Self-Insurer Oct 2011 by SIPC

October 2011

SIIA Celebrates

YEARS in PHOENIX

Special National Conference Edition

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Offices located: Arizona, California, Massachusetts, New Jersey, Pennsylvania, Texas

SIIA OFFICERS Chairwoman of the Board* Freda Bacon, Administrator Alabama Self-Insured WC Fund Birmingham, AL President* Alex Giordano, Vice President of Marketing Elite Underwriting Services Indianapolis, IN Vice President Operations* John T. Jones, Partner Moulton Bellingham PC Billings, Montana

OCTOBER 2011 | Volume 36

FEATURES

Vice President Finance James E. Burkholder, President/CEO TPABenefits, Inc. San Antonio, TX Executive Vice President Erica Massey Midland, NC Chief Operating Officer Mike Ferguson Simpsonville, SC

SIIA DIRECTORS Les Boughner, Executive VP and Managing Director Willis North American Captive and Consulting Practice Burlington, VT Ernie A. Clevenger, President CareHere, LLC Brentwood, TN

Trimming the Fat: Discovering the Savings & Efficiencies of Integrating Provider Networks for Healthcare and Workers’ Comp by Steven G. Kokulak

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

SIIA COMMITTEE CHAIRS Chairman, Alternative Risk Transfer Committee Kevin Doherty, Partner Burr Forman Nashville, TN Chairman, Government Relations Committee Jay Ritchie, Senior Vice President HCC Life Insurance Company Kennesaw, GA Chairwoman, Health Care Committee Beata Madey, Senior Vice President, Underwriting HM Insurance Group Pittsburgh, PA Chairwoman, International Committee Liz Mariner, Executive Vice President Re-Solutions Intermediaries, LLC Minneapolis, MN Chairman, Workers’ Compensation Committee Skip Shewmaker, Vice President Safety National Casualty Corporation St. Louis, MO

From the Bench: Health Care Reform Constitutional Derby Reaches First Major Turn

When Is a Summary More than a Summary: Agencies Issue Long-Awaited Guidance on the ACA’s Uniform Summary of Benefits and Coverage Requirement

SIIA Grassroots & Political Advocacy: SIIA Members Carry Message in DC and Home Districts

The Majority of Risk Retention Entities Would Use Property Coverage

ART Gallery: ART may provide an ‘out’ for NY SIGs

Mather’s Grapevine

Donald K. Drelich, Chairman & CEO D.W. Van Dyke & Co. Wilton, CT

Robert Repke, President Global Medical Conexions, Inc. San Francisco, CA

ARTICLES

So… Do You Want to be a Fiduciary? by Adam Russo

October 2011 The Self-Insurer (ISSN 10913815) is published monthly by Self-Insurers’ Publishing Corp. (SIPC), Postmaster: Send address changes to The Self-Insurer, P.O. Box 1237, Simpsonville, SC 29681 The Self-Insurer is the official publication of the Self-Insurance Institute of America, Inc. (SIIA). Annual dues are $1495. Annual subscription price is $195.50 per year (U.S. and Canada) and $225 per year (other country). Members of SIIA subscribe to The Self-Insurer through their dues. Copyright 2010 by Self-Insurers’ Publishing Corp. All rights reserved. Reproduction in whole or part is prohibited without permission. Statements of fact and opinion made are the responsibility of the authors alone and do not imply an opinion of the part of the officers, directors, or members of SIIA or SIPC. Publishing Director - James A. Kinder Managing Editor - Erica Massey Senior Editor - Gretchen Grote Design/Graphics - Indexx Printing Contributing Editor - Tom Mather and Mike Ferguson Director of Operations - Justin Miller Director of Advertising - 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.

SIIA LEADERSHIP 2 President’s Message

The Self-Insurer P.O. Box 184, Midland, NC 28107 Tele: (704) 781-5328 • Fax: (704) 781-5329 e-mail: ggrote@sipconline.net. The Self-Insurance Institute of America, Inc. (SIIA) is the world’s largest trade association dedicated exclusively to the advancement of the self-insurance industry. Its goal is to improve the quality and efficiency of self-insurance plans through education and to create a general acceptance in the public and business communities of this viable alternative to conventional insurance. Founded in 1981, SIIA represent the interest of self-funded employers, independent administrators, utilization review companies, managed care companies, underwriting management companies, insurance companies, reinsurers, agents, brokers, CPAs, attorneys, financial institutions, manufacturers, trade associations, retail and service companies, municipalities, and others. SIIA designs and implements programs and services for the benefit of its members, the industry, and the general public to increase the general level of knowledge about self-insurance plans, achieve greater professionalism in the industry, and enhance the general well-being and mutual interests of its membership. SIIA achieves its goals and objectives through several means: • International/national conferences and industry forums which provide educational opportunities, with substantial discounts on the registration fees offered to SIIA members. • Distributed monthly, The Self-Insurer, features useful technical articles as well as updates on topical issues of importance to the self-insurance industry. • The Self-Insurance Educational Foundation (SIEF) conducts statistical research regarding the industry and grants educational scholarships to promising students whose studies focus on the self-insurance industry. SIIA enjoys federal representation in our nation’s capital through counsel and staff on key legislative and regulatory issues. SIIA is the only national voice encompassing the whole self-insurance industry. If your company is involved or interested in self-funding risk for workers’ compensation insurance programs, employee benefit plans, or property and casualty exposures, then it should be a member of the association serving the industry - the Self-Insurance Institute of America, Inc.

Correction: The article “The New Medical Management Model: Integrating Claim Repricing to Drive Greater Savings” in the September issue was written by Corte B. Iarossi. Corte B. Iarossi is a health insurance/managed care professional with over 20 years success in the industry. His experience includes leading sales and marketing teams for large Insurers and HMOs, as well as fast moving, entrepreneurial medical management and claim re-pricing organizations. He has also worked with several physician hospital organizations where he developed PPO and HMO products. He can be reached at 423-842-7532 or tenscort@msn.com.

