Self-Insurer Oct 2010

October 2010

30

Special National Conference Edition

SIIA Celebrates in

YEarS

ChiCagO

What will you feel like when you offer Sun Life’s medical stop-loss?

ABigKahuna Sun Life is one of the nation’s leading providers of medical stop-loss. Because of the ACA, now—more than ever— employers need to better manage their risk. Sun Life can help.

You’ll be able to offer your clients fair, predictable rates for all groups, plus maximum specific deductibles as high as $1.5M for larger groups. Reel them in with a rate cap and no new lasers at renewal, guaranteed in writing.

For more details, contact your local Sun Life stop-loss specialist or call 866-683-6334.

G ro u p L i fe • G ro u p D i s a b i l i t y • G ro u p D e n t a l • M e d i c a l S t o p - L o s s • Vo l u n t a r y B e n e f i t s Group insurance policies are underwritten by Sun Life Assurance Company of Canada (Wellesley Hills, MA) in all states, except New York, under Policy Form Series 93P-LH, 98P-ADD, 02P-STD TDBPolicy-2006, 02-SL, 07-SL, and 01C-LH-PT. In New York, group insurance policies are underwritten by Sun Life Insurance and Annuity Company of New York (New York, NY) under Policy Form Series 93P-LH-NY, 06P-NYDBL, 02P-NYSTD, 98PADD-NY, 02-NYSL, 07-NYSL, and 01NYC-LH-PT . Group insurance policies are underwritten by Sun Life and Health Insurance Company (U.S.) (Wellesley Hills, MA) in all states under Policy Forms Series GP-A and GP-D (or appropriate state edition). Product offerings may not be available in all states and may vary depending on state laws and regulations. © 2010 Sun Life Assurance Company of Canada, Wellesley Hills, MA 02481. All rights reserved. Sun Life Financial and the globe symbol are registered trademarks of Sun Life Assurance Company of Canada.

Visit us at www.sunlife.com/us..

SLPC 22424 09/10 (exp. 09/12)

a

SIIA OFFICERS Chairman of the Board* Armando Baez, Vice President Global Benefits Group Foothill Ranch, CA President* Freda Bacon, Administrator Alabama Self-Insured WC Fund Birmingham, AL Vice President Operations* Alex Giordano, Executive Vice President / Chief Marketing Officer Starr Global Accident & Health Greenwich, CT

October 2010

FEATuRES

Les Boughner, Executive Vice President & Managing Director Willis North American Captive and Consulting Practice Burlington, VT

4

Higher Quality + Lower Cost = Global Health Care Revolution

John Jones, Partner Moulton Bellingham PC Billings, MT

Steven J. Link, Executive Vice President Midwest Employers Casualty Company Chesterfield, MO

14

Adoption of Value-Based Benefits Will Require NextGeneration Technology

Chairman, alternative risk Transfer Committee Kevin M. Doherty, Partner Burr & Forman LLP, Nashville, TN

Chairman, Workers’ Compensation Committee Chris Mason, Chief Operating Officer USATPA, Inc., Syracuse, NY

PPACA, HIPAA and Federal Health Benefit Mandates: Practical Q & A

24

Harnessing Consumerism for Improved Health & Healthcare

30

Out with the Old, In with the Old (?): A Quick Primer on ACO’s

34

A Risk Retention Group Primer

40

ART Gallery: Time to Chat Up Your Regulator

42

Mather’s Grapevine

2 President’s Message: My Kind of Town 44 Chairman’s Report: SIIA: Distinctive, Activist and Worth It

Chairman, government relations Committee Jay Ritchie, Senior Vice President HCC Life Insurance Co. Kennesaw, GA

Chairman, international Committee Liz Mariner, Executive Vice President Re-Solutions Intermediaries, LLC Minneapolis, MN

18

DEpARTMEnTS

SIIA COMMITTEE CHAIRS

Chairwoman, health Care Committee Beata A. Madey, Senior Vice President, Underwriting HM Insurance Group Pittsburgh, PA

REpORTS Procedures on TPAs

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

Daniel Lebish, President & CEO HM Insurance Group Pittsburgh, PA

Volume 27

8 From the Bench: Impact of New Claim

Vice President Finance/CFO/ Corporate Secretary* Robert Repke, President Global Medical Conexions, Inc. San Francisco, CA

SIIA DIRECTORS

|

October 2010 The Self-Insurer (ISSN 10913815) is published monthly by Self-Insurers’ Publishing Corp. (SIPC), PO. Periodical Postage Rates paid at Tustin, California and at additional mailing offices. Postmaster: Send address changes to The Self-Insurer, P.O. Box 1237, Simpsonville, SC 29681 The Self-Insurer is the official publication of the Self-Insurance Institute of America, Inc. (SIIA). Annual dues are $1495. Annual subscription price is $195.50 per year (U.S. and Canada) and $225 per year (other country). Members of SIIA subscribe to The Self-Insurer through their dues. Copyright 2010 by Self-Insurers’ Publishing Corp. All rights reserved. Reproduction in whole or part is prohibited without permission.

Statements of fact and opinion made are the responsibility of the authors alone and do not imply an opinion of the part of the officers, directors, or members of SIIA or SIPC. Publishing Director - James A. Kinder Managing Editor - Erica Massey Editor - Gretchen Grote Design/Graphics - Indexx Printing Contributing Editor - Tom Mather and Mike Ferguson Director of Advertising - Justin Miller Advertising Sales - Shane Byars Editorial and Advertising Office P.O. 1237, Simpsonville, SC 29681 • (864) 962-2201 Self-Insurers’ Publishing Corp. Officers (2010) James A. Kinder, CEO/Chairman Erica M. Massey, President Lynne Bolduc, Esq. Secretary 2010 Editorial Advisory Committee John Hickman, Attorney, Alston & Bird David Wilson, Esq., Wilson & Berryhill P.C. Randy Hindman, Deloitte & Touche, LLP Jason Davis, Global Excel Management, Inc.

The Self-Insurer P.O. Box 184, Midland, NC 28107 Tele: (704) 781-5328 • Fax: (704) 781-5329 e-mail: ggrote@sipconline.net.

The Self-Insurance Institute of America, Inc. (SIIA) is the world’s largest trade association dedicated exclusively to the advancement of the self-insurance industry. Its goal is to improve the quality and efficiency of self-insurance plans through education and to create a general acceptance in the public and business communities of this viable alternative to conventional insurance.

Founded in 1981, SIIA represent the interest of self-funded employers, independent administrators, utilization review companies, managed care companies, underwriting management companies, insurance companies, reinsurers, agents, brokers, CPAs, attorneys, financial institutions, manufacturers, trade associations, retail and service companies, municipalities, and others.

SIIA designs and implements programs and services for the benefit of its members, the industry, and the general public to increase the general level of knowledge about self-insurance plans, achieve greater professionalism in the industry, and enhance the general well-being and mutual interests of its membership.

SIIA achieves its goals and objectives through several means: n International/national conferences and industry forums which provide educational opportunities, with substantial discounts on the registration fees offered to SIIA members. n Distributed monthly, The Self-Insurer, features useful technical articles as well as updates on topical issues of importance to the self-insurance industry. n The Self-Insurance Educational Foundation (SIEF) conducts statistical research regarding the industry and grants educational scholarships to promising students whose studies focus on the self-insurance industry.

SIIA enjoys federal representation in our nation’s capital through counsel and staff on key legislative and regulatory issues. SIIA is the only national voice encompassing the whole self-insurance industry.

If your company is involved or interested in self-funding risk for workers’ compensation insurance programs, employee benefit plans, or property and casualty exposures, then it should be a member of the association serving the industry - the Self-Insurance Institute of America, Inc.

The Self-insurer

|

October 2010

1

PrESidENT’S MESSagE My Kind of Town

M

ost of us have all heard, and sung the lyrics to; “My Kind of Town” by old blue eyes himself, Frank Sinatra.

Written in 1964, this song was an instant hit and highlighted the great city of Chicago.

Well, once again, Chicago will truly be “My Kind of Town” when SIIA’s National Conference and Expo convenes. Self-funded industry leaders from all over the world will be attending the largest event focused exclusively on the self-insurance/alternative risk transfer marketplace.

diverse membership will be focused on – self-funded health plans, workers compensation, alternative risk transfer and international. The commitment by these volunteer members has made SIIA an organization leader because the focus of all the programs has been orchestrated by the people who are leaders themselves and make our selffunded industry what it is.

A great big thanks to our many sponsors and exhibitors who by their continued support now as in the past 30 years make this gathering possible. By

In celebration of 30 years, SIIA will be providing the most in-depth and informative conference in the organization’s history.

Consistent with the theme of this year’s conference – Sharing the Success of Self-Insurance - a truly impressive collection of speakers and industry experts will be assembled to provide educational sessions. In addition, one of the largest networking opportunities by any organization will be available in the exhibit hall with over 150 companies showcasing their products and services.

supporting SIIA, these providers and companies offer the products and services that are necessary to make self-funding possible.

Chicago – My Kind of Town!!!!

Freda Bacon, President

On behalf of the Board of Directors and Executive Committee of SIIA, I want to thank all of the committee chairs and members for their hard work in putting together the agenda, speakers and topics for our conference. All areas of SIIA’s

2

www.siia.org

|

October 2010

HNAS

We We know what you’re you’re made of.

Our plans Our self-funded self-funded health plans are unique profile profile of of aacompany’s company’shealth health are custom-fit custom-fit to the unique and balance between betweencost costcontainment containment and well-being. well-being. Find the balance and employee employee satisfaction satisfaction today. and today. Visit Visithnas.com hnas.comtotolearn learnmore. more.

With HealthNow, HealthNow, everyone everyone benefits.

With benefits.

Benefit Solutions Administrative and Partner Services Self Funded Plans Benefit Solutions Administrative and Partner Services Self Funded Plans

HNAS_SIIA_1010_Ad.indd 1

5/27/2010 4:38:47 PM

higher Quality + lower Cost

= Global Health Care

rEVOluTiON

By Victor lazzaro, Jr.

4

www.siia.org

|

October 2010

T

he Industrial Revolution marked a massive turning point in human history as critical aspects of life began to improve for the average person. While the wheels of the Industrial Revolution turned, literally, on interchangeable parts, the global health care revolution will turn on an equally simple linchpin: choice.

Medical travel emerges as one of the newest, most innovative options for U.S. employers to realize significant savings on their health benefits while ensuring high quality care for their workforce. What started as an alternative for dental care or cosmetic and plastic surgery has morphed into a preferred option for acute care procedures, especially for the 48 million uninsured or underinsured.

Today, medical travel is generating the attention of the self-insured marketplace, as the interest level soars among employers and payers. Results of a survey of 400 U.S. corporate benefit managers released this year by the International Foundation of Employee Benefit Plans, a Wisconsin-based research group, show that 11 percent of employers now cover medical tourism involving medical treatment outside the U.S.1 Thought-leaders predict that the insured will soon be encouraged by their employers to go abroad, for reasons like lower out-of-pocket costs as well as financial or time-off incentives. Arnold Milstein, the San Francisco-based chief physician of Mercer Health & Benefits, says that employers are beginning to include in-hospital networks as an option for getting care outside the U.S. 2 The globalization of healthcare consumerism is a reality, with the term medical tourism often used as a catch phrase to describe the process for both medical and dental care. While citizens of other nations have accessed care in the U.S. for several decades, the situation is now reversing itself: Global outsourcing for healthcare is a phenomenon which is likely to impact not only self-funded employers and payers, but also the American healthcare system as a whole.

The potential reasons why a citizen of one country might travel to another country are nearly always the same: access and cost.3 Lack of access, either because the technology is not available, is prohibited or illegal, or the wait is too long in the home country, can lead to medical tourism. In the past, this was a common reason why patients came to the U.S. – for more cutting edge surgery including cardiac, orthopedic, and reproductive technologies such as In Vitro Fertilization.4 Conversely, Americans might also have traveled due to lack of access to unproven medical therapies such as stem cell or cytoplasmic transfer therapy.5 Motivation for medical tourism is increasing, especially with expanded information more available to the public about treatment in other countries through the globalization or economic “flattening” of the world and medical information and marketing on the Internet.6 The lure of international travel cannot be discounted.

For many Americans, visiting new destinations and combining one’s needed medical procedure with a recuperative vacation is a dream come true, especially for those who have never enjoyed the luxury of traveling abroad. It’s a chance to access treatment in an exotic destination – Singapore, Thailand, India, and Costa Rica, Mexico and Panama closer to home – in addition to dozens of other countries -- while mitigating the costs of US-based treatment, even after factoring in the travel expenses and an extended stay. A more recent trend has also been the emergence of US-based hospitals for medical travel.

The growing number of Americans traveling abroad for medical and dental care is well documented, with a 2007 study from the National Center for Policy Analysis (NCPA) reporting that an estimated 500,000 Americans crossed the border for treatment in 2005. A majority of those traveled to Mexico and other Latin

American countries7, but Americans were also among the estimated 250,000 foreign patients who sought care in Singapore, the 500,000 in India and as many as one million in Thailand.

Now Americans are not only travelling internationally, but also to domestic Centers of Excellence (COE’s) that offer many of the same advantages as the international hospitals.

The esteemed Healthcare Financial Management Association8 recently reported, “The industry is in its adolescence – not fully mature, but evolving in key areas that will secure its value proposition for consumers, employers, and health plans in the US. Some core capabilities that are needed for “medical tourism 2.0” to succeed include: • Clinical coordination – overseeing patients from preoperative to postoperative care with a focus on outcomes management • Clinical differentiation – leveraging diagnostic, minimally invasive and noninvasive surgical techniques with demonstrable safety and effectiveness results reporting and standards of quality • Marketing – ensuring increased awareness and use by insurance plans, large employers, and consumers, with internet and Social networking playing key roles • Pricing – achieving 30 to 70 percent savings of cost of care abroad for payers compared with cost of care in the US • Scalability – implementing sustainable business models that focus on high volumes, transactions, and strategic relationship with customers and providers • Investor Support – increasing across to venture capital”

The Self-insurer

|

October 2010

5

The Quality of Healthcare Abroad from the provider perspective According to Joseph S. Barcie, MD, PhD, MBA, president, Centralized Services, Dallas-based International Hospital Corporation, the quality of healthcare abroad can be high, with many foreign hospitals actively courting business in the U.S. by catering to American tastes and expectations.

Dr. Barcie points out that foreign healthcare facilities and large specialty clinics often have physicians with internationally respected credentials, many of them with training in the United States, Australia, Canada or Europe. Some foreign hospitals are owned, managed or affiliated with prestigious American universities or healthcare systems. Several companies are building and operating hospitals that meet or exceed American standards of care in Costa Rica and other parts of Latin America, largely for citizens of those nations, as well as Americans.

He says that the choice of a facilitator – such as BridgeHealth Medical or others – is vital, since these professionals can help to guide the patient to the appropriate Center of Excellence.

