Self-Insurer June 2014

June 2014

www.sipconline.net

Re-Visiting

PRIVATE EXCHANGES As nascent market grows, questions arise about its value proposition for self-insured employers and oversight prospects

2

June 2014 | The Self-Insurer

© Self-Insurers’ Publishing Corp. All rights reserved.

www.sipconline.net

JUNE 2014 | Volume 68

June 2014 The Self-Insurer (ISSN 10913815) is published monthly

by Self-Insurers’ Publishing Corp. (SIPC), Postmaster: Send address changes to The Self-Insurer P.O. Box 1237 Simpsonville, SC 29681

FEATURES

ARTICLES 14 Fads and Trends: Wrong Terms, Fragmented Programs and Sub-par Outcomes by Bill Bennett

Editorial Staff

18 ART Gallery: The First Ten Years

PUBLISHING DIRECTOR Erica Massey SENIOR EDITOR Gretchen Grote CONTRIBUTING EDITOR Mike Ferguson

6

Re-Visiting

Private Exchanges

by Bruce Shutan

DIRECTOR OF OPERATIONS Justin Miller

20 Mark Your Calendars!

(Part I - Section 6055 Reporting)

by Cori M. Cook, J.D.

32 Path to TRIA Re-Authorization Begins to Take Shape, but Hurdles Remain

by Kevin McKenney

DIRECTOR OF ADVERTISING Shane Byars

34 PPACA, HIPAA and Federal Health

EDITORIAL ADVISORS Bruce Shutan Karrie Hyatt

Benefit Mandates: IRS Issues Long Awaited Regulations on New ACA Related Reporting Requirements

Editorial and Advertising Office P.O. 1237, Simpsonville, SC 29681 (888) 394-5688

2014 Self-Insurers’ Publishing Corp. Officers James A. Kinder, CEO/Chairman

24

RRGs Report Financially Stable Results at Year-End 2013

by Douglas A. Powell

INDUSTRY LEADERSHIP 4 SIIA Chairman’s Message

Erica M. Massey, President Lynne Bolduc, Esq. Secretary

© Self-Insurers’ Publishing Corp. All rights reserved.

The Self-Insurer | June 2014 3

SIIA CHAIRMAN’S MESSAGE The 34th Annual National Conference & Expo Just Around the Corner

S

IIA’s 34th Annual National Conference & Expo is back at the always popular J.W. Marriott Desert Ridge Resort and Spa in Phoenix, Arizona October 5th-7th! Our National Conference is the world’s largest event dedicated exclusively to the self-insurance/alternative risk transfer marketplace. The conference typically attracts more than 1,700 attendees from throughout the United States and a growing number of countries around the world. The educational program will have more than 40 educational sessions designed to help employers and their business partners identify and maximize the value of self-insurance solutions.

The superior educational program will be supplemented with valuable networking events, including an exhibit hall with more than 150 companies showcasing a wide variety of innovative products and services designed specifi cally for self-insured entities. If you are searching for a self-insurance business partner, they will be waiting for you at the SIIA National Conference & Expo!

Self-insured group health plans will be thoroughly covered from every angle, including plan design and cost containment, fi nancial risk transfer, broker involvement and ACA compliance. Extra content that should be of specifi c interest to TPA executives and their key management teams has been incorporated in this year’s educational program.

The Alternative Risk Transfer track will feature sessions on Enterprise Risk Captives, also known as 831(b) captives, which have become an increasingly important self-insurance solution for many medium sized companies. Stoploss captive programs (also known as employee benefi t group captives) will also be a focus of the ART track. An increasing number of smaller and midsized employers have been considering self-insured group health plans, and stop-loss captive programs can facilitate this transition.

Les Boughner

be sure that you make your travel arrangements accordingly.

If self-insurance is important to you in any way, this is simply a mustattend event! To register or for more information on the conference and exclusive sponsorship opportunities visit www.siia.org. n See you in Phoenix!

The Workers’ Compensation track will feature a series of roundtable sessions where self-insured funds (SIGs) leaders from around the country will provide a unique opportunity to share perspectives on how their organization should be positioning themselves for future success. These SIG-focused roundtables will be supplemented with additional sessions of interest to both groups and individual workers’ compensation self-insurers.

Rounding out the program will be sessions addressing key self-insured issues (including ACA compliance requirements) for companies with global operations and/or workforces, giving the conference an added international fl avor.

You can get a head start on your networking by supporting the SelfInsurance Educational Foundation (SIEF) and participating in the golf tournament the morning of Sunday, October 5. The conference concludes with an incredible social event on the closing night (Tuesday, 10/7) so

4

June 2014 | The Self-Insurer

© Self-Insurers’ Publishing Corp. All rights reserved.

HELP YOUR CLIENTS

TO THE BENEFITS OF STOP-LOSS. He has a new heart. His employer has peace of mind.

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

Life’s brighter under the sun

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

Sun Life Financial and the globe symbol are registered trademarks of Sun Life Assurance Company of Canada.

PRODUCER USE ONLY.

© Self-Insurers’ Publishing Corp. All rights reserved.

SLPC 24843 11/13 (exp. 11/15)

The Self-Insurer | June 2014

5

Re-Visiting

PRIVATE EXCHANGES As nascent market grows, questions arise about its value proposition for self-insured employers and oversight prospects

by Bruce Shutan

6

June 2014 | The Self-Insurer

© Self-Insurers’ Publishing Corp. All rights reserved.

W

ith the much-ballyhooed, fi rst-ever open enrollment in public health insurance exchanges (HIX) now a part of history, there has been renewed attention devoted to private versions of this emerging online marketplace with a wide range of views from industry experts.

Both delivery models were built to ease consumer comparisons of health insurance plans through a sophisticated online platform that enables them to make wiser purchasing decisions. They also seek to widen access to health insurance – a major objective of the Affordable Care Act (ACA) – and control costs more aggressively than traditional methods for employers of all sizes, but the comparisons end there.

A legion of consultants, brokers, high-tech companies in the HR and benefi ts space and large insurance company owned ASO operations, and some stop-loss carriers have adopted a bullish view of private exchanges, or as proponents prefer to call them, “online marketplaces.”

Skeptics include self-insured employers that are leery of handing over too much control over their plans to a third party, particularly if they’re also a benefi ts adviser, as well as independent TPAs, whose best-in-class service provider approach is being threatened by ASOs that are using bundled service offerings to lure in private HIX customers.

While private exchanges may not be a magic bullet, they certainly have the potential to help preserve the employer-provided health insurance system. Ezekiel Emanuel, a physician and key ACA architect, recently predicted that private-sector workers who receive health care from employers will fall below 20% by 2025 from the current 60%.

Private exchanges are now seen by many as complimentary to self-insurance.

In fact, all the major industry players among HR and benefi t consulting fi rms with a foothold in the market offer self-insured options except for Aon Hewitt, whose value proposition is tied to a fully insured solution only with a multi-carrier platform and standardized plan design that it believes to be more effi cient than self-insurance.

“Employers can pretty much do anything on their own that a private exchange can do,” explains Barbara Gniewek, a principal in the health care practice of PricewaterhouseCoopers, which last year launched the Private Exchange Evaluation Collaborative (PEEC) in conjunction with the Employers Health Coalition, Midwest Business Group on Health, Northeast Business Group on Health and Pacifi c Business Group on Health.

Turbo-charging self-insurance?

But private exchanges may enjoy a competitive leg up relative to a single selfinsured entity in a number of areas, she hastens to add. To wit: deeper expertise, more sophisticated decision-support tools offered on an automated platform that simplifi es the shopping experience and raises the bar on employee wellness. One obvious area among the better-known HIX operators involves bundled service solutions that can accelerate and support the goal of achieving true health care consumerism as part of a defi ned contribution approach.

Vanessa Scott, a partner with Sutherland Asbill & Brennan and author of an extensive white paper on private exchanges, noticed that private exchanges with self-insured products were seen toward the end of last year as “more of a stalking

© Self-Insurers’ Publishing Corp. All rights reserved.

How a Private HIX Helps…

Deeper consulting expertise More sophisticated decision-support tools Bundled service solutions Savings tied to higher volume More robust benefit choices Greater cost transparency Promotes member accountability and engagement Best practice care coordination Emphasizes condition management and wellness initiatives Proactive pharmacy benefit management Optimizes network contracting arrangements

horse” for fully insured arrangements.

Since that time, however, she says consultants have come to the realization that employers with selfinsured plans “are willing to hold on to those plans for dear life.”

Adds James Kinder, SIIA’s former chief executive: “How this will ultimately fi t within the self-insurance model is yet to be seen. However, it is clear to me, what is being considered is simply another form of alternative-risk fi nancing and that is exactly what selfinsurance is. Thus, I am hoping the selfinsurance community will, as they have in the past, use their creative thinking power to make private exchanges work to their benefi t.”

The Self-Insurer | June 2014

7

Growing marketplace Several published reports within the past year have suggested that the number of private HIX totals anywhere from 100 to 150 different choices, but that estimate could be wildly infl ated.

“There are a lot of ben-admin platforms that are out there calling themselves exchanges,” notes Rick Strater, division vice president and national exchange practice leader for Gallagher Benefi t Services, Inc., which has a private HIX partnership with Liazon Corp.

In whittling down that fi gure, which he believes is probably closer to a few dozen, many of these benefi ts administration platforms may appear solid, but without a broad enough inventory or reporting capabilities. Other concerns could be that carrier links may be devoid of an established portfolio or strong

decision support, which he describes as “a huge differentiator.”

In fact, just 30 names are listed in an alphabetical directory of private exchanges in “AIS’s Health Insurance Exchange Directory and Factbook,” whose 604-page fi rst edition was published in 2013 by Atlantic Information Services, Inc. (see accompanying list).

A slightly more expansive accounting of 41 private HIXs from mcol and HealthQuest Publishers appears in “The Health Insurance Exchange Directory 2013,” which includes an “exchange platform” category for software and operating systems contracted by exchanges to power the exchanges (some of them public).

Whatever the case may be about the number of true exchanges, benefi ts selection is more robust under the private than public model, with options including a suite of ancillary plans and wellness services offered on an

Would you climb a mountain without a guide?

employee-pay-all voluntary basis.

The centerpiece of a private HIX is a defi ned contribution approach to health care that earmarks a yearly dollar amount to help plan participants budget for out-of-pocket costs and make those benefi t obligations more predictable for plan sponsors. Some of these exchanges have been around for as many as 10 years serving retiree populations, developing a mature product offering and loyal following among sophisticated corporate buyers.

A growing body of research and media reports have painted a bullish outlook – the latest being a Moody’s Investor Services analysis predicting that private HIX enrollment could reach tens of millions of active employees by the end of the decade. In addition, a PEEC survey found that 45% of employers have already taken this approach for full-time active employees or plan on doing so before 2018.

Healthcare is complicated.

As a risk management expert, Berkley Accident and Health can guide you in the right direction.

Our creative, nimble approach to risk, backed by the strength of a Fortune 500 company, gives us a unique perspective.

Count on Berkley to show you the way.

Stop Loss | Group Captives | Managed Care | Specialty Accident Insurance coverages are underwritten by Berkley Life and Health Insurance Company and/or StarNet Insurance Company, both member companies of W. R. Berkley Corporation and both rated A+ (Superior) by A.M. Best. Coverage and availability may vary by state. ©2014 Berkley Accident and Health, Hamilton Square, NJ 08690. All rights reserved.

BAH AD-2014 0119

8

June 2014 | The Self-Insurer

www.BerkleyAH.com

© Self-Insurers’ Publishing Corp. All rights reserved.

Skeptical outlook But greater marketplace traction still could be a long way off.