The Self-Insurer

October 2011

PRESIDENT’S MESSAGE Guide for Conference First-Timers

elcome to the 31st Annual SIIA Educational Conference & Expo! For me, I think the most important SIIA conference was my first one, even a little more important than this one for which I’m honored to be the presiding officer. That’s because your first experience in an organization event sets your expectations and goals for all the rest to come. So I’m going to address these remarks primarily to the first time SIIA conference attendees: the “newbies.” We have a good size freshman class for this conference, and you can identify each other by the pink ribbon on your conference badge. By the way, treat that badge carefully and protect it, because it will cost you dearly to get a replacement. Your first hint that you’ll have a good time here probably occurred upon your arrival at the JW Marriott Desert Ridge Resort & Spa. (Don’t you love that name? So much classier than the “Phoenix Marriott,” I think.) The facilities and grounds are superb, and so is the hospitality and service. We call this place the SIIA Clubhouse because this is our third conference here in recent years, and one of the most popular conference locations ever. After a brief period of acclimation you’ll probably agree that temperatures hovering around 90 are so much more comfortable here than in many more humid areas of the country. If you have registered for the golf tournament on Sunday you’re in for a real treat. The golf magazines rate the 36-hole layout as one of the best western-style courses. As in the

October 2011

The Self-Insurer

old western movies, straight shooters do better here with fairly narrow fairways studded by an amazing (and prickly) array of cactus species. Best of all, the tournament supports the good work of the Self-Insurance Educational Foundation, SIIA’s educational partner that is spreading the gospel of self-insurance among important people such as members of the U.S. Congress. The first “can’t miss” event for you is the First-Time Attendees/New Members reception on Sunday afternoon from 4 to 5 p.m. That’s where you’ll meet many SIIA leaders, volunteers and professional staff. I hope I have a chance to meet each of you. In that event it will likely occur to you that you have joined a unique organization that I believe is unlike any other business group. That’s because we are shot through with missionary zeal for self-insurance that raises our industry to the level of public service. And because we have shared goals, the members of SIIA tend to appreciate one another more than you might think for the usual trade association. Our gatherings over the years become more like a fraternal or college homecoming but without the dance. I hope you have that same feeling as your conference participation builds through coming years. After the First-Timer reception on Sunday is the grand opening of the exhibit hall for the first Networking Reception from 5:00 to 7:00 pm. There you’ll be astounded by the broadest possible array of self-insurance products and services. Many exhibit booths will have interactive engagement activities to help you get acquainted. I hope one booth is still inviting visitors to pose for photos with oversized reptiles. After a pause for dinner on your own or with new friends, SIIA-approved hospitality suites in the hotel open at 8 p.m. and stay in business until 11. Counting all the receptions and hospitality events, you’ll experience a 7-hour marathon of networking conviviality. On Monday and Tuesday mornings the networking continental breakfast is served at 8 a.m. and the General Sessions begin at 8:30. You won’t want to miss either of these, as dual headlining keynote speakers are on tap: business journalist Roger Lowenstein on Monday and author Robert Stevenson on Tuesday. During Monday’s opening session you’ll also learn about the progress and performance of our Self-Insurance Political Action Committee, our own PAC that was started just a couple of years ago and already is helping SIIA make a big impression among members of Congress. The real meat of the conference occurs in breakout seminars scheduled on Monday and Tuesday from 10:15 a.m. to 4:30 p.m. with breaks that include networking luncheons in the exhibit hall. Seminars are conveniently organized into tracks serving SIIA’s specialty sections: Alternative Risk Transfer, Health Care, Workers Compensation and International Business. I absolutely guarantee that you will learn new concepts and techniques that you can put to work immediately back in the home office. Capping off the proceedings will be our annual conference party on Tuesday evening, this time with a “Disco in the Desert” theme. Heck, we may have our homecoming dance, after all. That’s it for your orientation. After this first conference you’ll be a veteran member and hopefully on your way to full participation in SIIA events via committee memberships and leadership roles. And next you’ll be able to help initiate the “newbies” at the 2012 annual conference. n

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TRIMMING THE FAT:

Discovering the

Savings & Effi ciencies of Integrating Provider Networks

for Healthcare and Workers’ Comp by Steven G. Kokulak

October 2011

The Self-Insurer

t’s a true eye-opener: By utilizing the same provider networks to deliver services for both healthcare and workers’ compensation programs, employers can generate savings and cost-efficiencies that they never believed possible. Some characterize this as simply streamlining care, but in reality, it is “trimming the fat” off bloated programs. The synergies between these decidedly different benefit systems can lead employees back to work sooner, support higher worker productivity, reduce medical costs and improve overall value. Employers, who self-fund their benefits plans and are rewarded with greater control and flexibility, can customize an integrated program that utilizes the same managed-care provider network for both personal health and workers’ compensation coverage. Although specific programs and availability will differ, the resulting single-provider network will translate to lower negotiated fees and offer potential benefits that include: • Flexible program options with consistent administration • Coverage focused on individual businesses • Central account administration • Integrated data • Ease of administration • Combined billing • Increased employee satisfaction It is all part of meeting the challenges of a tough economy exacerbated by sweeping healthcare reforms. Now is the time for selffunded employers to roll up their sleeves and leverage their existing infrastructure to integrate group health plans with workers’ comp medical benefits. The results will inevitably boost claims handling and improve staff productivity. Cutting waste won’t happen by accident. Instead, it will take businesses collaborating with both employees and healthcare providers to proactively integrate techniques from their group health programs into the workers’ compensation lifecycle.

Engendering Trust and Cooperation among all Parties Let’s remember that workers’ compensation was introduced into the United States more than a century ago to award medical care and monetary claims to employees injured on the job. This idea was steeped in promoting goodwill among employers and their workforces in an effort to alleviate costly or lengthy litigation without recrimination. Over the years, however, the system has become frayed with inequities for both groups, yielding sometimes adversarial relationships in the midst of acrimonious exchanges. The blending of programs may provide part of the solution to relieving this tension. In a larger sense, it is an opportunity for employers to convince their employees that they have their best interest at heart – a way to communicate to workers that their “trusted” doctors for routine or specialty healthcare issues are among the same physicians who should address job-related injuries. Why? Individuals know their primary care physicians (PCPs) and should be more comfortable in presenting their injuries to this “trusted” professional. When they do hold these discussions, the goal to reduce adjudication delays so that rehabilitated workers can return to work quickly, safely and in good health stands a better chance to reach fruition. In this regard, PCPs bridge gaps throughout the lifecycle of a claim to engage workers in a positive plan for rehabilitation based upon electronic patient histories and a personal understanding of the individual’s adherence to medication and treatment plans. A workers’ compensation plan that manages the strengths of continuity of care can parlay those strategies into efficiency and cost savings, improved healthcare for employees injured on the job, and a reconfigured foundation for organizational and cultural change in the workplace -- all built upon respect, trust and loyalty. These challenging times will require that all parties work transparently to address a process that has been handicapped for years. Building trust takes time and patience, along with willingness and a spirit of open cooperation. The benefits package can be the first step toward not only healing wounds sustained on the job, but as a resource to advance productivity, retention, mentoring, and overall employee motivation and interest in work.