Why Centers of Excellence Are Better Just as the Industrial Revolution relied on moveable parts that could be cheaply manufactured, the Center of Excellence approach to health care leads to decreased costs and increased quality through the kind of health care specialization first applied during the Vietnam War when medics discovered that focusing the flow of the severely injured to facilities that performed only shock-trauma surgery significantly improved short-term survival.9 The following schedule demonstrates typical case allowances

6

www.siia.org

|

October 2010

in the United States. Medical case fees are inclusive of anesthesiology, consumables, and other features specific to providers. Travel and food/accommodation costs outside of hospital stays are additional. Conservatively, these have been modeled at $2,000 and $3,000 respectively.

procedure

Typical Case* Typical Domestic Typical International Medical Travel Medical Travel Contracted Rates Contracted Rates

CABG w/o cath

U.S. $60,000 $100,000

U.S. $32,000 $36,000

Costa Rica $25,000

India $8,500

CABG w/cath w/comp

$70,000 $110,000

$47,000 $53,000

$25,000

$8,500

Hip Arthroplasty

$45,000 $50,000

$20,000 $25,000

$13,400

$8,000

Knee Arthroplasty

$43,000 $50,000

$19,000 $23,000

$12,400

$7,000

Bilateral Knee Arthroplasty

$65,000 $80,000

$32,000 $35,000

$21,200

$14,000

Shoulder Arthroplasty

$40,000 $50,000

$20,000 $24,000

$10,100

$8,500

ACL Repair

$20,000 $25,000

$10,000 $14,000

$4,800

$6,500

Laminectomy

$20,000 $25,000

$10,000 $14,000

–

$7,000

Gastric sleeve or Gastric bypass

$35,000 $50,000

$20,000 $25,000

$9,800 $12,900

$9,800 (sleeve)

Gastric banding

$25,000 $40,000

$13,000 $18,000

$9,800 $10,300

$7,500

*What a sponsor pays after preferred provider organization (PPO) discount.SOURCE: BridgeHealth Medical; 2009.

The authors of “Redefining Health Care: Creating Value-Based Competition on Results,” Michael E. Porter, professor of Business Administration at the Harvard Business School, and Elizabeth Olmstead Teisberg, tenured member of the faculty of the University of Virginia in the Darden Graduate School of Business and senior institute associate at the Harvard Business School’s Institute for Strategy and Competitiveness, credit COEs for delivering real value.10 “To achieve the goal of value, the providers must redefine their services around medical conditions.The relevant business is the integrated care for a medical condition over the cycle of care. Current provider strategies, organizational structures, and management practices are not well-aligned with delivering value for patients. For some providers, however, the move to value-based competition is already happening, as we discuss in the book. Institutes dedicated to particular medical conditions, centers of excellence, and clinics are opening around the country.

The Cleveland Clinic is publishing reports on its outcomes in every service. M.D. Anderson organizes its care around medical conditions. Intermountain Health is using outcome data to drive improvement processes.” 11 Health plans must turn away from the old method of denial as a means to cut costs and begin offering more choice, and, as Porter and Teisberg state: “They must support both physicians and patients with information and unbiased counseling, assemble results information on providers and treatments, and organize information and patient support around the full cycle of care.”

Health Care Revolution in the Work place

Victor Lazzaro, Jr., is the co-founder and

The choices have expanded from the early days of international medical tourism for primarily cosmetic and dental car to today both international and domestic medical travel to Centers of Excellence. Today, Americans want access to high quality care at lower cost, but they can’t always make that connection on their own.

More employers, particularly self-insured companies, need to step up, partner with a top-flight care coordinator, and provide access to the best surgical options out there. Why? Better quality care + health care cost savings = improved productivity and ROI. When more employers catch on to this formula, it will put more pressure on health care facilities across the country to step out of the Industrial Age – the old way of operating – and begin to function at a competitive level, i.e. with greater quality and cost focus and transparency. As Porter and Teisberg have stated:

chief executive officer of BridgeHealth Medical, Inc. With over 20 years of senior management experience in the health and managed care fields, he has held positions responsible for marketing, finance, administration and health care delivery. He is also the managing director of Volante Capital, previously was CEO of UHC – Mountain States, and has served on the advisory board of MediExpress, a UHC affiliate, in Kuala

“[We have to] redefine competition around value

Lumpur. He is also a guest lecturer at the

and improving results. Competing on patient results

University of Colorado at Denver MBA in

is a positive sum competition from which all system

Health Administration program. Website:

participants can benefit. When providers succeed in delivering superior value, not only do they win, but patients win, employers win and health plans also win through better outcomes achieved at lower costs.”12 Finding the Best Care Coordinators Before forging ahead, companies need to do their homework so that they find a medical travel care coordinator that will help maximize this opportunity. Here’s a quick list of must-haves: • International and domestic presence • surgery education • turnkey member care • concierge services • full data reporting (outcomes, savings, claims) to assist in adoption and implementation

• genuine health care experience and leadership • proven, HIPAA-compliant operating systems •

a full and growing suite of vendors

• in-depth understanding of the health care continuum

The health care coordinator should perform basic services such as coordinating the pre-travel communications for the client to the hospital and physician; arranging after-care needs; tracking satisfaction and medical outcomes – with plan prices that include surgery/procedure costs, airfare, lodging, transfers, 24/7 concierge service, savings potential, and accredited hospitals.

What the future holds Eventually the global health care revolution will lead to an environment in which top health care providers will displace less competitive companies. More employers, Third Party Administrators (TPAs), insurance carriers, and program administrators are learning about the benefits of Centers of Excellence and care coordination not only for international travel, but also for U.S. medical travel for COE’s. By incorporating these options into their portfolio offerings, these leaders will begin to offer members and individuals a way to control claims costs on major surgeries while giving employees access to high quality health care. n

www.bridgehealthmedical.com; E-mail: vlazzaro@bridgehealthmedical.com; Phone: Office: (303) 457-5725 The Medical Travel Site; More Employer Benefits Covering Medical Tourism; January 18, 2008; http://medicaltravelsite. com/blog/2008/01/19more-employer-benefits-coveringmedical-tourism/

1

McGinley, Laurie; Health Matters, The next wave of medical tourists might include you; Wall Street Journal, February 16, 2008; Page R6.

2

Nathan Cortez, Patients without Borders: the Emerging Global Market for Patients and the Evolution of Modern Health Care, 83 INDIANA LAW JOURNAL, forthcoming (2008).

3

Lori Andrews. THE CLONE AGE 6-7 (1999).

4

Deborah Spar, Reproductive Tourism and the Regulatory Map, 352 N. ENGL. J. MED. 531 (2005).

5

Diana M. Ernst, Medical Tourism: Why Americans Take Medical Vacations Abroad, 4 PACIFIC RESEARCH INSTITUTE (September 2006), available at http://liberty. pacificresearch.org/docLib/20070223_hppv4n9_0906. pdf (last accessed Jan. 2, 2008).

6

Medical Tourism Offers Hope To Control Health Care Costs; National Center for Policy Analysis; November 1, 2007. http://www.ncpa.org/prs/rel/2007/20071101.html

7

Howard R. Underwood, Harvey J. Makadon, Medical Tourism: Game Changing Innovation or Passing Fad?, Healthcare Financial Management Magazine, September 2010

8

BNET; CBS Interactive Business Network; 2010; http://findarticles.com/p/articles/mi_m0DUD/is_7_20/ ai_55398594/?tag=rbxcra.2.a.11; accessed August 16, 2010.

9

10 Harvard Business School; FAQ; Institute for Strategy and Competitiveness; http://www.hbs.edu/rhc/qa.html; accessed August 17, 2010.

Harvard Business School

11

Harvard Business School

12

The Self-insurer

|

October 2010

7

Bench from the

By John Eggertsen and Michael Friedman

IMpACT OF nEW CLAIM pROCEDuRES On TpAs part One: Changes and Additions to the Current Claim Regulations

SUMMARY

O

ver the next very few months, TPAs are going to have to dramatically change the way they process claims for many of their clients’ group health plans (GHPs). TPA’s claim decisions will have to be done faster (in the case of Urgent Care cases, within 24 hours), their EOBs will have to be much more detailed and they must be prepared to defend those decisions before an Independent Review Organization (IRO) within four months, or in court under very different circumstances.

All of these changes are contained in the recent New Claim Rules issued jointly by the DOL, IRS and HHS (the Departments) as Interim Final Regulations authorized by the Patient Protection and Affordability Act (PPACA). The effective date of the New Claim Rules for non-grandfathered GHPs is the first day of plan years starting after September 23, 2010. That is, as early as October 1, 2010 for some GHPs, but January 1, 2011 for most. Of course, these GHPs and their plan sponsors will be looking to their TPA to timely meet all of these requirements.

There is an exception for “grandfathered” GHPs and “grandfathered” insurance policies so long as they remain “grandfathered.” However, this escape hatch will be of little use to TPAs unless all of the TPA’s client’s GHPs are “grandfathered” and

8

www.siia.org

|

October 2010

remain so. Unfortunately, well informed predictions are that 1/3 of self-funded GHPs will not be grandfathered when the New Claim Rules takes effect, and 2/3 of those GHPs will lose grandfathered status by 2012.

SIGNIFICANT CHANGES Greater Rights for Claimants in ERISA GHps For 35 years the DOL Claim Regulations and the Federal Courts’ interpretations of them have largely limited claimants in litigating denied medical claims. Claimants have had virtually no input for initial claim decisions, and, despite the DOL’s revised claim procedures in 2001, little input or access to information for appeals. If an

ERISA GHP denied a claim on appeal, and the claimant sued under ERISA, winning ERISA benefit denial cases has been an uphill climb. Suits under ERISA have simply been very hard for claimants to win. There are a number of reasons for this.

Timing. Because courts have usually required claimants to go through the ERISA GHP’s appeal process before being allowed into court (they must “exhaust” their administrative remedies), a lawsuit often cannot be filed until 180-270 days after the initial denial.

Worse, any such litigation would likely take one to two years.

Judicial Review Standard. Because GHPs can draft language that requires courts to utilize a deferential standard of review, courts have usually presumed that an ERISA GHP’s appeal decision denying the claim was correct. A claimant had to, therefore, convince a Judge that the GHP’s decision was “arbitrary and capricious” (i.e., totally unreasonable) before the Judge would even think about whether the benefit should have been paid or provided.

Discovery, Or Lack Thereof. In deciding whether the benefit should have been paid, most courts have not let the claimant introduce additional information to prove their contention.

Instead, the Judge has only looked at the “administrative record” created by the GHP. Though claimants can provide whatever documentation they wish on appeal, most claimants are not litigators and do not think of the appeal process as laying the basis for a later lawsuit, and they often retain counsel only after the administrative record has closed.

Cost. A claimant going to court would likely have to bear the substantial cost of litigation. Since there would be no cash award of damages to the plaintiff (i.e., the money won would go to the health care provider), there is no basis for a contingent fee arrangement.

While attorney fees may be available if

a claimant wins an ERISA benefits suit, the fee awards are only awarded at the discretion of the court, and few lawyers are willing to wait years if they are only entitled to payment based on judicial discretion.

The New Claim Rules substantially change these realities by adding claimant rights during initial claims, during appeals of claims and in court. While most of the discussion of the New Claim Rules has focused on the added external review requirements that claimants can quickly and cheaply access, the additions to the current claim rules imposed under the PPACA also tend to provide claimants with increased chances to succeed with their internal appeals, and greater access to the courts, under rules that will tend to increase their chances of success on the merits.

Part One of this article will focus on these changes to the additional requirements for internal claims and review procedures. Part Two (in a future issue) will address the newly added external review procedures.

Major Changes to DOL Claim Regulations Initial Claims and Claim Appeals.

One major change enacted by these new rules is that the DOL claim procedures, as modified by the New Claim Rules, will apply directly to insurers and to claims administrators of Non-ERISA Plans. By far the most significant change under the New Claim Rules, however, is that any small violation of the initial claim or claim appeal requirements of the DOL Claim Regulations, as augmented by the New Claim Rules, can result in a claimant’s right to by-pass the internal appeal process, and immediately file a lawsuit, or trigger the right to an external review.

A provision in the current DOL claim review regulations also allows claimants to bypass the GHP’s internal procedures in certain circumstances, but the

complexity of the additional information requirements, and the strict new “one strike and you’re out” policy of the New Claim Rules will impose serious compliance burdens on TPAs. 1. The Changed Landscape under the Initial Claims Rules • Urgent Care Claims will require a 24-Hour turnaround time instead of 72 hours.

• EOB Standards.

• Current Rules. Under the existing DOL Claim Regulations, any time a claim decision results in a denial, reduction, or termination of, or a failure to provide or make payment (in whole or in part) for a benefit, the TPA must send out a Notice of this “adverse benefit determination” within 30 days (with an extension of 15 days to provide additional required information). The period is less for urgent care claims (72 hours) and pre-service claims (15 days). TPAs typically send out “Explanation of Benefits” or EOBs to satisfy this requirement. Those EOBs should contain the following information: • The specific reason or reasons for the adverse benefit determination; • Reference to the specific plan provisions on which the determination is based; • A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; • A description of the GHP’s review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under ERISA following an adverse benefit determination on review;

The Self-insurer

|

October 2010

9

• A copy of any internal rule, guideline, protocol, or other similar criterion used making the adverse determination or a copy thereof upon request; • An explanation of any scientific or clinical judgment involved in the adverse determination, applying the terms of the GHP to the claimant’s medical circumstances, or a copy thereof upon request; • In the case of an adverse benefit determination by a GHP concerning a claim involving urgent care, a description of the expedited review process applicable to such claims.

• New Initial Claim Rules. The additional information that must now be in EOBs includes: • The date of service, • Identification of the health care provider, • The claim amount (if applicable) • The diagnosis code (such as an ICD–9 code, ICD–10 code, or DSM–IV code), together with an explanation of the meaning of that code, • The treatment code (such as a CPT code), together with an explanation of the meaning of that code, • The denial code (such as a CARC and RARC) and its corresponding meaning, • A description of the plan’s or issuer’s standard, if any, that was used in denying the claim.

• A description of the plan’s internal appeals and external review processes, including information regarding how to initiate an appeal.

• In many cases, these EOBs will have to be translated into languages other than English.

• Upon request, a TPA will have to translate the EOBs (or allocate this responsibility to the Plan Sponsor in its Administrative Services Agreement) into any non-English language that is the only literate language of more than 25% of the participants in a small plan (i.e., less than 100 participants) or 10% of the participants in a large plan (Translation Plans); • All of the English versions of EOBs for a Translation Plan must prominently displayed in the non-English language an offer to provide all plan notices, including EOBs, in the non-English language or languages; • Once a translation request has been made by a claimant in a Translation Plan, the TPA must provide all subsequent notices to that claimant in the non-English language(s); and • To the extent the TPA maintains a customer assistance process for a Translation Plan (such as a telephone hotline) that answers questions or provides assistance with filing claims and appeals, the TPA must provide such assistance in the non-English language.

• One Strike and You’re Out. A TPA’s failure to include all of the required information in an EOB would be unfortunate, but currently would have little impact on the ultimate disposition of the claim and no real penalties would be imposed. While courts have for a long time construed these rules under something that could be called a “substantial compliance” standard (i.e., if the EOB contains substantially the information required under the rules, it would pass muster), there has been a more recent judicial trend of challenging benefit determination on the basis of faulty EOBs. The New Claim Rules have

10

www.siia.org

|

October 2010

dramatically accelerated that incremental judicial change, and, along with significantly adding to what must be included, and the complexity of what must be included, have also made strict adherence to these legal requirements for EOBs mandatory.

Since, under this “one strike and you’re out” policy any procedural error allows a claimant to bypass the internal claim procedures and go directly to court or to an external reviewer, EOB errors can no longer be considered “harmless.”

