Self-Insurer Nov 2015 by SIPC

November 2015

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Avoiding

Catastrophe How to Manage Skyrocketing

$1 Million-plus Medical Claims without Health Benefit Caps and in Response to Rising Costs

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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

Editorial Staff PUBLISHING DIRECTOR Erica Massey SENIOR EDITOR Gretchen Grote

4 Avoiding

Catastrophe $1 Million-plus Medical Claims

DIRECTOR OF OPERATIONS Justin Miller

without Health Benefit Caps

Lost & NOT Found – Missed Opportunities to Recoup Funds Means More than Just Money Left on the Table...

INside the Beltway SIIA members act to support SIPA, Park or modify ACA ‘Cadillac Tax’

OUTside the Beltway SIIA, Employer Coalition Support Stop-Loss in Maryland Hearing

PPACA, HIPAA and Federal Health Benefit Mandates HIPAA Double Take: What Health Plan Sponsors Need to Know (Again)

and in Response to Rising Costs Bruce Shutan

DIRECTOR OF ADVERTISING Shane Byars EDITORIAL ADVISORS Bruce Shutan Karrie Hyatt

Volume 85

How to Manage Skyrocketing

CONTRIBUTING EDITOR Mike Ferguson

November 2015

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35th Annual National Educational Conference & Expo Recap

SIIA Endeavors SOME Giving a Sense of Dignity to the Poor and Homeless of the District of Columbia

Karrie Hyatt

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Avoiding

Catastrophe How to Manage Skyrocketing $1 Million-plus Medical Claims without Health Benefit Caps and in Response to Rising Costs

ith Corporate America fretting about the unintended consequences of health care reform and lobbying for relief on Capitol Hill, a recent report raised eyebrows about a troubling trend that appears to have been exacerbated by the Affordable Care Act. At issue is how the end of lifetime and annual health benefit caps in 2014 for 105 million working Americans with group health insurance coverage as mandated by the ACA has played a significant role in spiking catastrophic health care claims. In its second annual stop-loss catastrophic claims report, Sun Life found that the number of stop-loss reimbursements that were individually $1 million or higher skyrocketed by 1,000% between 2010 and 2013, while the number within that final year rose sharply by 144%. Claims exceeding $2 million more than doubled during that time, according to the research. Written by Bruce Shutan 4

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AVOIDING CATASTROPHE | FEATURE In addition, the number of health care claimants with annual claims exceeding $1 million soared 68%, while those over $2 million more than doubled during that same four-year stretch. “The removal of annual and lifetime limits on payouts has resulted in greater catastrophic risk exposure for many self-funded employers that previously had a cap in place,” explains Brad Nieland, VP of stop-Loss for Sun Life. Aside from the ACA, he says two other fundamental drivers of these claims include hospital bills continuing to increase at a rate higher than general inflation and advances in medical technology that have opened the floodgates to more costly procedures. “About 10 years ago or so, we didn’t see $1 million-plus claims,” observes Lisa Hawker, who heads up the employee benefits operation at Hylant, one of the nation’s largest privately owned insurance brokerage firms. “Today, we’re seeing them all the time.” Without benefit caps, employerprovided health plans are now entering “the beginning phase” of “an incredible pain point, long-term,” laments Dwight Mankin, president of Communitas, Inc., an AmWINS Group Company. He says many employers are finding that 5% of their covered lives are driving nearly half their costs.

Medical Breakthroughs Not surprisingly, the most costly claims involve deadly or serious illnesses. More than half the $2 billion in claims that Sun Life reimbursed to stop-loss policyholders between 2010 and 2013 were tied to 10 costly conditions. Most of those claims were traced to malignant forms of cancer care ($347.9 million, or 17.5%) followed by end-stage kidney failure or renal disease ($164.3 million, or 8.2%) and other forms of cancer involving

leukemia, lymphoma and myelomas ($159 million, or 8%). Other big-ticket items included birth defects and premature births; organ and bone marrow-stem cell transplants; specialty drugs to manage various chronic conditions. In addition, the report noted that claims occurring less frequently, such as transplants and hemophilia or bleeding disorders, actually resulted in higher overall costs in the self-funded market. “When we look at the bone marrow and stem cell transplantation that’s occurred, we saw a 177% increase from our 2011- 2012 reporting to our 2013 and 2014 reporting,” reports Lisa Hundertmark, senior manager of claims services and clinical resources at Sun Life. She says the area is ripe for expansion, moving beyond leukemia and blood disorders to include ovarian, breast and testicular cancers, sickle cell anemia and other illnesses. One factor is that between advances in medical procedures that have reduced the toxicity to transplant patients and accompanying medications or suppressors, the range of potential transplant candidates is now much broader than before. The speed with which medical breakthroughs are being tested serves as a backdrop to the megaclaims trend. For example, the number of clinical trials on the books soared to 18,237 as of August 2015 from 1,854 in 2009, according to www.clinicaltrials.gov. “It kind of speaks very well to the fact that medicine is really evolving at a really fast clip and that because of that, treatments are becoming available to people that weren’t available in the past,” Hundertmark notes, a trend that’s expected to continue. She recommends that employers and their health benefit advisers monitor

these developments to anticipate new treatments and educate the marketplace “so that they know what to plan for.”

Impact on Stop-loss Industry experts say that an increase in $1 million-plus health insurance claims spotlights the need for stop-loss and reinsurance coverage, including options for nolaser contracts that exempt carriers from having to pay costly outstanding claimants, which Hawker says will help manage group renewals in the selfinsured market. It’s not surprising that these skyrocketing claims have made service providers a bit more conservative in their underwriting practices. She thinks they also need to be more concerned about capacity “because they’re potentially on the hook for significantly more dollars than they have been in the past... Most of the stop-loss carriers we work with are offering contracts that mirror what’s required in the summary plan description of no lifetime maximums.” With $1 million-plus claims now more commonplace, Mankin expects stop-loss premiums will rise to prepare for many of more of these occurrences in an age of open checkbooks that requires greater stewardship and responsibility. But it also may be the price self-funded employers must pay for peace of mind. He says having the right stop-loss coverage in place should help them feel confident that they’ll be financially protected if and when a very large claim occurs. One major challenge will be using population health strategies and data analytics to pinpoint individuals who are driving huge catastrophic claims, along with wellness and disease management programs, according November 2015 | The Self-Insurer

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AVOIDING CATASTROPHE | FEATURE to Mankin. Another important approach involves pharmacy benefits management to manage escalating costs associated with specialty drugs whose treatments he says may range from $50,000 to $100,000.

to ensure that the most cost-effective and appropriate medical services are being rendered. For example, she says an X-ray might do just fine in certain cases instead of a significantly more expensive MRI. That effort also could include transplant carve outs or more aggressive managing of costly dialysis claims, as well as closer scrutiny of third-party administrators or other partners when it comes to examining medical necessity.

Additionally, on-site medical reviews by an independent party rather than passive telephonic interventions will help self-insured employers get a better handle on these costs, he suggests. This process will help determine whether care is being rendered in the right setting for a more cost-effective outcome.

By the same token, it also can help remove any suspicions about performance. For example, Nieland believes “it’s more important now than ever for the employer, broker, administrator and stop-loss carrier to work collaboratively to manage the risk of very large catastrophic claims.” By doing so and developing best practices, he says it will produce the best possible health and cost outcomes for claimants and employers alike.

Mankin says hospitals must be more mindful about discharging patients prematurely, since they can be penalized for readmitting individuals on Medicare within 30 days of their hospital stay. Another worry is the effect hospital consolidation could have on managing mega-claims.

The upshot will be a need for better on-site intervention at hospitals, as well as coordination between primary care and community resources, especially he says on the workers’ comp side to help facilitate a return to work. This trend also could give rise to more value-based purchasing or reference-based pricing, Mankin believes, not to mention telemedicine to reduce unnecessary ER visits and mobile apps to help individuals monitor their own health. “If we can get in front of some of those things, we can start preventing some of these catastrophic issues that occur because of somebody not taking care of themselves,” he says.

Indeed, a new era may be dawning for managing the costliest group medical claims. The significant growth of $1 million-plus catastrophic claims inspired Sun Life to spread industry awareness about this phenomenon through a special annual report that seeks to provide credible information, encourage collaboration among service providers and make recommendations for employers, according to Hundertmark.

“I have a team of nurses who will do outreach to administrators to talk about particular claims as the notices come in about diagnoses that we know that we might be able to support with cost containment,” she explains. The danger of sobering headlines about such high health insurance claims is they can give a mistaken perception that self-insurance is somehow no longer a viable option, cautions Karin James, assistant VP of strategic operations for Sun Life’s stop-loss business. However, she says this phenomenon has created greater awareness about the cost of health care and the need for more transparent data, which provides an opportunity to proactively manage claims. In spite of the rise in $1 million-plus claims, Hundertmark sees more employers considering self-insurance than ever before. ■ Bruce Shutan is a Los Angeles freelance writer who has closely covered the employee beneﬁts industry for more than 25 years.

Hawker recommends that selffunded employers have strong specialty pharmacy contracts in place to control the cost of emerging injectable drugs and other costly medications to manage chronic conditions. Other areas include medical management and utilization review November 2015 | The Self-Insurer

Lost & NOT Found – Missed Opportunities to Recoup Funds Means More than Just Money Left on the Table...

f you handle a group health plan’s money, make decisions regarding how that money will be used, decide where it goes and when to take it back, you are (likely) a fiduciary. The United States Department of Labor (“DOL”) provides guidance regarding benefit plans and fiduciaries; check out www.dol.gov/ebsa/. There is no question that, “controlling the plan’s assets” makes that person a fiduciary to the extent of that control. “Fiduciary status is based on functions performed for the plan, not just a person’s title.” Assuming for the moment that you’re a fiduciary, the DOL goes on to say that, “Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants... ” “These responsibilities include: ... carrying out their duties prudently; following the plan document; and paying only reasonable plan expenses.” The DOL then tells us why you, as a fiduciary, should care about these duties.

Written by Ron E. Peck, Esq. 8

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“With these fiduciary responsibilities, there is also potential liability. Fiduciaries who do not follow the basic standards of conduct may be personally liable to restore any losses to the plan... ”

The moral of the story? It’s better to assume that you’re a fiduciary, you have certain duties and if you breach those duties, you may be financially liable. Maybe this news rocks your world; more likely, it doesn’t. My goal – however – isn’t to address obligations in general and rather my hope is to bring attention to specific practices that may be exposing us to some unwanted liability. In particular, the failure to pursue all forms of refunds is likely contrary to the terms of the applicable plan document and a failure to protect plan assets. My goal in drafting this article is to bring attention to opportunities we routinely ignore, or fail to pursue with the proper level of vigor. There is no reason why a third party – be it a drug manufacturer, medical device producer, overpaid provider, fraudulent beneficiary, or any other tortfeasor – should be allowed to avoid damages they cause, simply because the date upon which a health plan paid the resultant claims and the date upon which liability became apparent, are distant from each other. Likewise, neither shame nor a misplaced sense of guilt or fault should stay anyone’s hand, when taking back what is owed to them. In the words of Rihanna, they “better have my money... don’t call me on my bluff; pay me what you owe me.”