Eliminating Fraudulent Claims and Expensive Litigation Although it is difficult to establish the number of fraudulent or exaggerated claims, employers and employees alike feel the system is stacked against them. Employers sometimes frown upon employees who file for compensation for fear that a claim will go to litigation, where a judge will likely rule in favor of the injured party. At the same time, workers counter that companies are going to extraordinary lengths to contest injuries, directing them to so-called “independent medical examiners” who often underestimate their ailments to win favor from insurance carriers and employers. Bringing health and workers’ comp programs under one umbrella promises to deflect this inherent, yet growing bitterness and resentment by presenting opportunities to mitigate the incidence of fraudulent or exaggerated claims and overly expensive judgments that threaten to put a drain on company profits. Because a PCP is familiar with treating the patient and can access the individual’s health record containing a comprehensive view of all prior encounters --including lab tests and other meaningful data -- network providers are also less likely to aid in the exaggeration of a claim made by an individual without substantiated information. A majority of injuries suffered at the worksite are deemed “inconsequential” and usually require first aid or a single visit to the doctor. When a patient visits the PCP following an “inconsequential” injury -- rather than a provider who is recommended by a co-worker or attorney -- it is more likely to be the only directed care needed.

The Self-Insurer

October 2011

For more serious injuries that call for immediate intervention, medical directors or nurse triages can offer to provide injured employees with the services of select network providers or physicians who have proven records for more rapid recoveries and fluent returns to work.

Promoting Faster and Healthier Returns to Work Unfortunately for both company and employee, the system tolerates delays that can make the injured worker plod for months or even years without financial reimbursement or proper care -- while the employer suffers from the lost productivity, higher medical costs and uncertain job status. A “trusting” physician at odds with the usual suspects that facilitate abuse in the workers’ comp process can ameliorate concerns and encourage a prompt and healthy return to work when the time is right; by establishing guidelines and fostering open lines of

communication between the employer and employee throughout the life of the claim, the physician can often ease some of the stress and tension. Information about transitional job opportunities within the company can be electronically forwarded to integrated plans where network physicians can assist in matching injured employees with positions that will reverse indemnities into cost-saving medical claims. Those employers that subscribe to third-party administrators (TPAs) can utilize their services to be kept abreast of employee progress, have the claim moved forward, and express concern and empathy during the recovery process to avoid and prevent adversarial situations.

Initiating robust safety and wellness programs Outside of accurate job descriptions that list the physical demands of the position, safety and

wellness programs are crucial to eliminating unnecessary claims. Simply put: healthy workers have fewer insurance and compensation issues. Integrated disability management plans provide employees with the flexibility to establish wellness programs that often times can change the culture of their workplace without costing an arm and a leg. Wellness programs may promote more contact between an employer and PCP, but fewer costly procedures in the long run. PCPs are becoming more versatile players in these wellness initiatives, often doubling as doctor and health coach focused as much on preventing as on treating illness. For good reason: Studies have reported that for every dollar spent on wellness programs, medical care costs were reduced by up to $4; sick leave by 28 percent; health costs by 26 percent; and workers’ compensation and disability management claims cost by 30 percent.

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October 2011

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Because a majority of workers’ compensation claims have secondary medical issues that complicate recovery and extend the length of time an employee is away from work, PCPs can become integral promoters of health initiatives – from smoking to diabetes to obesity – at a visceral level to encourage patients to take an active role in their health and to share their passion with others. The most cost-efficient wellness programs are integrated into both health insurance and workers’ comp plans. This small investment in people as opposed to managing risk can be all it takes to build a dynamic, vibrant culture in the workplace. TPAs can assist employers with the resources needed to integrate these comprehensive wellness programs into the workplace that take on a variety of forms to improve employee health including confidential screenings for cholesterol and high blood pressure, stress management and flu shots.

Impacting the Bottom Line Returning injured employees to work as soon and as safely as possible just makes good economic sense. That said, the trick is to balance aggressive intervention that promotes a quick return to the job site with an approach that emphasizes clear and authentic lines of communication, evidence-based treatment options, continuity of care and improved health. Employees directed to PCPs in their group health plans are enabling employers to contain excesses and inefficiencies by addressing overutilization, inappropriate medications or high pharmacy and unit expenditures through simple – yet, easy to underestimate – procedures, such as toll-free 24-7 call centers, personal identification cards, telemedicine assistance, convenient access to electronic forms, and clear and direct invoice transactions. A process once flagrant with divergent standards and incompatible systems and software is increasingly adopting electronic data interchange to streamline workers’

comp and bridge the gaps among employee, employers and network providers to improve reporting performance, cost and time savings, accuracy and flexibility.

Tough Times, Easy Choices Medical costs continue to grow at a faster rate for workers’ compensation claims than the medical consumer price index, and now represent 60 percent of all claims. Through clear and managed treatment paths that lead to defined injuries and diagnoses, employers can expect to see those costs thwarted. The savings that ensue can be mutually beneficial to both employers and employees – especially during these times of economic duress when it is imperative to reduce company healthcare costs, increase productivity, and sustain jobs and wages for laborers. Today, astute employers can exercise greater control over their heath plans to influence workers’

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October 2011

compensation and strengthen business relationships with their employees, rather than cripple them. With the stakes so high, employers face too many financial risks not to manage their workers’ compensation packages more closely and effectively. In order to understand experience modification factors and remain competitive, employers will need assistance in managing premium audits, facilitating return-towork programs, training their supervisors to better manage injured employees, coordinating medical care costs and hiring workers fit to do the job. Employers that have turned to TPAs or self-administrating claims services have learned valuable lessons in medical management by having their injured employees directed to network PCPs, who have been able to slash a great deal of largesse from their workers’ compensation expenditures. They have, in effect, taken control of their cash flow to ensure that their employees are receiving the best possible care – outcomes that a primary carrier alone cannot always guarantee.

