Self-Insurer May 2012 by SIPC

May 2012

www.sipconline.net

Three S’s

The

of Differentiation That Drive Self-Insured Employers to

Offshore Their Employees’ Surgical Care

www.sipconline.net

MAY 2012 | Volume 43

May 2012 The Self-Insurer (ISSN 10913815) is published monthly by Self-Insurers’ Publishing Corp. (SIPC), Postmaster: Send address changes to The Self-Insurer P.O. Box 1237 Simpsonville, SC 29681

FEATUrEs

ArTIclES 6

SIIA grassroots & Political Advocacy Monthly Wrap up report: grassroots greener in DC

From the Bench: Federal Court Decides Stop loss Case Involving Several recurring but Previously unresolved Issues

Editorial Staff PuBlIShINg DIrECTOr James A. Kinder MANAgINg EDITOr Erica Massey

SENIOr EDITOr gretchen grote DESIgN/grAPhICS Indexx Printing

The Three S’s of Differentiation That Drive Self-Insured Employers to Offshore Their Employees’ surgical Care by David Boucher, MPH, FACHE

CONTrIBuTINg EDITOr Mike Ferguson

ArT gallery: The rise and Fall of Captive Domiciles

Foundation Carves Out Important role in Support of the Self-Insurance Industry

DIrECTOr OF OPErATIONS Justin Miller

hIPAA Covered health Plans Beware: HHS Office of Civil Rights Kicks Off hIPAA Audit Program

DIrECTOr OF ADvErTISINg Shane Byars Editorial and Advertising Office P.O. 1237, Simpsonville, SC 29681 (888) 394-5688 2012 Self-Insurers’ Publishing Corp. Officers

TPA & MGU/Excess Insurer Executive Forum

InDuSTry lEADErShIp 26

James A. Kinder, CEO/Chairman

SIIA Chairman Speaks

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

The Self-Insurer

May 2012

Three S’s

The

of Differentiation That Drive Self-Insured Employers to

Offshore Their Employees’ Surgical Care by David Boucher, MPH, FACHE President & COO, Companion Global Healthcare

May 2012

The Self-Insurer

afety, Service, and Savings have and will continue to compel some American employers to consider amending their benefit plans to offer employee incentives to direct care abroad. These three S’s will increasingly be considered by more employers and in this order. Consider Safety first. The Institute of Medicine (IOM) report of 2000 entitled, “To Err is human”, suggested that 44,000-98,000 patients die in u.S. hospitals each year as result of patient safety. The authors offered that the goal was to cut number in half in five years. Nine years later, it was reported that the death toll from medical injury approached 200,000 a year – the number of hospital-related deaths actually doubled rather than halved (hearst News, 2009)! This is equivalent to having more than one fully-loaded 747 crash each day of the year! To compare, there are approximately 130,000 deaths annually from automobile accidents firearms, poisoning, and falls combined. It has been estimated that every hour, 10 people die nationwide in hospitals due to avoidable errors; another 50 are disabled. The leading cause of death in u.S. hospitals, sepsis, along with pneumonia, killed 48,000 patients and cost $8.1 billion in 2006 (reuters, 2/22/2010). The Agency for healthcare research and Quality (AhrQ) noted in 2008 that preventable medical injuries grow by 1% each year.

in our hospitals. And if safety is difficult to measure, it will be difficult to improve. The list goes on and on, but you get the picture. I was reminded on much of this information by John Sena, Ph.D., professor at Ohio State university, at a recent American College of healthcare Executives (AChE) seminar. The other attendees at the seminar were hospital executives from about 50 other facilities, so the message for improved safety is being delivered by responsible organizations like the AChE. To be fair, there are currently several initiatives underway and several others available directed at abating these trends. The united States Department of hhS launched $1 billion safety initiative in 2011- hoping to save 60,000 lives over three years and save $50 million in Medicare costs over next decade. The AhrQ has suggested a host of recommendations such as implementing reliable decisionsupport tools at point of care like computerized physician order entry (CPOE) in hospitals. The San Francisco Chronicle reported in 2009 that efforts to reduce interruptions for nurses handing out medications resulted in an 88% drop in errors at nine San Francisco Bay area hospitals. Might we consider implementing several of the recommendations from the decade-old “To Err is human” report? We may be surprised at what the experts are saying is occurring in the delivery of medical care on the international front. Dr. Arnold Milstein, Professor of Medicine and Director of the Clinical Excellence research Center at Stanford university, is quoted in the October, 2006 New England Journal of Medicine as, “We doubt, however, that the average u.S. hospital can offer better outcomes for common complex operations such as coronary-artery bypass grafting (CABg), for which several JCI-accredited offshore hospitals report gross mortality rates of less than 1%.” harvard Medical School trained and former Administrator of the Centers for

One final alarm, the January 6, 2012 New York Times published an article indicating that most errors at American hospitals go unreported. Specifically, “hospital employees recognize and report only one out of seven errors, accidents, and other events that harm Medicare patients while they are hospitalized, federal investigators say in a new report.” Obviously, this makes it difficult to measure the safety

The Self-Insurer

May 2012

Medicare & Medicaid Services (CMS), Donald Berwick, MD was highlighted in the January 24, 2011 Business Week magazine for noting that, “It is politically correct, and widely believed, to say American health care is the best in the world. It is not.” The next “S” is that of Service. Although there are pockets of stellar customer service available in America (i.e., les Schwab tires & ritz Carlton hotels), most of us who have travelled to Asia recently have experienced a level of service barely thinkable since we have become so accustomed to the mediocrity offered by so many domestic service organizations. Most Americans can recall, but try to forget, their most recent domestic air travel experience or hospital engagement. But, after flying on the majestic Thai or Malaysian Airlines imagine being met at the end of the jet ramp

by your personal concierge at the new international airport in Bangkok, Thailand, then transported in an air-conditioned sedan by an Englishspeaking driver to Bumrungrad International’s 5-star hotel and 7-star Joint Commission accredited hospital. Bumrungrad’s medical staff is comprised of over 200 u.S. boardcertified physicians all of whom speak perfect English. Many of the top tier medical centers engaged in medical travel boast nurse to patient ratios nearly double that here in America. It seems like nanoseconds for a pleasant nurse to respond once you have signaled the nurse call systems at Bumrungrad, Sime Darby Medical Center in Malaysia, or Anadolu Medical Center in Istanbul. The Orient Express is another brand that might be included in the list of exemplary service organizations above. Indulge yourself.