Let’s start by examining overpayments – a form of recovery that is undervalued and hides in the shadows because of general misconceptions prevalent amongst our industry. In the realm of cost containment, overpayments are often the most overlooked source of recovery. TPAs are understandably hesitant to direct a Plan Sponsor’s attention to an overpayment (which may be interpreted to have resulted from the TPA’s negligence). Worse, if the TPA takes “extra steps” to pursue reimbursement of the overpayment via a third party vendor, (and thereby incurs a fee on the plan’s behalf), that plan will be less than thrilled to pay such a fee for the recovery of their funds; funds that should not have been paid in the first place! Indeed, why should the plan sponsor pay a fee to recover the money, when the overpayment is attributable solely to the TPA’s incompetence; right? Wrong! This attitude needs to change. No matter the reason, TPAs owe it not only to their clients, but to themselves, to take overpayment recovery opportunities seriously, because the greater danger lies in ignoring overpayments. If a fiduciary fails to adequately pursue and recover overpaid claims, they may be breaching their duty. This is exactly what has happened in numerous, published, litigated cases. There exist a number of cases where a TPA was deemed to be a fiduciary of the plan (despite contrary contractual language) and the TPA’s resultant misuse of plan assets – and just as important – failure to recover overpaid funds, was deemed to be in breach of their duty. In these cases, issuing overpayments and failing to recover those funds – on behalf of the plan and in accordance with the terms of the plan document – was deemed to be a breach of fiduciary duty. That being said, there are other cases where the court in question upheld the contractual “fiduciary disclaimer” and agreed with the defendant that the TPA is not a fiduciary. In that case, however, the court went on to say that the plan sponsor must have a remedy against a TPA that misused plan assets and failed to remedy the mistake and thereby allowed the plan sponsor to sue the TPA for breach of contract. So, in a nutshell, if you don’t get stung for breaching your fiduciary duty, you may get stung for breaching your contract. It is for these reason imperative – and a duty of the administrator – to pursue overpayments to the fullest extent possible. So why are most TPAs sending a few

letters to providers and filing away cases that fail to result in a refund? Employers, employees, plan sponsors, brokers and stop-loss carriers alike look to TPAs to process claims and ensure only the right amount is paid at the right time to the right parties. Small wonder, then, that if and when an improper payment (an overpayment) occurs, those TPAs feel personally responsible for the excess payment and seek to handle recoupment of the funds on their own. There often exists a belief that overpayments are due solely to the fault or misconduct of the TPA. Overpayments happen for many reasons other than TPA error, most of which are entirely uncontrollable by the TPA. From incorrect eligibility information, plan sponsor clerical errors, fraud and misrepresentation by participants and providers, as well as new complex billing schemes meant to maximize billable rates, it is impossible to identify every outside attempt to “game the system,” and submit claims in excess of plan allowable charges. It is a credit to the TPA that resultant overpayments are identified at all and the fact that they did occur should in no way reflect negatively on the claims processor. Moreover, overpayments are expected! Almost every summary plan description and plan document references overpayments and provides instructions to the administrator regarding how to go about recouping those funds. These plans clearly expect that overpayments can and will happen. When a TPA or administrator fails to pursue recoupment of these overpayments, not only are they leaving the plan’s money on the table, they are also potentially ignoring the plan terms in violation of their duty. Claim processing errors are inevitable. TPAs and their clients are best served by November 2015 | The Self-Insurer

proactively pursuing overpayments, no matter the reason and working together to recover these funds; not only because any money so recovered is returned to the plan for future use, but because the identification, pursuit and recovery of overpaid funds is required by the terms of the plan itself! Like overpayments, another underappreciated opportunity to recover plan assets (and possibly an activity fiduciaries are obligated to partake in, but generally fail to pursue) is subrogation in cases of product recalls, toxic torts and class actions. The “classic” subrogation scenario unfolds when a plan participant is injured by a third party, arising from something akin to a car accident, slip and fall, or other traumatic experience. The victim is whisked away to a hospital, treated and released. Maybe they rack up some physical therapy bills too, but from the perspective of a TPA

or benefit plan, the date of injury, dates of treatment and date upon which treatment concludes, are all connected and run concurrent with each other. From an objective perspective, by monitoring claims for these types of “traumatic” injuries, you can piece together the big picture – pinpointing the date the accident occurred, what was injured, which treatments are tied to the incident and so forth. A huge opportunity that we miss, however, comes when causation is not so clear and the events pop up over the span of years, rather than days. Imagine a plan participant in 2005 begins taking a drug to treat his blood pressure. In 2013 (eight years later) he suffers a stroke. In 2014, it is determined that the drug he’d been taking since 2005 causes stroke; and in 2015, a class action is filed against the drug manufacturer. How is a plan administrator or TPA supposed to track

this type of issue? The stroke would not raise any red flags and even if it did, who would link it to the drug taken by the patient for eight years? Especially when that link hasn’t been discovered and won’t be discovered for at least another year? Yet – monitoring for exactly these types of opportunities may be a duty of the plan fiduciary. Despite how challenging the effort may be, if a third party exists or is later identified, who is responsible to pay claims submitted to the plan – or reimburse the plan for amounts it already paid – the duty to recoup those funds is very real and ignoring that duty comes with great risk. Whenever a drug, product, or toxic exposure results in injury or illness to a plan participant and a self-funded benefit plan pays to treat that injury or illness, it is every plan fiduciaries’ duty to stay vigilant and identify every scenario where a manufacturer recalls

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a device, or accepts financial responsibility for the losses they cause. Whether it is done in-house, or through the use of partners, every time a class action is filed, recall is announced, or drug is linked to a risk, we as fiduciaries must audit our claims, confirm whether our plan participants were exposed to the damaging product or drug, determine whether the damages linked to that item were suffered by the participant and resulted in payments by the benefit plan. If that is the case, we must act to recoup those funds – no different than how we react when injuries arise from a car accident.

Ron obtained his Juris Doctorate from Rutgers University School of Law and earned his Bachelor of Science degree in Policy Analysis and Management from Cornell University. Ron is also a Certiﬁed Subrogation Recovery Professional (“CSRP”).

Not only is cherry picking the “easy-to-spot” opportunities possibly a violation of our duty, it is also a financial injustice. I say this because the sheer amount of funds available, to be recouped by the benefit plans, if and when these opportunities are pursued, is substantial. This money – that we are presently leaving on the table – can be used to pay for future claims and keep the cost of providing benefits low. Indeed, statistics indicate that there is a lot of capital at stake and I see no reason – fiduciary duty or not – to avoid having those who cause the loss, pay for the consequences! ■ Ron Peck, Sr. Vice President and General Counsel, has been a member of The Phia Group’s team since 2006. As an attorney with The Phia Group, Ron has been an innovative force in the drafting of improved benefit plan provisions, handled complex subrogation and third party recovery disputes and spearheaded efforts to combat the steadily increasing costs of healthcare. In addition to his duties as counsel for The Phia Group, Ron leads the company’s consulting, marketing and legal departments. Ron is also frequently called upon to educate plan administrators and stop-loss carriers regarding changing laws and strategies. Ron’s theories regarding benefit plan administration and healthcare have been published in many industry periodicals and have received much acclaim. Prior to joining The Phia Group, Ron was a member of a major pharmaceutical company’s in-house legal team, a general practitioner’s law office and served as a judicial clerk. Ron is also currently of-counsel with The Law Offices of Russo & Minchoff. November 2015 | The Self-Insurer

INSIDE

the Beltway Written by Dave Kirby

SIIA members act to support SIPA, Park or modify ACA ‘Cadillac Tax’

ven before the start of the National Educational Conference and Expo in Washington, DC, SIIA members arrived in the capital to express their support for the Self-Insurance Protection Act (SIPA) now in Congress and attend a round of congressional fundraising events.

SIIA members participating included Board of Directors member Bob Clemente of Specialty Care Management, LLC, in Bridgewater, NJ; Government Relations Committee chair Jerry Castelloe of Castelloe Partners, LLC, in Charlotte, NC; Matt Kirk of The BENECON Group, Inc. of Lancaster, PA and Bob Tierney of Star Line Group of East Falmouth, MA.

Meeting with Members of Congress, talking about policy and educating them on issues are key to our congressional relations activities, particularly now as healthcare issues in general and SIPA in particular, are of increasing importance, said Castelloe. Having a dedicated federal and state government relations team means that SIIA members can have an impact with their representatives. SIIA’s staff is always ready to engage and provide thoughtleadership opportunities with policymakers in DC and across the country. A highly-leveraged boost for SIPA was provided by Dr. Phil Roe, M.D. (RTN), the House sponsor of SIPA (HR 1423), when he sent a letter on Oct. 1 to his colleagues in the House of Representatives that asked for their support of employer-sponsored self-insured health plans. Dr. Roe’s letter stressed the importance of self-insured health plans of companies, public jurisdictions and Taft Hartley Plans to provide quality health 14

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benefits to employees and members during a time of urgent concern among federal and state policymakers over the increasing cost of health insurance. SIPA would assure the ability of self-insured plans to protect themselves financially through stoploss insurance. It would preclude regulators from defining stop-loss insurance as health insurance with all the resulting regulatory burdens. SIIA President and CEO Mike Ferguson responded to Dr. Roe’s expression of commitment to SIPA: “SIIA appreciates the ongoing support of Dr. Roe in the House, along with Sen. Alexander (R-TN) and Sen. Cassidy (R-LA) in the Senate, for the nearly 100 million Americans who receive health insurance benefits through self-insured plans. Stop-loss coverage is critical for private and public sector employers to continue to provide these effective, transparent and affordable health plans to their employees.”