2. The Changed Landscape under the Claim Appeals Rules • Current Rules. Under the existing DOL Claim Regulations, a GHP must have a claim appeal process which, at a minimum, provides: • That claimants have at least 180 days following receipt of a notification of an adverse benefit determination to appeal; • Claimants with the opportunity to submit written documents and other information relating to the claim for benefits; • That a claimant shall be given, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits; • For a review that takes into account all comments, documents, records, and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered by the TPA as part of the initial claim determination; • A review that does not afford deference to the TPA’s adverse benefit determination and that is conducted by an appropriate named fiduciary of the plan who

is neither the individual who made the adverse benefit determination nor the subordinate of such individual; • In the case of an appeal involving a medical determination, that the named fiduciary shall consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment; • In the case of a claim involving urgent care, provide for an expedited review process pursuant to which (a) a request for an expedited appeal of an adverse benefit determination may be submitted orally or in writing by the claimant and (b) all necessary information, including the GHP’s benefit determination on review, shall be transmitted between the GHP and the claimant by telephone, facsimile, or other available similarly

expeditious method.

• That the claimant is notified of the appeal decision within a reasonable period of time, but not later than 60 days after receipt of the claimant’s request for review by the plan unless special circumstances allowed another 60 days. (The Time frames are much shorter for urgent care and pre-service claims.)

• New Claim Appeal Rules The key additional requirements for claim appeals are: • The GHP must provide the claimant, free of charge, with any new or additional evidence considered, relied upon, or generated by the GHP in connection with the claim sufficiently in advance of the date an appeal denial notice is required in order to give the claimant a reasonable opportunity to respond prior to that date; • Before the plan or issuer can

issue an appeal denial notice based on a new or additional rationale, the claimant must be provided, free of charge, with the rationale; the rationale must be provided sufficiently in advance of the date an appeal denial notice is required in order to give the claimant a reasonable opportunity to respond prior to that date.

Note – Both of these requirements contemplate an appeal procedure that involves communicating with the claimant, his/her medical providers and/or his/her personal representative beyond what is likely to occur now. TPAs will have to be more open about the decision making process while it is ongoing, and not simply send a notice informing the claimant of the result.

• The GHP must ensure that all claims and appeals are adjudicated in a manner designed to ensure the independence and impartiality

Leading the way in medical stop loss HCC LIFE HIGHLIGHTS

PRODUCT FEATURES

• Rated A+ (Superior) by A.M. Best Company and AA (Very Strong) by Standard & Poor’s.

Various product options provide groups with:

• predictable renewal programs.

• Backed by the financial resources of our parent company, HCC Insurance Holdings, Inc.

• the ability to lock in rates up to 120 days prior to effective date.

• Covers more than 10 million lives nationally.

• the ability to trade premium for risk on a dollar-for-dollar basis.

STOP LOSS HIGHLIGHTS • More than 30 years of experience in the stop loss industry.

• Direct writer, retaining all the stop loss financial risk.

• Claim turnaround averages seven days or less.

• Access to numerous resources to manage large claim situations.

For producer use only. Not for public distribution. msl2141 (2/10)

For more information, contact HCC Life at (800) 447-0460.

Or, visit us online at www.hcclife.com.

SIIA_HalfPage_BW_Ad_0210.indd 1

02/22/2010 2:40:16 PM

The Self-insurer

|

October 2010

11

6/24/09

11:40 AM

Page 1

©2009 Virginia Health Network

VHN_SelfInsurer_4.5x6.75_bw:Layout 1

of the persons involved in making the decision. Accordingly, decisions regarding hiring, compensation, termination, promotion, or other similar matters with respect to any individual (such as a claims adjudicator or medical expert) must not be made based upon the likelihood that the individual will support the denial of benefits.

Note – This has the potential to open the door to far more expansive discovery in benefits litigation.

YOU SAY,

“I could use a creative way to attract new health-plan business.”

WE SAY,

“We crafted a lower-priced PPO network.

How’s that for creativity?”

When a client wants to self-insure for the chance to keep the insurer’s profit, VHN PLUS provides the opportunity.

For the client’s employees, it provides over 12,000 healthcare professionals and 80-plus hospitals in network. To learn more, including how to use VHN PLUS through fully insured carriers, please visit www.vhn.com/plusnetwork; or contact Jim Gore at jgore@vhn.com or 800-989-3837 ext. 105.

And put our creativity to work for you.

7400 B EAU FONT SPR I NGS DR IVE, SU ITE 505 R I C H M O N D , V I R G I N I A 2 3 2 2 5 • www.vhn.com

• The current DOL Claim Regulations prohibit a GHP from reducing or terminating an ongoing course of treatment without providing advance notice and an opportunity for advance review.

The New Claim Rule extends this requirement to every internal appeal.

Note --The scope of this requirement is unclear because the exact meaning of “continued coverage” here is not yet known.

Does this obligation require a GHP only to pay, during the appeal process, for the continued services that were initially denied, or does it require full coverage under the GHP pending the outcome of the appeal? To what extent does the answer depend on the reasons for the denial?

• The One Strike and You’re Out Policy described above also applies to appeal decisions that are adverse benefit determination.

CONCLUSION TPAs are going to have to dramatically change the way they process claims for many of their clients’ GHPs. TPA’s claim decisions will have to be done faster (in the case of Urgent Care cases, within 24 hours), their EOBs will have to be much more detailed, their EOBs will have to contain all of the legally required information, and they must be prepared to defend their decisions and their decision-making process before a court, on perhaps many more occasions than now occur. They may also have to defend those decision before an Independent Review Organization (IRO) within four months of a final internal adverse benefit determination, but the ins and out of that development will be explored in Part Two of this article. It is important, however, for TPAs to realize that the new external review requirements aside, the New Claim Rules will very soon impact GHPs and the TPAs that administer them.

Accordingly, TPAs will have to change their business practices to comply, and the compliance clock is ticking. n

12

www.siia.org

|

October 2010

Does Your Health and Wellness Incentive Program Need An Upgrade?

Your incentive programs could generate improved ROI by replacing traditional gift cards with a new-value solution designed specifically for healthcare.

TSYS Healthcare® offers a multiple-account debit card that is easy to use and supports diverse incentive program strategies — whether it’s through fulfillment of one-time rewards or a reward strategy that provides incremental rewards for program completion.

Switching to a TSYS Healthcare card for your incentive delivery card provides new benefits for you:

OLD REWARD TSYS HEALTHCARE GIFT CARDS DEBIT CARD Multiple incentive programs on one card Float management- fund at the time of use — not up front Interchange revenue on your bottom line Control of variable program restrictions at the account level Access to ATMs for withdrawing unrestricted cash awards

    

Visit us in booth 414 at SIIA’s 30th Annual Educational Conference and learn how TSYS can upgrade your incentive program to improve your bottom line.

TSYS Healthcare www.tsyshealthcare.com healthcare@tsys.com +1.612.338.3871

© 2010 Total System Services, Inc.® All rights reserved worldwide. Total System Services, Inc. and TSYS® are federally registered service marks of Total System Services, Inc., in the United States.

The Self-insurer

|

October 2010

13

Adoption of

VALUE-BASED BENEFITS Will Require

next-Generation

TECHnOLOGy

By rob gillette, CEO of healthEdge

14

www.siia.org

|

October 2010

T

he need for cost-effective, innovative healthcare benefits has never been greater as employers strive to maintain both a healthy, productive workforce and a healthy bottom line during one of the country’s worst recessions. Companies across the country are reeling from healthcare premiums that have surged between 2000 and 2008 at more than 2.7 times the rate of inflation. During the same time period, the average employee contribution to company-provided health insurance also rose, while their out-of-pocket expenses for co-payments and deductibles continued to increase. Hewitt Associates predicts that the average premium per employee at companies with over 10,000 employees will again jump by more than $500 in 2010. As a result, many employers are struggling to find ways to manage costs and optimize health benefits spending while simultaneously responding to new government mandates and employee demands for more affordable, higher quality healthcare.

Healthcare Expenses

Increase Between 2000-2008

Average Single Employee Premium

90%

Average Family Premium

97%

Average Single Employee Contribution

116%

Average Family Contribution

107%

Average Out-of-Pocket Costs

115%

Bolstered by research that determined that up to 75 percent of healthcare costs are linked to treating diseases that are often preventable such as cancer, cardiovascular disease, diabetes, obesity and various respiratory conditions, self-insured employers are increasingly turning to a more personalized approach to health benefits. Pioneered by Pitney Bowes and the city of Asheville, N.C. in the 1990s, many self-insured employers are adopting value-based health benefits (VBHB) VBBID to help prevent and manage chronic diseases, improve care management, engage employees in selfcare and increase data and information transparency.

According to the National Business Group on Health, obesity alone is responsible for as much as $94 billion of the nation’s annual medical cost.

Employers are currently picking up the tab for an estimated $13 billion a year in obesity-related expenses, despite the fact that weight management is one of the most widely offered employer-sponsored wellness programs.

The Centers for Disease Control and Prevention (CDC) notes that being obese increases the risk for high blood pressure, high cholesterol, Type 2 diabetes, heart disease, stroke, gall bladder disease, osteoarthritis, sleep apnea and other respiratory illnesses, and even some cancers. With this in mind, a growing number of companies are moving beyond traditional broadbased wellness initiatives that may not attract or engage those who are most at risk of developing a chronic disease or who need assistance managing an existing condition such as obesity.

A 2008 Hewitt survey of 500 large employers found that 12 percent of respondents reported utilizing some type of VBHB initiative, and an additional 5 percent were planning to do so in the near future. The move to VBHB is likely to accelerate based on provisions in the recently-passed healthcare reform legislation that encourage employers to establish and evaluate employee wellness programs and to reward employees who participate. Incentives for “healthy” employees could include

premium discounts and even costsharing waivers for qualified participants.

VBHB Goals The goal of VBHBs is to keep insured employees and their covered family members as healthy as possible, thereby reducing the need for expensive treatments including hospitalizations and emergency department visits. This is achieved by identifying people who already have or are likely to develop a chronic condition and then encouraging them to actively engage in managing their health by offering incentives such as reduced premiums, co-pays and deductibles, personal coaching and education, and access to a variety of customized services. Intervening when someone is diagnosed with a condition like pre-diabetes, for example, not only preserves their health by preventing the progression to full-blown diabetes, but also has a profound financial impact for both the employee and employer.

A study published in the American Journal of Preventive Medicine reported that nearly 30 percent of all U.S. adults currently have pre-diabetes, and that only about half of those with the condition had taken steps, such as modest weight loss or increased physical activity that could potentially prevent the progression of the disease.

The American Diabetes Association reports that the treatment of diabetes cost Americans $174 billion in 2007, and that people with diabetes spent an average of $4,100 more annually on medical expenses than people without the disease.

For employers, VBHBs provide significant indirect cost benefits as well. According to the Partnership for Prevention, absenteeism and presenteeism (being at work but not working up to capacity) can total two to three times the direct medical

The Self-insurer

|

October 2010

15

costs – a huge potential financial drain.

Examples of some of the benefits include: • Healthier workers are nearly three times more productive at work than those who are less healthy--this equates to 140 vs. 45 productive hours per month; • Healthy employees took nine times fewer sick days than workers with poor health; • Absenteeism among employees with diabetes is estimated to cost as much as $1,000 per worker per year.

Additionally, companies with a strong wellness focus experienced fewer workers’ compensation and disability claims and lower overall health costs.

What Makes VBHB Different?

VBHB is a strategy to achieve the maximum value for the dollars spent and is based on the following criteria: • Value equals the clinical benefit gained for the money spent • Cost-sharing for all health services is based on their expected clinical benefit to certain patient populations as determined by evidence-based medicine • The greater the expected clinical benefit, the lower the cost share This is a major departure from previous attempts to lower expenses by shifting more financial responsibility to plan members under the guise of consumer directed healthcare (CDHC).

While CDHC did reduce health plan costs in the short term, it led to higher overall costs down the road by delaying physician visits, reducing compliance with recommended treatment regimens, and limiting utilization of vaccines and potentially life-saving health screenings.

Medication compliance is especially vulnerable to hikes in

16

www.siia.org

|

October 2010

out-of-pocket expenses. When co-pays for prescription drugs increased substantially between 2001 and 2005, the Center for Studying Health System Change reported that more Americans, particularly those with chronic conditions, did not take their prescription drugs because of cost issues. According to the November 2006 American Journal of Managed Care, researchers found that doubling co-pay amounts led to a drop in the use of drugs in eight therapeutic classes including non-steroidal anti-inflammatories, antihistamines, cholesterol-lowering medications, antiulcerants, asthma medications, blood pressure medications, antidepressants and diabetes medications. As expected, there was a corresponding rise in emergency department visits and longer inpatient hospital stays for patients with diabetes, asthma, and gastric acid disorders.

Because VBHBs focus on value and on improving population health, they lower financial barriers for high-value services that might be delayed or avoided to save money while requiring higher co-pays for lower-value services.

Based on its employee demographics, for example, Pitney Bowes lowered copayments for asthma and diabetes medications, which resulted in $1 million in savings from a decrease in complications.

Technology needs Can existing healthcare technology platforms meet the requirements of VBHB plans?

Under VBHB, organizations must be able to identify individuals who are at risk of needing high-cost medical treatments using a variety of tools including health risk assessments and claims data analysis, provide customized benefits designed to keep plan members healthy, and track

compliance to determine whether members actually qualify for offered incentives. Unfortunately, most existing claim processing systems do not have the ability to easily meet these needs.

Many of these aging legacy systems, for example, are unable to determine the different co-pays for a statin drug prescribed for a 50-year-old obese man who has had a heart attack or for a 60-year-old woman with high cholesterol and pre-diabetes.

The vast majority of organizations that process claims are still relying on 20- to 30-year-old legacy technology platforms that were simply not designed to accommodate these emerging plan designs, and not built with the needs of the 21st-century healthcare economy in mind. Fortunately, next-generation technology platforms are now available that will allow organizations to create individualized VBHB plans with ease.

Language- and rules-based systems, for example, provide organizations with the agility and flexibility needed to quickly and easily implement customized, value-based benefit plans, enable them to immediately address emerging standards such as ICD-10, and allow them to deliver dramatically improved levels of customer service.

Some of the newer core administrative systems are also being built using service-oriented architectures (SOA), which enables integration of data and systems across and between organizations, and provides a number of essential capabilities that are required to successfully support the various types of VBHB programs. Systems that have both of these capabilities enable organizations to compete at an entirely new level.

Some insurers are attempting to address technology limitations using a combination of manual workarounds and external “bolt-on” systems, but these time-consuming and error-prone

“fixes” are not able to provide the essential functionality needed to truly compete in the new world of VBHB programs. To move forward with confidence as they plan, design and implement their latest health benefit offerings, employers should verify that their technology can provide:

• Streamlined access to detailed, personalized information related to each member’s benefits and claims, and the ability to easily answer “what-if ” questions that will allow everyone involved in the healthcare delivery cycle to make betterinformed decisions;

• Near-real-time configurability to quickly, easily, accurately and costeffectively accommodate the almost endless variability that is needed to support VBHB plans. Traditional systems often require weeks or months of highly specialized resources to make even minor changes, and this simply won’t work in the new healthcare marketplace;

• Robust analytics and tools that enable new levels of transparency, making it possible to offer real-time, actionable business intelligence and not just static, retrospective information.