Representatives from two blue-chip companies voiced deep skepticism about privates HIXs for active employee populations at a recent panel discussion hosted by America’s Health Insurance Plans. They included Scott Kovaloski, manager of health and welfare benefits consulting at Alcoa Inc., who was unimpressed with a 1.5% estimated savings figure that one leading operator had forecast, and Mary Bradley, director of health care planning for Pitney Bowes, who questioned the long-term value of a private exchange.

Caution appears to be shaping the perception of other large employers.

Pacific Resources Benefits Advisors LLC, for example, recently found that big business is evenly divided not only about whether they planned to embrace a private exchange for their active employees, but also on the issue of it being a viable option for their group benefit plans.

One area of concern about private HIXs is a perceived conflict of interest.

The PEEC, whose raison d’être is to offer credible and unbiased information that helps employers assess the value of private exchanges, found that 69% of 723 employers it surveyed were uneasy with the notion of benefit advisers touting their own exchange to clients or prospects.

Self-insured employers “need to be responsible about doing a thorough investigation and validation of what anybody is saying,” says Scott Rabin, general manager for private health exchange solutions at Buck Consultants, whose RightOpt is a leading private HIX operator.

There also are legal considerations that need to be addressed when deciding whether to sign up with a

private HIX operator. “I’m always worried about the fiduciary relationships going on in the back,” Scott cautions. “If you’ve got an arrangement with a consulting company that’s making decisions about who is going to be providing services to plan participants through an ERISA plan, I just don’t know how there’s not a fiduciary relationship there.”

But the issue has sparked confusion. For example, slightly more than half the employers PEEC surveyed thought it was important for a private HIX operator to accept ERISA fiduciary responsibilities when, in fact, they cannot escape their own legal obligations under the law.

Stop loss to the rescue?

Jerry Castelloe, who runs the Charlotte, N.C., office of CoreSource, Inc., a Trustmark Company TPA, and chairs SIIA’s political action committee board of

Exchange Product Comparison October 2013

Aon Hewitt Product Name, Website

Aon Hewitt Corporate Health Exchange Aonhewittcorporate healthexchange.com

Buck Consultants RightOpt

Mercer

Extend Health (TW)

Mercer Marketplace

OneExchange

Buckconsultants.com/ rightopt

Mercermarketplace.com

Oneexchange.com

Senior Practice Leader

Maureen Scholl, CEO Outsourcing

Sherri Bockhorst, National Practice Leader

Eric Grossman, Senior Partner

Ban Pajak, Senior Vice President Towers Watson,

Administrator,

Aon Hewitt, Lincolnshire, IL

Client choice or Xerox’s integrated administration system

Mercer,

Main Location

Urbandale, IA

New York, NY

Earliest Effective Date

January 1, 2013

January 1, 2014

January 1, 2014

January 1, 2014

Current Lives Covered

600,000

400,000

25,000+

None, launching January 1, 2014

Target Business Size

5,000+

3,000+

100+

1,000+

Funding Mechanism

Fully-insured

Fully or Self-Insured

Fully or Self-Insured

Self-Insured

Minimum or Maximum Number of Carriers in a Region

Maximum of five

One PPO per region with a narrow network/high performance plan when available.

A set of carriers is available in each region.

Employers are able to choose up to three depending on their size.

Minimum of three

Employer or Employee Choice of Carrier

Employee

Neither, Buck selects carriers.

Both

Employee

No

No

No

Are Employers Required Yes to Use a Defined Contribution

How Many Levels of Benefit Offerings Will be Offered Per Plan

Five benefit levels (Bronze, Bronze+, Silver, Gold and Employer selection from a Platinum). Employers must portfolio of seven designs. offer three, including Silver and Gold.

Five Benefit Levels

Four Benefit Levels

Ancillary or Voluntary Benefits Available

Not at this time

Yes

Yes

Yes

Can Employers Customize Their Plan Design

Yes. Three actuarially equivalent silver plans are offered, ranging from a CDHP to a PPO.

Limited customization is available.

Limited customization is No available on medical plans.

Are Product Offerings Standard Across Carriers

Yes

Yes

Yes

Yes

How Will Carriers Differentiate Themselves

Price, Customer Service, Network

Periodic evaluation by Buck to measure network quality, breadth, price, performance and financial guarantees.

Price, Networks, ValueAdded Programs, Customer Service

Networks, Value-Added Programs, Consumer Engagement

Accommodation of Illness Burden Differences Across Carriers or Employers

“Standardization and participation rules structure the Exchange to minimize and manage adverse selection. Specific risk adjustment methodologies across plans are actuarially derived and proprietary.”

“Due to the preferred partner strategy adjustment for illness burden is not required.”

“We are structuring the exchange to not require adjustments across carriers or employers to accommodate differences in the illness burden of the population.”

“A self-insured base means carriers will not be at risk for the illness burden of an employer’s population.”

Exchange Offers Online Consumer Support and Educational Tools

Yes

Yes

Yes

Yes

© Self-Insurers’ Publishing Corp. All rights reserved.

The Self-Insurer | June 2014

9

trustees, considers private exchanges a potential threat to self-insurance.

His sense is that the consultantbased model has focused on fully insured options that take a defined contribution approach to health care, which if marketed effectively enough could lure some employers away from self-insured solutions. He says the key to combating any such trend will hinge on the willingness of more stop-loss carriers to underwrite in a private HIX environment so that there are enough meaningful risk-transfer options for selffunded employers.

How a Private HIX Hinders…

Conservative estimated savings Conflict of interest among benefit advisers Questionable long-term value Confusion about shared ERISA fiduciary responsibilities Risk isn’t pooled with other employers Focus on fully insured options in consultant-based model Doesn’t address the root of employers’ problems, which is reducing the high cost of care Standardized plans with high out-pocket-maximums pose moral hazard Savvy marketing of essentially an old idea with little value A revenue-generating vehicle to simply sell ancillary or voluntary benefits. Technology emphasized at the expense of human contact

10

June 2014 | The Self-Insurer

“It seems like there’s an awful lot of buzz on something that isn’t particularly new,” observes Brooks Goodison, president and principal partner at Diversified Group Brokerage, a TPA whose client base averages 100 to 250 covered lives.

His general critique of the emerging HIX model is there’s no need to reinvent the wheel on a vibrant private marketplace that has already been around for years, while the push for greater freedom of choice through more Web-based options simply recycles an old idea (i.e., Section 125 cafeteria or flexible benefit plans).

However, Goodison’s biggest bone of contention is that private exchanges do not reduce runaway health care costs or the root of that problem in any substantive way. All it does is adjust “what the employer is going to pay and cost-shift it on unsuspecting plan members,” he says.

While private exchanges feature multiple employers, they do not share in the risk. However, they may be able to reap administrative or medical savings associated with serving a higher volume of customers or broader provider network. “The more people they have in the exchange, the better discounts they’re getting in their ACOs, or they’re leveraging better PBM contract rates, etc.,” Gniewek explains.

“In some sense,” observes Paul Fronstin, director of the Employee Benefit Research Institute’s Health Research and Education Program, self-insured employers that decide on a private HIX solution “are losing economies of scale because they’re not being pooled with other employers. They’re still their own pool, and to the degree they bring in multiple networks or carriers that are TPAs, they’re spreading people across them rather than pooling them with one TPA.” And while the value of this new approach is still untested, he believes selfinsured entities that sign on with a private HIX would have an advantage in expanding benefit choices for employees, providing more cost transparency and encouraging employees to choose their plans more wisely.

“It’s a way to potentially steer people to lower cost options without taking away the higher cost options, which may help your bottom line, whether those lower cost options are consumer-driven health plans or narrower networks,” according to Fronstin.

Deepening best practices The private HIX model has evolved to a point where the focus increasingly is on “member accountability and engagement, best practice care coordination, condition management and wellness initiatives, top-notch pharmacy benefit management, and optimal use of current and emerging network contracting arrangements,” according to a Towers Watson bulletin. The HR and benefits consulting firm, which offers one of the industry’s leading private exchange solutions, noted that these objectives are what self-insured employers have come to expect.

A private HIX platform can help leverage large group purchasing, as well as deployment of tools or pricing as it relates to pure administrative fees to manage the multiple vendors that come together to create those exchanges, according to Rabin.

Many employer clients have sought to maximize their employee health engagement solutions and build a data warehouse to be more evidence-based in the way they approach benefits. “Wrapping this all up in an exchange platform, we are allowing those employers access to this at a much lower cost than they could ever achieve on their own,” he explains. “Even when they’re fairly large, when you start to look at the kind of companies that are coming to private exchanges, they’re never as large on their own as they are participating in the exchange.”

Private HIX operators need to be “completely aligned with that employer who still wants to own the strategic piece of their health benefit plans,” Rabin

© Self-Insurers’ Publishing Corp. All rights reserved.

explains, which may include “a lift and shift of some of the administrative burden” in the face of dwindling HR staffs that make managing complex benefi t plans a challenge.

Some of the bigger HR and benefi t consulting exchanges feature a multicarrier platform but without all the top insurers, while some of the broker models favor a strong single carrier in certain locations, but also offer a multicarrier option, Gniewek says. Whichever approach is chosen depends on the specifi c needs of each employer. She adds that large health insurance carriers, such as UnitedHealthcare, Aetna, Cigna and Blues plans, also are creating their own private exchanges with an emphasis on high performing networks, which tend to be narrower and have more cost controls built in. Some insurers are even pondering a multi-carrier offering.

PEEC has devoted a great deal of time to helping differentiate the exchanges in terms of their fi nancing mechanism (i.e. fully insured or selfinsured), decision support, partnerships and product offerings. The group is creating a comprehensive tool that will query a database being built for the request-for-information process, enabling coalition members to select the right private HIX based on their own unique needs and desires.

Establishing a defi ned contribution approach under a private HIX enables self-insured employers to cap any exposure to health benefi t costs just as aggregate stop-loss coverage or other tools, Strater explains. “CFOs are suddenly realizing that they can control the cost on a much more consistent basis with far greater certainty” by taking this tack, he says. From an actuarial standpoint, he says “it’s incredibly important that we ensure that those plans are properly priced for the assumed exposure and risk.”

An investment in people But self-insured plan sponsors also must manage their expectations about the DC budget they create and the degree to which it will signifi cantly reduce costs, at least in the fi rst few years of the arrangement. His point is factoring in the strategic costs associated with attracting and retaining top talent. In other words, it’s critical to know that any perceived growth factor is in line with total compensation.

A university client of Strater recently voiced concern about losing valuable professors who represent intellectual capital.The trick is to avoid what he calls “a draconian cut” in the health care spend and tailor the benefi ts to meet specifi c corporate objectives.

© Self-Insurers’ Publishing Corp. All rights reserved.

While a DC budget can be created without a private HIX, Strater believes this model promotes a deeper level of decision support and more robust menu of plan choices that will help self-insured plans avoid simply shifting the risk onto employees. He says what happens is that employees become much more engaged in the process and satisfaction increases because the benefi ts portfolio feels more like their own rather than their employer’s.

Power of partnerships While private exchanges are now touting their self-insured products and downplaying their fully insured products, Scott says it’s still unknown whether they will cajole enough employers “away from a traditional, individual employer TPA sort of selfinsured arrangement.”

Regional TPAs typically are not involved in the jumbo national market of large or multistate employers, Rabin observes. While believing there’s still a very viable private HIX market for small and midsize groups, he expects “a much lower percentage of those employers are self-funded, which would drive the participation of those local or regional TPAs.” In a white paper for the HR Policy Association, Scott described several

The Self-Insurer | June 2014

11

Excess Employer’s Liability For Single Entities, Groups & Public Entities Provided by an A.M. Best “A” (Excellent) XIV Rated Carrier Excess Capacity: $5M Minimum Retention • $100,000 • Lower retentions may be considered Self-Insured Groups Prefer stable & established (4 or more years), homogenous groups with common effective date. Claims and/or Underwriting Audit may be required.

