • P.O. Box 1237 • Simpsonville, SC 29681 or Fax to (864) 962-2483

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June 2011

CHAIRWOMAN’S REPORT

Freda Bacon

inston Churchill once said, “Attitude is a little thing that makes a big difference”.

The Worker’s Compensation Executive Forum held May 10-12th in beautiful Charleston, South Carolina gave all of us the opportunity for a three day “attitude adjustment”. One of the most charming and historical sites in our country, Charleston teems with an atmosphere that fit our conference to a tee. Our keynote speaker, M. L. “Red” Cashion invigorated the audience with stories of his career as an NFL referee and of his experience in the insurance industry. During Mr. Cashion’s 25 years on the field with the NFL, in addition to his two Super Bowls, he officiated in 18 playoff games, a Pro Bowl and over 500 professional games. He is a CPCU, and is currently a Guest Professor of Insurance at Texas A&M University. My thanks to Skip Shewmaker of Safety National Casualty Corporation and current Chairman of the Worker’s Compensation Committee along with all the committee members for putting together a great program. Our next scheduled event is the International Conference to be held in Toronto, Canada June 7-9th. I am excited about this meeting, as the International Committee continues to work to expand the self-funding message globally. On a personal note, I want to thank all of the “SIIA Family” for your thoughts and prayers for the people in Alabama and throughout the Southeast who suffered both personal and physical loss as a result of the tornados which swept through the later part of April. These storms have had a devastating impact on my home state of Alabama, and the outpouring of support has been overwhelming. Attitude – such a small word than can make a difference! Until next time,

Freda Bacon, Chairwoman

June 2011

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June 2011

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