• Seamless integration between systems that enables a 360-degree, comprehensive member-centric view that is continuously updated as information about the member changes;

next Steps The era of one-size-fits-all healthcare is waning. Although it is impossible to know whether VBHBs will emerge as the dominant model as some experts predict, there can be no doubt that next generation technology will be required to respond to the many market forces that are shaping future

Claims Savings for Everyone!

plan design. At a minimum, self-insured employers should verify that they can deliver the personalization, flexibility, agility, and transparency that will be needed to effectively promote healthy member behavior. The good news is that many organizations are already actively evaluating new technologies, and they are beginning to make the changes that will enable them to address the needs of the rapidly evolving healthcare marketplace. n Rob Gillette is CEO of HealthEdge (http://www.healthedge.com), a company that provides the patented, awardwinning HealthRules product suite. The HealthRules offering includes nextgeneration claims processing and benefit administration, business intelligence and portal solutions that are designed to allow payors to compete in the rapidly evolving 21st century healthcare marketplace. He can be reached at 781.285.1300.

INSURERS / TPAs

Negotiation – All Handled by Attorneys & Licensed Health Care Adjusters

Repricing - Less Than 1% Reversal Rate Bill Reviews, Hospital Audits - Be Certain You’re Paying Appropriate Charges

Independent Medical Reviews

We Can Determine If It’s Medical Necessity or Experimental Plus Many Other Services!!!

CONSUMER SERVICES

Patient Services - We’ll Contact Your Doctor or Hospital and Settle Your Health Care Bill

Let the Experts Lower Your Medical Bills

PROVIDERS

FAST Electronic Claims SubmissionNeed to File a Claim Fast? Visit our website at www.hhcgroup.com

(301) 963-0762 • www.hhcgroup.com The Self-insurer

|

October 2010

17

PPACA, HIPAA AND FEDERAL HEALTH BENEFIT MANDATES:

Practical

Q&a

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

Attorneys John R. Hickman, Ashley Gillihan, Carolyn Smith, and Johann Lee provide the answers in this column. Mr. Hickman is partner in charge of the Health Benefits Practice with Alston & Bird, LLP, an Atlanta, New York, Los Angeles, Charlotte and Washington, D.C. law firm.

Ashley Gillihan, Carolyn Smith and Johann Lee are members of the Health Benefits Practice. Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner’s situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation. Readers are encouraged to send questions by E-MAIL to Mr. Hickman at john.hickman@alston.com.

SUMMARY OF INTERIM FINAL RULES ON GRANDFATHER PROVISIONS UNDER PPACA

L

ong-awaited regulations under the grandfather provisions of Section 1251 of the Patient Protection and Affordable Care

Act (PPACA) were formally issued by the Departments of Health and Human Services, Treasury and Labor (the “agencies”) on June 14, 2010. The regulations are in the form of an interim

18

www.siia.org

|

October 2010

final rule, and are effective immediately.

They were published in the Federal Register on June 17, 2010.

respect to the types of changes that may

As anticipated, the regulations provide that certain changes to a grandfathered plan will result in loss of grandfathered status. However, what was not anticipated is how restrictive a view the agencies would take with

that most plans will lose grandfather

be made without causing the loss of the grandfather. Indeed, it can be expected status over time. The effect of losing grandfather status may vary on a plan-by-plan basis, and may depend on a variety of factors, including plan size and current plan provisions.

Now that the regulations have clarified a number of aspects as to what changes result in loss of grandfathered status, plan sponsors that are considering plan changes can compare the consequences (i.e., costs) of failing to make the changes compared to losing grandfather status. A listing of the requirements of PPACA showing which requirements apply to grandfathered plans appears at the end of this advisory.

Grandfathered plans remain subject to the requirements of the Public Health Service Act (PHSA), ERISA and the Internal Revenue Code (the “Code”) that were applicable before the changes made by PPACA, except to the extent supplanted by the changes made by PPACA. Thus, for example, HIPAA portability and nondiscrimination requirements and the mental health parity provisions continue to apply.

In addition to addressing the grandfather issues, the preamble to the regulations provides helpful guidance (described below) with respect to which plans and products are subject to (and exempt from) the reforms included in PPACA.

Scope of ppACA – Excepted Benefits and Retiree Only plans As a result of drafting ambiguities, questions have arisen as to whether retiree-only plans and plans that provide excepted benefits as defined under HIPAA (including stand-alone vision and dental plans, specified disease and hospital indemnity plans, and accident and disability plans) are subject to PPACA. The preamble to the regulations confirms the agencies’ view that the health care reforms (such as the prohibition on lifetime and annual dollar limits and required coverage of dependents to age 26) are not intended to apply to such plans.

Specifically, the preamble states the following: • The exceptions in the Code and ERISA for self-insured retiree-only plans and HIPAA-excepted benefits remain in effect with respect to the provisions of PPACA. • States have the primary authority to enforce the PHSA provisions with respect to group and individual market health insurance issuers, and HHS will only step in to the extent HHS believes the state has failed to substantially enforce these provisions.

HHS will encourage states not to apply the market provisions of the PHSA under PPACA to fully insured retiree-only plans or to excepted benefits.

• HHS will not use its resources to enforce the requirements of PPACA with respect to nonfederal governmental retiree-only plans or excepted benefits provided by nonfederal governmental plans.

Definition of Grandfathered plan – In General A “grandfathered plan” means coverage provided by a group health plan or a health insurance issuer in which an individual was enrolled on March 23, 2010.

A group health plan or group health insurance coverage does not stop being a grandfathered health plan merely because individuals enrolled on that date cease to be covered, provided that the plan or coverage has continuously covered at least one person (not necessarily the same person) since March 23, 2010.

The regulations apply separately to each benefit package available under a grandfathered health plan. That is, changes may result in one benefit package under a grandfathered health plan losing grandfather status while other

benefit packages retain grandfather status. Thus, for example, disqualifying changes to a PPO offered under a grandfathered health plan will not cause an HMO option offered under the plan to lose grandfather status.

Entering into a new policy, certificate or contract of insurance after March 23, 2010 (as compared to renewing a policy) creates a new plan. Thus, for example, if a benefit option under a grandfathered self-insured plan became fully insured, grandfathered status would be lost, because the new policy would be considered a new plan. An exception exists for certain collectively bargained plans. (Note that the regulations are silent on the effect of a change from a fully insured plan to a self-insured plan; comments on that issue are specifically requested.)

Adding new Individuals to a Grandfathered plan A grandfathered health plan remains grandfathered if family members of an individual enrolled on March 23, 2010, enroll after that date. This rule applies with respect to grandfathered group health coverage and individual coverage.

New employees (including newly hired and newly enrolled employees) and their families may be enrolled in a grandfathered group health plan or grandfathered group coverage after March 23, 2010, without loss of grandfather status.

An anti-abuse rule limits an employer’s ability to transfer employees between grandfathered plans unless there is a bona fide employment-based reason for the transfer. This rule is designed to prevent efforts to retain grandfather status by using a transfer to indirectly make changes that would result in loss of grandfather status if made directly. The regulations also provide that if a principal purpose of a merger, acquisition or similar business

The Self-insurer

|

October 2010

19

restructuring is to cover new individuals under a grandfathered plan, the plan ceases to be a grandfathered plan. This rule is intended to “prevent grandfather status from being bought and sold as a commodity in a commercial transaction.”

Special Rules for Collectively Bargained plans

• Changes in insurance carriers: Except with respect to insured grandfathered collectively bargained plans, a change in insurance carrier ends grandfather status for that benefit package option.

• Increases in fixed amount cost sharing: For fixed amount cost sharing other than co-payments (e.g., deductibles) the maximum permitted increase in the fixed amount (since March 23, 2010) without loss of grandfathered status is medical inflation (from March 23, 2010), plus 15 percentage points.

For co-payments, the maximum permitted increase (since March 23, 2010) without loss of grandfather status is the greater of (a) the maximum percentage increase as described in the preceding sentence, and (b) $5 increased by medical inflation. These restrictions apply to changes in any cost sharing requirement. Medical inflation is defined by reference to the overall medical care component of the Consumer Price Index for All Urban Consumers (CPI-U) (unadjusted) published by the Department of Labor (“OMCC”). In March 2010, OMCC was 387.142. The increase in the OMCC is computed by subtracting 387.142 from the OMCC “for any month in the 12 months before the new change is to take effect and then dividing that amount by 387.142”. An example from the regulations for copayments helps to illustrate how this works:

• Changes in the scope of benefits: The elimination of benefits to diagnose or treat a particular condition, even if the condition affects relatively few individuals under the plan, results in loss of grandfather status. The elimination of benefits for any necessary element to diagnose or treat a particular condition also results in loss of grandfather status. For example, if a plan covers a particular mental health condition, the treatment for which includes prescription drugs and counseling, elimination of counseling would result in loss of grandfather status. This provision is especially difficult for employers that are re-evaluating their mental health coverage in light of recent Mental health Parity and Addiction Equity Act of 2008 regulations.

On March 23, 2010, a grandfathered health plan has a copayment requirement of $30 per office visit for specialists. The plan is subsequently amended to increase the copayment requirement to $40. Within the 12-month period before the $40 copayment takes effect, the greatest value of the OMCC is 475.

• Increases in percentage cost sharing requirements: Any increase in any percentage

The increase in the copayment from

There is no delayed effective date for collectively bargained plans, whether fully insured or self-insured. Thus, plans maintained pursuant to one or more collective bargaining agreements in effect on March 23, 2010, must comply with the new rules at the same time as other grandfathered plans. For example, effective for plan years beginning on or after September 23, 2010, grandfathered plans must comply with the requirement to extend dependent coverage until age 26; for plan years beginning before January 1, 2014, grandfathered group health plans may exclude an adult child if the child is eligible for other employer-sponsored coverage other than through a parent. The rules for coverage of adult dependent children apply to grandfathered collectively bargained plans the same as they do to other grandfathered plans, regardless of when the applicable collective bargaining agreement terminates.

The regulations provide that fully insured (but not self-insured) collectively bargained plans retain their grandfather status until the current agreement (i.e., the agreement in effect on March 23, 2010) expires. Thus, a change in carriers under a fully insured collectively bargained plan does not result in loss of grandfather status if the change is made before the current agreement (i.e., the agreement in effect on March 23, 2010) expires.

Changes to benefits that apply while the current collective bargaining agreement is in effect, such as increasing co-payments, do not result in loss of the grandfather.

However, whether the grandfather applies after the expiration of the collective bargaining agreement is measured by comparing the benefits in effect at that time to the benefits in effect on March 23, 2010. If the changes are not within the permitted parameters (described below), then the plan will cease to be grandfathered when the relevant agreement expires.

Maintenance of Grandfather Status As mentioned above, the regulations severely limit the changes that may be made under a plan without resulting in a loss of grandfather status. Any one of the following changes will result in the loss of grandfathered status with respect to the benefit package affected by the change:

20

cost-sharing amount (such as increasing a 20 percent coinsurance requirement for in-patient surgery to 30 percent) results in loss of grandfather status.

www.siia.org

|

October 2010

$30 to $40, expressed as a percentage, is 33.33% (40 - 30 = 10; 10 ÷ 30 = 0.3333; 0.3333 = 33.33%). Medical inflation from March 2010 is 0.2269 (475 – 387.142 = 87.858; 87.858 ÷ 387.142 = 0.2269). The maximum percentage increase permitted is 37.69% (0.2269 = 22.69%; 22.69% + 15% = 37.69%). Because 33.33% does not exceed 37.69%, the change in the copayment requirement at that time does not cause the plan to cease to be a grandfathered health plan.

It is important to note that although the regulations indicate that the increase must be “determined as of the effective date of the increase”, the OMCC is computed using “any month in the 12 months before the new change is to take effect”. In other words, it appears from the examples in the regulations that for a change that becomes effective on July 15, 2011, the OMCC between July 2010 and June 2011 with the “greatest value” can be used, and not necessarily the OMCC for July 2011.

• Changes in rate of employer contributions for premiums: A decrease in the employer contribution rate of more than five percent below the rate on March 23, 2010, for any tier of coverage for similarly situated individuals results in loss of grandfather status. In general, the employer contribution rate is the amount of contribution made by an employer compared to the total cost of coverage, as determined under the COBRA continuation rules.

In the case of a self-insured plan, contributions by the employer are equal to the total cost of coverage minus the employee contributions toward the total cost of coverage.

According to the examples in the regulations, pre-tax salary reduction contributions are considered employee contributions for this purpose. Under this rule, although

the dollar amount of employee contributions may increase, there is no loss of grandfather status as long as the rate (i.e., the relative proportion) of employee contribution does not increase more than permitted.

• Changes in annual limits: The addition of an overall annual limit on the dollar value of benefits to a grandfathered plan that did not impose an overall annual or lifetime dollar limit on March 23, 2010, results in loss of grandfather status. If a grandfathered plan that had only a lifetime dollar limit on March 23, 2010, is modified to add an annual dollar limit on benefits, grandfather status is lost unless the annual limit is not less that the lifetime limit. If a grandfathered plan lowers an annual dollar limit on benefits below the limit in effect on March 23, 2010, grandfather status is lost. (Note, lifetime limits are prohibited for plan/policy years beginning after September 23, 2010; this prohibition applies to grandfathered plans.)

According to the preamble, changes other than those described in the regulations as resulting in loss of grandfather status do not affect the grandfather. Changes that do not result in loss of grandfather status include changes required to comply with federal or state law, changes to voluntarily comply with PPACA or increase benefits, and changes in third-party administrators with respect to a self-insured plan. (Note, the regulations specifically request comments as to whether changes in network providers should result in loss of grandfather status.)

Transition Rules The regulations also include transition rules for plans and issuers that made changes after March 23, 2010.

• Changes Treated as Made Before March 23, 2010: Changes made as a result of the following situations will not result in the loss of grandfathered plan status and are considered part of the plan or policy terms on March 23, 2010, even though they are not effective until after March 23, 2010: • Changes made pursuant to a legally binding contract entered into on or before March 23, 2010, • Changes pursuant to a filing with a state insurance department on or before March 23, 2010, or • Changes pursuant to a written plan amendment adopted on or before March 23, 2010.

• Grace Period for Changes Made After March 23, 2010: Changes made after March 23, 2010, and before the date the regulations were publicly available (i.e., June 14, 2010), that would otherwise affect grandfather status may be revoked or modified in order to preserve the grandfather. Any such revocation or modification must be effective as of the first day of the first plan year (policy year in the case of the individual market) beginning on or after September 23, 2010.

This transition rule applies to changes that are effective before June 14, 2010, or changes that are effective on or after such date pursuant to a legally binding contract, a state insurance filing or a written plan amendment entered into or made before such date.

• Good Faith Compliance: For enforcement purposes, the agencies will take into account good faith efforts to comply with reasonable interpretations of the statute prior to the issuance of regulations, and may disregard changes to plan and policy terms that “only modestly” exceed the parameters for changes that result in loss

The Self-insurer

|

October 2010

21

of grandfathered status set forth in the regulations and that are adopted before June 14, 2010.

Disclosure Requirements In order to maintain grandfather status, a plan or health insurance coverage must include a statement in any plan materials provided to participants that the plan believes it is a grandfathered health plan and must provide contact information for

22

questions (and complaints). A model notice is included in the regulations for this purpose.

coverage in effect on March 23, 2010; and • Any documents necessary to support the status as a

Substantiation Requirements For as long as a plan or insurance carrier takes the position that the plan or coverage is grandfathered, the following records must be maintained: • Records documenting the terms of the plan or health insurance

grandfathered plan (for example, a copy of a legally binding contract in effect on March 23, 2010).

These documents must be made available for examination by participants, beneficiaries, individual policy subscribers and federal agency officials. n

Insurance Reform (pHSA §)

Effective Date

Applicable to Grandfathered plans?