Preferred Business Classes • Agricultural • Auto Dealers • Contractors • Financial Institutions • Healthcare • Hospitality • Manufacturing • Public Entities • Religious Institutions • Retail/Wholesale • Schools • Specialty Artisans • Transportation • Utilities

For submission requirements & applications, please visit our website: midlandsmgt.com

excessel@midman.com 800.800.4007 midlandsmgt.com

12

June 2014 | The Self-Insurer

© Self-Insurers’ Publishing Corp. All rights reserved.

consultant-sponsored exchanges as catering to the large group market, while small and midmarket solutions are run by insurers, business associations such as NFP and CBIA Health Connections and online entities such as eHealthInsurance and ConnectedHealth. Fronstin adds that smaller employers are more likely to embrace a single-carrier private HIX, citing HealthPass, Liazon and Bloom Health as examples that of operations that have been in existence for years.

Who Are the Main Players?

ABM Insurance & Benefit Services, Inc. Affiliated Computer Services, a Xerox Company

Business opportunities for service providers in the self-insured arena could hinge on previous associations or partnerships. “If I am the exchange platform provider, I’m going to want to sell the employer my proprietary products,” Scott says. “If I want to use my brokers, I’m going to want to use a stop-loss insurer that I have some sort of arrangement with so that I can get the best rates for the employers who participate.”

American Veterinary Medical Association/Group Health & Life Insurance Trust Programs

Independent brokers or stop-loss insurers that have developed an alliance with a private exchange carrier will have a chance to “capture a very distinct segment of the market in a way that they wouldn’t have had access before,” she notes.

Aon Hewitt

Pondering federal oversight

Blue Cross and Blue Shield of Minnesota

An expected flurry of activity within this new health care arena could very well capture the attention of regulators at some point. If the federal government decides to regulate the private HIX model down the road, Fronstin says Uncle Sam will need to hold up a mirror in the process. He points out that the Office of Personnel Management’s Federal Employees Health Benefits Program is in effect the nation’s largest private exchange with the widest selection of health insurance plans, covering some 9 million employees, dependents and retirees. Any such intrusion more than likely would be issued in the form of guidance “much like happened with Health Reimbursement Arrangements in 2002,” he predicts.

One reason there’s no oversight of private exchanges is that they could mean something different from vendor to vendor. “You’ve got to be able to define what you’re regulating,” says Scott, who adds that not enough time has passed to report any substantive market abuses. “They don’t have a regulatory baseline right now because we don’t know what every single private exchange is going to have in common yet.”

American Westbrook Insurance Services Bessemer Venture Partners, Trinity Ventures, Partech International and River Street Management

Blue Cross Blue Shield of Arizona Blue Cross Blue Shield of Kansas City Blue Cross Blue Shield of Michigan Buck Consultants, a Xerox Company Capital BlueCross CHOICE Administrators, a Word & Brown Company ConnectedHealth Digital Benefit Advisors eHealthInsurance Florida Health Choices, Inc.

The private HIX market is moving almost at the speed of light, Scott observes, noting how the product offerings are changing from one month to the next amid a cycle of innovation, which would render any regulation obsolete.

GoHealth

At a time when employee benefit advisers have fretted about receiving marginalized compensation with fully insured carriers subject to medical loss ratio requirements that funnel most of their money back into patient care, Goodison sees private exchanges as a revenue-generating scheme.

InsurXHealth, LLC

“A lot of these private exchanges from what I can tell are really more of a vehicle to sell members more things like more life, disability, vision and dental insurance,” as well as supplemental medical or mini-med plans, he adds. While having access to an expanded voluntary product suite may seem like a good idea, Goodison cautions that it still won’t move the needle on health care costs that are spiraling out of control.

Medica

He also sees a “moral hazard” associated with most people purchasing standardized, metal-plated benefit packages featuring high out-pocket-maximums in an online marketplace that places decision-support tools over human contact. n

Optum and Connextions, an Optum Company

Bruce Shutan is a Los Angeles freelance writer who has closely covered the employee benefits industry for 26 years.

© Self-Insurers’ Publishing Corp. All rights reserved.

HealthPass New York Highmark, Inc. iSelect LLC Liazon Corporation Mercer Mid Atlantic BX MVP Health Care NFP Health Services Administrators

Towers Watson Source: “AIS’s Health Insurance Exchange Directory and Factbook,” whose first edition was published in 2013

by Atlantic Information Services, Inc.

The Self-Insurer | June 2014

13

Fads and Trends: Wrong Terms, Fragmented Programs and Sub-par Outcomes by Bill Bennett Fad - A fashion that is taken up with great enthusiasm for a brief period of time; a craze.

Trend - The general direction in which something tends to move.

T

hroughout life, each of us has seen examples of both fads and trends.

While fads flame out after a short time, trends continue to progressively move, change, and grow along a defined path. Most times, we recognize trends in retrospect, since we are challenged to accurately identify them early in their evolution.

Healthcare is a perfect example of an industry that has cycled through more fads than trends, especially when considering the many concepts and products that have been introduced to provide the most cost-effective

14

June 2014 | The Self-Insurer

access to quality care during the past few decades. Unfortunately, with an industry that has been incredibly slow to move, fads have caught many employers’ attention, primarily because they seemed to offer something different to persistently solve the conundrum of access to quality and affordable care. What follows is a brief guide to identify fads vs. trends by estimating a potential solution’s ability to deliver value in three domains: access, affordability, and accountability.

Before diving into these domains, we must first define value by framing it relative to some reference standard.

Since these standards have not been well described in a scientific sense, employers have historically used others’ experiences for benchmarking and have typically asked, “Are the results of my particular program consistent with those of other employers?”

Unfortunately, this process can unnecessarily limit potential returns because the more important reference should be performance relative to our own outcomes expectations. Therefore, our goal should be to define expected value in the three domains relative to our own specifications, using others’ experience only as a rough guide.

© Self-Insurers’ Publishing Corp. All rights reserved.

The other important task to include when defining “relative value” is to ensure the integration of the new solution’s design, implementation, and value tracking into the mechanics of existing solution operations. In other words, the value of the new solution should be deliberately incremental to that already delivered by current programs. This helps avoid falling into the trap of overstating return on investment (ROI) due to the inclusion of redundant value that is already present from current processes.

Looking at the “pieces and parts” in a traditional sense (a hard approach to manage, integrate and view progress), we can include the following among a growing list of today’s solution options: Population Health Management, Lifestyle Management, Disease Management, Medication Therapy Management, 24/7 Nurse Line, Incentive Programs, Wellness Programs, and Health Insurance itself. Rather than trying to retrospectively tease out the access, affordability, and accountability values of these programs when they are currently operational, we can rely on the literature for guidance and focus on the expected incremental value of new programs before they are purchased and implemented. An example of the former is the recent Health Affairs article1 that describes the differential ROI of PepsiCo’s 7-year history of managing manifest diseases ($3.78 to $1.00) versus health risks ($0.48 to $1.00). The former is an example of Disease Management, while the latter represents a Wellness Program and our own results may vary. While both program types are potentially important facets of a comprehensive health management solution, the data may help when planning the emphasis and resources allocated to each.

What follows are examples of how we may approach access, affordability, and accountability, while using the relative ease of bundling current program performance into a bundled performance baseline and avoiding the tedium of trying to determine which of the current programs’ results are currently attributable to any one or multiple existing programs.

Access The most basic measure of access is the percentage of the population that uses primary care services in any given year. In other words, if 61% of an employer’s population have availed themselves of primary care services at baseline and this percentage increases (or is projected to increase) to 70% or 80% after implementing plan changes, this represents positive changes in access. Examples of plan changes that can manage to this increase include implementation of a zero copay plan for preventive care services or implementing an on-site or near-site clinic. The documented increases are potential evidence of cause and effect, especially if there are no confounding variables (other plan changes or occurrences that may have similar effects) and these outcomes persist over a relatively long period of time (a few years). Similarly, other potential examples include considerations of implementing 24/7 nurse line or telemedicine visits, which can be framed by expected or measured increases in the number of unique individuals in a population who access the system.

Affordable As might be inferred from the above comments about access the three value domains are somewhat interdependent. Since “affordable” is a relative term and reflects the underlying financial health and culture of the eligible population, plan design and program costs must be customized to their target participant group.

Success indicators include increasing utilization and a positive ROI (for fixed-fee services when the cost per service decreases with increasing volume). Examples of increasing affordability include the increases in percent utilization above, plus copay or productivity gains for programs that include on-site or near-site services that are used in lieu of accessing services that are more remotely located, and increases in ROI for appropriately designed solutions.

Accountable Non-compliance is one of the most expensive behaviors patients can exhibit.

Looking at drug compliance alone, some 20 percent of cases – and as many as 30 percent – prescriptions for medication are never filled. Up to 50 percent of medications are not taken as prescribed.2 The figures here do not account for the non-compliance of treatment regimens. One of the most efficient methods of addressing this issue is providing services that specifically educate, motivate, and track compliance of unique individuals. Similarly, outcomes based wellness and chronic disease management programs that demonstrate tangible improvements that align with evidence-based medicine tie to increased accountability at both individual stakeholder and program levels. One example would be improvement of one employer’s annual diabetic retinal exam rate from 39% to 57%.

In the last several years, the trend of increasing healthcare bureaucracy has continued. While the Affordable Care Act has increased access to care, it has not

© Self-Insurers’ Publishing Corp. All rights reserved.

The Self-Insurer | June 2014

15

addressed runaway healthcare cost inflation and the associated consolidation of healthcare providers has only fanned the flames by decreasing competition. The market has responded by increases in direct contractual relationships between providers and both employers (on-site clinics) and consumers (direct primary care).3 These solutions circumvent some of the bureaucracies, provide services that are less costly than the same services delivered at traditional “retail” rates, and are more specifically customized to meet the needs of the smaller populations they serve. When properly refined over time using an iterative process, we have the potential to effectively align all stakeholders and manage past the historic trends, moving from what some perceive a “fad” today to the new “trend” of tomorrow that delivers the best financial and superior health outcomes. n

References http://content.healthaffairs.org/content/33/1/124.full.html

1

www.theatlantic.com/health/archive/2012/09/the-289billion-cost-of-medication-noncompliance-and-what-to-doabout-it/262222/ 2

www.elapservices.com/news/direct-contracting-betweenemployers-and-healthcare-providers 3

William Bennett, Chairman and Founder, WORKsiteRx. Since 1964, Bill has been involved in the field of health care administration. In 1972, he started one of the earliest Third Party Health Administration firms for companies that were self-insured.

The firm was also one of the earliest in developing software and processes for Section 125 programs to make health care more affordable. For over a decade, Bill has worked to develop a disruptive and totally integrated process for corporate health care.

The method includes a focused disease state management platform through proven protocols and leading edge technology, driven by a fixed-fee on-site primary care clinic.

16

June 2014 | The Self-Insurer

© Self-Insurers’ Publishing Corp. All rights reserved.

KAREN HAS AN EYE FOR RISK CONTROL.

Karen Casserly MAP Client Services

NOT CAKES. At Safety National, employees like Karen help promote risk control best practices through our MAP Client Services. These services, which are complimentary to our policyholders, help prevent workplace injuries and lower costs for employers. We have yet to start developing best practices for cake decorating.

To learn more about our MAP Client Services, visit safetynational.com/self.

Š Self-Insurers’ Publishing Corp. All rights reserved.

The Self-Insurer | June 2014

17

ART GALLERY

by Dick Goff

The First Ten Years

I

t’s been quite a decade. When it hit me that this episode would complete the fi rst ten years of ART Gallery columns my fi rst thought was, “Then how come I’m not ten years older?” Apparently column years are on a different scale than human years.

This string of opinions dressed up like journalism all started when the late, great Editor Tom Mather, who made it a habit of buttonholing SIIA members to recruit authors for The Self-Insurer, suggested I write something on captives. I told him that could be a big subject. So he said, “Well, we could make it a series, maybe three or four columns.”