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Better yet, indulge your employees. The third “S” in the triumvirate acronym represents the incredible financial Savings that can be obtained. Imagine that as a self-insured employer you could reduce your medical spend by $80,000 on a single CABg, $40,000 on a single knee or hip replacement, or $15,000 on a hernia repair. And these prices include travel and lodging. So while international medical travel may not be the answer to self-insured employers escalating medical trend, it is quickly becoming part of the answer. The value proposition of medical and surgical care abroad has become too significant over the past several years to ignore. That is, the quality and safety of care at a much lower price is a big number…and growing. The actions by self-insured employers such as lowes and Pepsico in directing their members’ care to the Cleveland Clinic and Johns hopkins, respectively is a signaling iterative first step to the future. What if Pepsico could purchase the same care at a Johns Hopkins affiliated, JCI-accredited hospital in Istanbul, Kuala lumpur, or Panama City for 70-80% lower cost? They can today! n

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May 2012

The Self-Insurer

David Boucher currently serves as President and Chief Operating Officer of Companion Global Healthcare, Inc. which is a wholly-owned subsidiary of BlueCross BlueShield South Carolina. In this capacity, he is responsible for Companion Global Healthcare as well as complementary and alternative health programs for BlueCross. Since 2006, David has examined first hand the best practices in hospital care in over 20 countries.

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The Self-Insurer

May 2012

SIIA GrASSrOOTS & Political Advocacy Monthly Wrap up report

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

Grassroots Greener in Dc

he grandest grassroots event for SIIA members each year is the “Walk on the hill” during the annual legislative & regulatory Conference in Washington, D.C. This year SIIA members held more than 200 meetings with Congressional members and staff. Members were armed with position papers on key SIIA concerns including education about self-insurance and alternative risk transfer, the effects of PPACA, and impacts on TPAs and stop-loss carriers. These are just a few of their stories: Ron Dewsnup, President and General Manager, Allegiance Benefit Plan Management, met in the offices of the Senate Finance Committee, Sen. Jon Tester (D-MT) and rep. Denny rehberg (r-MT). “Participating in SIIA’s legislative & regulatory Conference’s ‘Walk on the hill’ provided us the unique opportunities to meet with senior Congressional staffers of the powerful Senate Finance Committee to discuss key points and positions maintained by our association. We were able to provide valuable information regarding smaller employers opting for self-insurance and had the ability to counter the misconceptions being levied by opponent industries. I encourage all members to participate in SIIA’s grassroots efforts as I saw first-hand the potential impact this can have.” Matt Smith, Senior Vice President, RE-SOLUTION INTERMEDIARIES, LLC, met in the offices of Washington Senators Maria Cantwell (D) and Patty Murray (D) and rep. Dave reichert (r). “My first time participating in SIIA’s ‘Walk on the Hill’ was a great experience. SIIA’s team set up the meetings and provided a summary of key talking points that I could adapt based on the issues that are most relevant in my state and industry segment. I think everyone should take advantage of the opportunity to discuss these important issues with their elected representatives.” Steve Resnick, President, Self-Insured Plans LLC, met with the offices of Florida Senators Bill Nelson (D) and Marco Rubio (R) and rep. Connie Mack (r). “Our role is to provide members of Congress with enough accurate information about the issues so that they can make objective decisions. Also, legislators are woefully uninformed regarding self-funding: its size, scope and value proposition. Our role is to keep them informed with the facts.” Gerry Gates, President, Stop Loss Insurance Services, met in the offices of Massachusetts Senators John Kerry (D) and Scott Brown (r) and rep. James Mcgovern (D). “These meetings offer SIIA members an absolutely invaluable opportunity to speak directly with elected representatives and their staff who are making important policy

May 2012

The Self-Insurer

decisions with potentially enormous impacts on our industry. I encourage all members to get involved, get engaged and make your views known.” Lloyd Bromley, Compliance Specialist, London Life Reinsurance Company, met in the offices of Pennsylvania Senators Bob Casey (D) and Pat Toomey (r), and rep. Allyson Schwartz (D). “It’s a valuable experience for me and for the Congressional staff I met with. Since self-insurance is so often under the radar and misunderstood, I welcomed the opportunity to explain what it is, why it’s so important and how SIIA fits in. I tried to get the staff member to wake up to the fact that it’s a really big segment of the economy that’s worth paying attention to and should be safeguarded.” Donna Smith of DSI met in the offices of Texas Senators John Cornyn (R) and Kay Bailey hutchinson (r), and rep. John Culbertson (r). “Although my Senators and representative are strong supporters of SIIA, meeting with their healthcare staffers, who had six and seven years’ experience in this area, was important because they were eager to learn more about SIIA’s positions on several issues to support their research and interpretations. This year I found that the time spent on Capitol hill was not just to educate those who do not understand self-funding, but also to provide repeated support to those who do.” Nancy Thiet, Senior Underwriting Consultant, CEBS, met with the offices of Illinois Senators Dick Durbin (D) and Mark Kirk (r), and rep. Bobby Schilling (r). “The Walk on the hill provided a great opportunity to meet with legislative representatives and discuss the value of continuing an employer-

based healthcare system that allows plan sponsors the ability to offer flexible health plans that meet the needs of their plan members. It was especially important to convey these ideas in the current climate of healthcare reform.” Jerry Castelloe, Regional President, CoreSource, Inc., met in the offices of North Carolina Senators richard Burr (r) and Kay hagan (D), and rep. Sue Myrick (r). “Over the years I have always closed my Congressional visits with an offer to provide input on the issues while they are being legislated on the hill rather than when they are being implemented in the field. I have actually received a couple of calls in the past seeking information. having the opportunity to be heard makes the ‘Walk on the hill’ a valuable investment of my time.”