Park the Cadillac Tax? Pushback is mounting against the element of the Affordable Care Act (ACA) that would impose a 40% excise tax on health benefits costs above a defined ceiling beginning in 2018. Bipartisan legislation was introduced in the Senate on Sept. 17

to repeal this provision of the (ACA). SIIA submitted on Sept. 28 a formal comment letter expressing concerns about the latest regulatory guidance issued by the Treasury Department and the Internal Revenue Service (IRS) regarding implementation of the Excise Tax on High-Cost EmployerSponsored Health Coverage, more commonly known as the “Cadillac Tax.” SIIA’s comments explained why the tax should not be levied on third-party administrators (TPA) as contemplated in the regulatory guidance. Leading employer-specific trade associations have also expressed support for imposing the tax on self-insured employers directly as a regulatory more efficient and less costly method.

extending beyond the 2016 national election,” said Ryan Work, SIIA Senior Director of Government Relations. “However, we can immediately take steps to modify the way this tax may be implemented to decrease its impact on self-insured employers.” SIIA’s response to Treasury/ IRS was formulated by staff leaders and members of the Government Relations Committee and is available to members at www.siia.org. Ryan and Legislative Counsel Chris Condolucci expect to set meetings for SIIA leaders with key Treasury/IRS before the end of this year to share additional technical expertise supporting key points including:

“SIIA supports the repeal of the ‘Cadillac tax’ but that would be a long and problematic process no doubt

• Having the tax paid directly by employers to eliminate the “tax-within-a-tax” costs of it being paid by TPAs and then charged back to employers.

Also, the portioning of the tax among often multiple TPAs for a given plan would be an excessive administrative burden for employers. • Methods of calculating the premium rates for the purpose of determining a plan’s costs must be streamlined for efficiency. • To exempt the costs of wellness programs or care provided by onsite clinics from the cost basis for determining the excise tax. SIIA members are empowered to communicate their support of vital self-insurance industry issues to their congressional representatives by contacting the government relations staff to set meetings at the Capitol or in their home districts. Call or write Ryan Work at (202) 595-0642 or rwork@siia.org. ■

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November 2015 | The Self-Insurer

OUTSIDE

the Beltway

SIIA, Employer Coalition Support Stop-Loss in Maryland Hearing

IIA staff and members plus the newly formed Protect Employee Health Plans Coalition (PEHP-C) provided strong support for self-insured employee group health plans and continued use of stop-loss insurance during a recent informational meeting of the Maryland Insurance Administration (MIA). The lateSeptember meeting in Baltimore was part of the MIA’s two-year study of the use of stop-loss insurance among self-insured health plans.

MARYLAND

Earlier this year the Maryland General Assembly passed a law (HB 552) that included raising minimum specific stop-loss attachment points from $10,000 to $22,500 and minimum aggregate attachment points from 115% of expected claims to 120%. The law took effect on June 1, 2015 and, without additional legislative action, will sunset on June 30, 2018. The law also requires the MIA to conduct the current study by soliciting information from stakeholders that will result in an interim report to Governor Larry Hogan by December 1, 2015 and a final report and recommendations to the governor by October 1, 2016. All 16

The Self-Insurer | www.sipconline.net

stop-loss carriers in Maryland were issued a questionnaire regarding the number of groups they insure and the attachment points. The self-insurance industry assumes that results of the study will inform future legislation that could replace the current law after its 2018 sunset. “It’s vital that SIIA members take every opportunity to support self-insurance and the stop-loss policies that make it a viable option for employers,” said Adam Brackemyre, SIIA Director of State Government Relations. The recent MIA meeting brought out factors well beyond data, including the qualitative benefits of self-insured employee health plans and their dependence on stop-loss insurance to continue providing high-quality health coverage to their employees. SIIA member Rodger Bayne of Benefit Indemnity Corp. of Towson, Maryland, serves an instrumental role in the MIA survey as he assists Nancy Egan, MIA Director of Government Relations, in collecting required information. Bayne was the first speaker introduced by MIA Commissioner Alfred W. Redmer, Jr. and testified, “Our job is to get people covered. The Rand Corporation reported the net

number of people insured increases when a self-funding market exists beside the traditional market.” He said the “sky is falling” predictions of mass migration of small groups to self-funding has not occurred in the past or since the advent of the Affordable Care Act, even though many in Maryland predicted so over 20 years ago when the state implemented small group reforms nearly identical to the ACA. The actual results clearly refute the arguments from some quarters that self-funding could have an adverse effect on state health care exchanges. Also attending the meeting were SIIA members Catherine Bresler of CoreSource/Trustmark and James Hechler of The BENECON Group, along with Director of State Government Relations Brackemyre and SIIA’s Maryland counsel Gerry Evans. Other SIIA members were known to listen into the proceedings by conference telephone. An anchor feature of the hearing was the panel presentation by members of the newly-formed PEHP-C which is chaired by SIIA’s Brackemyre. The PEHP-C has been formed to bring to the MIA study the reality of selfinsuring employers’ dependence on viable stop-loss insurance.

November 2015 | The Self-Insurer

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The Self-Insurer | www.sipconline.net

The panel included testimony by Debbie Johansen of PEVCO, a Maryland manufacturer of pneumatic tube systems used by hospitals and other organizations.

“We’re a small company in a world of big companies and competition for top employee talent is very tough,” she said. “What I have to sell recruits is a top-quality self-insured health plan.” Johansen said that the data on the company’s health care utilization enables PEVCO to design coverage that meets its employees’ needs. “We are a familyowned company and we treat all employees as family,” she said. MIA Commissioner Redmer interjected a question about whether PEVCO periodically compares costs of its self-insured plan to those of fully-insured plans. Joahnsen answered that the company compares costs each alternate year and that since switching to self-insurance the company experienced an immediate decrease in costs and has held annual increases to the range of 10-12%.

A panel comprised of people involved in Maryland cities’ and counties’ self-insured employee health care plans included Hechler of BENECON, which administers the Local Government Insurance Trust (LGIT) and Tim Ailsworth, executive director of LGIT. Hechler cited self-insurance benefits as including the cost transparency that allows surpluses to be returned to the jurisdictions for other uses. “The dollars saved go directly back to the taxpayers,” he said. Opportunities to participate in the MIA study will continue through 2016 until the deadline for the final report next October. SIIA members who want to be involved or nominate employer clients to participate in the employers’ coalition are encouraged to contact Brackemyre in SIIA’s Washington, DC, office, (202) 463-8161. ■

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 Self-Insurer has been delivering information to the self-insurance/alternative risk transfer community since 1984 to self-funded employers, TPAs, MGUs, reinsurers, stoploss 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.

November 2015 | The Self-Insurer

PPACA, HIPAA and Federal Health Beneﬁt Mandates:

Practical

Q&A

HIPAA Double Take: What Health Plan Sponsors Need to Know (Again) 1

ith the onslaught of Affordable Care Act changes, health plan sponsors have much to think about lately. Given the number of other issues affecting them, plan sponsors may feel that HIPAA privacy and security is an issue they have already addressed. However, with the increased number of very public – and costly – data breaches involving protected health information (PHI) and increased enforcement power available to the Department of Health and Human Services (“HHS”), it is important for plan sponsors to do a “HIPAA double take “and make sure they are in compliance. This article provides a HIPAA refresher and considers lessons learned from recent settlements between HHS and covered entities after HIPAA investigations. We conclude by discussing how health plan sponsors can protect themselves in this regulatory environment that is increasingly fraught with risk. 20

The Self-Insurer | www.sipconline.net

I. HIPAA Background What information do the HIPAA privacy and security rules protect? The HIPAA privacy and security rules govern protected health information (“PHI”) that is held or transmitted by a covered entity (defined below). PHI is individually identifiable information such as names, addresses, birthdays and Social Security numbers that are used in conjunction with: • The individual’s past, present or future physical or mental health or condition or • The provision of health care to the individual or • The past, present or future payment for the provision of health care to the individual; and • That identifies the individual or for which there is a reasonable basis to believe the information can be used to identify the individual.2 If the individually identifiable information does not relate to an individual’s health or healthcare, then the information is known as personally identifiable information (“PII”). PII is not protected by HIPAA but may be the subject of various state privacy regulations.3

Who is Subject to the HIPAA Privacy and Security Rules? HIPAA requires two groups to comply with the privacy and security rules: covered entities and business associates. HIPAA defines “covered entities” as health plans, health care providers and health care clearinghouses.4 Health plans include health insurance companies as well as group health plans. One major exception to this rule is that selfinsured group health plans with less

than 50 participants are not covered entities if they are administered inhouse.5 It is also important to note that health plan sponsors, unlike health plans, are not covered entities in and of themselves. Rather, the HIPAA privacy and security rules govern, in part, the flow of information from the health plan to the plan sponsor. HIPAA defines “business associates” as third parties that provide services to covered entities involving the use or disclosure of PHI.6 Business associates must have written contracts with the health plan or other covered entity that establishes the scope of the business associates’ services and their obligations with respect to the PHI accessed, used, created or maintained on behalf of that covered entity as part of those services.7 Under the HIPAA privacy and security rules, covered entities have primary responsibility to protect PHI but recent changes to HIPAA impose direct liability on business associates as well.

II. HIPAA Breaches and Plan Sponsor Responsibility HIPAA breaches have gained significant media attention in the past year. What does this mean for plan sponsors? In addition to recognizing and mitigating breaches (see our prior Advisory),8 plan sponsors should understand their responsibilities in the event of a breach affecting the plan.

Who Bears the Responsibility for a HIPAA Notice in the Event of a Breach? Most employer-sponsored health plans utilize multiple service providers (TPAs, PBMs, etc) in order to provide coverage. In order to determine who bears the responsibility to issue a notice in the event of a breach, one

must determine who the primary covered entity under HIPAA is. If a plan is self-insured, the duty to issue a HIPAA breach notice lies with the plan. In this context, the group health plan is a covered entity and the third party administrator (TPA) is only a business associate. Thus, in absence of an agreement to delegate the HIPAA notification duty otherwise, the primary responsibility to notify lies with the self-insured plan, not the TPA. If a plan is fully-insured, because there are two covered entities (the insurer and the health plan) the duty to issue a HIPAA notice lies with the entity where the breach occurred.

What is the HIPAA Duty to Notify? A HIPAA breach occurs when PHI is accessed or transmitted in a non-permissible way.9 In the event of a breach, HIPAA requires that the covered entity notify each individual whose PHI was breached.10 If the breach affects at least 500 people, the duty to warn expands to additionally notifying HHS.11 And if the breach affects at least 500 people in the same State, the duty to warn expands to include notice to prominent media outlets.12 The notice must be made through first class mail and must contain information about the date of the discovery of the breach, the date of the breach itself if known, a description of the breach, information regarding how the individual may protect themselves, information regarding what the covered entity is doing to mitigate the problem and contact information for the covered entity.13 The covered entity must deliver notice to the affected individuals without unreasonable delay and in no event later than 60 days after discovering a breach.14 In contrast to a covered entity, a business associate’s only responsibility November 2015 | The Self-Insurer

under HIPAA is to notify the covered entity of a breach.15 A business associate is not responsible for providing notice to affected individuals, HHS or the media. And while a business associate may assume the notice obligation by contract, the covered entity would remain liable for the business associate’s notice failures.