And the rest, as they say, was history. During this time I have had the great pleasure of collaborating with some of the best minds in our business to make the Gallery the broadest possible educational experience. And for a couple of years my colleague Allen Taft pinch-hit as author while I was immersed in SIIA leadership duties.

It occurred to me that it could be instructive – for me as well as, hopefully, the readers – to take a look back at some of the columns to see how things turned out in the 20-20 view of hindsight.

For example: July 2004 – Here’s a quote from our fi rst column: “ART programs can provide a whole new opportunity for TPAs and MGUs to serve their existing clients and add to their books of business.”

18

June 2014 | The Self-Insurer

Well, that worked out. New captives have gained momentum since then in taking the fi rst layer of medical stop-loss reinsurance. And corporate America is also joined in, both selfinsured and fully insured plans, in a broad spectrum including life, AD&D as well as medical stop-loss. ART opened the door and it hasn’t closed since then.

April 2005 – Commenting on the House’s repeated passage of a bill enabling professional and business associations to provide health plans to their members across state lines (while the legislation was continually derailed in the Senate), our column was headed “This Could Be the Year for AHPs” and included this quote: “Clearly, AHPs have become a ‘people’s cause’ only to be blocked by those in the Senate who prefer the idea of nationalized health care.”

This classic example of “we the government” running roughshod over “We the People” set the tone for more recent domination by Washington, principally Obamacare. There continues to be a glimmer in some Congressional eyes for some form of intrastate health plans for businesses. Stay tuned.

January 2006 – We offered a New Year’s resolution to state insurance regulators: “Trust your colleague regulators in other domiciles.

Under the federal Liability Risk Retention Act a Risk Retention Group licensed in one state enjoys federal preemption to operate in all others.

But some regulators accept this as a challenge to put up roadblocks and engage in overly zealous reviews. It’s a federal law, guys.”

Today, sadly, a growing number of states demand greater oversight

or involvement in risk retention groups licensed elsewhere, and now the NAIC is jumping on the pile. Continued state regulatory interference in direction contravention of federal law is severely damaging the risk retention group movement.

April 2006 – Headline: “Powerful Interests Work to Undermine All ART.” Comment: “SIIA and its allies are currently fi ghting companies on three political fronts: protecting federal preemption for risk retention groups; defending against state tax assessments on stop-loss insurance for employee benefi t plans, and supporting passage of the association health plans in Congress.”

State interference with RRGs has continued unabated through recent years and doesn’t appear to be weakening. State attacks on selfinsurance have migrated from tax assessments – with some continuing exceptions – to attempts to cripple employer plans by legislating high minimum stop-loss attachment points.

By this method, states that toe the Obamacare party line hope to wipe out competition for their ACAmandated state health care exchanges.

Nobody in government cares that employer self-insured health benefi t plans still provide the highest quality and most effi cient coverage available.

September 2008 – Citing the IRS rule that about half of captive premium must apply to third party risk: “Several captives or cells of captives can band together to share suffi cient risk to satisfy the IRS criteria. In this method you’re not expanding the risk as much as you are combining it with that of unrelated third parties.”

© Self-Insurers’ Publishing Corp. All rights reserved.

This IRS ruling actually triggered vigorous growth of specialized and effective ART structures such as protected and, later, incorporated cells of captive insurance companies.

Today’s sophisticated serial LLC captives capable of managing risk for organizations of any size are direct descendants. This is a great example of how the private sector demonstrates vigor and creativity in surmounting any roadblocks the government can erect.

Our ART Gallery retrospective will continue in next month’s edition as we begin the next decade of ruminations and rants with a review of some issues we covered in years 2009 to the present. n Readers who wish to comment on this column or write their own article are invited to contact Editor Gretchen Grote at ggrote@sipconline.net. Dick Goff is managing member of The Taft Companies Risk Mitigation 3 LLC, a captive insurance management firm and Bermuda broker at dick@taftcos.com.

Turn self-funding into self-confidence.

Moving from fully insured to self funding offers financial advantages and benefits to employers. Optum has the experience, knowledge and resources to help you manage both the clinical and financial aspects of high-cost conditions, such as: • Transplants • Catastrophic

accidents and illnesses bypass surgeries • Complex cancers • Coronary

In addition, Stop Loss Insurance offered through Optum can help manage catastrophic claims costs.

To speak with a representative or to learn more about submitting a request for proposal, call 1-866-427-6804 or email engage@optum.com.

Insurance coverage provided by or through Unimerica Insurance Company, and in California, Unimerica Life Insurance Company.

© Self-Insurers’ Publishing Corp. All rights reserved.

The Self-Insurer | June 2014

19

Mark Your Calendars!

(Part I - Section 6055 Reporting)

by Cori M. Cook, J.D., CMC Consulting, LLC

I

n March of 2014 the Internal Revenue Service and Treasury issued final regulations providing guidance to those entities that are subject to the information reporting requirements of sections 6055 and 6056 of the Internal Revenue Code, as enacted by the Patient Protection and Affordable Care Act (PPACA).

This article will focus on section 6055 which requires health insurance issuers, certain employers, governments, and others that provide minimum essential coverage (MEC) to report annually to the IRS by filing the requisite returns and transmittal forms and to report annually to responsible individuals by providing the requisite statements.

By way of background, individuals who fall below 400% of the federal poverty level and do not have access to MEC that meets the minimum value and affordability thresholds may be entitled to a premium tax credit. The reporting requirements set forth in section 6055 are intended to facilitate the determination for the IRS, as well as individuals, on who might be eligible for a premium tax credit and who might be assessed a penalty pursuant to the individual mandate.

As a general rule, MEC includes any eligible employer sponsored plan, fully insured or self-funded, including COBRA and retiree coverage as well as coverage purchased in the individual market, a qualified health plan offered in the Marketplace, Medicare Part A, most Medicaid coverage, CHIP and TRICARE. MEC does not include, and reporting is therefore not required for, limited and/or excepted benefits such as a stand-alone vision or dental plan, accident or disability

20

June 2014 | The Self-Insurer

policies, workers’ compensation or limited Medicaid coverage, and likewise, section 6055 reporting is not required for coverage that merely supplements MEC such as HRAs, on-site medical clinics, or wellness programs.

Who is required to report?

Section 6055 requires insurers, plan sponsors and other entities providing MEC to an individual during a calendar year to comply with this reporting requirement. For self-funded plans, the plan sponsor is responsible for the reporting. In the case of a self-funded multiple employer welfare arrangement (MEWA), the plan sponsor is each participating employer with respect to its own employees. In the case of a self-funded multiemployer plan, the plan

Š Self-Insurers’ Publishing Corp. All rights reserved.

sponsor is the association, committee, board, or similar group representative who maintains and administers the plan.

When and how must the information be reported?

Section 6055 reporting originally was to apply to coverage provided on or after January 1, 2014. However, the IRS provided transition relief for reporting for one year as set forth in Notice 2013-45. Under the final regulations, reporting is now required beginning in early 2016, for coverage that was provided in 2015, and annually thereafter. In the interim, the IRS is encouraging voluntary compliance and reporting prior to the effective date.

The IRS is hopeful reporting entities will use this delayed effective date as a ‘real-world’ testing period resulting in a smoother transition come 2016.

A reporting entity must file a return (1095-B) for each individual to whom MEC was provided, along with a transmittal form (1094-B) on or before February 28 (March 31 if filed electronically) of the year following the calendar year in which the coverage was provided. Electronic filing is required for high-volume filers (250 or more returns under section 6055). For the first reporting year, since the 2016 deadline falls on a Sunday, the first returns and transmittal forms will be due by March 1, 2016 (unless filed electronically).

Statements must be furnished to the responsible individual on or before January 31st of the following year. For the first reporting year, since the 2016 deadline falls on a Sunday, the first statements will be due by February 1, 2016.

Statements must be mailed first class to the last known permanent address on file for the responsible individual, and although not required the final regulations indicate that plan sponsors may choose to provide the responsible individual with a copy of the return that was provided to the IRS to satisfy the statement requirement.

The plan sponsor may furnish these

required statements to the responsible individual within the same mailing as the W-2.

The final regulations also permit furnishing the statements to the responsible individual electronically so long as the proper consent has been received from the individual to receive electronic notices. A general consent to receive statements electronically will not be sufficient. Detailed requirements must be met in order to satisfy the electronic disclosure rules.

What information must be reported?

We are still waiting patiently for the required forms and instructions that are to be utilized in complying with section 6055 reporting requirements.

At a bare minimum, the returns will require the following: • Name, address, and taxpayer identification number (TIN) of the primary insured (the “responsible individual”); • Name, address, TIN (or date

© Self-Insurers’ Publishing Corp. All rights reserved.

of birth) of each additional individual (spouses and dependents) obtaining coverage under the policy; • Dates during which the individual was covered during the calendar year; and • Name, address, and employer identification (EIN) of the employer maintaining the plan.

Statements that must be provided to the responsible individuals must generally contain the same information as set forth in the returns as well as contact information of the individual filing the return.

Penalties for non-compliance?

Failure to comply with these reporting requirements could result in penalties ranging from $100 per return up to $1.5 million in a calendar year. In an effort to provide short-term relief from penalties, the IRS will not impose penalties where it can be shown that a good faith attempt to comply has been

Our Negotiators Are Champions

Are Yours?

HHC’s licensed attorney and medical professional negotiators assist busy payors of health insurance claims and their clients in minimizing claims costs. We have over 19 years experience and are one of a select few URAC accredited companies.

• Claims Negotiation and Repricing • Medicare Based Pricing • DRG Validation • Medical Bill Review • Case Management • Utilization Review • Disease Management • Data Analytics • Claims Editing • Pharmacy Consulting • 3 Star Preferred Network (PPN) • Transplant Networks

H.H.C. Group

Health Insurance Consultants Phone 301.963.0762 ext. 163 Visit Us on the Web at www.HHCGroup.com

The Self-Insurer | June 2014

21

22

June 2014 | The Self-Insurer

© Self-Insurers’ Publishing Corp. All rights reserved.

made but only for incorrect and/or incomplete information. No relief will be provided where a reporting entity does not make a good faith effort to comply or for failure to fi le timely returns or furnish the requisite statements, and penalties could exceed $1.5 million for a reporting entity that intentionally disregards the requirement.

Next Steps?

January 2016 will be here before we know it and between now and then many systems may need to be designed or refi ned to capture the relevant data elements that will enable reporting entities to streamline the 6055 reporting requirements.

Reporting entities and/or their TPA partners will need to look at current processes and assess the operational impact complying with these requirements will have.

Will TPAs be educating their clients on the requirements? Will this be a service that TPAs offer to their clients?

The initial hurdle, whether it is the TPA or the plan sponsor, is going to be gathering the TINs that are required. The fi nal regulations require entities to make ‘reasonable efforts to obtain TINs” and it is anticipated in the regulations that reporting entities that don’t currently possess the required TINs will make an initial annual solicitation and a second solicitation if required in an attempt to satisfy the reasonableness test.

Complete TINs are going to be required on the returns, or dates of birth if reasonable attempts are unsuccessful in obtaining dependent TINs. Yet, there are challenges in providing complete TINs in the statements that are being provided to the responsible individuals. The fi nal regulations clarify that reporting entities are permitted to use truncated TINs on the statements that are being provided to the responsible individuals.

The issues surrounding TINs is just one hurdle that needs to be considered over the next several months to assist in making the reporting requirement under sections

© Self-Insurers’ Publishing Corp. All rights reserved.

6055 and 6056 a streamlined process for those involved. Next month’s article will focus on section 6056 reporting requirements and the additional challenges that it may pose. n This article is intended for general informational purposes only. It is not intended as professional counsel and should not be used as such. This article is a high-level overview of regulations applicable to certain health plans.

Please seek appropriate legal and/or professional counsel to obtain specifi c advice with respect to the subject matter contained herein.