Coverage of preventive care (without cost sharing) § 2713

First plan year beginning on or after September 23, 2010

No

Provision of additional information (transparency requirements) § 2715A

First plan year beginning on or after September 23, 2010 (under the statute, the additional information is first required in connection with the Exchanges that must be operational by January 1, 2014)

No

Nondiscrimination rules for insured plans § 2716

First plan year beginning on or after September 23, 2010

No

Certain reporting requirements (Statutory heading is “Ensuring quality of care”) § 2717

First plan year beginning on or after September 23, 2010 (provision dependent on regulations; agencies must develop reporting requirements by March 23, 2012)

No

Claims appeal procedures § 2719

First plan year beginning on or after September 23, 2010

No

Patient protections (choice of primary care provider and emergency services without prior authorization) § 2719A

First plan year beginning on or after September 23, 2010

No

Fair health insurance premiums (limits factors that can be used to determine premiums) § 2701

First plan year beginning on or after January 1, 2014

No

Guaranteed availability of coverage (applicable to health insurance issuers) § 2702

Currently applies to small group (individual policies if conversion criteria met), expanded to individual and large group first policy year on/after 2014

No

Guaranteed renewability of coverage (applicable to health insurance issuers) § 2703

Currently applies to health insurance issuers.

No

Prohibition on discrimination against providers § 2706

First plan year beginning on or after January 1, 2014

No

Participation in clinical trials § 2709*

First plan year beginning on or after January 1, 2014

No

Nondiscrimination based on health status § 2705

First plan year beginning on or after January 1, 2014

No (grandfathered plans remain subject to the rules in effect before health care reform)

Prohibition on preexisting condition exclusion § 2704

First plan year beginning on or after September 23, 2010 for individuals under age 19; first plan year beginning on or after January 1, 2014 for other individuals

Group – Yes Individual – No

www.siia.org

|

October 2010

(in individual market, policy year is used instead of plan year)

Insurance Reform (pHSA §)

Effective Date

Applicable to Grandfathered plans?

Comprehensive health insurance coverage (requirement to provide essential benefits and cost sharing) § 2707 Restricted/prohibited annual limits § 2711(b)

First plan year beginning on or after January 1, 2014. Large (100 employee+) and self-insured plans are exempt from the essential benefits mandate.

First plan year beginning on or after September 23, 2010 “Restricted” annual limits are permitted until 2014; for plan years beginning on or after January 1, 2014, no annual limits are permitted First plan year beginning on or after September 23, 2010 First plan year beginning on or after September 23, 2010 First plan year beginning on or after September 23, 2010; for grandfathered group plans, coverage required before 2014 only if the child is not eligible for other employer coverage (other than through parents)

Yes. Note exceptions in prior column for self insured and large group health plans.

Prohibition on lifetime limits § 2711(a) Prohibition on rescissions § 2712 Coverage of adult children § 2714

Uniform explanation of coverage § 2715 Bringing down the cost of health coverage (minimum medical loss ratio) § 2718 Limitation on waiting periods § 2708

(in individual market, policy year is used instead of plan year)

First plan year beginning on or after September 23, 2010 (provision dependent on regulations; first disclosures not required under statute until March 23, 2012) First plan year beginning on or after September 23, 2010 First plan year beginning on or after January 1, 2014

Group – Yes Individual – No Yes Yes Yes

Yes

Yes (provision applies to insured plans only) Yes (not applicable to individual coverage)

* Due to drafting errors, there are two sections 2709 of the PHSA after PPACA. The section referred to in the table is a new section. The other section 2709 (relating to disclosure of information) is renumbered from prior law PHSA section 2713. Grandfathered plans remain subject to the pre-PPACA requirements that are still in effect.

Trust is predictable, risk is not Trust, like the tide, is predictable and dependable. Trust is the single most important asset that your customer should consider when choosing a medical stop loss insurance carrier.

R.E. Moulton, Inc. , the industry standard for risk solutions, has been a pioneer in the medical stop loss insurance industry since the advent of self-funded health plans. For more than 30 years, customers have trusted us for proven solutions. As a OneAmerica company, we have strengthened that tradition.

No, you can’t predict risks with absolute certainty.

But you can prepare for them. Let us earn your trust.

Contact an R.E. Moulton, Inc. representative today by calling 1-781-631-1325 Note: OneAmerica is not a licensed insurance company. The companies of OneAmerica are neither licensed in New York as insurance companies nor do they solicit business for their insurance products in New York.

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

The companies of OneAmerica®; American United Life Insurance Company®, The State Life Insurance Company, OneAmerica Securities, Inc., R.E. Moulton, Inc., Pioneer Mutual Life Insurance Company and AUL Reinsurance Management Services, LLC. © 2009 OneAmerica Financial Partners, Inc. All rights reserved. OneAmerica® and the OneAmerica banner are all registered trademarks of OneAmerica Financial Partners, Inc.

The Self-insurer

|

October 2010

23

harnessing

CONSUMERISM for improved hEalTh & hEalThCarE

By Nelson rosenbaum

24

www.siia.org

|

October 2010

A

s a tsunami traverses mid-ocean, it appears as little more than a large swell, the enormous mass of onrushing water concealed beneath the depths. Yet as the tidal wave approaches the shoreline, it rears up into a towering, unstoppable force, capable of dramatically re-shaping the landscape before it.

Consumerism in American healthcare is very much like a tsunami – a deep underlying force that has been building in strength and scope for years, but is only now beginning to break over the medical marketplace with transformative power. That transformation will touch every aspect of the market: how healthcare insurance is purchased and financed, how physicians and hospitals are held accountable for performance, how health information is distributed and protected, how medical services are selected and utilized. Since healthcare is now the largest single sector of the US economy, the consumer transformation of the medical marketplace will touch the lives of most Americans.

Consumerism and Macro Trends in American Healthcare The rise of consumerism is intimately connected with and will help to determine the success of other major trends shaping the medical marketplace.

Employer sponsored health insurance, in the form of a standard package of “defined benefits”, is rapidly approaching the limits of economic sustainability.

Many companies are now limiting their cost exposure by shifting to a “defined contribution” approach to healthcare insurance, in the form of high deductible or catastrophic healthcare coverage combined with a tax advantaged savings account like an HSA, HRA or FSA. These plans rest upon the premise that members and dependents can be motivated by financial self-interest into operating as more costconscious consumers. While this approach holds the promise of riding on the wave of self-initiated consumerism that has been building for more than a decade, it also rests upon the yet unproven premise that consumers will be able to acquire enough specific information to make wise purchasing decisions.

The success of national healthcare reform also interacts with consumerism.

It’s a measure of our collective desperation over healthcare cost and access that Congress enacted broader government financial responsibility and regulatory control of the marketplace at the same time that existing government-funded health care programs -- such as Medicare, Medicaid, and SCHIP --face their own existential fiscal crises. Reconciling greater government control of the medical marketplace with the growing wave of consumerism remains an open issue particularly since experience with managed care in the 1990s demonstrated that consumer perspectives can come into strong conflict with bureaucratic fiat. While advocates of expanded government regulation may pay lip service to the notion of “patient control”, they are often less than explicit about how consumer choice can be respected and encouraged in their programs and regulations.

Consumerism is also at the heart of the ongoing debate over health care quality and outcomes. The US spends far more per capita on healthcare than any other “comparable” country, but other nations appear to get more value for money in terms of life expectancy, birth outcomes, and other key measures of quality. For several decades now, the U.S. medical research community has been engaged in an effort to improve outcomes through top-down diffusion of “evidence-based medicine” practice guidelines to physicians and other providers. These guidelines cover such matters as appropriate preventive care practices, optimal chronic disease management, effective cancer care treatment, and so on. To date, however, judging from extensive research on continuing quality gaps in care, the impact of these initiatives appears marginal at best. Recently, many purchasers and payers have

begun “pay for performance” programs in which providers can earn monetary rewards by demonstrating compliance with best practices and improvement in outcomes. But, like many of the earlier evidence-based initiatives, almost all of the “P4P” programs are set up as bureaucratic exercises on the supply side without significant involvement or exercise of responsibility by the consumer. It is unclear whether quality enhancement can succeed without engaging the consumer as an active, informed party in the marketplace.

In brief, consumerism represents a powerful force that will affect every aspect of the U.S. medical marketplace in coming years. This consumer wave will drive substantial change on its own, but will also interact with and shape other significant forces and trends in the marketplace. The outcome of the consumer transformation will affect our health status, our standard of living and our economic competitiveness in the world for the next fifty years.

Consumerism and the Medical Marketplace The dramatic and unrelenting growth of the medical marketplace over the last thirty five years is startling.

Growth of per capita spending on health products and services has consistently outpaced GDP growth and is on track to approximate 20% of the nation’s economy within the next decade. It has far outpaced the growth of any other component of the economy.

The Self-insurer

|

October 2010

25

This growth has been driven by a number of major factors ranging from advances in medical technology to the aging of the population to the concentrated pricing power of certain types of medical suppliers. Growth has brought general benefits to American society in terms of improvements in longevity and quality of life as well as specific benefits to highly paid medical personnel and to local economies that have become specialized in healthcare.

Despite the manifest benefits, however, the distortions and inefficiencies of the medical marketplace have become so drastic that the continued growth of the sector poses grave threats to our society’s economic standing and well-being.

The balance between preventive care and acute medical care within the US is generally agreed to be out of kilter, leaving the country with far more avoidable illness than necessary. The market primarily focuses on the needs of people with illnesses and medical conditions rather than addressing more fundamental issues of optimum health and wellness. Partly for the above reasons, the US spends far more per capita on healthcare than other countries, but does not achieve higher value in quality and outcomes. There are also wide regional disparities within the United States in the use of different procedures and drugs, which appear to reflect nothing more rational than local custom. Our medical market also siphons up a huge proportion of total spending for insurance administration and intermediation, without clear benefit.

The fundamental issue in all of these distortions is the insulation of the medical marketplace from normal forces of supply and demand. The source of that insulation is the broad “information asymmetry” between providers and consumers. In a nutshell,

26

www.siia.org

|

October 2010

the consumer does not know what he/ she is buying, what it costs, and whether it is necessary or effective. Until the information gap is bridged, the market’s distortions cannot be normalized. That is both the challenge and the promise of consumerism.

Active, informed consumerism is at the core of what most Americans consider a “free market”. As a capitalist society, we subscribe to the belief that consumer choice is the principal and preferred means by which markets selfcorrect. Consumers respond to price and quality signals by changing their purchasing behavior and, through their informed choices, ensure that a market operates efficiently to produce the “optimal” mix of goods and services.

Of course, this idealized version of a rational market operates only imperfectly in most sectors of the American economy – frequently requiring government intervention or industry self-regulation to constrain or direct the market. However, there is little theoretical disagreement anymore across government and industry that the consumer should be encouraged and empowered to take the sovereign role to the greatest possible extent. It is a peculiar irony, then, that the fastest growing sector of all – the healthcare industry – has been the laggard to most other sectors is encouraging or supporting consumerism. There are many reasons for this historical lag: the lack of financial incentives for consumer involvement, the sheer scale of the knowledge gap that must be bridged between providers and consumers, the passive psychological orientation that often characterizes the “patient” role, and the technological barriers to information exchange. However, all of these historical obstacles to consumerism are now diminishing, opening up the prospect for greatly enhanced consumer engagement.

Channeling Consumerism Constructively Consumers are not waiting for permission from elites to engage actively in the medical marketplace.

Much consumer energy is manifested in self-initiated, “guerilla” actions that are driven by growing frustrations with an unresponsive market. Increases in medical malpractice lawsuits, second opinion requests, internet drug purchases, citizen challenges to FDA rule-making, and medical tourism to India and Singapore are but a few of the leading indicators of consumer discontent with the US medical market. These forms of healthcare consumerism attempt to go over, under, or around the “official” marketplace.

Yet these self-generated manifestations of consumerism cannot systematically address the main challenges of disciplining the medical marketplace.

To be effective, consumerism requires constructive channeling by industry and the regulators. How to integrate consumer energy and engagement into the marketplace -- rather than continue to deflect it over, under and around the market -- will be a central issue over the next several decades.

Based upon my own experience and research, let me suggest four basic principles for engaging consumers constructively in the medical marketplace. All deal with the centrality of overcoming the information asymmetry between producers and consumers.

1. Accelerate Information Flow. A reliable flow of timely, personalized information is one critical key to informed consumerism. Generalities don’t count. If the information isn’t personalized, it’s of relatively little value. If it’s three or four months old by the time it’s provided, it’s outdated and potentially misleading. A good example of

The Self-insurer

|

October 2010

27

timely personalized information flow is found in the Medicaid Part D decision support tools which successfully allowed many seniors to optimize their drug plans. Another hopeful trend is the proliferation of personal health records (PHR), which collect and display a consumer’s longitudinal health and healthcare experience.

2. Keep Information Understandable. One of the great obstacles to more effective consumerism is the limited health literacy level of most Americans. While it is often assumed that the acronyms and technical jargon of the medical trade is widely understood, the reality is the vast bulk of citizens have not expended the effort to familiarize themselves with this domain. Thus, it is essential that medical terminology be kept at a level of clear comprehensibility – not by oversimplifying or trivializing the information, but by judicious word choice and attention to detail. Efforts at Medical Mutual of NC and Health Care Service Corp are good examples of effective modulation of literacy level to ensure consumer comprehension.

3. Make Information Actionable. Americans tend to be impatient with theory and generalities. Rather, Information supporting consumerism must be shaped in terms of concrete decisions -- buying choices, medical necessity judgments, compliance calculations, diet requirements – that consumers face in the course of a busy day. More lectures and banalities about eating right, staying fit and buying smart don’t work well to promote a responsive marketplace. A good example of just in time, actionable information is the delivery of SMS text messaging alerts on cell phones about smoking cessation and physical activity.

Many studies have shown these types of “just in time” interventions to work successfully in diverse populations with proper design.

4. Maintain Information Interactivity. Consumerism works best when information is systematically exchanged in both directions. Attention is typically focused on the top down approach – i.e. the EHR supporting and informing the PHR. Rarely is the value of information flow the other way around considered, but consumer pain and sleep diaries, systematic observations about activities of daily living, or consumer-generated clinical findings can be an invaluable source of diagnostic and treatment guidance for professional providers and care-givers. A promising low-tech example of information interactivity is the innovative use of e-mail in Kaiser’s Health Connect system.

Some threats to consumerism are clearly emerging. It’s possible that privacy regulation will unintentionally shut down effective consumerism under the guise of consumer protection. There are many battles in process over the appropriate balance between open information flow and individual privacy decisions. How these fights play out will affect the acceleration and timeliness of information flow to consumers. Another significant threat comes from excessive government regulation of products and services in the marketplace. For example, the recent health reform

|

potentially constricting rather than expanding consumer choice.

On the other hand, there are some positive actions by providers, payers, and regulators which bode well for consumerism. The national investment of over $20 billion in EHRs for provider organizations over the next five years will finally digitize key medical information in a form in which it can easily support the diffusion of PHRs to American consumers. Standardization of health insurance product offerings and descriptive language by regulators may finally make it easier for Americans to understand the coverages they are actually buying. The diffusion of mobile phone technology holds the promise of offering timely personalized health information to consumers on a convenient, accessible basis. Many employers have committed themselves to a “culture of health”, in which they seek to encourage engagement and education of their employees on key health and wellness issues.