It Takes a Little Work Businesses of all sizes have been the impetus behind integrating health plans with workers’ comp coverage to prevent and coordinate care and reduce the cost of escalating medical claims. However, some remain hesitant to invest hard-earned medical dollars into new and somewhat unsubstantiated approaches that may take time to reap long-term rewards. The reluctant should know that early integration efforts at a Cleveland-based employer of some 23,000 workers reported reductions in disability durations and created other system efficiencies, such as improved benefit delivery for employees. Quite a few other employers have also documented savings or program improvements of more than 11 percent related to reducing direct costs and lost–

time expenditures from disability or workers’ compensation claims, and for improved return-to-work rates. They should also know that employees are quick to heal and more spirited to get back to work when they take part in their own recovery. They are also less likely to magnify their symptoms if they have the information and access to resources related to the claims process. The workers’ compensation process doesn’t have to be difficult. It just takes a little work – for both the employer and employee. n About the Author Steven G. Kokulak is vice president of Workers’ Compensation & No-Fault at MagnaCare. He previously served as litigation counsel for Liberty Mutual in New York City. He earned his J.D. from Brooklyn Law School and his B.A. from Fordham University.

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Bench from the

by Michael Friedman and John Eggertsen

Health Care Reform Constitutional Derby Reaches First Major Turn

ith the 2012 election looming around the corner, Republicans, hoping to capitalize on the weak economy and the perceived leadership deficit of President Obama, are braying loudly (mea culpa for the metaphor malfunction – donkeys bray; elephants trumpet) that once in office they will “repeal” what they have come to call Obamacare. Though the media focus on candidate sound bites might lead the public to believe that somehow the legislature is going to be where the fate of the Affordable Care Act (“ACA”) is to be decided, the judicial challenges to have all or part of the law declared unconstitutional proceeds apace. We are not about to handicap which branch – the legislative or judicial -- will be the first to weigh in on whether and how the ACA will be changed, but, given our task here, we thought it important to report on major developments on the judicial track, the better for you to follow the action. Recently, the race to and through the courts moved to a most significant turn. On June 29, 2011, the Sixth Circuit [Michigan, Ohio,Tennessee and Kentucky], in a 2-1 decision, found the individual mandate to be constitutional. About five weeks later, on August 12, 2011, the Eleventh Circuit [Florida, Georgia, Alabama], also in a 2-1 decision, held the individual mandate to be unconstitutional, but held that this did not render the entire ACA unconstitutional, reversing the Florida District Court on this issue.

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The Self-Insurer

This has created the first circuit split on this issue and has laid the basis for Supreme Court review. Indeed, the Plaintiffs in the Sixth Circuit case have already sought certification from the Supreme Court to have the case heard. The government, which lost the Eleventh Circuit decision, will likely appeal to have the entire Eleventh Circuit hear the case before deciding to have the Supreme Court weigh in. If the Supreme Court does not agree to hear either of these cases within about 60 days, a decision may not be forthcoming before the 2012 election. While it appears inevitable that the Supreme Court will eventually have to make a final determination as to the constitutionality of the various

provisions of the ACA that are being challenged, when they do that is entirely up to them. Those seeking to derail the legislation are pushing for faster consideration in hopes that a favorable decision might be forthcoming before the 2012 election. For similar reasons, the government may wish to have the decision follow the election, no matter what the results. And while a split in the circuits is a traditional basis for the Supreme Court to accept a case for decision, many commentators believe the Court will want the issues to “percolate” through the lower courts for a while so that a wider variety of arguments can be put forth for their consideration. One issue the Supreme Court may certainly want to have elaborated through a wider range of lower court decisions is the potential impact on the administration and effectiveness of the ACA, should it find the individual mandate to be unconstitutional. These two circuit decisions starkly pose the contrasting arguments and draw many of the battle lines that the Supreme Court will eventually have to resolve. Thus, we thought them sufficiently important for a somewhat detailed review.

requirement to purchase and maintain a minimum amount of health insurance. Next, the Sixth Circuit knocked down the government’s Anti-Injunction Act defense. The Anti-Injunction Act prohibits any lawsuit intended to restrain the assessment or collection of any tax, and the government here raised the tax issue as a defense. In other cases the government sought to uphold Congress’ authority to enact what is called by the Court here the “minimum coverage provision,” and by the Eleventh Circuit, the “individual mandate” – semantics do matter – on the basis of its constitutional authority to levy taxes. However posed, the tax issue boils down to whether the fee imposed on individuals who failed to obtain minimum health insurance is to be treated as a tax or a penalty. Again, semantics do matter, and here the Sixth Circuit agreed with almost all the courts that have addressed this issue to date that Congress intended this to be a penalty, not a tax, and so held that the Anti-Injunction Act defense must fail. The key issue for decision before the Sixth Circuit then was whether the minimum coverage provision was constitutional under Article I, § 8, cl. 3 of the Constitution -- the Commerce Clause, which, in a mere seven words gives Congress the power “[t]o regulate Commerce. . .among the several states.” Starting with the recognition that all congressional enactments are entitled to a “presumption of

I. The Sixth Circuit Decision In Thomas More Law Center, et al. v. Barack Obama, Kathleen Sibelius, Eric Holder and Timothy Geithner, 2011 WL 3330114 (6th Cir.), the Sixth Circuit summarily dealt with the government’s challenge to the plaintiffs’ standing to bring the case. Without hesitation the Court held that plaintiffs’ had standing because they suffered an actual present injury – i.e., the impending requirement to buy medical insurance directly affected their current spending and saving habits – and they suffered an immanent future injury – i.e., that the ACA will likely impose on them a

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October 2011

constitutionality,” the majority recognized that Supreme Court precedents have construed the Commerce Clause very broadly to include those activities that have a substantial relation to interstate commerce, i.e., they substantially affect interstate commerce (i.e., the “Substantial Effects Doctrine”), even if those activities (both economic and non-economic activities) are wholly intrastate, but regulating them is essential to a larger scheme that regulates interstate commerce (the “Larger Scheme Doctrine”).