Cori M. Cook, J.D., is the founder of CMC Consulting, LLC, a boutique consulting and legal practice focused on providing specialized advisory and legal services to TPAs, employers, carriers, brokers, attorneys, associations and providers, specializing in healthcare, PPACA, HIPAA, ERISA, employment and regulatory matters. Cori can be reached at (406) 647-3715, via email at cori@corimcook. com, or at www.corimcook.com.

The Self-Insurer | June 2014

23

This article originally appeared in “Analysis of Risk Retention Groups -Year End 2013”

RRGs Report

Financially

STABLE Results

at Year-End 2013

by Douglas A Powell, Sr. Financial Analyst, Demotech, Inc.

24

June 2014 | The Self-Insurer

© Self-Insurers’ Publishing Corp. All rights reserved.

A

review of the reported fi nancial results of risk retention groups (RRGs) reveals insurers with a great deal of fi nancial stability.

Based on year-end 2013 reported fi nancial information, RRGs continue to collectively provide specialized coverage to their insureds. RRGs remain committed to maintaining adequate capital to handle losses. It is important to note that ownership of RRGs is restricted to the policyholders of the RRG. This unique ownership structure required of RRGs may be a driving force in their strengthened capital position.

Since RRGs are restricted to liability coverage, they tend to insure medical providers, product manufacturers, law enforcement offi cials and contractors, as well as other professional industries.

RRGs reported direct premium written in eleven lines of business in 2013, but nearly 46 percent of this premium was contained in the medical professional liability lines.

Balance Sheet Analysis Comparing the last fi ve years of results, cash and invested assets, total admitted assets and policyholders’

surplus have continued to increase at a faster rate than total liabilities (fi gure 1). The level of policyholders’ surplus becomes increasingly important in times of diffi cult economic conditions, to allow an insurer to remain solvent when facing uncertain economic conditions.

Since 2009, cash and invested assets increased 29.7 percent and total admitted assets increased 22.8 percent. More importantly, over a fi ve year period from 2009 through 2013, RRGs collectively increased policyholders’ surplus 38.4 percent.

This increase represents the addition of more than $1 billion to policyholders’ surplus. During this same time period, liabilities increased only 12.5 percent, slightly more than $493.5 million. These reported results indicate that RRGs are adequately capitalized in aggregate and able to remain solvent if faced with adverse economic conditions or increased losses.

Liquidity, as measured by liabilities to cash and invested assets, for yearend 2013 was approximately 64.6 percent. A value less than 100 percent is considered favorable as it indicates that there was more than a dollar of net liquid assets for each a dollar of total liabilities. This also indicates an 10

Short‐term Assets

9

Net Admitted Assets Liabilities

8

Policyholders Surplus

7 6 5

improvement for RRGs collectively as liquidity was reported at 65.5 percent at year-end 2012. This ratio has improved steadily each of the last fi ve years.

Loss and loss adjustment expense (LAE) reserves represent the total reserves for unpaid losses and unpaid LAE. This includes reserves for any incurred but not reported losses as well as supplemental reserves established by the company. The cash and invested assets to loss and LAE reserves ratio measures liquidity in terms of the carried reserves. The cash and invested assets to loss and LAE reserves ratio for year-end 2013 was 249 percent and indicates an improvement over 2012, as this ratio was 239.3 percent. These results indicate that RRGs remain conservative in terms of liquidity.

In evaluating individual RRGs, Demotech, Inc. prefers companies to report leverage of less than 300 percent. Leverage for all RRGs combined, as measured by total liabilities to policyholders’ surplus, for year-end 2013 was 123.2 percent. This is similar to leverage of 123.7 percent reported at year-end 2012.

The loss and LAE reserves to policyholders’ surplus ratio for year-end 2013 was 76.7 percent and indicates an improvement over 2012, as this ratio was 78.9 percent. The higher the ratio of loss reserves to surplus, the more an insurer’s stability is dependent on having and maintaining reserve adequacy.

Regarding RRGs collectively, the ratios pertaining to the balance sheet appear to be appropriate.

4 3 2 1 0 2009

2010

2011

Figure 1

© Self-Insurers’ Publishing Corp. All rights reserved.

2012

2013

Premium Written Analysis RRGs collectively reported $2.6 of billion direct premium written (DPW) at year-end 2013, an increase of 1.7 percent over 2012. RRGs reported $1.3 billion of net premium written (NPW) at year-end 2013, an The Self-Insurer | June 2014

25

© 2013 Helmsman Management Services LLC.

WE CAN HELP YOU LOWER YOUR COSTS, EVEN FOR YOUR MOST COMPLEX CLAIMS.

Thankfully, catastrophic and complex claims don’t happen often. But when they do, they can result in significant losses for your business and significant injury to your valued employees. A compassionate claim professional with the right resources and experience can make all the difference in bringing about a positive outcome for you and your injured worker. To learn more, ask your broker or visit helmsmantpa.com.

26

June 2014 | The Self-Insurer

© Self-Insurers’ Publishing Corp. All rights reserved.

increase of 6.4 percent over 2012.

These increases are favorable and appear reasonable.

The DPW to policyholders’ surplus ratio for RRGs collectively for year-end 2013 was 72.3 percent and indicates an improvement over 2012, as this ratio was 74.8 percent. The NPW to policyholders’ surplus ratio for RRGs for year-end 2013 was 36.8 percent and is relatively similar to 2012, as this ratio was 36.3 percent.

An insurer’s DPW to surplus ratio is indicative of its policyholders’ surplus leverage on a direct basis, without consideration for the effect of reinsurance. An insurer’s NPW to surplus ratio is indicative of its policyholders’ surplus leverage on a net basis. An insurer relying heavily on reinsurance will have a large disparity in these two ratios.

A DPW to surplus ratio in excess of 600 percent would subject an individual RRG to greater scrutiny during the financial review process.

Likewise, a NPW to surplus ratio greater than 300 percent would subject an individual RRG to greater scrutiny.

In certain cases, premium to surplus ratios in excess of those listed would be deemed appropriate if the RRG had demonstrated that a contributing factor to the higher ratio is relative improvement in rate adequacy.

In regards to RRGs collectively, the ratios pertaining to premium written appear to be conservative.

Loss and Loss Adjustment Expense Reserve Analysis A key indicator of management’s commitment to financial stability, solvency and capital adequacy is their desire and ability to record adequate loss and loss adjustment expense reserves (loss reserves) on a consistent basis. Adequate loss

$300

$200

$100

Underwriting Income Investment Income Net Income

$0 2009

2010

2011

2012

2013

Figure 2

reserves meet a higher standard than reasonable loss reserves. Demotech views adverse loss reserve development as an impediment to the acceptance of the reported value of current, and future, surplus and that any amount of adverse loss reserve development on a consistent basis is unacceptable. Consistent adverse loss development may be indicative of management’s inability or unwillingness to properly estimate ultimate incurred losses.

RRGs collectively reported adequate loss reserves at year-end 2013 as exhibited by the one-year and two-year loss development results. The loss reserve development to policyholders’ surplus ratio measures reserve deficiency or redundancy in relation to policyholder surplus and the degree to which surplus was either overstated, exhibited by a percentage greater than zero, or understated, exhibited by a percentage less than zero.

The one-year loss reserve development to prior year’s policyholders’ surplus for 2013 was -3.4 percent and is not as favorable as 2012, when this ratio was reported at -7.5 percent. The two-year loss reserve development to second prior year-end policyholders’ surplus for 2013 was -11.3 percent is slight less favorable than 2012, when this ratio was reported at -13.1 percent.

In regards to RRGs collectively, the ratios pertaining to loss reserve development are favorable.

Income Statement Analysis The profitability of RRG operations remains positive (figure 2). RRGs reported an aggregate underwriting gain for 2013 of $97.3 million, a decrease of 47.1 percent over the prior year, and a net investment gain of nearly $216.4 million, a decrease of less than one percent over the prior year. RRGs collectively reported net income of over $252.8 million, a decrease of 22 percent over the prior year. Looking further back, RRGs have collectively reported an annual underwriting gain since 2004 and positive net income at each year-end since 1996.

The loss ratio for RRGs collectively, as measured by losses and loss adjustment expenses incurred to net premiums earned, for year-end 2013 was approximately 63.5 percent, an increase over 2012, as the loss ratio was 54.7 percent. This ratio is a measure of an insurer’s underlying profitability on its book of business.

© Self-Insurers’ Publishing Corp. All rights reserved.

The Self-Insurer | June 2014

27

The expense ratio, as measured by other underwriting expenses incurred to net premiums written, for year-end 2013 was 27.8 percent and indicates an improvement

each of the last fi ve years and well within a profi table range (fi gure 3).

over 2012, as the expense ratio was reported at 29.1 percent. This ratio measurers an

Analysis by Primary Lines of Business

insurer’s operational effi ciency in underwriting its book of business.

The combined ratio, loss ratio plus expense ratio, for year-end 2013 was 91.3 percent and indicates a diminishment over 2012, as the combined ratio was reported at 83.8 percent. This ratio measures an insurer’s overall underwriting profi tability. A combined ratio of less than 100 percent indicates an underwriting profi t.

Regarding RRGs collectively, the ratios pertaining to income statement analysis appear to be appropriate. Moreover, these ratios have remained fairly stable for 100%

Combined Ratio

Loss Ratio

Expense Ratio

90% 80% 70%

The fi nancial ratios calculated based on the year-end results of the various primary lines of business appear to be reasonable (fi gure 4). Also, the RRGs have continued to report changes in DPW within an acceptable threshold (fi gure 5). It is typical for insurers’ fi nancial ratios to fl uctuate year over year. Moreover, none of the reported results are indicative of a continuing negative trend.

60% 50%

Jurisdictional Analysis

40%

Much like insurers, it is typical for jurisdictions to compete for new business. Some of the factors that may impact an insurer’s decision to do business in a certain jurisdiction include minimum policyholders’ surplus requirements and the premium tax rate. RRGs have continued to report

30% 20% 10% 0% 2009

2010

2011

2012

2013

Figure 3

No. of RRGs

Liquidity

Cash/ Losses & LAE Res.

Leverage

Losses & LAE Res./ PHS

DPW/ PHS

NPW/ PHS

Loss Ratio

Expense Ratio

Combined Ratio

One Year Loss Dev./ PHS

Two Year Loss Dev./ PHS

Net Underwriting Gain (Loss)

Net Investment Gain (Loss)

Net Income (Loss)

Commercial Auto

19

55.6%

321.5%

102.1%

57%

55.1%

36.6%

60.7%

29.5%

90.2%

-3.6%

-8.5%

$18.6M

$21.2M

$25.4M

Medical Professional (Claims-made)

130

67.4%

247.3%

124.9%

74.9%

63.5%

36.5%

61.7%

27.8%

89.5%

-4.5%

-12.1%

$58.4M

$105.5M

$128.8M

Medical Professional (Occurrence)

10

69.4%

247.4%

140.5%

81.8%

23.0%

21.3%

6.9%

24.8%

31.7%

15.3%

6.3%

$6.7M

$5.4M

$9.4M

Other (Claims-made)

48

64.5%

234.2%

146.3%

96.8%

102.1%

39.5%

71.0%

26.3%

97.3%

-2.3%

-9.3%

$5.5M

$57.5M

$64.9M

Other (Occurrence)

38

60.6%

241.2%

98.6%

67.5%

87.4%

37.9%

66.3%

28.5%

94.8%

-3.7%

-16.6%

$8.0M

$24.9M

$22.0M

Figure 4

Line of Business Boiler & Machinery Comm'l Auto Liab Fidelity Med Prof Liab (Claims Made) Med Prof Liab (Occurrence) Oth Liab (Claims) Oth Liab (Occurrence) Other P&C Product Liab (Claims) Product Liab (Occ) Warranty Total

DPW 12/31/13 909 161,566 9,872 1,243,719 160,451 690,013 331,764 1,202 1,739 2,805 217 2,604,257

DPW 12/31/12 731 112,842 9,812 1,294,406 135,758 661,603 335,342 1,707 1,668 2,307 146 2,556,323

DPW 12/31/11 757 91,151 9,847 1,245,243 124,765 661,568 290,433 1,262 1,435 1,622 110 2,428,195

DPW 12/31/10 656 106,822 9,841 1,259,054 104,278 641,981 293,114 1,093 1,316 681 147 2,418,983

DPW 12/31/09 187 83,410 10,512 1,255,193 105,988 701,697 315,170 1,014 1,474 0 147 2,474,793

Figure 5

28

June 2014 | The Self-Insurer

© Self-Insurers’ Publishing Corp. All rights reserved.