III. Increased Potential of HIPAA Penalties and Increased Settlements In addition to the threat of HIPAA breaches, plan sponsors should also be aware of HHS’ increasing authority when a HIPAA breach or other mistake has occurred. Among other changes, HHS’ 2013 HIPAA regulations implementing the HITECH Act (known as the “Omnibus Rule”) increased the potential penalties available to HHS for HIPAA violations.16

Each Violation

Annual Cap

$100–$50,000

$1,500,000

Reasonable Cause

$1,000–$50,000

$1,500,000

Willful Neglect - Corrected

$10,000–$50,000

$1,500,000

Willful Neglect - Not Corrected

$50,000 (no max)

$1,500,000

Violation Type Did Not Know

(Identical Provisions)

As a result, HHS has more power in settlement negotiations with covered entities during an investigation. In addition, over the past decade, HHS has also increased the number of HIPAA privacy investigations. HHS’ historical numbers indicate that the total number of investigations has increased dramatically – from less than 5000 in 2004, to between 8000 and 9000 from 2009 to 2013, to over 14,000 in 2013.17 This increased number of investigations, combined with HHS’ increased penalty ceilings, has resulted in an increasing amount of large settlements with various covered entities. For example, in May 2014, HHS announced the largest HIPAA settlement to date: $4.8 million across two connected entities, New York and Presbyterian Hospital and Columbia University.18 In fact, the past three years have seen several multi-million dollar settlements between HHS and covered entities. These include: • Affinity Health Plan: $1,215,780 (2013) • Alaska Department of Health and Human Services: $1,700,000 (2012)

Mind over risk.

Staying confident in a world where change is constant.

With today’s ever-changing and challenging market, successful companies rely on financial stability and strong credentials. We’ve used those needs to drive us into group life and disability products while maintaining our position as a leader in the medical stop loss market for over 35 years. We have the strength and experience to remain prepared for whatever tomorrow brings. We call it Mind over risk. For more information, visit us online at hcc.com/life. A subsidiary of HCC Insurance Holdings, Inc.

The Self-Insurer | www.sipconline.net

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November 2015 | The Self-Insurer

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A CONTRACT IS A LEGAL DOCUMENT.

A TRUE PARTNERSHIP IS SO MUCH MORE.

Our experience, innovation and track record are only meaningful if we are able to help our clients. We will listen carefully to your goals and challenges and leverage our deep and varied resources to deliver a customized solution that meets your needs. Find out what you can expect from a true partner at partnerre.com/health Underwritten by PartnerRe America Insurance Company Executive Office: 450 Sansome St., San Francisco, CA 94111 Form HAD0815 08/2015 24

The Self-Insurer | www.sipconline.net

• Massachusetts Eye and Ear Infirmary/ Eye and Ear Associates: $1,500,000 (2012) • Blue Cross/Blue Shield of Tennessee: $1,500,000 (2012) Settlement agreements published by HHS make clear why, in addition to financial penalties, entities would do well to avoid HHS’ attention. HHS frequently imposes tough restrictions on covered entities – including requiring implementation and/or progress reports to HHS, thorough documentation of compliance efforts, workforce re-training, revisions to policies and procedures and periodic risk assessments and risk management plans.19 These often go beyond the scope of HIPAA’s generally applicable requirements and subject the covered entities to HHS’ watchful eye for an extended period of time. Even in cases where financial penalties are moderate, HHS does not let covered entities off lightly after a breach or other complaint. Thus, covered entities are much better off complying in the first instance.

What is HHS Looking for in Investigations?

Entities looking to understand HHS’ enforcement priorities have a wealth of information available to them in guidance and published settlement contracts with covered entities. For example, HHS has stated that historically, its investigations have focused on: • • • •

Impermissible uses and disclosures of protected health information; Lack of safeguards of protected health information; Lack of patient access to their protected health information; Lack of administrative safeguards of electronic protected health information; and • Use or disclosure of more than the minimum necessary protected health information.20 This provides covered entities with a useful roadmap of what HHS is likely to look for in an investigation: situations where PHI is vulnerable to use or disclosure (or has, in fact, been improperly used or disclosed). In addition, recent settlement agreements with various covered entities reveal

the specific circumstances that have led them into trouble – often quite expensive trouble. A notable aspect of recent HHS settlements is that while some instances are somewhat flagrant (e.g., intentionally releasing PHI to the media, dumping patient records in public locations),21 many of the incidents settled by HHS could happen to any employer or health plan. For instance, several involve stolen electronic media such as flash drives or laptops.22 Another major theme is unintentional IT security lapses, such as unsecured servers or malware.23 Finally, HHS has also settled several cases related to improper disposal of PHI.24 Plan sponsors should be aware that these incidents can easily happen in a typical workplace, but HHS has little sympathy for entities that did not address the risk in advance. HHS’ settlements are also helpful in that they illustrate HHS’ reasoning for sanctioning covered entities. One theme that occurs in almost every settlement agreement is the failure to demonstrate a thorough analysis of the risk posed by PHI – usually electronic PHI – on an on-going basis (in particular, potential risks with portable devices), failure to incorporate this information in a risk management plan and/or the failure to account for particular, foreseeable risks.25 Entities are also expected to conduct routine system reviews to ensure that potential risks are handled in a timely manner.26 HHS has also focused on the failure to address basic IT risks and/or implement technical safeguards27 and basic security measures, such as encryption, for electronic devices.28 More generally, it has criticized the lack of written policies and procedures (as a whole or for a specific issue)29 and the failure to follow these written procedures.30 Finally, another major theme is the November 2015 | The Self-Insurer

failure to provide adequate HIPAA training to staff.31 Health plans should be aware of these issues and make sure that they have been adequately addressed, in writing AND in practice. These settlements also illustrate the importance of involving multiple types of professionals, such as benefits personnel, IT experts and informed legal counsel, all of whom will have critical – but different – knowledge needed to protect the organization. For example, covered entities need to be aware of the physical and electronic locations of PHI; IT security strengths and weaknesses; and risk areas (particularly in unexpected places – e.g., PHI remaining on copier hard drives).32 Without input from across the organization, entities may miss a critical vulnerability of the privacy or security of PHI. Finally, while many of the recent settlements involve healthcare providers, HHS has also settled investigations with health plans, such as health insurers.33 In addition, it is important to note that many of the issues that arose with respect to providers (e.g., stolen laptops, IT security lapses) could easily occur with respect to employer-sponsored health plans. Thus, health plans should not assume that only healthcare providers or large entities, are subject to HHS’ scope.

What Does This Mean for Plan Sponsors? The recent instances of highprofile HIPAA data breaches and enforcement activity are a good reminder for employer-sponsored health plans to brush up on their knowledge of the HIPAA privacy and security rules. The fact that many covered entities were punished for violations that would not seem egregious to many plan administrators indicates that HIPAA issues can 26

The Self-Insurer | www.sipconline.net

happen almost anywhere, if the proper precautions are not taken. In addition, while a data breach may, to a certain extent, be outside of the control of a plan sponsor, there are still a number of steps sponsors may take in order to protect themselves.

IV. How Can Plan Sponsors Protect Themselves? • Ensure that their HIPAA privacy and security policies and procedures, Notice of Privacy Practices and Business Associate agreements are in place, up-to-date and followed in practice. In addition, they should periodically perform risk assessments and risk management plans to identify and address vulnerabilities where violations of HIPAA may occur. For more information about risk assessments, please see our prior Advisory.34

• Examine your contracts for PII provisions. Because HIPAA does not protect personal identifiable information (PII), there is no federal HIPAA duty to notify individuals if there is a PII breach rather than a PHI breach. However, some states have privacy statutes that do regulate PII. To account for this, you should work with your business associates and other vendors to establish an appropriate protocol for dealing with PII breaches as well as PHI breaches.

• Examine your contracts with business associates and other vendors for HIPAA notification provisions. Ideally, your agreements should specify the responsibilities of both the plan and of any vendors in dealing with a HIPAA or state data breach. The responsibilities should be

determined in conjunction with the liability and indemnification provisions of the agreement.

• ERISA fiduciaries should keep a record of all acts and considerations taken with respect to data breaches. If your employer-sponsored plan is an ERISA plan, its fiduciaries have duties that lie beyond the reach of HIPAA. ERISA plan fiduciaries have a duty to act for the benefit of the individuals covered under the plan. In the context of a data breach, the ERISA duty to act is an additional duty to the HIPAA duty to notify. While ERISA fiduciaries must comply with the HIPAA duty to notify, they should also take additional affirmative steps regarding their duty to act in the event of a data breach. This should involve creating and maintaining a plan of action, reviewing health insurance issuer and TPA agreements and letting participants know what precautions you have taken on their behalf. ■ 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. Attorneys John R. Hickman, Ashley Gillihan, Carolyn Smith and Dan Taylor 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 Dan Taylor 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. References Meredith Gage, Esq. and Stacy Clark, Esq. associates in Alston & Bird’s Atlanta office assisted with the preparation of this article.

SSA §1171(4)(B); 45 CFR §160.103

The state overlap is important to take into account as we see more and more courts contract the scope of ERISA preemption. 3

45 CFR §160.103; 45 CFR §164.104.

SSA § 1171(5)(A).

45 CFR §160.103.

45 CFR §164.308(b); 45 CFR §164.502(e)(1).

8 www.alston.com/Files/Publication/2f74e6ac-abac-4cfc8a7c-a5f6950d825f/Presentation/PublicationAttachment/ a33a888a-fcea-4ba0-a9f8-ae1466d2242a/Lifes-a-breach. pdf .

45 CFR §164.402.

45 CFR §164.404(a)(1).

45 CFR § 164.408

45 CFR §164.406(a).

HHS, Enforcement Highlights, August 31, 2015, available at www.hhs.gov/ocr/privacy/hipaa/enforcement/highlights/index.html.

HHS, Shasta Regional Medical Center Settles HIPAA Privacy Case for $275,000, available at www.hhs.gov/ocr/privacy/ hipaa/enforcement/examples/shasta-agreement.html; HHS, $800,000 HIPAA Settlement in Medical Records Dumping Case, available at www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/parkview.html.

HHS, Press Release, available at www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/cancercare.html; HHS, Stolen Laptops Lead to Important HIPAA Settlements, available at www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/stolenlaptopsagreements.html; HHS, Untitled, available at www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/apderm-agreement.html.