Applying these principles, the majority determined that the activity that the minimum coverage provision regulates is not simply the narrow decision of an individual to buy or not buy health insurance, but rather “Congress was concerned that individuals maintain minimum coverage not as an end in itself, but because of the economic implications on the broader health care market . . . Thus, set against the Act’s broader statutory scheme, the minimum coverage provision reveals itself as a regulation on the activity of participating in the national market for health care delivery, and, specifically, the activity of self-insuring for the cost of these services.” In describing the scope of the ACA’s regulatory scheme in this manner, the Sixth Circuit viewed the provision of health care and the payment for health care services as being part of a single economic scheme, much as Congress had done explicitly in prior legislation such as HIPAA.

the practice of self-insuring for the cost of care. The activity of foregoing health insurance and attempting to cover the cost of health care needs by selfinsuring is no less economic than the activity of purchasing an insurance plan.” Moreover, Congress had a rational basis to believe that such decisions, in the aggregate, substantially affected interstate commerce because virtually everyone will be a consumer of health care services at some point in their lives, and numerous state and federal law require health care providers to provide such services regardless of an individual’s ability to pay. “The uninsured cannot avoid the need for health care and they consume over $100 billion in health care services annually.” Finally, the minimum coverage provision was essential to the ACA’s overall regulatory scheme because to correct this unfair cost-shifting, the ACA imposed on health insurers requirements to (1) guarantee coverage to all who applied, and (2) imposed community rating provisions that limited the bases for which they could impose premium increases. The minimum coverage provision was, therefore, essential to increase the pool of premium payers beyond the chronically ill and those in immediate need of health care services.

From this viewpoint, it was not hard for the majority to conclude that the minimum coverage provision regulates economic activity, that Congress had a rational basis to believe it effects interstate commerce and that Congress had a rational basis to believe that this provision was essential to its larger economic scheme of reforming the interstate markets in health care and health insurance. The majority could readily look beyond the plaintiffs’ argument that a decision not to buy insurance was beyond the scope of Congress’ Commerce Clause powers because it could not, in the first instance, be deemed “economic activity.” In short, the majority said “far from regulating inactivity, the provision regulates active participation in the health care market.”

While we have spoken here of the “majority,” and this was a 2-1 decision, perhaps the most significant aspect of this decision is that the majority was made possible by the concurrence of a well-respected, conservative Bush appointee, Jeffrey Sutton. Judge Sutton wrote a separate opinion, entitled “Concurring in Part and Delivering the Opinion of the Court In Part,” in which he sided with the government that the minimum coverage provision was well within Congress’ Commerce Clause powers.

“By requiring individuals to maintain certain levels of coverage, the minimum coverage provision regulates the financing of health care services, and specifically

After summarizing the Supreme Court precedents in this area that

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the government had argued support the minimum coverage provision, and the plaintiffs’ challenge to what they characterized as the Congressionally imposed mandate to buy medical insurance because it crosses a line between regulating action and inaction that neither Congress nor any Court had crossed before, Judge Sutton concluded that “In my opinion, the government has the better argument.” In assessing the Commerce Clause case law, it was clear to Judge Sutton that “the Substantial Effects Doctrine and the nature of the modern health care system favor the validity of this law.” “In choosing how to regulate this group [i.e., the uninsured] Congress did not exceed its powers. . . .Faced with $43 billion in uncompensated care, Congress reasonably could require all covered individual to pay for health care now so money would be available later to pay for all care as the need

arises. Call this mandate what you will – an affront to individual autonomy or an imperative of national health care – it meets the requirement of regulating activities that substantially affect interstate commerce (emphasis in original).” That this Congressional solution is novel and represents an unprecedented initiative does not absolve lower courts from applying Commerce Clause jurisprudence as it currently exists, and while the novelty of the individual mandate may strike plaintiffs as a “step too far,” it may also reflect “a policy necessity giving birth to an inventive (and constitutional) congressional solution.” But, most importantly, Judge Sutton pointed out, the Commerce Clause simply does not contain an action/inaction distinction that limits congressional power. Judge Sutton goes on to provide a detailed critique of the action/inaction distinction as a limiting

principle on Congress’ Commerce Clause authority and he addresses the discomfort many conservatives feel with the “lingering intuition that Congress should not be able to compel citizens to buy products they do not want.” His discussion of these issues is too long to detail here, but it may prove consequential when these matters get reviewed by the Supreme Court. The dissent here focuses its rejection of the constitutionality of the individual mandate on the action/ inaction dichotomy rejected by the majority, and focusing on the “private, non-commercial nature” of the individual’s decision to buy or not buy health insurance in isolation form its consequences in the wider health care market. Because these arguments are raised in a more substantive fashion by the Eleventh Circuit, we will address and assess them in our discussion of that case.

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II. The Eleventh Circuit Decision The Eleventh Circuit decision in State of Florida, et al. v. U.S. Department of health and Human Services, U.S. department of Treasury, U.S. Department of Labor et al., 2011 WL 3519178 (11th Cir.), has been perhaps the most anticipated of the circuit court decisions. This is primarily because (a) among the plaintiffs were 26 states and the National Federation of Independent Business, and (b) the District Court decision below had not only ruled the individual mandate to be unconstitutional, but also held that it could not be severed from the ACA, and, thus, the entire statute was unconstitutional. In keeping with these high expectations, the Eleventh Circuit weighed in with a hefty 304 page decision that clearly sought to be not only encyclopedic, but definitive. Whether it was successful in that latter regard awaits the Supreme Court’s final verdict. Whatever you think of the Court’s reasoning or results, however, the decision does contain a 42-page summary of the ACA’s provisions and a 12-page Appendix outlining the ACA’s structure. These form a comprehensive and fairly straight forward overview, and could be fairly useful in other contexts. For those of you looking for a somewhat extensive, but fairly readable ACA crib sheet, we commend this decision for providing one. Because of the presence of the state plaintiffs, the Eleventh Circuit had to address one issue not present before the Sixth Circuit. The state plaintiffs challenged the District Court’s grant of summary judgment to the federal government on the grounds that the ACA’s expansion of the Medicaid program was not unconstitutional under the Spending Clause of the Constitution, Art. I, § 8, cl. 1, as it was not unduly coercive. Unfortunately for the states, the Eleventh Circuit upheld this aspect of the District Court’s decision. To comply with the Spending Clause, federal legislation must (1) be in pursuit of the general welfare, (2) the conditions on receipt of the federal funds must be reasonably related to the legislation’s stated goal, (3) Congress’ intent to condition funds on a particular action must be unambiguous, enabling stats to knowingly exercise their choice to participate or not, and (4) the legislation cannot induce a state to engage in conduct that would itself be unconstitutional. On appeal, the state plaintiffs admitted that the ACA violated none of these restrictions. Rather, they emphasized that the Medicaid expansion under the ACA violated, not just the Spending Clause, but also the Tenth Amendment. The argument being that even if the ACA did not violate Congress’ Spending Clause authority, the Medicaid expansion impermissibly limited the reservation of power to the states under the Tenth Amendment by forcing them into compliance. Noting the dearth of prior case law on the coercion argument under the Tenth Amendment (the Eleventh Circuit found that there were only two prior Supreme Court cases that had stuck down legislation on this basis), and finding the coercion doctrine to be “an amorphous one, honest in theory but complicated in application,” the Eleventh Circuit nevertheless concluded that the ACA’s expansion of Medicaid was not unduly coercive. They so concluded because (1) from the beginning of Medicaid the states had been warned that Congress reserved the right to make changes in the program, (2) the federal government will bear almost all of the costs associated with the expanded coverage, (3) the states have nearly four years to decide whether or not they wish to continue in the program, and (4) nothing in the ACA dictates, as the states contend, that electing not to participate in the expanded program will mean that states will lose all their Medicaid funding.