Tim Sharp, Senior Vice PresidentSales, OneSource StopLoss Insurance Marketing, met in the offices of California Senators Diane Feinstein (D) and Barbara Boxer (D), and rep Dan lungren (r). “The importance of making the effort and communicating the significance of our position cannot be overstated. Every stakeholder in SIIA should either take part or support the SIIA PAC.” As these stories relate, participating in the grassroots initiative is a valuable, worthwhile, and even fun experience. For the balance of this year SIIA members have the opportunity to meet in the local district offices of their Members of Congress or on Capitol hill when they are in Washington, DC. Meetings and support information are managed by SIIA’s Washington staff, always available at (202) 463-8161. n

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The Self-Insurer

May 2012

Bench From the

by Thomas Croft

Federal Court Decides stop Loss Case Involving several recurring but Previously Unresolved Issues (Claire’s stores, Inc. v. Companion Life Ins. Co., No. 11 CV 2463, in the United states District Court for the Northern District of Illinois (March 7, 2012)).

his case presented several issues relevant to the stop loss industry and its insureds. Among them are: whether a renewal application can be enforced as a stop loss contract; whether the carrier inevitably loses where there is an arguable ambiguity between the stop loss policy form and the policy schedule; and whether the Mgu’s receipt and temporary retention of stop loss premium prevents it from rescinding on the grounds that there was never any contract formed. The facts (as per the Court’s opinion) involve a $768,592.56 claim

May 2012

The Self-Insurer

for stop loss benefits. This claim was for reimbursement under two alleged stop loss contracts: (1) a stop loss contract issued by Companion effective May 1, 2009-April 30, 2010; and (2) a renewal application for the May 1, 2010-April 30, 2011 contract year. The group’s fundamental problem was that it had “paid” by far the larger portion ($830,433.81 of a total of $970,353.82 from the ground up) of the underlying claim after the expiration of the May 1, 2009-April 30, 2010 contract. Companion denied the portion of the claim that had been paid late. This case was the group’s effort to address that problem through the legal system, and

it mustered several creative arguments in attempting to do so. The group’s suit resulted in a Court opinion that teaches many important principles of contract law. The first tack taken by the group was to argue to the Court that the 2009 contract covered the entirety of its claim, because the group had “paid” it within the terms of that stop loss contract. how, one might ask, did the group make this argument in the face of the undisputed fact that $830,433.81 was paid after April 30, 2010? The answer lies in an inventive effort to conjure up some ambiguity about what the stop loss policy really

required per its terms in the way of payment during the contract period. The wording of part of the policy form and the Schedule assisted the group in this regard. Those familiar with how most latepaid cases come out will reflexively reach for the policy definition of “paid” and show that it applies. Indeed, that definition clearly fixed the date of mailing or delivery as the date a claim is deemed to have been “paid.” No surprises there. But the group’s argument was more nuanced: it asserted that the benefits section of the policy raised an ambiguity about when underlying claims had to be paid. It provided in part: “The Specific Benefit with regard to each Covered Person [is] the Total of the Eligible Claim Payments, on an Incurred and/or Paid Basis as shown in the Specific Contract Basis of the Schedule; a. less the Specific Deductible; and b. less amounts received fromother sources; c. multiplied by the Specific Payable Percentage. Thus, the group argued that if it either incurred or it paid a claim within the contract period, that claim qualified for reimbursement. Oftentimes, the terms of the policy Schedule will clear things up, but not so here. The Schedule listed the Specific Contract Basis as follows: “Specific Contract Basis: Employee Benefit Plan expenses must be: Incurred from 11/1/2008 through 4/30/2010. Paid from 5/1/2009 through 4/30/2010.” The group argued that the period after 4/30/2010 in the incurred line above was consistent with the “and/or” phrase in the benefits section, asserting that the word “and” could have been inserted after 4/30/2010 in the Schedule if Companion’s intent was to

require that the claim both be incurred during the first time period described and paid during the second time period described. hmmm. “game over” for the carrier? Not yet. Despite the familiar rule that ambiguities in an insurance policy are always to be construed against the drafter (the carrier), the Court resolved this issue by finding that other portions of the policy documents clarified the parties’ intent such that there was no ambiguity for the Court to interpret. Specifically, the Court looked to the definition in the policy of the term “Specific Contract Basis” used in the Schedule. The definition defined “Specific Contract Basis” as “the dates during which Employee Benefit Plan Expenses must be Incurred and must be Paid to be considered eligible for reimbursement.” (emphasis added). In light of this definition, the Court concluded that the Schedule was clear: it required a claim to be incurred during the time period listed and it required also that it be paid during the other time period listed. In a footnote, the Court observed that the group’s argument would be stronger if the word “or” had appeared between the incurred and paid periods listed. The Court also concluded that any other result would be “absurd.” First, the group’s interpretation would allow it to obtain reimbursement for claims it had yet to pay. This outcome would have been directly contrary to several provisions in the policy that required that claims be “paid” at some point prior to reimbursement, and would result in a windfall to the group because not all claims that are incurred are actually paid. The lesson of this aspect of the case is that even the punctuation and the conjunctions (“and,” “or” or “and/or”) used in the Schedule or in the policy language itself can create enormous problems, so make sure the policy documents are cleansed of any such grammatical bogeymen before they are issued. The second tactic used by the group in attempting to secure coverage for its claims here was to assert that a renewal application signed, and premium paid, in connection with an attempted renewal of the 2009 policy formed a binding contract obligating Companion to reimburse for the claim at issue (the contemplated 2010 contract had a run-in, so that the majority of the claim would have been covered under its terms). The facts relevant to this aspect of the case were that, in April 2010, prior to the expiration of the existing Companion policy on May 1, Companion’s Mgu sent the group a renewal quote for the May 2010-April 2011 policy year. After the group provided a large claims report, the Mgu sent the group a policy application for the renewal on May 10. On May 17, the group signed this application, and subsequently returned it, along with its premium check for the first month’s premium. The MGU received the application and check on or about May 27. On June 15, the Mgu sent the group a revised application form that altered the rates, deductibles, terms and conditions specified in the previous application. The MGU allowed the group until July 8 to sign and return this amended application. Meanwhile, on June 21, the Mgu received the group’s check for the second month’s premium pursuant to the terms of the first application. On July 6, the MGU returned the group’s first two months’ premium. (It is unclear from the opinion whether either or both of these checks had been deposited, and a refund check issued from Companion, or whether the original checks were returned). On July 13 the Mgu informed the group that the deadline for returning the amended application had passed, and that “we are rescinding the stop loss renewal as of May 1, 2010 and returning any premium that had been submitted.”