HHS, Idaho State University Settles HIPAA Security Case for $400,000, available at www.hhs.gov/ocr/privacy/hipaa/ enforcement/examples/isu-agreement.html; HHS, HIPAA Settlement Underscores the Vulnerability of Unpatched and Unsupported Software, available at www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/acmhs/index.html; HHS, Data Breach Results in $4.8 Million HIPAA Settlements, available at www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/ jointbreach-agreement.html.

HHS, HIPAA Settlement Highlights the Continuing Importance of Secure Disposal of Paper Medical Records, available at www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/cornell/index.html; HHS, HHS Settles with Health Plan in Photocopier Breach Case, available at www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/afﬁnity-agreement.html.

HHS, Press Release, available at www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/cancercare.html; HHS, Data Breach Results in $4.8 Million HIPAA Settlements, available at www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/jointbreachagreement.html; HHS, HHS Settles with Health Plan in Photocopier Breach Case, available at www.hhs.gov/ocr/privacy/hipaa/ enforcement/examples/afﬁnity-agreement.html.

HHS, Idaho State University Settles HIPAA Security Case for $400,000, available at www.hhs.gov/ocr/privacy/hipaa/ enforcement/examples/isu-agreement.html;

HHS, HIPAA Settlement Underscores the Vulnerability of Unpatched and Unsupported Software, available at www.hhs.gov/ ocr/privacy/hipaa/enforcement/examples/acmhs/index.html; HHS, Data Breach Results in $4.8 Million HIPAA Settlements, available at www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/jointbreach-agreement.html.

HHS, Press Release, available at www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/cancercare.html; HONI

HHS, Press Release, available at www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/cancercare.html; HHS, HIPAA Settlement Highlights the Continuing Importance of Secure Disposal of Paper Medical Records, available at www.hhs.gov/ocr/ privacy/hipaa/enforcement/examples/cornell/index.html; HHS, Data Breach Results in $4.8 Million HIPAA Settlements, available at www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/jointbreach-agreement.html.

HHS, HIPAA Settlement Highlights the Continuing Importance of Secure Disposal of Paper Medical Records, available at www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/cornell/index.html.

HHS, HHS Settles with Health Plan in Photocopier Breach Case, available at www.hhs.gov/ocr/privacy/hipaa/enforcement/ examples/afﬁnity-agreement.html.

www.alston.com/advisories/HIPAA-Business-Agreements/

45 CFR §164.404.

Id.

45 CFR §164.410.

For an overview of the Omnibus Rule’s major changes that affect health plan sponsors, please see our prior Advisory: www.alston.com/Files/Publication/19c1650bc278-4abf-9c1b-9fff28d27c4a/Presentation/ PublicationAttachment/7ed0617b-c6b1-4350-8e38a5295c262cd1/13-195-HIPPA-Omnibus-Rule.pdf.

HHS, Enforcement Results by Year, available at www.hhs. gov/ocr/privacy/hipaa/enforcement/data/historicalnumbers. html. HHS has not provided numbers past 2013.

HHS, Data Breach Results in $4.8 Million HIPAA Settlements, available at www.hhs.gov/ocr/privacy/hipaa/ enforcement/examples/jointbreach-agreement.html.

HHS, $800,000 HIPAA Settlement in Medical Records Dumping Case, available at www.hhs.gov/ocr/privacy/hipaa/ enforcement/examples/parkview.html; HHS, Data Breach Results in $4.8 Million HIPAA Settlements, available at www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/ jointbreach-agreement.html; HHS, Stolen Laptops Lead to Important HIPAA Settlements, available at www.hhs.gov/ ocr/privacy/hipaa/enforcement/examples/stolenlaptopsagreements.html; HHS, County Government Settles Potential HIPAA Violations, available at www.hhs.gov/ocr/privacy/ hipaa/enforcement/examples/skagit-agreement.html.

November 2015 | The Self-Insurer

Benefits Captives are

Growing & Expanding to Meet

Ever Changing Needs

ith two highprofile companies getting approved by the DOL to offer employee benefits since 2013, employee benefits captives are getting more and more attention. In 2012, after the Department of Labor suspended captives pursuing employee benefits from its EXPRO program, the program is once again applicable to captive reinsurers following the high-profile exemptions received by the Coca-Cola Company and Intel Corporation. As employee benefit programs become more costly, larger companies are seeking to obtain more control over the programs in an effort to reduce cost and increase efficiency. Written by Karrie Hyatt 28

The Self-Insurer | www.sipconline.net

BENEFITS CAPTIVES GROWING | FEATURE Employee benefits are nonwage compensation that employees receive as part of their employment agreements. The basic benefits, many of which are mandated by law, are things like sick leave and vacation days, workers compensation and health insurance. Other benefits are things like life-insurance, dental coverage, disability and retirement packages (pension, life insurance and health insurance).

and began working with the DOL to seek individual exemptions. One of the first major companies to get an individual exemption was Columbia Energy Group in the year 2000. In 2003, Archers Daniel Midland (ADM) received approval for a prohibited transaction exemption (PTE) for their captive Agrinational Insurance Company. This triggered the DOL’s EXPRO program for this type of transaction.

new requirements to the approval process when it reinstated EXPRO for benefits captives, but, according to insiders, the department is looking for more clarity and details explaining how employees will be benefited by the reinsurance structure.

Since 1974, employee benefits have fallen under the regulation of the U.S. Department of Labor (DOL) after the Employee Retirement Income Security Act (ERISA) became law. ERISA was created to set standards and monitor pension and health plans voluntarily set up by companies for their employees. In the 1960s, after several corporate bankruptcies left employees without their pensions, Congress enacted ERISA to contravene labor racketeering, theft and employer bankruptcy that harmed employees.

EXPRO is a program run by the DOL that expedites the approval process for PTEs. Individual exemptions can take upwards of six months or longer to get approval. Using EXPRO, companies can shorten the process to no longer than two and half months. In order to get PTE approval under EXPRO, a company must base their application on two substantially similar individual exemptions within a five year period or one substantially similar individual exemption within ten years and one substantially similar exemption authorized by EXPRO within the previous five years. Since 2003, most companies applying for PTEs have gone through EXPRO, but there are still some that seek individual exemptions.

Reinsuring employee benefits so far remains in the realm of larger companies and corporations. There are several reasons for this. The two main employee benefits that companies are reinsuring through their captive are group life insurance and long-term disability. Bandarenko said, “The tried and true benefits that are typically added to captives include the basket of group life insurance and long-term disability and when you are dealing with those two coverage lines it is generally larger companies that will have the premium and plans large enough to be actuarially credible to support inclusion in the captive. So by and large, larger companies favor the idea.”

ERISA does not apply to some employee benefits offered by companies, such as workers’ compensation or medical stop-loss. However, ERISA applies to many of the most popularly offered benefits. The primary benefits that companies are interested in reinsuring through their captives have been group life insurance and long-term disability insurance. These are considered under ERISA to be prohibited transactions, so in order to set up the reinsurance of employee benefits through a captive, the parent company must seek a prohibited transaction exemption directly from the DOL.

Prohibited Transaction Exemptions and the DOL’s EXPRO Companies became interested in adding employee benefits to their captives beginning in the late 1990s

In late 2012, the DOL suspended the EXPRO program for captive reinsurers. According to Peter Bandarenko, head of New Market Development and senior consultant for Spring Consulting Group, LLC, “There was a normal sunset provision built into it. [At the time] there was an emphasis to reevaluate the requirements. The one area that gained scrutiny was benefit enhancements. They wanted to make sure that if a captive was adding employee benefits it was truly an enhancement to all employees.” In 2014, the DOL reinstated EXPRO for captive insurers, based on exemptions approved for Coca-Cola and Intel. The DOL did not add any

Who Reinsures Employee Beneﬁts Through Captives?

Another reason is that larger companies are more likely to have both a Human Resources department and a Risk Management department. Since these types of benefits fall under ERISA, it is important that both HR and risk managers work together for compliance. Companies that are large will also have more resources with which to pursue the ERISA exemption, which comes at a cost of time, effort and money. To even apply for an ERISA exemption with the DOL, a captive has to have been in operation for one year. Companies just launching their captive operations will not have the experience in order to get a PTE. Whereas established captives can make good use of employee benefit November 2015 | The Self-Insurer

BENEFIT CAPTIVES GROWING | FEATURE

everyone,” said Bandarenko. “It also requires a unique client where there is strong collaboration between risk management and human resources and one that takes a long term view towards owning and managing their risks. A lot of companies aren’t fully there yet.”

Recent Developments

reinsurance for their parent companies. For most companies, using their captive to reinsure their employee benefits would not have enough economic advantages to be worthwhile opportunity. For many, it might even cost them more to try and use a captive mechanism for that purpose. “While adding employee benefits to a captive is becoming a path well-traveled, there are still additional expenses and a complexity to it so it is not a solution for

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In just a little more than ten years, benefits captives have gone from an unknown quantity to a method used by a growing number of companies. In the early 2000s, there were very few employee benefits plans that were reinsured through captives. A lot of it had to do with the fact that human resources and risk managers were not used to working together. There was also a lot of resistance from insurers to work within this mechanism. However, now that enterprise risk management has become more

November 2015 | The Self-Insurer

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common within larger companies, it has allowed for more collaboration between disparate departments. Captives themselves have become more sophisticated in the last fifteen years, so companies are looking for ways to expand the use of their captive to take advantage of the cost savings associated with them.

the financial gaps being created by the movement to high deductible health plans, products like group critical illness, group accident, hospital indemnity plans, etc. are being introduced by plan sponsors large and small. This is driving captive owners to again consider expanding use of captives to include these types of voluntary employee benefit plans. This is an emerging area, with lots of recent feasibility study activity and one where we expect to see considerable growth over the next few year.”

“Much of the historical activity around benefits in a captive has been centered around single-parent companies adding group life and disability. This is still the case today,” said Bandarenko. “We are seeing a consistent number of clients expressing interest and requesting feasibility studies being done. On average, we are seeing three to four new clients pursing DOL PTE’s each year. We anticipate this trend to continue into the future. So the growth of employee benefits captives continues to expand at a steady pace.”

While benefits captives falling under the purview of ERISA continue to experience growth, the ones that are growing at the fastest rate are those that are not seeking to reinsure ERISA covered benefits. Medical stoploss is garnering the most interest. According to Bandarenko, “When you look at the expansion of other benefits, there has been a recent groundswell of activity, largely being driven by the implementation of the affordable care act (ACA). Small and midsize firms are looking for creative solutions to help them reduce their medical plan costs. The use of captives to fund medical stop loss insurance is an emerging area of focus and expansion within the industry.”