The bulk of the decision focused, however, on the same issue confronted by the Sixth Circuit – whether what is called here, the individual mandate, exceeded Congress’ Commerce Clause powers, and is, thus, unconstitutional. Consistent with their encyclopedic tendencies, the majority provides an extensive review of the Supreme Court’s Commerce Clause jurisprudence from Justice Marshall’s decision in Gibbons v. Ogden in 1824 through the various “New Deal” cases that shifted the landscape of that jurisprudence and created the Substantial Effects and Larger Scheme Doctrines, noted above, as key Commerce Clause tests, to the two more recent decisions that seemed to represent a break with this New Deal jurisprudence – U.S. v. Lopez in 1995 and U.S. v. Morrison in 2000 – ending with the Supreme Court’s most recent pronouncement in Gonzales v. Raich in 2005. As this article is not part of a constitutional law symposium, we will not recapitulate the Eleventh Circuit’s discussion of these cases, but will point out that the majority concluded that central to the analysis was whether (1) the activities addressed by the legislation were economic or noneconomic, (2) they were necessary and proper for the regulation of interstate commerce, and (3) even if noneconomic, is the proposed regulation a necessary part of a more general scheme to regulate interstate commerce. We will also note that in a savvy move, the majority emphasized, and cited often and favorably from Justice Kennedy’s opinions in all of the cases in which he participated, fully aware that he may well be a crucial swing vote when these issues reach the Supreme Court. The Court briefly addressed whether the Constitution’s Necessary

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October 2011

and Proper Clause, Art I, § 8, cl. 18, provided an independent basis to support the individual mandate, but quickly dismissed that argument because it found that the Necessary and Proper Clause to be intimately tied to the enumerated power intended to support the legislation in question. If the ACA is within Congress’ Commerce Claus authority, then the means chosen through the ACA are likely necessary and proper; if not, then they cannot be independently sustained under that constitutional provision. Moreover, with respect to the Commerce Clause, the Necessary and Proper Clause is inextricably bound up with the Substantial Effects Doctrine, i.e., if congressional regulation of an activity is deemed be within its Commerce Clause powers because it has a substantial effect on interstate commerce, then the means Congress has chosen to regulate it will inevitably be necessary and proper.

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On what basis then did the Eleventh Circuit hold that the individual mandate was unconstitutional? Here the majority addressed the activity/inactivity argument put forward by the plaintiffs which characterized the individual mandate as pointed exclusively towards the individual’s decision to purchase or not purchase insurance from a private entity (though, as made clear in the majority’s overview of the ACA, this is not what the ACA requires to avoid a penalty under the individual mandate). The individual, by choosing not to purchase insurance, is opting out of the stream of commerce. Therefore, his activity is marked by the absence of a commercial transaction, and is, thus, beyond the reach of Congress’ constitutional authority. Though the Eleventh Circuit stated that it found this activity/inactivity dichotomy to be “useful only to a point,” it nevertheless focused on the narrow scope of the individual insurance purchasing decision -- “Properly formulated, we perceive the question before us to be whether the federal government can issue a mandate that Americans purchase and maintain health insurance from a private company for the entirety of their lives.” Unlike the Sixth Circuit, the majority here did not assess this decision in the context of a unified health care system that included both the provision of health care and the payment for that health care. The Eleventh Circuit also concluded that the fact that Congress had never before enacted such a mandate as a “telling” mark against its constitutionality, rather than as a creative response to a complex economic problem. Thus, the majority contended that “Individuals subjected to this economic mandate have not made a voluntary choice to enter the stream of commerce, but instead are having that choice imposed on them by the federal government. This suggests that they are removed from the traditional subject of Congress’s commerce authority. . .”

Beyond its focus on the individual’s decision not to purchase insurance, the majority is also concerned that the logic of the mandate imposes no judicially enforceable limits on the commerce power. Rejecting the government’s assessment of the health care market as “unique,” and thus, contains its own built-in limits, the majority fears that accepting the individual mandate here would open the door to Congress being able to require individuals to buy other specific products (e.g., GM cars) or even to regulate their diets (e.g., forcing them to eat more broccoli to improve their health). Beyond these possibly trivial examples, however, is the majority’s concern that the potential expansion of the commerce power will intrude ever further into traditional areas of state concern, thus trenching on the Tenth Amendment limitations, and the structural limits of federalism the Founding Fathers built into the Constitution.

“Indeed, if the federal government possess the asserted power to compel individuals to purchase insurance from a private company forever, it may impose such a mandate on individuals in states that have elected not to employ their police powers in this manner. After all, if and when Congress actually operates within its enumerated commerce power, Congress, by virtue of the Supremacy Clause, may ultimately supplant the states. When this occurs, a state is no longer permitted to tailor its policymaking goals to the specific needs of its citizenry.This is precisely why it is critical that courts preserve constitutional boundaries and ensure the Congress only operates within the proper scope of its enumerated commerce powers (emphasis in original).” Thus, the Tenth Amendment issue, rejected by the majority when raised in the context of the states’ objections to Medicaid expansion, plays a prominent, if background role, in motivating the majority’s rejection of the individual mandate.