The Self-Insurer

May 2012

In its filed case, the group asked the Court to declare that Companion’s attempted rescission was ineffective, and that a valid and enforceable stop loss policy existed by reason of Companion’s acceptance of the premium payments pursuant to the terms of the first application. More specifically, the argument appears to have been that the first application was an offer by Companion to issue a policy on the terms specified therein, which offer was accepted by the group when it signed and returned the first application with payment of premium, so that a binding contract was then formed. The Court began its analysis of this issue with the observation that “[t]he general rule applied to insurance contracts is that ‘an application for insurance is the applicant’s offer directed to the insurance company, not the other way around.’ ” Accordingly, in order for there to have been a binding contract formed, the Court reasoned, the applicant’s offer (i.e., the signed application) must be accepted by the insurer, as both offer and acceptance are necessary to the meeting of the minds required for a valid contract to exist. So the key issue for the Court was whether Companion had “accepted” the group’s “offer” or not. First, the Court noted the language of the application which stated that it “must be accepted and approved by [Companion] or its authorized representative prior to any Contract being in existence.” The Court observed that Companion never signed or approved the first application, but instead returned premium and sent an amended application to the group with different terms. This amended application, the Court concluded, was in law a counter-offer to the group’s offer in the first application. Counter-offers do not operate as “acceptance,” but instead constitute a rejection of a pending offer. Since the amended application was never signed or returned by the group, Companion’s counter-offer was never accepted and no contract was ever formed.

HEALTHCARE PORTALS AND APPLICATIONS

But what about those two premium payments? Why didn’t Companion’s retention of those for a significant period of time constitute an acceptance of the first application? The analysis here is a bit tricky, but makes sense in context. The Court’s answer to the problem created by the first premium payment lay in the language of the application itself. It stated: “receipt of a premium and its deposit in connection with the Application shall not constitute an acceptance of liability. In the event that Companion…disapproves this Application, its sole obligation shall be to refund such sum to the Applicant.” Was Companion “saved by the boilerplate” here? As to the first payment, yes. It was received “in connection with the Application” as the boilerplate language requires. But the second payment of premium was not sent “in connection with” any application – it was simply payment of June premium. What about that? Careful readers will recall that the amended application was sent to the group on June 15 and the group’s payment for June premium under the first application was received on June 21. Pursuant to the Court’s analysis of the offer-counter-offer issue, the amended application constituted a rejection of the first application by Companion. Therefore, there was no contract in existence at the time the group’s check for June premium was received. under these circumstances, Companion’s brief retention of the group’s second check could not have constituted its acceptance of any offer, because the only offer extant at that time was Companion’s counter-offer to the group. Thus, using basic but important principles of contract law, the Court was able to navigate through the thicket of contentions raised by the group in this case. n

May 2012

The Self-Insurer

May 2012

ArT gAllErY by Dick Goff

The rise and Fall of Captive Domiciles

istorian Will Durant told us all we need to know about history in one sentence when he wrote, “Nations are born stoic and die epicurean.” As a nation’s wealth and self-indulgence increase, the effort to succeed declines, and another country comes along to eat its lunch. As a corollary for the ArT industry which is governed by states where laws have been enacted to establish them as captive insurance “domiciles,” we can say, using some important qualifiers: Captive domiciles tend to be born entrepreneurial and, if they fail, fail bureaucratically. In recent decades we have witnessed explosive growth of captive domiciles among u.S. states and the District of Columbia, now numbering 32 at my last count. Some of these have taken off like a Saturn rocket (a device dating from the time the u.S. still had a space program, but that’s another subject). The archetype entrepreneur-statesman is Ernie Csiszar who came from international business success around the turn of this century to serve as the Insurance Commissioner of South Carolina. he immediately set about to make the state a captive insurance domicile, preaching to the legislative and executive branches about the dynamic economic development climate a captive domicile would nurture. We saw vigorous growth of South Carolina’s captive industry, but within a few years the state’s political leadership changed, and changed again, and Ernie went on to fame and fortune elsewhere. Now, as the kids say, nobody goes there anymore. Within the decline of any captive domicile – I’m not picking solely on the fine Palmetto State – observers find less interest among insurance regulators in bringing new business and fostering economic development, and more interest in the characteristics of bureaucracy which are protection of the organization, inbreeding staff and slavish devotion to rules. So, the mindset of many regulators has shifted over the years from “what can we do to bring your business to our state?” to “what can we do to avoid making any mistakes?” Such states reward the regulators who regulate most. licensing processes become longer. Applications that are most familiar to the staff have the best chance of timely approval, while novel programs applying new laws are resisted. This is just human nature on display by people who have seldom, if ever, worked in the private sector and find no sense of urgency in their mission. Even worse, some regulators don’t understand the structure or intent of their own states’ statutes, so they may impede new applications out of ignorance. Much worse, some regulators understand the statutes but arbitrarily chose not to allow them to be applied by new licensing applicants. There is no practical way for the industry to fight this version of City Hall. But every now and then, a breath of fresh entrepreneurial air is felt on the land as new or revived captive domiciles are established and operated