While reinsuring employee benefits through captives is not as dynamic in growth in the same way that many other captive coverages are, it has proven to be a strong, steady area of growth for the industry and will likely continue to be as the captive sector becomes more sophisticated in use and management. ■ Karrie Hyatt is a freelance writer who has been involved in the captive industry for more than ten years. More information about her work can be found at: www.karriehyatt.com.

“Another byproduct of the rollout of the ACA is the expansion of the type and scope of voluntary benefits plan sponsors are making available to employees,” added Bandarenko. “In an effort to help employees mitigate November 2015 | The Self-Insurer

Self-Insurance Institute of America, Inc.

35th Annual National

2015

CONFERENCE & EXP0 General Session Recap: MARRIOTT MARQUIS // WASHINGTON, DC // OCTOBER 18-20, 2015 Industry Insiders Raise Red Flags MARRIOTT MARQUIS // WASHINGTON, DC // OCTOBER 18-20, 2015

n a year of intense political battles, a spacious ballroom at the Marquis Marriott in Washington, D.C., became the War Room for SIIA’s 35th Annual National Educational Conference & Expo. Over the course of two days, attendees were briefed on efforts to defend the self-insurance industry in 2015 and an insider’s assessment of the 2016 presidential campaign and beyond. “Most associations have one or more professional lobbyists, which SIIA has, but it’s not enough to be effective,” cautioned Mike Ferguson, SIIA president and CEO. He said the key to success is an ability to integrate several different tools that include grassroots member involvement, raising money for better access to elected officials and regulators through campaign contributions and litigating to protect the interests of self-funded plans and alternative risk transfer or captive programs whenever they’re threatened. Ferguson noted SIIA’s deeper involvement in captive insurance, including the filing of an amicus brief amid growing oversight of these vehicles.

Written by Bruce Shutan 34

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More than $40,000 was raised in 2015 to help arrange meetings with members of Congress who were educated about SIIA’s mission. Perhaps no one on Capitol Hill has a better understanding of self-insurance and stop-loss than U.S. Rep. Phil Roe (R-TN.). The former physician self-insured the health care plan of Johnson City, Tenn., public employees when he was mayor of that town,

according to Bob Tierney, who chairs the six-member Self-Insurance PAC (SIPAC) board of trustees. “He is a huge proponent of the self-insured industry,” he said, noting SIPAC’s mission to forge productive relationships with elected officials. He said Sen. Richard Burr (R-NC), who serves on the health and finance committees in the Senate, is also considered very knowledgeable about self-insurance and mentioned how nine SIIA members dined with both lawmakers for three hours.

Growing Emphasis on State Oversight Jerry Castelloe of Castelloe Partners, who is serving a second tour of duty as chairman of SIIA’s Government Relations Committee (GRC), referenced numerous issues of interest to SIIA at the federal level that are “growing rapidly at the state level.”

Ryan Work, SIIA’s senior director of government relations, was credited with leading the charge for SIIA this past year in several key states, including Florida, New Mexico, New Hampshire, Maryland, New York and Connecticut. Adam Brackemyre, SIIA’s director of state government relations, also was praised for his work at the federal of government. In addition, Castelloe referenced an “all-star team” of 10 SIIA members at the grassroots lobbying level, as well as the 20-member committee he leads. He noted their involvement in helping advance the Self-Insurance Protection Act, which was reintroduced in March by U.S. Sens. Lamar Alexander (R-TN), chairman of the Senate Health, Education, Labor and Pensions Committee, Bill Cassidy (R-LA) and U.S. Rep. Phil Roe (R-TN). The legislation, known in the Senate as S. 775 and in the House as H.R. 1423, was first introduced in 2013.

It would prevent federal regulators from re-defining stop-loss insurance as traditional health insurance – safeguarding a linchpin of selfinsured plans that cover 61% of the commercial health insurance market, or nearly 100 million Americans. The bill comes at a time when stop-loss coverage has been under attack at both the federal and state level. Other key agenda items within the past year have included researching private exchanges and issuing public comments on how the Cadillac tax would affect self-insured plans and their administrators, as well as the cost of compliance. “What you can do is make yourself and any of your clients involved for public comment with regulators or legislators,” Castelloe suggested. The strategy enables SIIA members to feel that they have a voice on Capitol Hill, he believes and meeting with local members of Congress will help them become more engaged and motivated to address SIIA’s concerns. Tierney also encouraged SIIA members to meet with as many elected officials before the next election cycle to help influence any tweaking of health care reform. “SIIA’s work is impactful and the organization is well respected,” he said. “This industry is poised for growth and the PAC is your vehicle to be proactive in this process.”

ERISA Preemption Cases On the legal side, long-time SIIA adviser John Eggertsen, an attorney with Eggertsen Consulting, P.C., referenced two significant ERISA preemption cases that are up for review by the U.S. Supreme Court (SCOTUS): • SIIA v. Snyder, which challenges a ruling by the U.S. Court of Appeals for the Sixth Circuit to uphold a 1% tax on health care payers in Michigan, including

insurance companies, TPAs and Taft-Hartley plans. The assessment thus far has raised only about half of $400 million in revenue the state anticipated to help maintain its share of Medicaid funding. He said about half that amount came from selffunded ERISA plans. • Gobeille v. Liberty Mutual, which mandates that every health care payer in Vermont provide demographic medical claim information on state residents. The thinking behind this requirement, whose arguments were heard before the U.S. Court of Appeals for the Second Circuit, is that it would help Vermont make diagnostic and interpretive decisions about the health of its citizens. He said the key issue is what constitutes administration, noting that the filing obligation was determined to have interfered with the administration of the ERISA plan and, therefore, was preempted. “There’s pretty good case law on how regulating administrators is preempted by ERISA,” according to Eggertsen. From that perspective, he opined that it would be easier for the self-insurance industry to argue these cases if stop-loss coverage is sold to a health plan rather than an employer. While it’s not known when SCOTUS will hear SIIA’s case against Michigan, Eggertsen believes the Vermont case could commence in early December. “We don’t know what’s going to happen, but frankly whatever the Supreme decides on the Vermont case will automatically change the result of our case [in Michigan],” he said, adding, “what likely would happen is they’ll reverse and remand without ever hearing the case.” November 2015 | The Self-Insurer

Keynote speaker Chris Wallace

Another noteworthy development mentioned was SIIA’s media-outreach campaign led by a high-powered, public relations firm in Washington, D.C. Ferguson described SIIA’s op-ed piece in the Wall Street Journal on the Self-Insurance Protection Act as “the gold standard for media placement.” Another article involving five facts about self-insurance was syndicated in about 18 regional newspapers. Ferguson also lauded the work of the Self-Insurance Defense Coalition and Self-Insurance Educational Foundation to educate policymakers. Other efforts include greater coordination with and outreach to organized labor and a new regulatory task force on workers’ comp legislative.

Assessing the Presidential Campaign and ACA The opening keynote address was given by Chris Wallace, the threetime Emmy award winning anchor 36

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for Fox News whose handicapping of the 2016 presidential race was laced with jokes about some of the candidates. The diminutive journalist also offered several personal anecdotes, including a hilarious recollection about beating basketball icon Michael Jordon in a free-throw contest when he interviewed the former Chicago Bulls star years ago. Wallace held court on a number of issues, including the future of the Affordable Care Act (ACA). “The GOP as an article of faith talk about repeal and replace,” he said. If Hillary Clinton becomes president, he believes there will be some tinkering with the medical device tax and other provisions, but even with a Republican majority in Congress and the prospect of the GOP recapturing the White House, Wallace believes the prospect for any changes would be very limited. A related point he made was that nothing much will happen until 2017, anyway, when there’s a better idea about the new political balance. It’s also not as much at the top of the national agenda and discussion as other issues, such as national security and income inequality, according to Wallace, who added that health care reform is now old news in the mainstream media’s 24/7 information cycle. To a certain degree, he said that a getting health care reform got into the nation’s bloodstream, so to speak, has proven to be a victory for the Obama Administration. Indeed, he said there are enough parts of the ACA that are helping people, such as no preexisting conditions, children being able to stay on their parent’s coverage until age 26 and about 10 million Americans added to the nation’s insurance roll. He sees tort reform and an ability to purchase coverage across state lines as real possibilities down the line.

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But the fact remains that there are still a billion poor Chinese, which he said strains socioeconomic growth. Protests are about arbitrary use of authority at the local level and the number of outbreaks of mass unrest in China is on the rise – reaching 120,000 in 2008 from 8,700 in 1998. But since there are mandatory age limits in Chinese government, Reinsch said the system will be refreshed by younger minds.

Costa Rica Ambassador, Roman Macaya at the SIIA International Conferences Update Session

Another factor involved SCOTUS rulings that helped the ACA become more accepted, even with premiums being raised on many members of the middle class. Wallace said a PAC will help advance SIIA’s point of view “because money talks.”

International Session Recap: China’s Explosive Growth Captivates World In the global economy, all eyes are glued to China, which last year overtook the U.S. as the world’s No. 1 economy. And while American businesses are increasingly ambivalent about the world’s most populated country, which is home to 1.3 billion people, China could be upstaged by India in the years ahead. These key themes were examined in an educational workshop at SIIA’s national conference entitled, “China and the U.S.: A Perspective from Washington,” and could be the subject of further exploration by SIIA’s International Committee.

Bill Reinsch, president of the National Foreign Trade Council and a long-time expert on China, told attendees that China represents “the fastest rise in human history” with an average of 10% gross domestic product (GDP) growth since the country’s opening in the world economy. He referenced an extraordinary sequence of developments made in the past 25 years that mirrored Japan’s rise in the 1980s. But there were major differences. “We had many of the same economic worries about Japan 25 years ago, but at the end of the day that nation was a friend and ally and not a military threat – unlike China,” he said. One such example is military installations being built on various islands in the South China Sea. More than 300 million people have been lifted out of poverty in China, whose historically low labor costs are now on the rise, according to Reinsch. China’s workforce is known for having a good work ethic and agility. For example, he said it could only take only a few weeks to change a production line.