How this balance of official encouragement and discouragement plays out against the underlying wave of guerilla consumerism bears careful will be many opportunities to join

The era of consumerism is just beginning to impact the medical marketplace.

The promise of “normalizing” the market toward something resembling the supplydemand equation of other markets is one of the few bright spots in an otherwise gloomy prognosis for American health and healthcare. As noted, much will depend upon how market makers and government regulators discourage or encourage the emerging trend.

www.siia.org

imposition of evidence-based protocols,

watching over the few years. There

Conclusions

28

legislation opens the door to national

October 2010

in the fray for those who believe in consumerism as a positive force in the medical marketplace. n Nelson Rosenbaum is President and CEO of Consumer Health Advisers, Inc. in Bethesda, MD (www. consumerhealthadvisers.com). He is the author of the forthcoming book To Your Health: The Consumer Transformation of American Medicine. He can be reached at nrosenbaum@healthadvisers.net.

Let us throw you a line.

While 95% of workers’ comp executives believe medical costs to be the industry’s most critical issue, less than 10% believe anything meaningful can be done about it.1 Fortunately there’s Paradigm.

Our catastrophic case management delivers: • 5x better outcomes2 • 36% lower costs2 • 75% lower attorney involvement • Guaranteed outcomes Results that keep you floating.

1. Workers’ Compensation Industry Study, Paradigm Management Services, August 2008 2. Based on an independent comparison by Milliman, Inc., the nation’s leading actuarial and consulting firm, to their proprietary database of similar workers’ compensation claims.

www.paradigmcorp.com

800.676.6777 The Self-insurer

|

October 2010

29

OUT with the Old, IN with the Old (?): a QuiCk PriMEr ON aCO’S

By Jason davis

T

he new reform package is loaded with changes and new acronyms; none more intriguing perhaps than the push from CMS and HHS for the formation of Accountable Care Organizations (“ACO”). What is an ACO? The answer is not as easy as one would think, as it appears that

a huge fan of that. I have negotiated numerous claims at lacklustre facilities and they have tried to get me to pay absurd sums on their bills. In these

ACOs are in dire need of definition. In fact, the model seems so broad that it could

negotiations, I was essentially buying

be more aptly characterized as a goal, namely to integrate providers in a real or

an economy car, but being told to pay

virtual organization that improves care and reduces cost for a defined population -

the price of a Ferrari because my client

and the ACO can keep a share of the savings it generates. It is worth noting that the

is not a big buyer at their shop, which

model is being designed for use for the Medicare program exclusively at this point,

is ridiculous especially on emergency

but we can expect that if the model is successful may be replicated in the private

claims where my client had no choice it

market – hence its relevance for our consideration. Not to mention that many big

the matter.

players are administering pilot projects. Before we delve into what exactly ACOs are, let’s discuss what they are not.

ACOs are not HMOs… or are they?

ACOs are not ppOs

care but rather on the basis of volume. The ACO model appears to be a significant

I was speaking recently with a friend of mine, a CEO of a large insurance company, and he told me, “Jay, we had ACOs when I started in this industry – they were called HMOs.” This impression is aptly summed up

by David Durenberger, former senator

step away from the volume paradigm toward the quality/value paradigm, and I am

from Minnesota:

The fact that the concept of accountability in medical care is now being introduced is perhaps an indication that preferred provider organizations (“PPOs”) have failed to deliver quality and cost-containment. For two decades, we have designated some providers as preferred or not preferred, not on the basis of quality

30

www.siia.org

|

October 2010

In the 1980s we experimented with privatizing Medicare, paying at risk HMOs 95% of the traditional Medicare. The result was utilization change and costs came down by 15% to 20% in only two years in communities with HMO competition. What’s an HMO? It’s a co-op in which doctors, hospitals, insurers, and members have similar incentives to improve health and care and share in the savings. Call it an “accountable care organization.”

After careful examination, we can

capitated payments, high share of

conclude that although that there

savings (if applicable), extensive publicly

are some similar elements with the

available quality date required.2 Clearly,

HMO, there are also differences with

this needs to be fleshed out further.

the ACO model and the current healthcare market as a whole. For one, the market has definitely recognized that fragmented care and misaligned incentives are at the core of what is wrong with our current system, and conversely that coordinated care and the abolition of “fee-forservice” is a major part of a lasting solution. Secondly, hospitals have made significant advances since the 90s in management standards and IT infrastructure, so they could likely support a risk-sharing model better than previous attempts. Lastly, it appears that there is more flexibility in the ACO risk management models (versus traditional HMOs) which should avoid partly the motive to deprive essential care based on a desire to keep on budget – and we have all

Who came up with the concept of ACOs? The model is said to be the brainchild of Dr. Elliot Fisher of Dartmouth Medical School, which is the home of the policy machine known as the Dartmouth Atlas Project.3 We have all read Jack Wennberg’s research about the jaw-dropping differences in cost and quality of care based on geographic regions, and Fisher seems to pick up where Wennberg leaves off. In short, Wennberg made a career explaining the problem and Fisher is now proposing a possible solution (or at least a part of it).

place. That is, he explains that most physicians already work with the local hospital and ancillary centers – and so all that would be needed is an organization to optimize the interaction and coordination of care of the ACO members. Electronic Health Records are necessary to ensure the functionality of this model, and we know that the government is offering incentives to providers to develop these capabilities. ACO Proponents highlight the prime candidates to grab hold of and develop the ACO model: Integrated delivery systems, multispecialty groups, physician hospital organizations, independent practice associations, and the endless variations and hybrids of these. You may notice that payer organizations are not listed.

Few would disagree with Kathleen Sebelius who argues the significant administrative efficiencies that will be gleaned by removing the individual billing of all the providers that come into contact with a patient, and replacing it with a bundled payment.5 I do not doubt that the model can save money, but I wonder if Medicare participants will be interested in being guinea pigs in these ACO pilot projects (reportedly there will be 18 nationwide, and enrolment is voluntary). From what I can tell is the value proposition for the sale of the model is that care will be noticeably

Will ACOs work? part 1: The Defenders

better, which remains to be seen: Rather than taking anything away from beneficiaries, ACO payments provide

heard horror stories of that dynamic.1

The defenders of the model will

At this point, market literature seems

state that the model has already been

an additional source of provider support

to be proposing three vague risk

tried, tested, and proven effective,

to improve care in ways that are not

sharing models: 1) no risk, just bonuses

and they cite reports of the Medicare

feasible under the current payment

if quality measures reached, some

Physician Group Practice (PGP)

system6

quality info required 2) some risk,

demonstration project.4 Dr. Fisher

higher bonuses, moderate quality info

also argues that the model already

it, is that it will likely fall on the right

required, 3) part or full risk through

builds on infrastructures already in

side of the 80%-85% Medical Loss

One benefit of the model, as I see

The Self-insurer

|

October 2010

31

Furthermore, ACOs will have to contend with State regulators that will be watchful for abuse of referrals to other doctors and facilities within the ACO. Given that the Feds want to see the programs succeed; I doubt any of these challenges will be insurmountable but it may require significant time to sift through these issues.

My major concern is the feasibility of an ACO being proficient in all facets of Medical care (jack of all trades, master of none). I can see the ACO model being a great base to manage primary care needs (proactively), and minor procedures, but I am

Ratio (“MLR”) and that ACO services

markets. However, some markets

and additional fees (if applicable) will

are extremely access driven, and it

be assessed under medical expenses.

may be challenging to sell ACOs to

This is largely due to the fact that

Americans that want unfettered access

value healthcare for all disease states,

ACOs will be required to track trended

to whatever and whomever they want.

especially specialized care compared to

quality data and work towards clinical

I think we will likely ACOs as an option

some centers of excellence. As such, I

improvements and elimination of

within a tiered network offering.

think that an ACO would be a efficient

unnecessary care, which early reports indicate will be a requirement for services reportable under the MLR.

Will ACOs work? part 2: The Critics We have heard the narrative before of limiting access for preferred rates, and we have observed some PPOs building some exclusive provider organizations (“EPO”) or networks (“EPN”) to service price-conscious

Defenders argue strongly that ACOs build upon pre-existing relational patterns, but some critics argue the opposite side of this argument, stating that physicians and hospitals are at

somewhat incredulous that they will be able to provide significant quality/

hub, but they would need to perhaps consider sending patients with certain significant diseases to other facilities that are at the forefront of medical

odds with one another (and have been

developments– outside the ACO and

for some time) and cannot collaborate

possibly out-of-state. How this will play

in the ACO model:

out, we will have to wait and see. n

Squashing hospitals and physicians back together into economic interdependence in a joint hospital/physician economic pool makes no real-world sense.7

See Elizabeth Gardner, Loads of Potential, Modern Healthcare July 26, 2010 p. 23 Health Affairs, “ A National Strategy to Put Accountable care into Practice,” May 2010 See Elliot S. Fisher at al. Creating Accountable Care Organizations: The Extended Hospital Medical Staff: A new approach of organizing care and ensuring accountability.

See http://www.cms.gov/DemoProjectsEvalRpts/downloads/PGP_Fact_Sheet.pdf Modern Healthcare, Kathleen Sebelius, Ensuring Success, July 26, 2010, p.25 HealthAffairs.org. Aaron McKethan, Moving from Volume-Driven Medicine Toward Accountable Care, August 20, 2009.

Health Affairs.org. Dr. Jeff Goldsmith, The Accountable Care Organization: Not Ready for Prime time. August 17, 2009.

32

www.siia.org

|

October 2010

new studies confirm transparency vital to reducing healthcare costs

By Christopher Parks

Consumers seek more healthcare cost information to make prudent, cost-effective purchases With healthcare spending expected to increase dramatically over the next decade, two recent studies by the Society of Actuaries confirm what change:healthcare – and I have been saying all along. Transparency would be a boon to helping patients and consumers make better healthcare purchase decisions and lower healthcare costs in general.

Actually, we’ve been calling for greater transparency in healthcare costs since 2007. This research simply underscores the point that consumers are begging for greater, better and more actionable healthcare cost information that will help them pay less for their and their family’s care, and lower what is spent on healthcare across the nation.

Fortunately, this isn’t just the opinion that I hold, other recent news stories in media outlets, including The New York Times1, the Charlotte Observer2 and Kaiser Health News,3 echo the need for cost transparency in the country’s healthcare system.

The Society of Actuaries studies of both actuaries and consumers† affirm that more transparency in the healthcare system is critical to lowering costs. For instance, 86 percent of surveyed healthcare actuaries recommend making prices for treatments more visible and available for patients while two-thirds of employees felt they could better control their own healthcare costs if healthcare providers, or their insurance company, told them about costs.

So why do we care? Well, our passion is making consumerdriven healthcare work for employers and employees

by helping everyone understand the price variance of care. Specifically, our cost transparency solution helps employers and their workers choose the most affordable providers for medical services by analyzing a company’s medical claims and continually sending cost-savings alerts to employees when savings opportunities are found.

And we should know about savings. The anonymous data we have from more than 100,000 lives has told us much about the spending habits of American healthcare consumers. And that is now helping us guide the healthcare benefit spending habits of American companies interested in lowering their healthcare costs.

But the single most interesting data point we’ve found in all our work with companies is that when you give people transparent information about their healthcare and the value-driven choices that are out there, invariably they make far more insightful decisions about their care, its cost and its quality. This was true when the 401k became available and it is true with healthcare.

I have no doubt that with greater transparency placing more information and control into consumer hands, Americans could realize millions in healthcare cost savings. It’s just also nice to see a lot of folks finally agreeing with us. ¹ http://www.nytimes.com/2010/06/11/technology/ 11cost.html?emc=eta1 ² http://www.charlotteobserver.com/2010/06/27/1527319/ health-care-costs-are-hard-to.html ³ http://www.kaiserhealthnews.org/Stories/2010/June/29/ Hospital-Prices.aspx † http://www.soa.org/news-and-publications/newsroom/ press-releases/2010-06-28-act-believe.aspx

Christopher Parks is Founder and Chief Executive Officer of changehealthcare, inc. (www.changehealthcare.com who delivers cost transparency solutions that make consumer directed healthcare (CDHC) work for employers and their employees. Through a proactive web-based service, change:healthcare provides customized price information to employees on more than 750 of the most common healthcare services and prescriptions, helping them make cost-effective purchase decisions. The organization works with employers, plan administrators, health plans and other vendors who are interested in helping their clients reduce healthcare expenses.

The Self-insurer

|

October 2010

33

a risk retention

grOuP PriMEr

By karrie hyatt, Managing Editor, risk retention reporter

R

isk Retention Groups (RRG) are the alternative risk transfer entity created by the federal Liability Risk Retention Act (LRRA). RRGs must form as liability insurance companies under the laws of at least one state – its domicile.The owners of the RRG are also its owners and membership must be limited to persons engaged in similar businesses or activities, thus being exposed to the same types of liability. Most RRGs are regulated as captive insurance companies. However, RRGs domiciled in states without captive law they are regulated as traditional insurers.

a company to commence operations.

Major benefits of RRGs include the ability of members to control their own program; to obtain rate stability over the long-term; to implement effective loss control/ risk management practices; to obtain dividends for good loss experience; to have access to reinsurance markets; to maintain a stable source of liability coverage at affordable rates; and to operate on a multi-state level.

of operation or feasibility study (one or

History

unfair claims practices. Non-domiciliary

Congress passed the LRRA in 1986 in response to the prolonged hard market of the 1980’s. It followed five years after the groundbreaking legislation the Product Liability Risk Retention Act passed in 1981.The LRRA enabled businesses, professionals, nonprofit organizations and governmental agencies

34

www.siia.org

|

October 2010

to establish self-insurance pools which either retained risk (RRGs) or to purchase liability insurance on a group basis (purchasing groups or PGs). Also, with the advent of the LRRA in 1986, Congress prohibited discrimination against RRGs by the states.

On a practical level, preemption of state regulation for risk retention groups provides a particularly effective way for

Once a risk retention group has obtained a license from its chartering state and has raised its capital, it can begin operations in other states almost immediately.The LRRA requires that a RRG which intends to operate in other states file its plan the other is required by law in order to set-up a RRG). Non-domiciliary states are permitted to require that RRGs comply with specified state laws, such as states can bring an action in state or federal court to enjoin a RRG if it deems the group to be in hazardous financial condition.

In response to the act 44 RRGs were formed by the end of 1987. Many of the RRGs formed during this time were in Vermont, one of the leading captive domiciles in the world.Vermont already

had a fully developed captive program by the time the LRRA was passed and could offer assistance in setting up RRGs in a way that other states were unprepared to do.

groups at year end. However, this number of groups is still nearly four times more than were operating in 2000. By August 2010 there were 252 groups operating.

During the mid-1990’s the market became soft, so, in many cases, it was cheaper to purchase liability insurance through traditional insurance carriers.

While there were many RRGs that formed during the decade, many more ceased operating. In the year 2000, the number of RRGs had only grown to 65 in the 14 years since the passage of the act.

In terms of premium, Healthcare is by far the largest business sector for RRGs with 60% of the market share – $1,483.1 million. Following behind is Professional Services and Government & Institutions, with $444.6 million and $244.5 million respectively.

During most of the last decade, Property Development was one of the strongest sectors for RRGs. When the bottom dropped out of the housing market, many of the RRGs that insured contractors were forced to withdraw from the market and the number of RRGs dropped from 33 RRGs in 2007 to 23 by mid-2010.

After September 11th, the insurance market hardened.This led to a period of rapid growth for risk retention groups.

Between 2000 and 2008 the number of RRGs grew by four times to reach 262.