May 2012

The Self-Insurer

by experienced, knowledgeable regulators. look to Montana a few years ago and Tennessee last year. The most chilling effect on captive domicile regulators is exercised by the National Association of Insurance Commissioners, the proverbial elephant in the corner of the room that everyone would like to ignore but think they can’t. The three things you have to know about the NAIC is that 1) it considers itself a standardsetting organization (its own words in correspondence with government agencies and its website); 2) it bullies states into acceptance of its standards through the threat of withholding its “accreditation;” and 3) it has a skeptical view of captive insurance, most notably risk retention groups that enjoy federal exemption from state oversight and so encroach on the turf of NAIC members. All this by a simple trade organization that has no government authority of any kind. The industry was pleased to see California republican Congressman Ed royce stand up to the NAIC earlier this year by challenging its “standard-setting” claim and asking for information “as a means of reconciling the NAIC’s own inherently inconsistent statements about itself.” The NAIC said it would respond “in due course.” We weren’t holding our collective breath. But in the meantime, the NAIC’s toxic attitude toward captives drifts into every state department of insurance where staff regulators know their bread is buttered by the commissioner, and the commissioner’s bread is buttered by the NAIC. hence,

the more timid regulators hesitate to approve applications of programs that sometime in the future may be addressed by an as yet unwritten NAIC “standard.” The NAIC’s grip on state insurance departments is not yet universal. New York has told the NAIC “thanks, but no thanks” and nothing bad has happened to it. have you noticed an exodus of insurance companies from the Empire State? Neither have I. And we still have some entrepreneurially-spirited captive domiciles that recognize new beneficial applications of advanced captive laws and encourage the growth of companies and jobs they can bring. Electronic communications make progressive domiciles anywhere in the country as close as our own desks. n

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THE WORLD DOES NOT SIT QUIETLY

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The Self-Insurer

May 2012

Self-Insuran

Fo undation Educational

Foundation carves Out Important

Support role in

of the self-Insurance Industry

he Self-Insurance Educational Foundation (SIEF) has been around for more than 20 years, but its work in support of the self-insurance industry has really only gained traction over the past year. It is poised to taken an even higher profile in the months and years ahead. Originally established as 501(c)(3) organization affiliated with the Self-Insurance Institute of America, Inc. (SIIA), SIEF has in the past sponsored essay contests and internship programs geared for college students pursuing degrees in insurance and/or risk management. More recently, organization’s mission has been modernized in way to provide more direct value to those currently involved in the self-insurance/alternative risk transfer industry. This has included the production of high quality publications providing reference information about self-insured group health plans, group self-insured workers’ compensation programs and captive insurance companies. Since the initial publication dates, thousands of copies of the publications are now in circulation. SIEF has also coordinated multiple educational sessions on Capitol hill, which have been designed to help congressional staff members understand the basics about selfinsurance and captive insurance. The foundation is uniquely positioned to hold such briefings because 501(c)(3) organizations can sponsor food & beverage services in conjunction with these events, where SIIA would be restricted from doing so because it is a lobbying organization. This educational initiative directly supports SIIA’s lobbying efforts. Before members of Congress and their staffs can be effectively lobbied, they need to understand

May 2012

The Self-Insurer

the basics of how specific industries function, and self-insurance is certainly no exception. At last year’s SIIA National Conference, SIEF sponsored the keynote presentation of nationallyknown speaker robert Stevenson, who received rave reviews. his participation would not have been possible without the foundation’s involvement. For this year’s conference, SIEF will sponsor the participation of Fox News Political Commentator Steve hayes, who will provide an election year preview. Obviously this could not be a more timely topic and should provide tangible value for conference attendees. Additional projects are now in the planning stage and will be announced later in the year. It is important to note that SIEF’s funding comes from voluntary contributions and through participation

The foundation is governed by a board of directors comprised of wellknown industry leaders including: Freda Bacon Administrator, Alabama Self-Insured Workers’ Compensation Fund Dick Goff Managing Member, The Taft Companies, llC heidi Svendsen vice President, Clinical Programs Optum healthcare Solutions Winning Team of Nick Fitzsimmons, Heidi Svendsen, David Renne and Jason Davis in fundraising events. Most recently, more than 30 people participated in an SIEF golf tournament held in conjunction with the SIIA TPA-Mgu Excess Insurer Executive Forum in Charleston, SC. The foundation will be holding its next fundraising even this Fall in conjunction with the SIIA National Conference & Expo in Indianapolis. But this time, the activity be a little different… watch for details coming soon! All contributions to SIEF are fully tax deductible, so by financial supporting the foundation you can also reduce your company’s tax liability – a true win-win situation.

Nigel Wallbank Executive vice President, Business Development & Sales eMindful For more information about the foundation, please call (800)851-7789 or e-mail Erica Massey at emassey@ siia.org n

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May 2012

PPACA, HIPAA and Federal Health Benefit Mandates:

Practical

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

Q&A

HIPAA Covered Health Plans Beware: HHs Office of Civil rights Kicks Off hIpAA Audit program

ince November 2011, the u.S. Department of health and human Services (HHS), through its Office for Civil Rights (OCR), has been conducting audits of covered entities (the “hIPAA Audit Program”) for compliance with the privacy and security requirements under hIPAA and the hITECh Act (collectively, the “Privacy & Security rules”). While the Internal revenue Service and the Department of labor have conducted audits with respect to hIPAA’s portability requirements in the past, the hIPAA Audit Program is a new enforcement effort for hhS/OCr, which until now relied mainly on complaintbased investigations and reviews. This advisory summarizes the hIPAA Audit Program as we currently understand it and provides some basic compliance reminders that may be helpful in preparing for such an audit.