ING U.S. is transitioning to Voya FinancialTM throughout 2014

We can’t stop misfortune.

We can stop loss.

Becoming a top tier Stop Loss carrier doesn’t just happen.

For 35 years, our dedication to creative solutions has made us the top choice for our clients.

Not all Stop Loss carriers are created equal. Today’s businesses have unique needs that demand expert-level service. That’s been the foundation of our Stop Loss offering from the beginning. We know it’s not just the plan; it’s the team behind it.

Your business is unlike any other. It’s time for a Stop Loss carrier that’s unlike any other, too. Our mission as Voya Financial is to make a secure financial future possible for employers and employees nationwide.

For information on Stop Loss, contact your local Voya Employee Benefits sales representative or call 866-566-2316.

For information about Voya, visit voya.com.

RETIREMENT I INVESTMENTS I INSURANCE

Stop Loss insurance products are underwritten by ReliaStar Life Insurance Company (Minneapolis, MN) and ReliaStar Life Insurance Company of New York (Woodbury, NY). Within the state of New York, only ReliaStar Life Insurance Company of New York is admitted, and its products issued. Both are members of the Voya family of companies. Product availability and specific provisions may vary by state. © 2014 ING North America Insurance Corporation. LG11566 03/28/2014 169553

© Self-Insurers’ Publishing Corp. All rights reserved.

The Self-Insurer | June 2014

29

State Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming American Samoa Guam Puerto Rico U.S. Virgin Islands Northern Mariana Islands Canada Aggregate Other Alien

RRGs Writing in State 55 34 70 53 86 66 55 53 42 78 68 36 46 78 68 51 47 61 54 42 66 60 62 52 49 63 46 47 59 49 74 50 87 66 27 74 55 58 97 42 60 32 61 77 44 42 70 74 50 43 37 0 2 3 3 1 2 6 Total

Boiler & Machinery 5,978 4,367 2,514 8,456 100,226 7,123 6,245 3,783 691 5,434 25,014 3,152 1,611 49,710 42,073 9,116 5,494 11,073 9,446 4,626 24,426 28,419 16,216 43,856 11,080 24,905 1,507 4,861 11,887 9,213 40,506 1,314 17,968 35,605 1,525 21,812 13,078 11,870 87,744 2,716 5,435 1,301 39,193 39,281 17,207 2,118 21,688 29,925 9,219 23,960 3,153 0 0 0 0 0 0 0 909,120

Commercial Auto Liab 1,483,676 48,772 2,137,809 10,319,657 22,530,170 1,081,803 1,366,468 617,945 716,920 6,502,025 6,204,354 346,422 193,360 4,610,908 1,746,920 813,306 849,370 1,029,748 4,793,791 208,853 2,849,352 223,796 2,809,360 1,028,555 1,082,732 1,853,378 1,844,943 569,284 1,264,666 209,517 16,200,191 519,042 2,799,587 1,547,164 53,321 3,355,143 1,391,643 2,805,874 10,118,296 222,605 1,849,574 141,741 2,338,000 23,672,384 1,800,004 298,272 5,083,889 5,114,349 384,966 463,555 68,397 0 0 0 0 0 0 0 161,565,857

Fidelity 0 0 66,375 0 1,518,923 154,750 98,500 0 ‐911 2,550 0 0 0 341,390 0 103,500 327,600 0 0 0 999,650 1,187,265 0 ‐3,361 0 153,000 0 28,820 0 0 570,245 0 1,826,724 0 0 0 0 0 1,917,400 0 18,400 0 0 443,883 0 0 28,080 19,000 0 69,754 0 0 0 0 0 0 0 0 9,871,537

Medical Prof Liab 5,327,527 416,593 28,150,997 3,169,822 110,798,609 9,518,496 33,496,059 4,062,592 3,476,050 115,747,759 14,716,832 1,901,723 3,018,584 34,532,095 33,656,445 2,794,861 2,741,902 15,863,852 3,397,576 2,911,626 38,161,227 130,058,692 16,691,031 4,700,591 18,717,558 14,970,861 12,320,306 2,081,599 13,385,518 2,855,076 22,076,570 10,342,598 228,818,149 17,479,019 139,037 20,857,527 8,315,726 9,179,325 307,652,884 1,761,711 3,455,178 168,030 6,400,793 25,212,717 3,261,683 679,639 14,645,993 22,565,867 18,101,046 2,982,941 5,251,554 0 0 5,387 5,184 0 0 0 1,413,001,017

Other Liab Claims Made 10,584,947 3,824,990 9,431,241 1,840,464 62,800,453 10,135,616 9,099,176 10,311,470 40,621,001 24,834,916 18,658,857 2,128,023 4,135,165 35,307,158 10,549,184 2,981,635 5,386,269 8,378,257 7,147,181 3,333,991 17,076,134 35,916,452 12,782,835 6,184,005 2,504,784 12,981,005 4,307,501 1,725,810 5,043,666 1,922,515 17,656,454 2,984,394 87,512,023 8,486,443 1,446,011 16,694,211 2,422,452 6,015,912 28,777,840 2,130,914 6,802,123 1,901,599 8,141,174 36,205,982 4,770,391 3,425,330 17,136,622 12,946,703 7,495,221 7,712,782 2,578,921 0 180,988 185,784 720,751 60,657 311,373 23,371,441 690,009,197

Other Liab Occurrence 5,485,961 525,968 4,432,901 2,868,641 40,414,643 10,610,681 6,745,695 12,098,961 3,634,922 11,021,519 4,555,700 2,372,591 220,549 14,728,912 5,573,523 1,981,055 1,991,636 2,557,346 3,374,780 1,165,314 5,759,795 10,843,335 3,243,240 3,236,033 1,503,652 5,663,554 354,977 7,138,544 3,306,988 2,703,353 12,781,824 1,602,145 35,876,931 3,468,886 251,428 5,180,001 4,906,038 7,037,771 30,657,861 2,531,508 1,506,620 423,482 2,218,227 18,557,949 1,961,440 2,582,074 10,021,587 6,846,253 873,500 1,290,520 739,533 0 247,677 0 88,686 0 1,772 0 331,768,482

Other P&C 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,201,971 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,201,971

Product Liab 41,507 101,569 61,310 55,582 452,256 106,714 28,070 5,333 0 549,294 91,829 0 0 114,466 104,926 3,632 64,447 257,387 23,622 0 2,500 25,160 158,811 18,619 0 216,128 27,731 13,838 16,888 39,156 0 171,646 165,344 36,941 99,049 261,758 159,443 26,714 77,055 0 5,800 5,246 96,719 610,445 0 0 0 157,189 29,233 55,286 0 0 0 0 0 0 5,340 0 4,543,983

Warranty 0 0 6,390 0 5,430 6,810 0 60 0 31,350 12,450 0 0 14,520 16,860 0 0 0 0 0 8,760 0 0 10,350 0 0 0 6,865 16,380 0 0 0 0 10,260 0 0 0 0 510 0 15,600 0 0 45,570 0 0 8,760 0 0 0 0 0 0 0 0 0 0 0 216,925

Total 22,929,596 4,922,259 44,289,537 18,262,622 238,620,710 31,621,993 50,840,213 27,100,144 48,448,673 158,694,847 44,265,036 6,751,911 7,569,269 89,699,159 51,689,931 8,687,105 11,366,718 28,097,663 18,746,396 7,624,410 64,881,844 178,283,119 35,701,493 15,218,648 23,819,806 35,862,831 18,856,965 11,569,621 23,045,993 7,738,830 69,325,790 15,621,139 358,218,697 31,064,318 1,990,371 46,370,452 17,208,380 25,077,466 379,289,590 6,649,454 13,658,730 2,641,399 19,234,106 104,788,211 11,810,725 6,987,433 46,946,619 47,679,286 26,893,185 12,598,798 8,641,558 0 428,665 191,171 814,621 60,657 318,485 23,371,441 2,613,088,089

Figure 6

State Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming American Samoa Guam Puerto Rico U.S. Virgin Islands Northern Mariana Islands Canada Aggregate Other Alien Total

DPW 12/31/13 22,930 4,922 44,290 18,263 238,621 31,622 50,840 27,100 48,449 158,695 44,265 6,752 7,569 89,699 51,690 8,687 11,367 28,098 18,746 7,624 64,882 178,283 35,701 15,219 23,820 35,863 18,857 11,570 23,046 7,739 69,326 15,621 358,219 31,064 1,990 46,370 17,208 25,077 379,290 6,649 13,659 2,641 19,234 104,788 11,811 6,987 46,947 47,679 26,893 12,599 8,642 0 429 191 815 61 318 23,371 2,613,088

DPW 12/31/12 21,484 5,014 43,753 16,476 223,081 35,883 65,082 28,184 51,106 128,568 33,758 6,358 7,698 82,640 48,472 7,979 10,761 25,881 17,814 8,278 78,898 175,048 35,635 14,458 23,362 35,588 18,323 12,906 24,971 7,004 71,262 14,614 375,548 28,576 2,024 43,871 16,486 22,948 380,324 6,473 12,283 2,306 19,633 99,496 11,300 6,383 42,781 44,958 26,485 12,360 8,469 0 433 229 911 57 242 22,569 2,567,485

DPW 12/31/11 20,001 5,047 44,276 12,522 213,236 30,168 66,270 29,180 46,980 104,221 32,197 6,107 7,125 82,159 47,980 9,373 11,440 27,170 15,259 8,061 79,978 176,973 35,049 13,629 23,425 37,900 19,077 10,684 23,749 6,719 66,129 14,451 345,120 26,885 1,786 42,500 14,663 20,866 363,611 6,435 10,084 2,240 16,845 88,037 10,808 6,901 40,663 42,486 24,613 11,723 8,327 0 419 143 911 51 263 22,236 2,435,149

DPW 12/31/10 19,039 5,479 57,156 12,043 213,174 28,668 70,551 26,812 44,036 99,434 29,548 5,208 7,244 80,718 43,459 8,246 10,596 25,621 14,375 9,173 84,920 172,031 29,748 14,632 23,944 36,009 18,337 9,533 24,161 6,059 65,817 14,053 357,802 28,478 1,489 42,920 14,418 17,734 362,500 6,389 15,110 1,941 16,107 85,667 9,761 6,638 43,089 40,749 23,561 11,092 7,359 0 421 139 923 50 130 22,287 2,426,580

DPW 12/31/09 18,986 5,753 44,967 9,293 227,159 27,813 85,845 19,292 47,380 100,129 30,795 5,071 9,698 82,920 44,821 7,795 11,452 30,623 12,924 8,950 96,864 176,058 28,390 12,649 25,479 38,045 15,757 8,072 24,798 6,145 64,239 13,440 362,730 25,851 1,403 45,703 13,477 15,991 355,911 6,894 47,019 1,937 16,226 86,543 7,506 5,661 41,761 41,351 20,947 11,672 6,220 0 416 168 879 49 119 24,022 2,482,058

changes in DPW, on a jurisdictional basis, within a reasonable threshold (figure 6). (Note: a more extensive breakout of DPW by line of business by jurisdictions for year-end 2013 is available in figure 7.)