The majority, however, did reject the District Court’s holding that the individual mandate’s lack of a constitutional basis required that the entire ACA be rejected as unconstitutional. In doing so the Eleventh Circuit said that the District Court had placed too much emphasis on the fact that the ACA lacked a severability clause. Such clauses are necessary, the Court found, only when Congress wishes to note that certain provisions are not severable. Since the rest of the ACA can operate very well without the individual mandate, including the two most closely related insurance provisions -- i.e., the guaranteed issue and prohibition on preexisting condition exclusions – the determination that the individual mandate is unconstitutional does not impair the constitutional operations of the rest of the ACA. The dissent concurred with the majority on all its holdings, except

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with respect to the individual mandate, and here its response was extensive and aggressive. The dissent challenged the majority on two key points. First, it challenged the majority’s focus on the timing of when the ACA chooses to regulate the purchase of insurance. “The plaintiffs and, indeed, the majority have conceded, as they must, that Congress has the commerce power to impose precisely the same mandate compelling the same class of uninsured individuals to obtain the same kind of insurance, or otherwise pay a penalty, as a necessary condition to receiving health care services, at the time the uninsured seek these services. Nevertheless, the plaintiffs argue that Congress cannot do now what it plainly can do later. In other words, Congress must wait until each component transaction underlying the costshifting problem occurs, causing huge increases in costs for both those who have health care insurance and for health care providers, before it may constitutionally act. I can find nothing in logic or law that so circumscribes Congress’ commerce power and yields so anomalous a result (emphasis in original).” Second, the dissent analyzed the insurance purchase decision within the context of a health care system that included both providers and payers, and in that context characterized the individual mandate as an essential feature of the Congressional effort to: (1) expand insurance coverage by limiting the ability off insurance companies to underwrite out those with chronic and other pre-existing conditions, and (2) mitigate the inefficient and expensive consequences of the cost-shifting that the provision of care for the uninsured imposes on all consumers of health care services. In short, “On a more basic level, Congress. . .understood that ‘[h]ealth insurance is not bought for its own sake, it is bought to pay for medical expenses.” The dissent emphasizes that since it is beyond doubt that Congress can regulate insurance under its commerce power, it can regulate health insurance. It can also regulate health care prices and services through Medicare and Medicaid, and its commerce power provides authority for it to prescribe rules “cutting across the two linked markets of health insurance and health care services. Thus, it has clear authority to impose the individual mandate at issue here. “In plaintiffs’ view, Congress could not mandate the purchase of insurance as a means of ameliorating a national problem arising in the related but distinct market for health care services. The majority appears to have adopted this view, concluding that the relevant conduct targeted by Congress is not the uncompensated consumption of health care services by the uninsured, but rather only the decision to forego health insurance. This approach is wooden, formalistic and myopic. . .The only way the plaintiffs and the majority can round even the first base of their argument against the mandate is by excluding from Congress’ purview, for no principled reason that I can discern, the cost-shifting problem that arise in the health care services market.”

Carolina, South Carolina, Maryland]. The bigger question, of course, is what is likely to happen once these issues come before the Supreme Court. While many assume that the current conservative bent of the Court means that it will be more receptive to finding the individual mandate unconstitutional, that cannot be assumed. One commentator has speculated that given the prior opinions of the current justices, there might be anywhere from a 6-3 to an 8-1 majority in favor of finding the provision constitutional, with only Justice Thomas a lock for holding it unconstitutional. Whether that is a savvy analysis or a wildly off-base projection remains to be seen. Presumably, other commentators could spin the outcome in a similar, but opposite direction, or at least they could create a reasonable case that there are at least five justices willing to vote to find it unconstitutional. As to the ultimate vote count, the wagering window is wide open. Another bet, of course, is whether the 2012 election will make a legislative revision before there is a judicial determination. All we can do is wait and see, but as the Chinese saying goes, ‘May you live in interesting times.” It is clear that we do. n

Dissents are often written with reviewing courts in mind. Whether the Supreme Court will find this strong dissent compelling, or just simply intense, remains to be seen.

III. What’s Next? So there can be no doubt that the issues have been joined, though whether the Supreme Court has heard enough to decide to wade in, or whether, as noted above, it will choose to let the issues percolate a while longer through additional circuit court decisions is an unanswerable question at this time. The next circuit from which a decision is likely to come will be the Fourth Circuit [Virginia, West Virginia, North

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PPACA, HIPAA AND FEDERAL HEALTH BENEFIT MANDATES:

Practical John Hickman, Esq., Alston & Bird, LLP

The Patent Protection and Affordable Care Act (PPACA), the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and other federal health benefit mandates (e.g., the Mental Health Parity Act, the Newborns and Mothers Health Protection Act, and the Women’s Health and Cancer Rights Act) dramatically impact the administration of self-insured health plans. This monthly column provides practical answers to administration questions and current guidance on PPACA, HIPAA and other federal benefit mandates. Attorneys John R. Hickman, Ashley Gillihan, Johann Lee, and Carolyn Smith provide the answers in this column. Mr. Hickman is partner in charge of the Health Benefits Practice with Alston & Bird, LLP, an Atlanta, New York, Los Angeles, Charlotte and Washington, D.C. law firm. Ashley Gillihan, Carolyn Smith and Johann Lee are members of the Health Benefits Practice. Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner’s situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation. Readers are encouraged to send questions by E-MAIL to Mr. Hickman at john.hickman@alston.com.

October 2011

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Q&A

When Is a Summary More than a Summary: Agencies Issue Long-Awaited Guidance on the ACA’s Uniform Summary of Benefi ts and Coverage Requirement

n August 22, 2011, the Departments of the U.S. Treasury (“Treasury”), Labor (DOL) and Health and Human Services (HHS) (collectively, the “Agencies”) jointly published proposed regulations (“Regulations”) that identify the standards for the uniform explanation of coverage requirement under the Patient Protection and Affordable Care Act of 2010 (ACA). The ACA directs the Agencies to develop standards for a uniform explanation of benefits and coverage (“Summary of Benefits Coverage” or SBC) to be provided by group health plans and health insurance issuers offering group or individual health insurance to enrollees. The long-awaited and muchanticipated Regulations propose the standards that will govern who provides an SBC, who receives an SBC, how the SBC is provided, when the SBC is provided and the contents of the SBC. In addition, the Agencies also published a draft template for the SBC, with over 30 pages of instructions, sample language for completing the template and a uniform glossary of terms used in health insurance coverage, such as “deductible” and “co-pay,” as required by the Regulations.

The Agencies request comments on the standards proposed in the Regulations, the draft SBC template and the uniform glossary of terms, all of which are due on or before October 21, 2011. The SBC requirement is statutorily effective March 23, 2012. Presumably, this means that the requirements apply to enrollments – including new enrollees, mid-year or special enrollments and annual enrollments – after that date. The standards set forth in the Regulations for completing and distributing an SBC will likely have a significant impact on each group health plan’s enrollment procedures and materials and, unless the effective date set forth in the statute is extended by the final rules, there is little time to prepare. Health insurers and group health plan sponsors should begin analyzing the standards now! Practice Pointer: The Agencies specifically request comments on the factors that may impact the feasibility of implementation by this due date. The following is an overview of the who, what, when, where and how of SBC compliance, as set forth in the Regulations, the draft template and the uniform glossary. NOTE: The SBC requirements also apply to health insurance issuers who issue coverage in the individual market; however, the focus of our overview below is solely on group health plans.