General Overview As a pilot program, the initial phase of the hIPAA Audit Program consists of 20 audits that are intended to fine-tune OCR’s audit protocols. Upon completion of the initial phase (which we understand has been completed or is near completion), OCr intends to use its revised audit protocols to conduct up to 130 additional

May 2012

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audits in 2012. OCr has engaged KPMG, a national accounting firm, to develop audit protocols and assist in operating the hIPAA Audit Program. For 2012, the hIPAA Audit Program is targeting a wide range of types and sizes of covered entities in order to make a broad assessment of Privacy and Security rule compliance. OCr expects to expand its scope of audits to include business associates in the future.

Audit parameters and Consequences When a covered entity such as a health plan is selected for an audit, OCr will notify the covered entity in writing. The audit notification will explain the audit process and expectations, and request the production of certain documents and information. OCr expects covered entities that are selected for the audit to produce the requested documents and information within 10 business days. Audited entities can expect an onsite review that may take between three and 10 business days, depending on the complexity of audited entity and the auditor’s need to access materials, observe operations and meet with individuals, including: • interviews with the entity’s leadership, such as the chief information officer, privacy officer, legal counsel and health information management/medical records director; • examinations of the entity’s physical features, operations and adherence to its policies; and • observation of the entity’s compliance with hIPAA regulatory requirements. After completion of the onsite visit, the auditor will provide the covered entity with a draft final report that describes its findings, which may include a list of alleged violations of the Privacy & Security rules. A covered entity

will generally have 10 business days in which to review and provide any written comments to the auditor. The auditor will then complete its final audit report, generally within 30 business days after the covered entity’s response and submit it to OCr. In the event the audit report indicates a serious compliance issue, OCr may initiate a formal compliance review to address that issue. OCr has indicated that the primary purpose of the hIPAA Audit Program is to promote compliance improvements and that it will not post a list of audited entities or audit results that clearly identify the audited party. OCr, however, retains the authority to impose severe sanctions on violators, including (i) injunctions, (ii) imposition of $100-per¬-violation penalties (up to $50,000 per incidence for willful neglect) that can accrue until correction (with a $1.5 million calendar-year cap for all violations of the same regulatory requirement) and (iii) criminal penalties for knowing violations.

Internal Compliance review With the hIPAA Audit Program underway, covered entities and business associates should take this opportunity to “brush the dust off ” their hIPAA policy and procedures manuals and other implementation documentation. We suggest preparing by identifying all of the hIPAA policies, procedures and documentation and reviewing them for compliance with the Privacy & Security rules. Such actions should, at a minimum, include the identification and review of the following (this is a nonexhaustive list): • hIPAA notice of privacy practices; • identification of HIPAA privacy and security official(s) and documentation of their authority (e.g., appropriate resolutions appointing and authorizing such individuals); • plan document(s), including any amendment(s) relating to hIPAA privacy and security (for group health plans);

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May 2012

• hIPAA business associate agreements; • identification of employees authorized to access protected health information (PHI) and documentation of their hIPAA training, attendance and training materials; • updated policies implemented to address potential hIPAA breaches; • written policies and procedures that are designed to comply with the Privacy & Security rules and that documents, in detail, all of the entity’s hIPAA privacy and security practices, including those relating to: – the use, disclosure, maintenance, documentation and safeguard measures (administrative, physical and technical) with regard to all PhI; – prevention, detection, containment and correction of security violations (including breach under the hITECh Act); – contingency and backup plans, and emergency access to electronic information systems; – employee training; and – sanctions for employees who violate the covered entity’s hIPAA policies or procedures; • documentation of required hIPAA privacy and security risk assessments and analyses on which the hIPAA compliance policies and procedures are based; and • documentation of actions taken in accordance with the hIPAA policies and procedures, including documentation of identification, investigation and resolution of hIPAA security incidents and complaints. n For further information on hIPAA and hITECh Compliance obligations, see our prior advisories linked below: • Employee Benefits & Executive Compensation Advisory: Life’s a Breach: What Constitutes a Breach under the HIPAA HiTech Breach Notification Requirements

• Employee Benefits & Executive Compensation Advisory: Stimulus Act Imposes Increased hIPAA Obligation on Health Benefit Plans and Service Providers 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 E-MAIL to Mr. Hickman at john. hickman@alston.com.

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May 2012

TPA & MGU/ ExcEss InsUrEr

ExEcutivE Forum

May 2012

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n April 16-18th, hundreds of high level executives attended SIIA’s TPA & Mgu/Excess Insurer Executive Forum at the Charleston Place hotel in Charleston, SC. John C. goodman, Ph.D. kicked off the conference with his session Cost, Quality, and Access: What’s In It For The Future. Dr. goodman, the President and CEO of the National Center for Policy Analysis, spoke to conference attendees about the current healthcare system, stressing time vs. money and the lack of incentives doctors currently have. he also spoke about the idea of replicating centers of excellence, explaining that while collectively looking at the facilities, there are not enough objectives in common to get a blueprint of duplicating their success, redundant that “entrepreneurship cannot be copied.” Dr. goodman shared the 10 items he believes are structural flaws in the PPACA, and what he believes could be the solutions to these flaws. These flaws are: an impossible mandate, a bizarre system of subsidies, perverse incentives for insurers, perverse incentives for individuals, impossible expectations/a tattered safety net, impossible benefit cuts for seniors, impossible burden for the States, lack of portability, over-regulated patients, and over-regulated doctors. A panel discussion, health risk Management – Where Innovation and Strategy Meet results, was held to discuss the past, present and future of wellness from several prospectives – employer, medical management and carrier. gregg Kamas, vice President, health risk Management Practice leader, and Brent hartman, health Risk Management, of IMA Benefits began the session by detailing the