Besides the hard insurance market, there were a number of other factors that led to such rapid growth in the industry.

Captive insurance really came into its own during the early 2000’s with more and more states enacting captive laws and seeking ART vehicles as a steady source of revenue. Many states, including the District of Columbia and Montana, began to develop their captive programs, creating captive departments, and courting potential groups.

Another factor that helped spur RRG growth was the increasing trouble doctors and hospitals in the Northeast were having in obtaining medical malpractice insurance, especially in such states as Pennsylvania and New York.

RRGs in the Healthcare sector expanded by nearly six times during the decade.The number of groups in this sector, always the leading sector for risk retention groups, grew from 26 to 153 between 2000 and July 2010.

Since 2008, and the major global recession, the RRG market has been contracting. In 2009, the number of operating RRGs declined for the first time since 2000, dropping down to 252

In 2009, RRG premium was $2,560.1 million.This was a slight decline of 0.6% from 2008 and a decline of 3% from 2006 when the market reached its all-time high of $2,638.0 million.

Today RRGs offer insurance coverages for a range of liability to a wide variety of insureds. Besides hospitals and physicians, the Healthcare sector provides liability insurance to nursing homes, dental, and HMOs.There are RRGs for educational institutions, for churches, and for non-profit groups.There are RRGs for agricultural concerns, including a new one formed in 2010 that insures feedlot owners.

Transportation RRGs range from taxi and limosine services to rail. Another new group formed in 2010 is insuring independently owned aviation repair shops. Every year, RRGs are emerging in new business niches responding to the need for affordable and available liability insurance..

States and RRGs There are several states that actively seek to license RRGs.Vermont is top among these, having already established its captive department by the time the LRRA was passed. Early on, many states licensed RRGs, but only a handful of states have consistently licensed RRGs. In the past few years, the District of Columbia has been licensing more and more RRGs. In 2010, they are giving Vermont a run for their money in terms of RRG formations. Also seeking to license RRGs are Montana, Arizona, and Nevada.

While many states are actively developing their RRG roster, there are some of states that still view RRGs suspiciously.Typically, these are larger states such as New York and California that have few if any RRGs domiciled and distrust RRGs operating in their states that are domiciled in other states.This mistrust stems from the preemption provision in the LRRA which prevents state insurance departments from being able to regulate a non-domiciled RRG that is conducting business in their state.

At the heart of the LRRA is single state regulation of risk retention groups. Pursuant to this unique feature of the Act, the insurance department of one state, which is selected by the RRG, licenses the RRG under its laws and maintains primary regulatory oversight of the group. Once licensed in one state, the RRG can operate in all states without the need to be “admitted” or “qualified as a surplus lines carrier” in the other states as other types of liability insurers must do to write insurance in those states.

In its 1989 Operations Report to Congress, the Department of Commerce (DOC) found that although users of the LRRA find the single-state regulatory struc¬ture necessary, state insurance regulators worry about whether it preempts too much authority which in turn provides states insufficient authority to adequately regulate RRGs.The National Association of Insurance Commissioners (NAIC) expressed concern that the LRRA resulted in a “hazardous regulatory void.”This was echoed by the New York Insurance Department’s concern that Congress has “left behind an inadequate scheme of state regulation.”

The Self-insurer

|

October 2010

35

The DOC observed that the “main concern of regulators lies with their reluctance to accept and rely on the licensing requirements and regulatory actions of states other than their own.”

The DOC report noted that discussions with regulators about the operation of the Act “usually evoke the concern that there are certain states which they consider weak, i.e. where it is easy for a company to get licensed and regulatory oversight is lax.”

This “weak-link” fear carries over to the present day, with the 2005 Government Accountability Office (GAO) report on RRGs, stating that: “Some (non-domiciliary) regulators... expressed concerns that domiciliary states were lowering their regulatory standards to attract RRGs to domicile in their states for economic development purposes.They sometimes referred to these practices as the ‘regulatory race to the bottom.’ ”

Following these reports in the late 1980s, the NAIC, faced with the threat of a federal regulatory system replacing the state system of regulation, announced its adoption of uniform financial regulatory standards to meet the need for a stronger regulatory system.

Despite the NAIC’s attempt at standardizing state insurance regulation, each state has its own licensing requirements for RRGs, and imposes its own fees and taxes.The NAIC developed a set of forms for RRG licensing and registration and 19 states have adopted these forms. Nineteen states require forms developed within their department and 13 states will accept either their own forms or the NAIC forms.Thirty states charge registration fees. Licensing and filing fees range from none to $500 initial/$1,500 annually (North Carolina).

Premium taxes required by different states range from 0.25% (Hawaii) to 5% (New Jersey and North Carolina).

The DOC report from 1989 pointed out that, “uneven state regulatory standards and oversight were not created by the LRRA, but the Act – because of its emphasis on single-state regulation and the necessity for regulators to rely on each other’s regulatory attentiveness – has highlighted the situation.”

At about the time the DOC published its report, the Dingell Report, the product of an 18-month Congressional investigation and hearings held during 1988 and 1989 on causes of insurer insolvencies, was released.The report concluded that insolvency problems were primarily caused by fraud, mismanagement, and weak state regulation.The report’s general prescription was for more comprehensive and competent regulation, warning that if such oversight were not forthcoming by the states, that the federal government would be compelled to fill the void.

36

www.siia.org

|

October 2010

Current Issues Since the LRRA was passed there have been several attempts to amend the act, but nothing has ever come of any of these attempts.The most recent attempt was made in March, 2010 when the Risk Retention Modernization Act (HR 4802) was introduced into Congress. While Congress was too busy this year with healthcare and financial reform to attend to this proposed legislation, supporters are encouraged that the act will pass during the next session of Congress with support from both sides of the aisle.

The Risk Retention Modernization Act (RRMA) includes three specific

elements – the addition of property coverage; improved corporate governance standards, and the establishment of a federal mediator.

Supporters of the LRRA have long wished that the law also covered property and if RRMA is passed RRGs will be allowed to write property coverages along with liability.This long desired amendment is especially important for RRGs that insure institutions – such as schools, churches, and hospitals – with multiple locations.

Right now RRG insureds must obtain their property coverages separately. Not only would it be more convenient to get their property coverage through their RRG, it could also save a considerable amount in premiums.

The second element of the proposed Act is to implement improved corporate governance demands that were first suggest in 2005 in the GAO’s report on RRGs and later taken up by the NAIC. While many of the new requirements could be burdensome to RRGs, many in the industry feel that the strengthened regulations can only help to legitimize RRGs. The third element in the RRMA could prove to be the most beneficial to RRGs.The Act would establish a federal mediator, within the Treasury Department, that would be in charge of settling disputes between states and RRGs. Right now, when a non-domicialry state bars a RRG from writing a certain type of business or tries to regulate a RRG as a domiciled RRG, the RRG’s only recourse is to take the dispute to court which can prove costly to a company to pursue. More than one RRG has been put out of business by lengthy court battles with a state. With a federal mediator to interpret the LRRA and any amendments, a RRG will have a much stronger position in the states where it conducts business.

In late July, the Congressional House Financial Services Oversight & Investigation Subcommittee submitted a letter to the GAO to conduct a study

The Self-Insurer

|

October 2010

37

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

Trying to solve today’s healthcare challenges on your own?

Why?

It’s tough out there. Medical plan expenses are going up, mini-meds are in transition and you need solutions now. Symetra can help. As more employers move towards self funding, our stop loss product can cap their risk and provide the flexibility needed to meet new healthcare regulations. And for employers looking to replace mini-meds, Symetra’s fixed indemnity group insurance policy, Select Benefits, may be a good alternative. As a pioneer in stop loss with over 30 years of risk management expertise, we are qualified to help you through these challenging times. Call us at 1-800-426-7784.

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

Symetra® and the Symetra Financial logo are registered service marks of Symetra Life Insurance Company. Reach for great things SM is a service mark of Symetra Life Insurance Company.

LMC 5585 8/2010 38 www.siia.org | October 2010

SIIA New Members REGULAR MEMBERS Company name/Voting Representative Matthew Burghardt, Cathy Sims, Vice President, AmeraPlan, Inc., Vice President of Client Services, Troy, MI IMA of Colorado, Inc., Denver, CO Jeremy Oswald, President/CEO, ChiroMetrics, Allen Bress, Fresno, CA President, Merchants Benefit Administration, David Wright, Scottsdale, AZ Regional Sales Director, ClearScript, Minneapolis, MN Dana Driscoll, National Marketing Director, David Boucher, National Underwriting Services, Inc., President & COO, Helotes, TX Companion Global Healthcare, Inc., Columbia, SC Andrew Barth, Principle, Mary Pozuelo, Reinsurance Management CEO, CPR Associates, Toronto, Risk Management, Inc., St. Ontario, Canada Petersburg, FL Stuart Purdy, Robin Gilburd, Director of Business Development, President, Specialty Risk Services (SRS), FAIR Health, Inc., Aurora, IL New York, NY Kevin Robertson, David Przesiek, Sales Manager Vice President of Sales, UMB Bank, Fallon Community Health Plan, Kansas City, MO Worcester, MA Luke Szymanski, James Considine, Sr. Vice President, President, Sales & Marketing, HealthClaim Review, US Script, Inc., Laguna Hills, CA Buffalo Grove, IL

EMPLOYER MEMBERS Company name/Voting Representative Angela Chewning, Vice President, Dayton T. Brown, Inc., Bohemia, NY Cash Minor, Assistant County Manager/ CFO, Elko County, Elko, NV

I. Thomas Yopp III, Senior Vice President, Hendrick Automotive Group, Charlotte, NC Grace Crickette, Chief Risk Officer, University of California, Oakland, CA

ASSOCIATE MEMBERS Company name/Voting Representative Thomas Doran, Executive Vice President, Medical Risk Managers, Inc., South Windsor, CT

into states over-reaching the regulation of RRGs. (A request for a similar study was included in the RRMA, but when next introduced that portion will have been removed.) The industry reaction to the request is very positive.The GAO’s original study of RRGs did not look into how RRGs are regulated by non-domiciliary states.The report, which will be concluded in three to eighteen months, will be able to shed new light on this subject, and, as its supporters hope, show that RRGs have been bearing the burden of over-regulation.

The Future for RRGs As early as 1989, just three years after the LRRA was passed, the DOC’s Operation Report concluded that “this legislation is offering a solution to the ‘liability crisis’ and will continue to do so in the future.” In its 2005 report on RRGs, the GAO found that, “RRGs have had a small but important effect on increasing the availability and affordability of commercial liability insurance.” RRGs clearly serve a unique purpose. As RRGs become better regulated and if new opportunities for insuring their members open up, they will be able to be a justifiably valid alternative to traditional liability insurers. As a major component of the rapidly expanding captive insurance market, RRGs are busily cementing their position as a U.S. insurance provider. n The Risk Retention Reporter (RRR) has been the leading publication oriented specifically towards Risk Retention Groups and Purchasing Groups since 1987. The flagship monthly newsletter, the RRR, covers news and developments in the industry with detailed analysis and 24 years of historical data. Four quarterly publications and one annual directory compliment the RRR's coverage of the risk retention marketplace.

For more information about the RRR and its sister publications, visit www.rrr.com.

The Self-insurer

|

October 2010

39

ART gallErY By dick goff

Time to Chat up your Regulator

O

bamacare’s apparent threat of providing unlimited lifetime health benefits to members of employee health plans has become the monster in the closet – you’re afraid to open the door and you’re afraid not to open the door. Stop-loss insurance costs are expected to zoom to the stratosphere, or else employers will chuck the whole thing and just write a check for the new tax.

The monster wins in either of those scenarios. But Roosevelt was right (maybe about this one thing): There is nothing to fear but fear itself.

Here’s another scenario:Transfer the risks of very large health claims into a captive where catastrophic losses may be expected, and dealt with as they come, from a pool large enough to return some underwriting profit. You can be afraid of the monster or you can tame it to dance a jig at circus sideshows and keep all the quarters it collects as your profit rewarding your intelligence and verve.

40

themselves why we couldn’t make captives an American concept as well. And they answered themselves: “Because there ain’t no darn enabling state laws.”

Of course history tells us that Vermont was the first state to pass such a law establishing itself as the first U.S. captive domicile. We noticed last month that the Green Mountain State licensed its 900th captive.

Beginning about 15 years ago and gaining quick momentum during the 2000s, state after state plus the District of Columbia passed enabling legislation to become captive domiciles. Many joined Vermont as important centers of ART commerce including DC, South Carolina, Hawaii, Montana, Arizona and others. Now about half the states have become ART domiciles.

The strongest of these ART incubators were led by political leaders who had business minds and entrepreneurial hearts, and became regulators who served with economic development zeal. Notable examples were Ernst Csiszar of South Carolina and Larry Mirel of the District of Columbia.

In recent years, however, we have seen drastic changes in the way many captive domiciles operate. It’s not overstating the case to say that the regulatory environment of captive domiciles is no longer as welcoming or comforting to new captives. In fact, under today’s governance in many domiciles the captive industry would not have flourished in the United States.

What has happened is that as the original group of captive regulators moved onward and upward in their careers, they have been generally replaced by upcoming regulators experienced in the governance of traditional insurance companies.They often really don’t know the economic or business strategies of captives, or the necessary differences in funding, accounting and operations.

The result is that in many domiciles captives must fit their round pegs into the square holes of traditional insurance regulation – and the commercial insurance companies are loving every minute of that, and certainly not to overlook the NAIC. If we were cynical SOBs we might even say those elements were stimulating the diminution of captives.

“under today’s governance in many domiciles the captive industry would not have flourished…”

It’s difficult to remember when alternative risk transfer (ART) was a foreign concept – literally, a concept of foreign countries. In the formative years of today’s ART practitioners, we routinely ventured offshore to Bermuda or the like to apply for captive insurance licenses, and to run our companies.

Now there are captive managers or consulting actuaries who work around certain states that may formerly have been attractive places to do business. “One prominent domicile recently refused to even look at an application for a medical malpractice risk retention group,” reports Bill Bartlett of the Bartlett Actuarial Group with offices in several major U.S. captive domiciles.

But then some visionary ARTists (proofreader: please accommodate this new wordform) asked

I was aghast because medical liability RRGs comprise more than half of all RRGs and have been credited with solving the medical liability crisis of earlier decades. “Domiciles seem to resist the entrepreneurial aspect of captive applications,” Bill told me. “In

www.siia.org

|

October 2010

hmi_sl_stronger_si_3.5x10_b.qxd:Layout 1

fact, I know of at least one domicile that has been told by the National Association of Insurance Commissioners that if they see entrepreneurial RRGsbeing approved that would jeopardize their NAIC accreditation.”

Of course, ART’s issues with the NAIC comprise a larger subject than this single column can address. Suffice it to say that our industry has been built on the principle that if an application makes business sense and financial sense it should be approved notwithstanding the regulatory system governing publicly-sold insurance.

8/17/10

11:08 AM

WE JUST BULKED UP OUR STOP LOSS OFFERING.

We have two possible choices here. We can say thanks, it’s been a nice run and go on to some other business. Or we can get together and take remedial action – just like our industry has been doing for these 30 years of SIIA achievements.

I don’t believe there’s a diabolical plot by the domiciliary governments. It’s instances of new governors being elected and new insurance commissioners taking office. Now it’s up to our industry to reinfect the regulators with the understanding and appreciation of ART.

Smarter just got a lot stronger.