Conclusions Based on 2013 Results Despite political and economic uncertainty, RRGs remain financially stable and continue to provide specialized coverage to their insureds.

The financial ratios calculated based on year-end results of RRGs appear to be reasonable, keeping in mind that it is typical and expected that insurers’ financial ratios to fluctuate over time.

The year-end results of RRGs indicate that these specialty insurers continue to exhibit financial stability. It is important to note again that while RRGs have reported net underwriting gains and net profits, they have also continued to maintain adequate loss reserves while increasing premium written year over year. RRGs continue to exhibit a great deal of financial stability. n Mr. Powell has nearly ten years of progressively responsible experience involving financial analysis and business consulting. Email your questions or comments to Mr. Powell at dpowell@ demotech.com. For more information about Demotech, Inc. visit www.demotech.com.

Figure 7

30

June 2014 | The Self-Insurer

© Self-Insurers’ Publishing Corp. All rights reserved.

SOLUTIONS. SERVICE. INSIGHTS.

WITH AmWINS GROUP BENEFITS, YOUR CLIENTS GET THE TOTAL PACKAGE. When you partner with AmWINS, you can help your clients select from an extensive range of products and administrative solutions, including medical stop loss, small group self-funding, audit services, care management, dialysis management solutions and healthcare benefits administration. We provide them with seamless customer service through our proprietary administrative systems, and you keep them in the know with timely insights from our practice experts — ensuring you’re the first place they turn for new program information.

To learn more about offering your clients the most comprehensive self-funded healthcare solutions, visit amwins.com.

© Self-Insurers’ Publishing Corp. All rights reserved.

The Self-Insurer | June 2014

31

Path to TRIA Re-Authorization Begins to Take Shape, but Hurdles Remain Companies with TRIA Captives and Workers’ Compensation Self-Insurers Are Anxious by Kevin McKenney

I

n this current election year environment there are low expectation for Congress to get much done, but pressure is growing for action to reauthorize the Terrorism Risk Insurance Act (TRIA), which expires at the end of this year absent congressional action. The law provides that the federal government to provide a financial backstop for insurance claims related to incidents of terrorism on American soil.

The debate over possible extension generally pits the business community against those who believe the federal government should not be involved in the private insurance marketplace. The issue is important to

32

June 2014 | The Self-Insurer

the self-insurance industry because many organizations utilize captive insurance companies for TRIA-related risks. Self-insured workers’ compensation programs would also face heightened financial liability should the law not be extended.

Most recently, the Self-Insurance Institute of America (SIIA) learned that the House of Representatives will soon move forward with legislation to extend TRIA likely before the August recess. Draft language being circulated with stakeholders contains positive content, while portions will need more input from the industry to satisfy market demand.

SIIA was able to obtain excerpts from the bill text and confirmed that while this draft does not specifically address the use of captives, sources on Capitol Hill have signaled that future language will likely include mention of captives.

Preliminary reports indicate that it will allow the Treasury Department to draft guidelines that would exclude single-risk TRIA-only captives that the Secretary determines were created solely to avoid the requirements of the Act. SIIA will update membership should captives be included in future drafts.

In a meeting with the House Financial Services Committee, the SIIA supported Coalition to Insure Against Terrorism (CIAT) expressed enthusiasm with the committee for taking up this legislation. The coalition reiterated the urgency to

© Self-Insurers’ Publishing Corp. All rights reserved.

reauthorize the program and the impact on finance, real estate, and insurance should the program expire at the conclusion of the 113th Congress.

SIIA and other stakeholder groups have identified specific concerns with the draft legislation as follows: • The committee’s proposal would amend the Annual Program Cap from $100 billion to $75 billion. The existing cap of $100 billion for combined liability of the insurance industry and the federal government means that for any aggregate losses above that number, policyholders already are left unprotected. Reducing the cap by 25% means that such rationing of losses will occur even earlier. In effect, policyholders are rendered powerless to properly insure their assets.

• The outline would split the program by type of event into NBCR and nonNBCR terrorism. After the first year of the 3-year extension, for non-NBCR events, the outline would increase the program trigger over two years to $500 million, and increase the individual insurer co-share to 25% for every dollar up to the annual program cap (which is to be reduced).

• The principal purpose of TRIA is to increase private insurer capacity for terrorism coverage, addressing a market failure where commercial policyholders could not obtain terrorism insurance because insurers would not offer it. By requiring insurers to make this coverage available as a condition of having access to the TRIA backstop, the TRIA program succeeded in creating far greater terrorism insurance capacity for policyholders in the market.

Permitting small insurers to access the TRIA backstop for the terrorism coverage they write, but not requiring them to offer it, will distort the market and restrict capacity – particularly for the smaller main street businesses that are the primary policyholder base for the smaller insurers.

• The proposal would alter the current structure of recoupment. First, instead of the fixed $27.5 billion, the aggregate marketplace retention amount would be set at the sum of insurer deductibles for the preceding program year for all participating insurers, currently about $37.6 billion, and would rise (or fall) with premium growth (or decline) in future years. Second, the proposal would also increase the recoupment from 133% to 150% of actual federal outlay.

• The proposal would extend the program by only three years. Financing is typically done on a much longer term than three years, and therefore the extension needs to be longer in order to truly eliminate the impact that TRIA’s potential expiration is already having on the economy.

The Senate Banking, Housing, and Urban Affairs Committee is also considering reauthorization legislation and likely will mark-up a Senate bill within the next couple of months. Chairman Tim Johnson (D-SD) is eager to reauthorize the program and has put pressure on the House to take action on legislation pending in the Financial Services Committee. Ranking Member Mike Crapo (R-ID) has indicated his support for reauthorization, as well. SIIA will continue to work with the CIAT and the Congress to pass an effective extension. n Kevin McKenney is SIIA’s government relations coordinator.

He can be reached at kmckenney@siia.org.

© Self-Insurers’ Publishing Corp. All rights reserved.

Do you aspire to be a published author? Do you have any stories or opinions on the self-insurance and alternative risk transfer industry that you would like to share with your peers?

We would like to invite you to share your insight and submit an article to The Self-Insurer! SIIA’s official magazine is distributed in a digital and print format to reach over 10,000 readers around the world. The SelfInsurer has been delivering information to the selfinsurance/alternative risk transfer community since 1984 to self-funded employers, TPAs, MGUs, reinsurers, stop-loss carriers, PBMs and other service providers.

Articles or guideline inquiries can be submitted to Editor Gretchen Grote at ggrote@sipconline.net.

The Self-Insurer also has advertising opportunities available.

Please contact Shane Byars at sbyars@sipconline.net for advertising information.

The Self-Insurer | June 2014

33

PPACA, HIPAA and Federal Health Benefit Mandates:

Practical

The Affordable Care Act (ACA), the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and other federal health benefit mandates (e.g., the Mental Health Parity Act, the Newborns and Mothers Health Protection Act, and the Women’s Health and Cancer Rights Act) dramatically impact the administration of self-insured health plans.

This monthly column provides practical answers to administration questions and current guidance on ACA, HIPAA and other federal benefit mandates.

Q&A

IRS Issues Long Awaited Regulations on New ACA Related Reporting Requirements

T

he IRS recently issued long awaited fi nal regulations regarding certain reporting required under the Affordable Care Act (the ACA).

• First, the IRS issued regulations on new Internal Revenue Code Section 6055, which requires group health plan “coverage providers” to provide certain information to both the IRS and individuals covered under a group health plan that provides minimum essential coverage (as defined by Code Section 5000A). The purpose of the new Code Section 6055 reporting requirement is to assist individuals and the IRS in satisfying the individual mandate requirements added by the ACA. If the group health plan maintained by the employer is fully-insured by an insurance carrier, the insurance carrier is responsible for reporting under Code Section 6055; however, if the employer sponsors a self-insured plan, each participating employer is responsible for reporting. The Code Section 6055 reporting requirements are effective beginning with the 2015 calendar year. The report is required to be fi led with the IRS no later February 28 and furnished to covered individuals no later than January 31 each year following the year in which the coverage was provided.

• Second, the IRS also issued regulations under new Code Section 6056 (socalled “pay or play” reporting), which requires “applicable large employer”

34

June 2014 | The Self-Insurer

© Self-Insurers’ Publishing Corp. All rights reserved.

members (i.e. each member of the controlled group of employers that qualifies as an applicable large employer) to provide information to the IRS and their full-time employees related to the employer’s compliance with the employer shared responsible requirements (also known as the “pay or play rules”). All employers that qualify as “applicable large employers” under new Code Section 4980H (i.e. employers with 50 or more full-time equivalents in the prior calendar year) must report under Code Section 6056. The Code Section 6056 reporting requirements are effective for the calendar year 2015 for all ALE employers (there does not appear to be an exception for employers with between 50 and 100 full time equivalents who

qualify the 1 year delay in the pay or play rules). The report is required to be fi led with the IRS no later than February 28 and furnished to full-time employees no later than January 31 each

year following the reporting year (e.g. the Code Section 6056 report for 2015 will be furnished to full-time employees no later than January 31, 2016).

Employers subject to these

Code Section 6055 (not applicable to employers who only maintain a group health plan that is fully insured) Information 1. Name, address and EIN of the “plan sponsor”

Comments Each employer participating in a health plan (including members of the same controlled group) is considered to be a “plan sponsor” for reporting purposes and is obligated to separately and independently satisfy the Code Section 6055 requirements. A third party (including the plan sponsor) may fi le a return on behalf of the participating employer. If a third party fi les on behalf of the employer, the employer remains liable for reporting failures (the only exception is a “designated representative” of a governmental entity).

Special Rule for Multi-employer plans: The plan sponsor of a multi-employer plan is the joint board of trustees.

2. Name, address and SSN of each covered individual during the year (including dependents)

Relief is provided for employers who are unable to collect the SSN of covered dependents to the extent that the ALE member has solicited the SSN in accordance with the rules. Under the relief, you must request the dependent’s SSN at the initial enrollment of the dependent and during the subsequent two annual enrollments. The ALE member may use the dependent’s date of birth during the solicitation period and thereafter if solicitation is unsuccessful.

3. The number of months during the CALENDAR year that each covered individual was covered for at least one day

This is only for months that individuals were actually covered under the plan; not merely eligible. Moreover, the reporting is conducted on a calendar year basis; not plan year basis.

© Self-Insurers’ Publishing Corp. All rights reserved.

The Self-Insurer | June 2014

35

requirements should pay special attention to the requirements and begin planning to comply. The following is a summary of the elements required to be reported under each new requirement.

For purposes of this overview, “ALE Member” refers to each member of the controlled group of corporations. “6055 Return” refers to the return required to be filed in accordance with Code Section 6055. Likewise, “6056 Return” refers to the return required to be filed in accordance with Code Section 6056 (i.e., “pay or play” reporting).

Practice Pointer: No reporting is required for individuals covered solely under the following arrangements: • Coverage that supplements Medicare Part A • Excepted benefits such: –– Dental or vision only –– Health FSA only –– Onsite health clinic • EAP

36

June 2014 | The Self-Insurer

Pay or Play Reporting Under Code Section 6056 A. General Reporting Requirements (see below for alternative reporting methods): Information 1. Name, address and EIN of the ALE Member

Comments Like the 6055 reporting, each ALE Member is required to satisfy the Code Section 6056 reporting requirements; however, a third party may file on behalf of the ALE member (including the plan sponsor). If a third party files on behalf of the ALE Member, the ALE member remains liable for reporting failures (the only exception is a “designated representative” of a governmental entity).

Special Rule for multi-employer plans: Unlike 6055, employers who contribute to a multi-employer plan are obligated to satisfy 6056; however, the plan administrator of the multi-employer plan may file on behalf of the contributing employer with respect to employees on whose behalf the employer is required to make contributions to the multi-employer plan. If the MET fails to file on behalf of the ALE member, the ALE Member remains liable for reporting failures.