John C. Goodman, Ph.D costs of health care and chronic conditions on employers and how this can impact productivity. Carrie Pope, vice President of American health holdings, Inc., continued the session by providing information on the impact that all parts of medical management (utilization Management, Case Management and Disease Management) have through an overview of each aspect and specific case studies, showing results of cost savings to date. John Richert, Chief Medical Management Officer of AIG Benefit Solutions, wrapped up the discussion by providing the carrier perspective on wellness. he discussed the carrier’s goals of implementing a wellness and medical management program, the value of these programs, and typical results. Felicia Wilhelm, CEO of Prairie States Enterprises, Inc., presented Getting To The Value of Value-Based Plan Design. value based plan design, a modification of health benefit plan design to reflect the specific goals of improving the health status and reducing the risk profile of an employee group, uses highvalue services, such as prescription drugs and preventative services, to reduce costs and help plan participants stay healthy, with particular focus given to the diagnoses represented in the primary cost drivers. Ms. Wilhelm emphasized that data (including Claim data, rx data, health risk Appraisal that includes Biometric data, Wellness program and Disease Management data, Demographic data, Staff average tenure and turnover rate) is the only key to truly understanding how to reduce the costs for a group in the long run. She concluded by discussing medical compliance and the impact of cost-shifting, stating that discriminately increasing deductibles, co-insurance and/ or co-pays will reduce claims temporarily, but ultimately may significantly increase costs due to employees not seeking medical care as needed, adding that one or two large claims can completely wipe out cost-shifting savings. Breakout session Exchanges: something New Is Going To Do We Don’t Know What, presented by Doug lynch, vice President of Blue

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May 2012

hartman, health risk Management, of IMA Benefits gave a more detailed discussion of the Employer prospective and experience of wellness. Mr. Kamas started off the discussion by reminding attendees that the origin of employee health benefits was to solve a labor problem, not a focus on care delivery. The impacts of health on productivity, the cost of healthcare and how we got to high healthcare costs were discussed. Mr. hartman gave a case study of success in a comprehensive health risk management program, stressing the importance of participation, assessments, accountability, integration, and keeping people engaged in the program.

John Richert, Carrie Pope, Brent Hartman and Gregg Kamas Cross Blue Shield of Fl, was an interactive discussion on the exchanges that are required to be implemented in 2014, and how they will affect individual and small business buying decisions. In It’s not your Mom’s Wellness program. One Employer’s success In Managing Health risks Across The Continuum, gregg Kamas, vice President, health risk Management Practice leader, and Brent

May 2012

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What’s Wellness really Worth? A Deep Dive On It’s Effectiveness and rOI, presented by Joe Miller, Managing Director of ChS Wellness, gave an in-depth look a large not-for-profit’s wellness program and the

results they have been able to achieve in a relatively short period of time. he discussed several of the methodologies used to calculate rOI and the variance seen between methods. provider cost Savings Initiatives – It Can Be A Win Win, presented by Joel Duhl, President of resolve health Plan Administrators, discussed Accountable Care Organizations (ACOs), bundled payments, Patient Centered Medical homes, and Physician group Practices (PgPs). Mr. Duhl gave an overview of all, explaining that ACOs are a Centers for Medicare & Medicaid Services (CMS) program created to facilitate coordination among providers for the intensive management of patients, while Patient Centered Medical homes are a commercial run program. The most successful of the PgP programs concentrated on a limited number

Joel Duhl of diagnoses, better management of chronic patients, avoidance of readmissions, reducing hospital non-surgical admissions through better management of chronic diseases, and it was easier for patients to see their primary care provider/ specialist. Mr. Duhl concluded by detailing what would be necessary for these programs to survive, and the ramifications of these programs for TPAs.

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May 2012

Finance Options For selfFunded Health Plans – Mine Fields, Innovations or Hoax?, was a panel discussion lead by Pat Campola, President of Campola Consulting and Intermediary Services, and focused on being innovative while being mindful of past experiences and trends in today’s marketplace. A panel discussion, Is There such A Thing as HyperInflation of Claims, or Are We Just hyper?, with industry experts David Ives, CEO of Northshore International Insurance Services, Inc., John Dawson, Senior vice President and Actuary of Willis, Jakki lynch, AvP, Director, Presidio PulSE Program of Presidio and Marcia McKinney, vice President, Director of Medical reinsurance of Presidio Excess Insurance Service addressed the rate of growth of complex medical care and the prospect of providers facing revenue shortfalls, forcing them to inflate the cost of complex conditions.

Pat Campola Mgu/Carrier management of the Plan. he discussed why TPAs should remain interested in managing claims after the stop loss attachment point is broken. Finally, Mr. Croft concluded the conference by giving an update on recent court decisions affecting the stop loss legal environment. n

The panel also reviewed historical data/trends, anecdotal evidence, and recommended strategies to help mitigate catastrophic claim costs. The conference concluded with the session Hot Topics In stop Loss Law: Mirroring, MGU/Carrier “Proactivity,” Keeping The TPA Interested After The spec Is Broken, And Stop loss litigation update, presented by Thomas Croft of Croft law llC, who is also a regular contributor to The Self-Insurer monthly article From The Bench. Mr. Croft gave an overview of the legal drawbacks of the practice of “mirroring” the Plan document, and what to do if the Plan is unworthy of being mirrored. he also reviewed the risks and appropriate boundaries between cost containment and

May 2012

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May 2012

SIIA ChAIrMAN SPEAKS Alex Giordano

Miami: The International City

iami has perhaps become America’s most international city as the portal for people from Caribbean nations and South America, as well as many other places in the world. I say “perhaps” because I can’t easily surrender New York’s similar claim – and our members in los Angeles and San Francisco may have entirely different views.

But no one can argue with Miami’s selection as host city of SIIA’s International Conference next month on June 5-7 at the Biltmore hotel Coral gables under the umbrella theme “The Self-Insurance Connection in the Americas” and sponsored by global Medical Management Inc., health Portal Solutions, hines Associates and Managed Care Options.