For more than 30 years,

100-250

We have to teach them ART’s differences and superiorities compared with traditional insurance. We have to teach them how ART can help build companies and create jobs through more efficient risk management and by rewarding the “skin in the game” by captive owners. We have to teach them how ART forms such as risk retention groups have alleviated certain public crises including the aforementioned medical malpractice as well as product liability.

HM Insurance Group has

We have the skills, the means and even the venues to accomplish this. Most captive domiciles are served by an industry association that puts on annual conferences with workshops and seminars. Why not stage a series of “ART 101 for Regulators” workshops led by some of the former industry pioneers I cited above. Of course, you’ll be careful not to match up regulators in their former domiciles to avoid predecessor envy by current office holders.

business. By adding their expertise and success

On an even simpler level, let’s get the word out individually and directly. Go see your ART regulator and talk over a cup of coffee.Your SIIA ART Committee is publishing profiles of successful captives and self-insured organizations including risk retention groups, self-insured workers’ compensation groups and others.Take some of these as talking papers.

I don’t believe that the current generation of ART regulators is trying to put us out of business. But their lack of understanding and appreciation for ART’s distinctive benefits is working out that way.

It’s time we had a chat. n Dick Goff is managing member of The Taft Companies LLC, a captive insurance management firm and Bermuda broker at dick@taftcos.com.

Employer size

250-500

helped thousands of companies

Employer size

500+

protect their medical cost risk.

Now we have enhanced our capabilities with the recent

Employer size

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

acquisition of Mutual of Omaha’s Stop Loss

with small and mid-sized groups to our outstanding large group plans – and by offering unlimited annual and lifetime maximums – HM is better positioned than ever to serve the needs of regional TPAs in a changing health care market. Our track record has muscle, too. HM’s member companies have earned A- (Excellent) ratings from A.M. Best. HM is a direct writer, and more than 99% of all claims last year were processed in less than 10 business days, with technical and financial accuracy above 99%. To learn more about Stop Loss plans that fit more group sizes, visit www.smarteranswersfaster.com.

STOP LOSS

| WORKSITE:

CRITICAL ILLNESS ACCIDENT DISABILITY INCOME TERM LIFE

|

LIMITED BENEFIT MEDICAL

MTG-1997 (8/10)

The Self-insurer

|

October 2010

41

Page 1

MaThEr’S graPEViNE

T

he year was 1981. Around the globe some good things were happening and as is usually the case, some very bad things were happening.

On the bright side, International Business Machines released its IBM PC 5150, a personal microcomputer with what then was considered a huge amount of memory capability, all for a mere $1,500.The first Space Shuttle launch from Kennedy Space Center took place in a three day test flight and returned safely to Earth, beginning a new era of exploration.The first Vermont captive insurance company was formed and licensed in that state as the first domestic activity in that market that has since spread across the nation. For some it was a very good year.

On the dark side, the Cold War raged on with the threat of nuclear disaster for the entire world ever present and few agreements being reached to end it.The Recession of 1980-1982 was at its peak, bringing economic malaise to much of the country. Ronald Reagan took over in the White House in January, only to be shot and nearly killed by a madman 69 days later on March 30.

Walter Cronkite, who had given us the evening news for almost two decades retired from broadcasting.

For most of us it was not a very good year.

Later in the year there was a business meeting set up by a group of insurance executives at the Royal Orleans Hotel in New Orleans that would lead to a development that few of them could have possibly imagined at the time.The one hundred and fifty one attendees set

42

www.siia.org

|

July 2010

up the basic guidelines for the formation of the Self-Insurance Institute of America, Inc., officers were elected and Ken Deyhle was named as its first President.

Now, thirty years later, we are anticipating a turnout for the national conference of more than ten times the original number of participants and more than 140 exhibitors from every corner of this continent, Europe, Asia, Australia and South America. Over the years the membership has grown enormously and now includes participants in the

officials and the bureaucracies at every level.

From its tiny beginnings, SIIA has grown enormously in the past three decades to a world-wide force to “Protect and Promote The Self-Insurance and Alternative Risk Transfer Industry,” our motto from the beginning all those years ago.

Just as in the past, we are living and doing business in a troubled environment.

Certainly there has never been a time when this organization has had greater

healthcare, property/casualty, risk retention and captive insurance industry, medical providers,TPA’s, MGU’s, MGA’s, Excess Carriers, the legal defense community and the technical and data support systems so much relied upon in this day and age.

Within the organization we have committees for the Alternative Risk Transfer industry, Government Relations, Health Care, International Committee and Worker’s Compensation. Our Lobbyists in Washington and throughout the country do a magnificent job of keeping our needs in front of our elected

challenges than the present, all the more reason for you to be here in Chicago for our 30th Annual National Conference and Expo. If you aren’t already actively involved in this great venture do so today.

Talk to our officers and directors to see how you may fit into the ongoing efforts for the continued growth of our industry and the continued protection it affords for the millions of folks world-wide who are covered under these various approaches. I can assure you that you will not be disappointed that you did. n Welcome to Chicago!

Tom Mather, Contributing Editor.

InSIDER iNFOrMaTiON PHX Acquires Crossfire Technologies to Expand ppO Management Services Bedminster, New Jersey - PHX announced that it has acquired all of the assets of Crossfire Technologies, Inc., a leading provider of automated medical claim re-pricing software.

Crossfire’s Technologies product line includes automated EDI and Web-based claims re-pricing, provider profile data warehousing and fee schedule management. PHX is expanding the number of existing PPO Networks relationships and intends to include access to over 100 regional and national PPO networks across the country.

In combination with this acquisition, PHX will be launching a newly developed program named the PHX Provider Access Card.The card will reduce a payers out-of-network exposure for members who are outside the primary PPO service area. Members in remote offices, employees who travel and students not living at home can feel safe and secure knowing they have access to a quality provider panel.The payer and employer benefit by knowing they have access to solid PPO discounts.

For more information, contact Clara Pachomski at (888) 311-3505 or cpachomski@phx-online.com HCH Administration, Inc. Selects Benefit Informatics for Data Integration, Analysis and Reporting TULSA, Okla. – HCH Administration, Inc., a leading Third Party Administrator of self-funded employer-sponsored health plans throughout the Midwest, has expanded their plan analysis and reporting capabilities by implementing Data Integration, Analysis and Reporting solutions from Benefit Informatics.

HCH Administration, a subsidiary of Health Alliance Medical Plans, has contracted with Benefit Informatics to utilize web-based solutions for comprehensive client benefit plan analysis and reporting.Through direct integration with HCH Administration’s claim adjudication system – TriZetto’s QicLink™ – Benefit Informatics will receive daily claim and eligibility data

for HCH customers into a custom data warehouse.This will provide timely access to health plan information.

Benefit Informatics’ proprietary Data Analysis and Reporting software gives HCH Administration personnel both a comprehensive view of customer health plans as well as drill-down capabilities to access specific information. In addition to an array of standard reporting applications, HCH can utilize specialized ad-hoc reporting tools to develop custom reports for employer groups and their broker/consultants.

For more information please contact Chris Metcalf at (918) 491.3603 or cmetcalf@benefitinformatics.com Sun Life Study Reveals Key Factors Influencing Employees When Choosing Voluntary Benefits Wellesley, MA - A study released by the Employee Benefits Group division of Sun Life Financial Inc. (NYSE:SLF,TSX:SLF) identifies the factors that influence employees when selecting voluntary workplace benefits and uncovers potentially false perceptions employees have about the likelihood of using benefits and the financial protection they provide.

The annual online study,The Voluntary Benefits: Key Factors Influencing Employee’s Choices Study, conducted

by Sun Life’s Employee Benefits Group, reveals the factors that have the greatest impact on whether an individual chooses voluntary benefits through their employers and their preferred methods of learning and enrollment. A full research report featuring a summary of the findings related to all the questions addressed by this research is available online at http://sunliferesearch.com.

The study confirmed many findings from last year’s research including the fact that employees value benefits more than cash. It also revealed insight into how employees chose to learn about benefits and the preferred methods of enrollment.

The study revealed several findings about what impacts an employee’s decision to enroll in employer-sponsored voluntary benefits.The findings include: • How will rising health insurance costs affect benefits decisions?

• Which benefits do employees value the most?

• What is the biggest factor in electing a benefit?

• Does employer funding drive higher benefits election?

• Who do employees trust most to explain and help select their benefits?

The survey was sponsored by Sun Life Financial and conducted and analyzed by independent research firm JHA, Portland, Maine. It was conducted with 2,800 either primary or shared employee benefit decision makers who worked for companies with 25 or more employees.The survey was conducted online after the 2010 enrollment season, while benefits were still top-of-mind with employees.

For more information, contact Kimberly Ferri at (781) 416-2185 or kimberly.ferri@sunlife.com AuL launches Enhanced Blended Insurance Rider Indianapolis, IN The Individual Division at American United Life Company (AUL), a OneAmerica company, has launched a new product called the Enhanced Blended Insurance Rider to assist in building assets during challenging times.

The Enhanced Blended Insurance Rider allows both rider premiums and dividends to purchase one-year term insurance and paid-up additions equal to a specified amount for policyholders who qualify.

“We are excited to offer another great product to our policyholders who want financial security,” said Mark Wilkerson, senior vice president of AUL’s Individual Division. “With the Enhanced Blended Insurance Rider, premiums purchase the one-year term when dividends are sufficient. Enhanced Blended Insurance Rider paid-up additions coverage is placed ‘inside’ the blend, and is not paid in addition to the base and blend coverage. When it comes to guarding against potential losses, we see this as a powerful option.”

For further information, contact Beth King at 317-285-4168 or at beth.king@ oneamerica.com

The Self-insurer

|

October 2010

43

ChairMaN’S rEPOrT armando Baez

SIIA: Distinctive, Activist and Worth It

A

s we observe our 30th annual conference here in Chicago, SIIA is both old enough to reflect on its many achievements and, yet, young enough to have members who have attended every conference. (Unfortunately, I only started attending during the 3rd year of SIIA’s founding so cannot claim this unique distinction!)

These annual SIIA conferences are the heart of our association. We gather each year to reeducate ourselves and dedicate our energies to the promotion and preservation of self-insurance.

We then return to our businesses and communities ready to do battle once again for our right to choose our preferred method of managing and financing risk, free of government dictates and interference.

Without our volunteer officers and our influential and growing membership working so hard, self-insurance and ART would not be the leading financing mechanism for risk management among all US and, now, global companies. We should be proud of what we have accomplished these past thirty years.

This month’s message is for to those who are not yet SIIA members, or those members who have not yet become active in ways beyond annual conference participation.

I guess every organization holds itself as unique, but I believe SIIA is truly a different kind of group. It’s more collegial than most cut-and-dried business organizations. This association is truly managed by and for its membership.

At SIIA events, genuine friendships are renewed each year, and those in the same businesses share common interests rather than remaining wary of their competitive vulnerabilities.

SIIA members share an attitude of historic inevitability and by working together created a seismic shift in risk management toward self-insurance and all forms of alternative risk transfer, which is our ART. Just ponder our record of success!

Within only a generation of employer

44

www.siia.org

|

October 2010

education, industry innovation and savvy political work through our Washington Government Relations efforts, the majority of corporations in the United States have developed self-funded programs either wholly or partially. Examples of these include ERISA benefit plans, self-insured group workers compensation plans, risk retention groups comprised of single professions or businesses, traditional captive programs based either here or in other countries – well, the list goes on.

Our Association continues to grow and prosper. In addition to self-funded corporations, groups and associations, SIIA’s membership includes third-party administrators, stop-loss insurance and re-insurance carriers, managing general underwriters, brokers, captive managers, provider networks and all the service professions that make things go. SIIA brings all of the players in our industry together so we can all benefit from our combined strength.

We have successfully won major legislative and regulatory battles based on the soundness of our positions and the many benefits self-insurance provides to millions of Americans. These victories can be directly attributed to our association’s efforts.

Still, we tend to consider ourselves as underdogs when we must defend our interests in Washington or in our state.

This is the greatest challenge for the next generation of SIIA members–despite the growing majority of companies involved with self-funded risk management programs, we act as if we were in the minority when we must do battle against fully insured and single payer interests in the lobbying arena.

Let’s think about this in a new way: Our comparative weakness in lobbying money and manpower is the result of the efficiency of self-insurance. By helping organizations to self-insure at lower costs compared to fully insured programs, we have squeezed a lot of money out of the system!

At the same time, the traditional fully insured and single payer system advocates still rake in the millions they divert toward public policy issues in an effort to weaken or eliminate self-insurance. Our industry doesn’t have that kind of money to spend because we leave it in the pockets of our customers.

So, how do we strengthen our ability to

compete in money and manpower?

First, we can be assured that our message is right, and that can go a long way with members of Congress anxious to show real service to the folks at home. SIIA Government Relations Staff and member volunteers make up in moxie and relationships on the Hill for what we lack in financial resources.

Second, we have a superlative grassroots network of members who are on a firstname basis with their federal and state representatives and can shape arguments in terms of saving jobs through efficient employer-based healthcare.

Third, our activist members continue to respond to SIIA’s appeals for financial support for lobbying and for contributions to the SelfInsurance PAC that was established in recent years just for this purpose.

Let’s continue to be proud of our SIIA membership and of our active participation in committees and government relations activity.

Let us, once again, prove that during these few but exciting days of conference attendance members gain the most who give the most – in personal effort, innovative creativity and financial support.

This conference is a great example of SIIA’s strengths and achievement. Most of our seminar programs will be presented by SIIA members under the theme, “Sharing the Success of Self-Insurance – With You.” At a time of pivotal policy decisions in Washington and state capitals that can shape the landscape of self-insurance for years to come, it’s more important than ever for each member to contribute to our efforts – it’s not overstating the case to say that we’re in a fight to save our right to self insure, our industry and our future.

Enjoy the conference and be sure to talk to the SIIA Veterans who have labored for our cause these past 30 years – without exception, we will assure you that all of the hard work and investment in time and money have been worth it. Millions of Americans who now enjoy the benefits of private health care will agree. n Saludos,

r Self-Insured Employe 456 American Way Anytown, USA

October 12, 2010

Dear HR Director,

n. And your er-driven healthcare pla um ns co a ed nt me ple We heard that you im ought so... embracing it, right? Th ely let mp co are es ye emplo consumer-driven ge:healthcare we make an ch At ! ed ne u yo d the We’ve got something employees understan ng lpi he by es ye plo em ployers and healthcare work for em price variance of care. for care. w to get the best price ho es ye plo em es ch solution tea Our cost transparency the ROI to prove it.

It works and we have nference & Expo tional Educational Co Na IA SI e th at 9 41 h iven Look for us at boot make that consumer-dr u yo w ho rn lea d an go. Stop by October 12-15 in Chica ess at your company! healthcare plan a succ

Sincerely, change:healthcare

gs!

ive unexpected savin

and you’ll rece P.S. Mention this ad

are.com www.changehealthc

800.655.0732 ext 4

care.com sales@changehealth

What’s the best approach to negotiating a claim?

Review the coding and determine appropriateness?

Discuss financials and determine reasonableness?

At Global Excel we do both! We combine state-of-the-art medical code editing software, 15 years of provider negotiation history, hospitals’ financials, and relevant market data to make sure that what you’re paying is truly fair and justified!

Global Excel Management Inc. Toll Free: 877-298-3623 | Tel.: 819-566-1130 www.globalexcelusa.com | information@globalexcel.com 50 01 ADV EUS 1010 SIM

COST CONTAINMENT DONE RIGHT