About one-third of China’s water cannot be consumed, while air quality is atrocious in Beijing and other major cities, creating what he called a permanent fog effect. A huge public outcry over these issues has forced government officials to seek substantive solutions. A number of U.S. companies pledged in the 1990s to be in China for the long haul, despite losing money – which he said resulted from them not doing their homework. And their challenges are expected to persist for a number of reasons. China ranks 100 of 174 of the world’s most corrupt nations, according to one report. The Intellectual Property Commission found in 2013 that there’s about $300 billion in total losses to the U.S. economy traced to intellectual property (IP) theft and anywhere from 50% to 80% of those total losses originates from China. Moreover, there’s a growing record of business complaints about China. A 2014 report showed 86% of companies were concerned about antimonopoly laws, while 60% of U.S. firms felt the climate was inhospitable. Perhaps not surprisingly, there’s statistical evidence that the rate of increase in foreign investment in China is declining in part because of difficulties in the region, Reinsch observed. He noted that India now is becoming a fresh frontier in business November 2015 | The Self-Insurer

as its population is expected by 2025 to overtake China, whose one-child policy has created a huge gender mismatch in favor of males and spikes labor costs. There are ways for U.S. companies to adjudicate claims against Chinese tariffs on their imports, but it can be time-consuming and costly, he cautioned. There also are a variety of U.S. remedies for patent and trademark complaints. There are now IP courts in China, but 95% of the cases involve one Chinese company suing another Chinese company, he added. Reinsch suggested the U.S. can help build a rule of law and IP solutions that are part of a diplomatic engagement with China, as well as maintain western business practices and transparency standards. “We can also work with Europe to agree on standards for our consumer markets that will help expand trade and head off Chinese efforts to impose

their own standards,” he added. The thinking is that it would force China to adopt western ways of doing business. The extent to which service providers in the U.S. self-insurance and alternative risk transfer markets could grow their businesses in China is slim to none, though it could change over time. “The number of foreign companies allowed in China is very small and partnerships are often required,” commented Armando Baez, SVP in the Asia Pacific region of Global Benefits Group, whose tagline is “insurance without borders.” Noting that the percentage is only about 1.2% of 1.5% of the market, he said many Chinese insurance companies already compete for business. However, that doesn’t necessarily mean the Chinese government will adopt a monolithic view moving forward.

Reinsch explained that building out the insurance sector beyond 200-plus Chinese carriers, most of which are state owned, could help strengthen the nation’s social fabric. Given the effect of China’s growing pains on its citizenry, that would serve the government well in helping quell social unrest.

Workers’ Comp Session Recap: Panel Urges New Rx for Treating Pain

Commonly diagnosed workers’ comp claims that are ballooning costs for self-insured employers have more to do with the mind than the body, but conventional medicine hasn’t caught up with this more accurate new thinking about an old topic. The warning came during an educational workshop at SIIA’s national

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conference entitled “How Medical Red Herrings and Over-diagnosis Drive Poor Outcomes and Big Losses.” Panelists suggested there are systemic barriers to treating chronic pain for comp cases as well as on the group health side. For example, doctors are inclined to blame a physical sensory source for injured workers who are still complaining after being on painkillers and doing physical therapy. An even larger problem is that there’s simply a failure to diagnose or treat pain scientifically. There’s clearly an over-diagnosis of chronic pain and back pain in particular is more than likely due to issues that aren’t related to the spine in workers’ comp cases, noted Keith Rosenblum, a senior strategist for workers’ compensation risk control at Lockton Companies, LLC, who has studied unique claims for years. He said there’s a 70% higher probability of

a psychosocial issue being involved in legacy claims for workers’ comp. Over-diagnosis exacerbates the seriousness of medical problems, leading to overtreatment and a failure to resolve those issues, the panelists noted. Moreover, doctors aren’t trained to understand pain and continue to practice an outdated approach to medicine when they need to adopt the “bio-psycho-socio-economic” (BPSE) model for a more accurate view of sickness and disability. This chasm was explained by David Ross, M.D., a diplomat at the American Board of Psychiatry and Neurology and chief medical officer for NeuroPAS Global LLC, who developed a training module that physicians in the United Kingdom are now required to follow in addressing pain associated with personal injury work. His point is for providers to always question the underlining diagnosis and listen more to patients rather than simple review MRI results. “We’ve identified a huge area where this can be done, which is the musculoskeletal area,” he said. Ross said the BPSE approach is all about the brain and how it processes sensation, not about the body. Most people with chronic low back pain (85%) have changes in emotional and thinking brain regions and not in sensory brain regions, he explained. For the past two decades since MRIs have been used to identify musculoskeletal injuries, Rosenblum noted a 600% increase in MRIs, 500% increase in opioid prescriptions, 400% rise in spinal injections and 300% more back surgeries. Also during this time, he pointed to a 200% to 300% increase in the number of disabled Americans. The panel’s consensus was that spinal MRI findings represent a prime example

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Consultants, said some dividends are reinvested in the companies that belong to a P&C group captive, while others are used as a deferred compensation incentive to retain key managers. One such company is Silbrico Corporation, the world’s largest producer of commercially available perlite products. In business since 1946, the company has thus far reinvested its share of dividends from the Evolution Insurance Co.’s P&C group captive it joined 11 years ago. Company president Steve Garnett told attendees that there also has been talk about sharing distributions with some of the company’s roughly 95 employees. Health Session “Employer Direct Contracting: Game Changing Medical Travel Trend” with Laura Carabello, Cheryl DeMars, Trisha Frick-Hoff, David LaMarche and M. Ruth Coleman

of a medical red herring, which they defined as incorrect diagnoses based on poor science or inaccurate criteria. Before authorizing MRI, injections, surgery and more opiods, Rosenblum stressed the importance of evaluating injured workers through validated questionnaires for BPSE factors by mental health professionals, as well as neurophysiologic pain profile testing to identify the source of distress or reactions. The payoff of BPSE tests and services done at a very low cost grows over time, he added. Jennifer Christian, M.D., president of Webility Corporation, suggested that back surgeries only should be done after an adequate trial of conservative treatment involving more than six weeks. Other factors included an evaluation of BPSE factors and MRI confirmation of a structural lesion in location that matches a patient’s symptoms. Most high-cost claims are “creeping catastrophes” that resemble common health problems, but ones that Christian said involve a stalled recovery, ineffective treatment, illnesses that are greater than disease and desperate tactics that drives the search for expensive or destructive measures.

“Classic” catastrophes, on the other hand, look serious from the start; involve obvious, immediate, or imminent anatomical or functional loss or multi-system insult; and several serious problems, such as spinal cord injury, major burns or amputation and head injury.

Alternative Risk Transfer Session Recap: Dividends Huge Selling Point for Captives

There’s nothing like the potential for dividends to pique the interest of selfinsured groups (SIGs) seeking a better handle on their workers’ comp costs. It was a hot topic among panelists taking part in an educational workshop at SIIA’s national conference on property and casualty group captive programs. Crawford McInnis, managing principal of EPIC Insurance Brokers &

More than $90 million in premiums paid into Evolution to cover claims for 186 active members has been accumulating interest since the captive’s 2004 inception, with members receiving their slice of $26 million in dividends. These distributions help make a compelling case for ROI when explaining the benefits of a P&C group captive arrangement, according to Jim DeWulf, SVP of Captive Resources, LLC, which administers 31 group captives representing more than 3,600 shareholders with combined premiums of more than $1.7 billion. Evolution Insurance Co. is included in that mix. While the traditional insurance market looks at about three years of losses, group captives go beyond that timeframe for a longer-term view on mitigating losses. Short and long-term tail funds established about 20 years ago allow captive members to set a time frame to close policies as part of an exit strategy that limits their loss exposure, DeWulf explains. McInnis said the plus-and-minus cost differential from one year to the next is very small because captives are properly funded at the outset, which is November 2015 | The Self-Insurer

used to explain how the captive’s tailfund concept works. Operation costs for Evolution captive members have been reduced to 33.73% from 43.30%. Companies with multistate risks tend to gravitate toward captives, DeWulf observes, while McInnis cited companies with a risky operation or product that are willing to pool their best-in-class risk into a group whose rates are determined by everyone. Premium growth certainly drives down expenses and has been a popular topic of discussion, according to Garnett, who is sanguine about the future as long as the captive remains within the parameters of the type of companies it’s targeting and there are no adverse instances. “We’re looking for quality companies with quality safety programs and a great track record,” he said. “So we’re not concerned with how big or small a company is as long as they fit this mold.”

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While P&C group captives can be a bit difficult to understand at first, Garnett said they offer self-insured employers a meaningful way to control costs and stay competitive. DeWulf credits the involvement of brokers and other industry partners with helping expand the footprint of his captives company. “From a broker’s perspective, we have spent a lot of time educating clients about the benefits of group captives,” McInnis explained. That effort includes allaying any fears about arrangements that failed in the 1990s and emphasizing that group captive efficiencies far outweigh the costs. While believing that self-insured groups known as SIGs represent “very efficient funding mechanisms,” he also noted that they may take on more risks than group captives. In addition, he said the SIG workers’ comp funds popular in his home state of Alabama

will not accept out-of-state exposure unlike group captives.

Health Session Recap: Reference-

based Pricing Seen as Handy Tool

One of the most harrowing parts of health care involves haggling over potentially huge unpaid hospital bills resulting from reference-based pricing (RBP). Under this scenario, health plan members who select providers or services that charge more than their plan’s fixed amount or contribution limit must pay the difference in price. But strategies are in place head off conflicts and turn health plan participants into better health care consumers, according to an educational workshop at SIIA’s national conference entitled “Reference-based Pricing “Noise: Check the Potholes as you Drive Down this Road.”

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The session spotlighted the City of Sherman, Texas, which sought to improve the health care literacy of city employees and their families. “I’m a big proponent of reference-based pricing and feel that any public entity that is not adopting this approach is doing their taxpayers a disservice,” opined Wayne Blackwell, the city’s director of human resources/civil service. While those employees frequently receive a hefty balanced bill, it’s now a run-of-the-mill matter. “They’re going to get rattled,” he explained. “It’s how you deal with them when they get rattled” that is the key to driving success. The aim is to ensure that they don’t sit on these bills so that the situation can be immediately remedied. Sherman was an early client of David West, director of corporate development for Group & Pension Administrators, Inc., who noted that the city’s tax revenues were declining and health care costs were tight when he got to work on the account. His grand plan was to help employees and their families receive quality care at a fair price. The city doesn’t take a combative role in attempting to resolve big bills and has sought direct contracting with more palatable pricing to reduce deductibles and co-pays by 50%.