“The Privatization of Health Care Throughout Latin America” will demonstrate how regional governments’ struggles to provide healthcare for expanding populations has stimulated entrepreneurial solutions. Speakers will be Martin Crannis, Managing Director of Maiden life, and robert DiCianni, Senior vice President of Pan-American life Insurance group. “Private Investment in Provider Facilities” – Stuart h. Anolik, Managing Director of CBIZ MhM, llC, will report that while quality care of an aging population becomes a critical concern in the u.S., investment is being drawn to elder and healthcare providers in near-shore facilities located within a few hours’ flying time from major u.S. airports.

here are highlights, courtesy of greg Arms, Chair of the International Committee and global co-leader of Mercer Marsh Benefits, Marsh Inc.:

“Enterprise Risk Management (ERM) in Corporate Health, Disability and Workers Compensation Programs” – renato Cassinelli, Managing Director, Employee Benefits, for Marsh-latin America & Caribbean, will present the ErM approach to analyzing risks and health related costs for healthcare, life, disability and workers’ compensation programs. This tool enables companies to improve rOI, increase market competitiveness and enhance employee productivity.

“Opening the Door to Latin America – an Overview of Self-Insurance Opportunities” – Speaker Paul Obolensky, vice President of the latin American region of Chartis Insurance, will trace how expanding private

“Self-Insured Group Health Plans in Mexico and Its Best Practices” – This panel session

This conference continues the series of SIIA’s global gatherings that have enabled members to connect with far-flung resources and helped insurance professionals in other countries learn the value of self-insurance and alternative risk transfer, American-style. One thing is clear: insurance has largely become a business without borders, and SIIA is leading the trend to form strategic connections that make it work seamlessly. I’m betting that every SIIA member will find direct professional value in the Miami program.

sector economies and the growing number of companies with operations in latin America are a breeding ground for self- insurance/alternative risk transfer programs.

May 2012

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will present the views of Noe Calvo Morales, human resources Director ; Apolinar Or tiz hernandez, Workers’ Compensation and Benefits Manager, and gilber to Oscoy, Corporate Manager of Claims Management, all from Cooperative la Cruz Azul, S.C.l. “International Insurance Regulations and How They Are Impacting Business” – A wave of new regulation in latin America requires special expertise as some countries seem to be focusing on protecting domestic markets while others are expected to open domestic markets for increased competition, as we will learn from speaker Jose ribeiro, Director for International Markets, lloyd’s. “Mexican Health Insurance Marketplace in 2012” – recent regulatory changes and market activity are stimulating growth of self-insurance/alternative risk transfer viewed by a panel of Eduardo lara di lauro, Principal, Managing Director, Milliman Inc.; Pierre Saddik, President, Saddik International Consulting, and Alan Watts, vice President, health reinsurance of rgA International Corporation.

“TPA the Brazilian Way – A Look Inside One of the World’s Fastest Growing Self-Funded Marketplaces” will be provided by luis Alexandre Chicani, President, Bencorp. This will be a must-attend session for those interested in learning how the self-funded marketplace is currently evolving. And as a plus: SIIA-style hospitality and networking events, naturally with a latin twist. registration is still available at www.siia.org. See you there. n That’s it for now,

“Concerns With the Regulatory Environment in Brazil and the Impact on the Upcoming 2014 World Cup and 2016 Olympics” – Attorney John h. rooney, Jr. will describe how limitations on ceding reinsurance to company affiliates outside of Brazil could result in inadequate capacity to insure these major international events. “Perspectives on Medical Travel to Latin America” – Massimo Manzi, Executive Director of PrOMED, will analyze the region’s capabilities to serve as an appealing destination for self-insured u.S.-based companies to send patients for treatment.

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May 2012

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

2012 Board of Directors CHAIRMAN OF THE BOARD* Alex giordano, vice President of Marketing Elite underwriting Services Indianapolis, IN PRESIDENT* John T. Jones, Partner Moulton Bellingham PC Billings, MT VICE PRESIDENT OPERATIONS* les Boughner, Executive vP & Managing Director Willis North American Captive + Consulting Practice Burlington, vT VICE PRESIDENT FINANCE/CHIEF FINANCIAL OFFICER/ CORPORATE SECRETARy* James E. Burkholder, President/CEO health Portal Solutions San Antonio, TX

committee chairs CHAIRMAN, ALTERNATIVE RISk TRANSFER Andrew Cavenagh, President Pareto Captive Services, llC Conshohocken, PA CHAIRMAN, GOVERNMENT RELATIONS Horace Garfield, vice President Transamerica Employee Benefits louisville, KY

May 2012

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regular Members company name/Voting representative

Andrew Tibbets, vP, Marketing & Business Development, Akeso Care Management, Inc., Indianapolis, IN

CHAIRWOMAN, HEALTH CARE Elizabeth Midtlien, Senior vice President, Sales Starline uSA, llC Minneapolis, MN

John Ellis, President/CEO, Attune health Management, Plano, TX

CHAIRMAN, INTERNATIONAL greg Arms, Global Head, Employee Benefits Practice Marsh, Inc. New York, NY

Craig Snell, Business Development Executive, Carr, riggs & Ingram, llC, Montgomery, Al

CHAIRMAN, WORkERS’ COMPENSATION Skip Shewmaker, vice President Safety National St. louis, MO

John Williams, vice President, Employee Benefits Group, Inc., Bethesda, MD

Directors Ernie A. Clevenger, President Carehere, llC Brentwood, TN

Catherine Stowers, Advisor & general Counsel, First Person Benefit Advisors, Indianapolis, IN

ronald K. Dewsnup, President & general Manager Allegiance Benefit Plan Management, Inc.Missoula, MT Donald K. Drelich, Chairman & CEO D.W. van Dyke & Co. Wilton, CT

griselle Chernys, CEO, PayerFusion holdings, Miami, Fl

Employer Member

Steven J. link, Executive vice President Midwest Employers Casualty Company Chesterfield, MO Elizabeth D. Mariner, Executive vice President re-Solutions, llC Wellington, Fl

SIIA New Members

company name/Voting representative lynn Jennings, CEO, WeCare, TlC/ MedWatch, llC/NMu, llC, longwood, Fl

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May 2012

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