© Self-Insurers’ Publishing Corp. All rights reserved.

Information

Comments

2. Name and telephone number of contact person

There are no limitations on who this can be.

3. Calendar year being reported

Reporting is conducted on a calendar year basis; not plan year basis (even if the employer is subject to the transition relief provided for employers with plans that operate on non-calendar year basis).

4. Certification for each calendar month as to whether the ALE Member offered to its full-time employees (and their dependent children) the opportunity to enroll in an eligible employer sponsored plan 5. The number of months that MEC was available to eligible full-time employees 6. The number of full-time employees of the subsidiary each month

This will enable the IRS to determine which “bucket” of excise taxes the member may be in (if at all) – sledgehammer or tackhammer. An ALE Member is in the sledgehammer bucket if it fails to offer MEC to at least 95% of its fulltime employees (and dependent children) during the month (70% for 2015).

The ALE Member is in the tackhammer bucket if it offers MEC to at least 95% (70% for 2015) of its full-time employees with respect to any full time employee who enrolls in exchange coverage and qualifies for a subsidy (e.g., because coverage is not affordable or that fails to provide minimum value).

7. For each full-time employee, the name, address, and SSN of the full-time employee and the number of months actually covered under the plan

Unlike 6055, the SSN of the dependents eligible for coverage for the plan do not have to be provided.

8. For each full-time employee, the employee’s share of the lowest cost monthly premium for self only coverage that also provides minimum value The IRS also expects to request the following for each month during the year (most using indicator codes): Information

Comments

1. Coverage through an eligible employer sponsored plan that provides minimum value was offered to: a. The employee only b. Employee and employee’s dependents only c. Employee and employee’s spouse only d. Family 2. Coverage through an eligible employer sponsored plan was not offered but: a. No penalty will be assessed because employee was in limited non-assessment period (e.g. the initial measurement period) b. The employee was not employed that month c. The employee was not a full-time employee

Interestingly, even though a new hire is in an initial measurement period, it appears that ALE Members will still have to report for each employee that had “full-time hours” for at least one month during the initial measurement period and indicate why coverage wasn’t offered for those months.

3. Coverage through an eligible employer sponsored plan was offered but the employee was not full-time

© Self-Insurers’ Publishing Corp. All rights reserved.

The Self-Insurer | June 2014

37

Information

Comments

3. The employee was covered under the eligible employer sponsored plan

The only requirement here is that coverage is provided through an “eligible employer sponsored plan” as defined by Code Section 5000A. It doesn’t matter whether the coverage was affordable or provided minimum value.

4. The ALE member satisfied one of the affordability safe harbors

This accounts for those rare situations where coverage is affordable under the 4980H standard but not under Code Section 36B.

Practice Pointer: A “qualifying

B. Simplified Reporting Methods There are several alternative reporting methods available for one or more full-time employees. Any combination of the following may be used, as applicable. (i) Qualifying offer for 12 months If an ALE member makes a qualifying offer to a full-time employee for the entire year, then the employer may file a simplified 6056 return with the IRS containing the following information for the full-time employee in lieu of the information identified in A. above: • Name of full-time employee • Address • SSN • An indicator code that indicates that a qualifying offer was made for each month of the year The employer may either furnish a copy of the 6056 Return to the employee or a general statement in a format prescribed by the IRS that indicates the

38

June 2014 | The Self-Insurer

employee and his/her family members are generally ineligible for a premium tax credit.

If the full-time employee did not receive a qualifying offer for all 12 months (e.g. the employee became eligible during the year or was a new hire) then the ALE member must report the general information above for each month of the year; however, if a qualifying offer was made during a month, the employer may use the indicator code for that month.

offer” is an offer of coverage through an eligible employer sponsored plan to the employee and his or her spouse AND dependents that provides minimum value and satisfies the mainland FPL affordability standard with respect to employee only coverage (i.e. the lowest cost premium for employee only coverage providing minimum value is less than 9.5% of the mainland FPL). (ii) Transition Relief for 2015 If the ALE member certifies that it made a qualifying offer to at least 95% of its full-time employees each month during 2015, then the ALE member

© Self-Insurers’ Publishing Corp. All rights reserved.

Experience the American Health Difference

Flexibility

Price

Satisfaction

Does your medical management provider understand your needs?

At American Health, our focus is the client. We strive to understand your unique needs, and we build flexible programs to get the best results.

But just because our programs are customized doesn’t mean we’re going to break the bank. We provide aggressive pricing while offering high-quality services that deliver savings, helping you stay competitive.

Plus, we’re in it for the long haul – building long-lasting relationships with our partners.

With all that, it’s not surprising that we have 96% client satisfaction.

Relationship Our services

• Utilization Management • Case Management • Specialty Case Management • Pre-Admission and PostDischarge Counseling • Wellness • Disease Management • Performance-Based Wellness • Maternity Management • Onsite Medical Management • Medical Evacuation • Medical Review • Independent External Review • Medical Disclosure • Integrated Behavioral Health • 24/7 Physician Consultations • 24/7 Nurse Line and Health Information Library • Medical Cost Containment

Contact us today to learn about our comprehensive services.

Customized solutions. Consultative partnerships. Healthy outcomes.

© Self-Insurers’ Publishing Corp. All rights reserved.

• iSuite Medical Management Software

American Health Holding, Inc. www.americanhealthholding.com 1-866-614-4244

The Self-Insurer | June 2014

39

40

June 2014 | The Self-Insurer

© Self-Insurers’ Publishing Corp. All rights reserved.

may fi le 6056 return with the IRS with the following information: • Name of full-time employee • Address • SSN • An indicator code that indicates that a qualifying offer was made for each month of the year or that it wasn’t If a qualifying offer was made for all 12 months, then the ALE member may provide a simple statement to full-time employees indicating that the employee and family are not eligible for a premium tax credit. If a qualifying offer was not made for all 12 months, the ALE Member would simply indicate that the employee and family may be eligible for a premium tax credit and they should contact a contact person identifi ed on the statement.

(iii)98% Offer If an ALE member certifi es that it made an offer of coverage through an eligible employer sponsored plan to 98% of all employees (and to their dependents) that was affordable in accordance with 4980H safe harbor standards, the employer must still report in accordance with the general method identifi ed in A. above; however, the ALE Member need not identify the employees as full-time or not.

Practice Pointer: The downside of this approach is that the ALE Member must report for all employees, even those who weren’t offered coverage.

That being said, since the standard is 98%, the number of employees not offered coverage for which an ALE member must report may be nominal. n

© Self-Insurers’ Publishing Corp. All rights reserved.

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

The Self-Insurer | June 2014

41

SIIA would like to recognize our leadership and welcome new members Full SIIA Committee listings can be found at www.siia.org

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

Directors Jerry Castelloe Vice President CoreSource, Inc. Charlotte, NC Robert A. Clemente CEO Specialty Care Management LLC Bridgewater, NJ Ronald K. Dewsnup President & General Manager Allegiance Benefi t Plan Management, Inc. Missoula, MT Elizabeth D. Mariner Executive Vice President Re-Solutions, LLC Wellington, FL

42

June 2014 | The Self-Insurer

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

Regular Members

Company Name/ Voting Representative Terry Young, VP Group Business Development, Ameritas, Lincoln, NE

Tarek Fahl, CEO, DocResponse, Houston, TX

Committee Chairs CHAIRMAN, ALTERNATIVE RISK TRANSFER COMMITTEE Andrew Cavenagh President Pareto Captive Services, LLC Conshohocken, PA

Robert Mines Ph.D, CEO, MINES and Associates, Littleton, CO Glenn Cunningham, Executive Vice President, SCOR, Charlotte, NC

CHAIRMAN, GOVERNMENT RELATIONS COMMITTEE Horace Garfi eld Vice President Transamerica Employee Benefi ts Louisville, KY

Carroll Ashley, The Ashley Group, Maumee, OH

CHAIRMAN, HEALTH CARE COMMITTEE Robert J. Melillo VP Alternate Funding Strategies USI Insurance Services Meriden, CT

Silver Member

CHAIRMAN, INTERNATIONAL COMMITTEE Greg Arms Chief Operating Offi cer, Accident & Health Division Chubb Group of Insurance Companies Warren, NJ CHAIRMAN, WORKERS’ COMPENSATION COMMITTEE Duke Niedringhaus Vice President J.W. Terrill, Inc. St Louis, MO

SIIA New Members

Tracy Butkovich, National Director Business Development, Advanced Care Scripts - Omnicare SCG, Dublin, OH

Employer Members Steven Schouweiler, American National Insurance, League City, TX Marian Mitchell, Claims Manager, Granite State WC Manufacturers Trust, Concord, NH Tim Brown, President, Windy Ridge Corporation, Tanworth, NH

© Self-Insurers’ Publishing Corp. All rights reserved.

Confidence is realized when Confidence is realized when Confidence is realized when ambition meets experience ambition meets experience ambition meets experience

Boosted by support and proven expertise in Stop Loss.

Boosted by support and proven expertise in Stop Loss.

Boosted by support and proven expertise in Stop Loss.

As a national leader in Stop Loss, we design innovative programs that manage each client’s As a national in Stop helps Loss, we design innovative programs manage each client’s financial risk. leader Our coverage self-funded groups protect theirthat assets from unexpected As a national leader in Stop helps Loss, we design innovative programs that manage each client’s financial risk.

Our coverage self-funded groups protect their assets from unexpected large or catastrophic claims. financial risk. Our coverage large or catastrophic claims.helps self-funded groups protect their assets from unexpected large or catastrophic claims.

HM provides proven risk management expertise and a hands-on approach to develop smart HM provides proven risk management expertise and a hands-on approach to develop solutions that meet the needs of producers and clients.

And our policies provide clarity,smart HM provides proven riskneeds management expertise and a hands-on approach to develop solutions that meet the of producers and clients.

And our policies provide clarity,smart financial protection and choice. solutions that meet the financial protection andneeds choice.of producers and clients. And our policies provide clarity, financial protection and choice.

LEARN MORE ABOUT HM AND OUR LEARN MORE ABOUT HM INNOVATIVE APPROACH TO AND STOPOUR LOSS. LEARN MORE ABOUT HM INNOVATIVE APPROACH TO AND STOPOUR LOSS. And take a minute to read INNOVATIVE APPROACH TO STOP LOSS. And take minuteat to read HM aInSights And take minuteat to read HM aInSights

HM InSights at HMIG.coM/InSIGHtS HMIG.coM/InSIGHtS HMIG.coM/InSIGHtS

STO P LOSS | MANAG ED C AR E R E INSUR ANCE | WO R K ER S’ COM PE NSATI O N | G ROUP SUPPLEM E NTAL INSUR ANCE STO P LOSS | MANAG ED C AR E R E INSUR ANCE | WO R K ER S’ COM PE NSATI O N | G ROUP SUPPLEM E NTAL INSUR ANCE STO P LOSS | MANAG ED C AR E R E INSUR ANCE | WO R K ER S’ COM PE NSATI O N | G ROUP SUPPLEM E NTAL INSUR ANCE MTG-2724 (02/14) MTG-2724 (02/14) MTG-2724 (02/14)

© Self-Insurers’ Publishing Corp. All rights reserved.

The Self-Insurer | June 2014

43

WHAt MAKES A LEAdEr IN HealtHcare cost MaNageMeNt?

tS

Produc

cE

AN PErForM

P

SHI PArtNEr

At PHX, we offer a comprehensive solution that’s tailored to fit your business – take advantage of our suite of innovative Products and outstanding Performance while building a long-term Partnership. >> 888.311.3505 | PHX-online.com

©2013 Premier Healthcare Exchange, Inc. All Rights Reserved.

44

June 2014 | The Self-Insurer

© Self-Insurers’ Publishing Corp. All rights reserved.