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Blackwell admits that most hospitals initially may be upset about addressing the issue, but they also see the wisdom of negotiating a solution. The strategy has paid off for Sherman, which hasn’t increased premiums in the past eight years and has experienced nearly flat costs for the city’s roughly 1,000 covered lives. Steven T. Polino, Esq., managing member at the Law Offices of Steven T. Polino, PLLC, said the allowed amount of a covered expense that meets the RBP standard must be included in a health plan’s language. It also must match the usual, customary and reasonable charge definition. He recommended including an asterisk that makes it clear that the percentage of reimbursement will be based on the Medicare standard and that there are no conflicts in the plan language. Such safeguards will work in favor of claimants. In 2006, West said the Centers for Medicare & Medicaid Services made public charges for hospital services. “We cross reference to make sure it’s well above Medicare and a definite profit on the service they’re providing that, while not at the desired rate, is nevertheless a profit,” he said. That amount is 12% over the cost-tocharge ratio, which West said is theoretically a breakeven point for hospitals. Litigation would be necessary only if the matter cannot be resolved through an employer’s negotiating team, according to Polino. From a legal standpoint, he believes RBP is much easier to defend than a plan with bundles of exclusions. West believes there are tremendous savings to be reaped in specialty care areas involving dialysis and surgical centers. He labeled specialty pharmacy a “wild card,” cautioning about markups when scripts are billed through hospitals. Another key trend he cited is that about five years ago, Texas allowed for free-standing emergency rooms to be built and there’s now more than 1,200 under construction. He has four within one mile of his location. “We’re seeing this proliferation in the marketplace that’s jacking up the cost with $1,800 being the average bill for a visit to one of these facilities,” he reported. Hospital systems realize the writing is on the wall with respect to this issue. Kathryn Torres, VP of payer and employer strategy at the Hospital Corporation of America, said she anticipates direct contracts with employers and greater collaboration with brokers. She urged attendees to entirely remove employees from the conversation by

hemophilia case, routine knee surgery led to a two-week stay and nearly $7 million of factor drugs that were billed. A pediatric heart transplant requiring five ventricular assist devices to help control clotting totaled $9 million. For the past 15 years, Bachler said there has been talk about how large claims are on the rise and medical trend is leveraged with stop-loss premium increases. Since historical leveraged trend has mirrored mathematical leveraged trend during the past decade, the implication is that large claims were increasing as expected. But he said historical trend is now higher than leveraged trend, driven by the Affordable Care Act phasing out annual and lifetime benefit caps.

Exhibit Hall

addressing RBP upfront when contracting for care and encouraged them to get to know their local hospital CEOs.

Health Session Recap: Actuaries Detail Large Claims Activity

Large health care claims have become increasingly commonplace, especially in extremely high layers, diagnoses vary by population and unusual circumstances represent a significant trend. Those key themes were examined in an educational workshop at SIIA’s national conference entitled “Large Health Care Claims: Where they are Coming from and Where they are Going.” The biggest culprit is cancer, according to Milliman research, which also found that neonatal claims are growing along with hemophilia and transplants – areas that drive more than half of all such claims. Depending on the threshold, anywhere from 55% to 80% of large claimants’ key diseases include cancer, neonatal, hemophilia and related disorders and transplants, explained

Rob Bachler, a principal and consulting actuary at Milliman. He noted that large claims upward of $250,000 to $2 million are tied to several variables, including the type of disease or medical service, as well as geography and demographics. Alden Skar, VP and managing actuary for RGA Reinsurance Company, said his company’s data shows that the frequency of $1 million claims have increased 3.5 times between 2008 and 2015, while $500,000 claims rose 2.5 times during that same time frame. He said it’s important to explain to management that large claims are volatile and cannot be easily predicted from one year to the next. For every claim RGA paid in excess of $2 million in 2005 it paid 11 such claims in 2014, while there were five times as many claims in excess of $1 million during those years. RGA claims in excess of $2 million involve a variety of diagnoses, featuring preterm birth and congenital anomalies, hemophilia, transplant, trauma and cancer. He highlighted several examples of unusually high-cost claims. In a

High-cost pharmaceuticals have represented a small part of large claims historically speaking with the exception of hemophilia, according to Bachler, but they’re expected to drive large claims in the future. And while the roughly $100,000 in annual hep C drug costs might be high, he said it will be much lower in helping control this chronic condition over time. Skar noted that Orkambi, which was approved in July for use in treating about 30,000 cystic fibrosis patients, was effective in nearly half those cases. The annual cost is more than $300,000. He also referenced a pipeline teeming with drugs that are about to come to market, including Translarna to treat Duchenne muscular dystrophy, as well as Austedo and Procysbi to treat Huntington’s disease. It’s important to do more than simply analyze a company’s loss ratio, Skar cautioned. Based on frequency and severity of claims, he said there should be more stability in the lower levels and volatility in the higher layers. The trick is to find a trend rate that’s just right, which he added is difficult to do. ■ November 2015 | The Self-Insurer

SIIA Endeavors SOME Giving a Sense of Dignity to the Poor and Homeless of the District of Columbia

IIA proudly promoted a well-deserving local charity at its National Conference & Expo in Washington, DC and was happy to provide an opportunity for attendees to ﬁnancially support this cause.

SOME (So Others Might Eat) is an interfaith, community-based organization that exists to help the poor and homeless of our Nation’s Capital. It meets the daily needs of the people it serves through food, clothing and health care. They break the cycle of homelessness by offering services, such as affordable housing, job training, addiction treatment and counseling to the poor, the elderly and individuals with mental illness. Each day, SOME is restoring hope and dignity one person at a time. Putting their work into context, it is estimated that nearly 7,500 men, women and children are homeless in our Nation’s Capital and about one in five residents live at or below the poverty line. With SOME’s support, thousands of people have transformed their lives, lifted themselves out of poverty and are now living productive, meaningful lives in our community. A SOME representative had an information/donation table near the main registration area of the conference on and was able to educate attendees on their cause and accept donations. You can learn more about the organization at www.some.org. We would like to thank all who participated for their support. ■

Last year SOME provided: • 427,278 meals. • 22,239 free sets of clothing and showers to homeless men and women. • 9,197 visits to a doctor or dentist in our Medical and Dental Clinics. • Emergency housing for 176 adults in psychiatric crisis and 20 abused and neglected elderly. • Support and care to 385 homeless adults with chronic mental illness at Isaiah House. • Comprehensive addiction recovery services, including a 90-day residential treatment program, to 307 men and women. • Job training to 92 SOME Center for Employment Training graduates, 88% of whom were placed in jobs earning an average starting wage of $12.00 per hour. • Safe, affordable housing for 192 families with 375 children, as well as 595 single adults.

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April

International Conference

2016

April 5-7, 2016 | San Jose, Costa Rica

SIIA’s International Conference provides a unique opportunity for attendees to learn how companies are utilizing self-insurance/alternative risk transfer strategies on a global basis. The conference will also highlight self-insurance/ ART business opportunities in key international markets. Participation is expected from countries all over the world.

Schedule Events

Self-Insured Health Plan Executive Forum March 21-23, 2016 | New Orleans, LA

The educational focus for this event will be to address the interests of plan sponsors, in addition to third party administrators and stop-loss entities. This forum delivers high quality educational content of interest to executives involved with the establishment, management and/or support of self-insured group health plans. In addition to the educational program, the event will feature multiple unique opportunities.

sept

march

May 18-19, 2016 | Chicago, IL

may

Self-Insured Taft-Hartley Plan Executive Forum Taft-Hartley plans refer to the multi-employer pension plans collectively bargained by a union and a group of employers, usually in related industries. Taft-Hartley plans are governed by a trust, half of whose trustees are appointed by the employers and half by the union. This retirement plan model has enabled tens of thousands of small and medium-sized businesses to provide workers with the traditional deﬁned beneﬁt pensions that used to be standard among larger employers, but have now virtually disappeared in the non-unionized private sector.

Self-Insured Workers’ Compensation Executive Forum May 24-26, 2016 | Scottsdale, AZ

SIIA’s Annual Self-Insured Workers’ Compensation Executive Forum is the country’s premier association sponsored conference dedicated to self-insured Workers’ Compensation employers and group funds. In addition to a strong educational program focusing on such topics as analytics, excess insurance, wellness initiatives and risk management strategies, this event will offer tremendous networking opportunities that are speciﬁcally designed to help you strengthen your business relationships within the self-insured/alternative risk transfer industry.

36th Annual National Educational Conference & Expo September 25-27, 2016 | Austin, TX

SIIA’s National Educational Conference & Expo is the world’s largest event dedicated exclusively to the self-insurance/alternative risk transfer industry. Registrants will enjoy a cutting-edge educational program combined with unique networking opportunities, and a world-class tradeshow of industry product and service providers guaranteed to provide exceptional value in three fastpaced, activity-packed days.

›

| Thewww.siia.org Self-Insurer 49 November 2015visit For more information

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

2015 Board of Directors CHAIRMAN OF THE BOARD* Donald K. Drelich Chairman & CEO D.W. Van Dyke & Co. Wilton, CT CHAIRMAN ELECT* Steven J. Link Executive Vice President Midwest Employers Casualty Co. Chesterﬁeld, MO

Adam Russo Chief Executive Ofﬁcer The Phia Group, LLC Braintree, MA

Valda Flowers Executive Vice President Creative Risk Underwriters, LLC Marietta,GA

Committee Chairs

TREASURER & CORPORATE SECRETARY* Ronald K. Dewsnup President & General Manager Allegiance Beneﬁt Plan Management, Inc. Missoula, MT

GOVERNMENT RELATIONS COMMITTEE Jerry Castelloe Principal Castelloe Partners, LLC Charlotte, NC

Directors

HEALTH CARE COMMITTEE Leo Garneau Chief Marketing Ofﬁcer, SVP Premier Healthcare Exchange, Inc. Bedminster, NJ

Duke Niedringhaus Senior Vice President J.W. Terrill, Inc. Chesterﬁeld, MO

INTERNATIONAL COMMITTEE Robert Repke President Global Medical Conexions, Inc. Novato, CA WORKERS’ COMP COMMITTEE Stu Thompson Fund Manager The Builders Group Eagan, MN *Also serves as Director

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Company Name/ Voting Representative

Al Lang CEO Coteva Chevy Chase, MD

ART COMMITTEE Jeffrey K. Simpson Attorney Gordon, Fournaris & Mammarella, PA Wilmington, DE

Robert A. Clemente CEO Specialty Care Management, LLC Bridgewater, NJ

Regular Members

Jay Ritchie Senior Vice President HCC Life Insurance Company Kennesaw, GA

PRESIDENT Mike Ferguson SIIA Simpsonville, SC

Andrew Cavenagh President Pareto Captive Services, LLC Philadelphia, PA

SIIA New Members

Melinda Anderson Product Manager Indiana University Health Plans Indianapolis, IN Arthur Jonokuchi CEO Salus Finance, LLC Greenwich, CT Ryan McCarthy Virginia Premier Health Plan Richmond, VA

Silver Member Matthew Howard Partner/Captive Manager MIJS Captive Management, LLC Marietta, GA

Employee Members Lisa Bryson Office Manager Bargain Barn, Inc. Athens, TN Kitty Riddle Patient Advocate ContinuantInc. Fife, WA

Totally Transformed Learn More at ppsonline.com or call 1-877-828-8770. November 2015 | The Self-Insurer

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