Who must provide the SBC?

group health plans otherwise subject to

The Regulations obligate the group health plan (including the plan administrator) and, if applicable, the health insurance issuer offering coverage in connection with a group health plan (i.e., if the plan is fully insured) to provide the SBC in accordance with the standards described below.

in Sections 1001 and 1201 of the ACA,

Practice Pointer: The SBC requirement applies to all self-insured and fully-insured

clarify that a responsible party may rely

the health insurance reforms set forth including grandfathered plans. Thus, if the group health plan is self-insured, the obligation to provide an SBC lies solely with the plan administrator. If the plan is fully insured, the obligation to timely send the SBC lies with both the plan administrator and the health insurer. The Regulations on another party to send an SBC, but

Practice Pointer: The draft template SBC and uniform glossary were prepared by the NAIC and proposed by the Agencies without change. Consequently, the terminology in the draft SBC and uniform glossary is more consistent with the terminology typically used in an insurance policy – not a self-insured group health plan. For example, the term “renewal” is used instead of annual enrollment. The Agencies have requested comments on ways to modify the template to better suit a self-insured plan.

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only if a timely SBC is actually sent. In many cases, the health insurer may not have all of the information necessary to fulfill the SBC requirements (e.g., insurers of a multiple-option plan may not have census information on employees enrolled in other options or in eligible individuals who are not enrolled). Thus, some level of involvement and coordination by the employer plan sponsor will be required.

but anyone who is eligible to enroll. Thus, employees (including former employees) and dependents that are eligible to enroll in the group health plan are entitled to receive an SBC. As noted in more detail below, the SBC must be incorporated into the plan’s enrollment process.

Practice pointer: Unlike the rules applicable to a certificate of creditable coverage required by HIPAA, a responsible party may not avoid liability simply because it has agreed in writing with another party, such as a health insurer, that the other party will timely send an SBC. Thus, if the plan administrator of a fully insured plan agrees in writing with the health insurer that the health insurer will timely send a compliant SBC but the insurer fails to timely send the SBC, both the plan administrator and the insurer are likely liable for the failure. Responsible parties who contract with third parties to send an SBC should obtain indemnification for the third party’s failure to fulfill the SBC requirements.

The time periods for providing the SBC and the manner in which the SBC must be provided are discussed in more detail below.

Practice Pointer: ERISA’s definition of “participant” does not appear to include selfemployed individuals such as independent contractors or partners covered under a plan. However, cases have held that self-employed individuals covered under an ERISA covered plan should be treated as participants. Thus, it would appear that such individuals participating in a group health plan are also entitled to receive an SBC. In addition, the Regulations clarify that a group health plan is also entitled to receive an SBC from a health insurance issuer.

Practice Pointer: Don’t forget – only those “group health plans” subject to the health insurance reforms are subject to the SBC requirement. Thus, an SBC is not required to be sent to an eligible employee or eligible dependent with respect to an excepted benefit, such as limited scope dental or vision coverage or a Health FSA.

Who must receive an SBC? Basically, all individuals who are eligible to enroll in the group health plan are entitled to receive the SBC. The Regulations indicate that a “participant” and “beneficiary” as defined in ERISA Sections 3(7) and 3(8) are entitled to an SBC in accordance with the standards discussed herein. However, don’t let the terms “participant” and “beneficiary” mislead you into believing that the SBC is provided only to those actually enrolled in the plan; the terms “participant” and “beneficiary” are defined broadly by ERISA and include not only those who are currently enrolled in the plan (i.e., covered employees and covered dependents),

October 2011

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When must the SBC be provided? Generally, the SBC is provided to a participant or beneficiary at three different times: • at any enrollment, • upon request, and • when there is a material modification in the information. It must also be provided by a health insurer to a plan at certain times. We discuss the time periods and dates by which an SBC must be provided in more detail below. Practice Pointer: The effective date of the SBC requirement is March 23, 2012. Thus, the SBC need only be provided at any enrollment, or upon request, that occurs on or after March 23, 2012.

Newly Eligible Participants and Beneficiaries (Other than Special Enrollment) Individuals who first become eligible for coverage on or after March 23, 2012, other than during a special enrollment period, must receive the SBC in connection

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with any written (or electronic) enrollment materials distributed by the plan as part of the initial enrollment process. If the plan does not distribute written or electronic enrollment materials as part of the initial enrollment process, the plan must distribute the SBC no later than the first day on which the individual is otherwise eligible to enroll. Example: Bob becomes eligible for coverage under ABC’s group health plan on July 1, 2012. ABC’s plan administrator sends Bob written enrollment materials on July 5, 2012. The SBC is timely provided if it is included with the written enrollment materials sent to Bob on July 5, 2012. Practice Pointer: What if ABC’s enrollment process is conducted by telephone and it does not otherwise send any written materials? The instructions to the draft SBC clarify that the SBC may not be provided orally. Thus, a written copy must be provided, but when? Read literally,

October 2011

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the Regulations suggest that ABC, the plan in our example above, must send a written copy of the SBC on or before the first date that Bob is able to enroll, which is July 1, 2012, in our example above. Fortunately, the instructions to the draft SBC template also indicate that the plan must offer to provide a written SBC within seven days to the address provided by the enrollee or, alternatively, it may be provided electronically, at the enrollee’s discretion, (i) to an email address provided by the enrollee, (ii) via a link to a website or (iii) by any other method mutually agreed to by the responsible party and the enrollee. The SBC must generally be provided with respect to each benefit package offered by the plan for which the newly eligible individual is eligible. See “How is the SBC provided?” below for a more detailed discussion. Practice Pointer: What is a “benefit package option” for purposes of the SBC requirement? The Regulations do not

define “benefit package option”; however, the special enrollment regulations under HIPAA’s portability rules (the same subpart in ERISA, the PHSA and the Code to which the health insurance reforms were added by the ACA) define a benefit package as any coverage arrangement with a difference in benefits or cost sharing. If any of the information required to be in the SBC changes before the first day of coverage (e.g., prior to the end of the waiting period), then an updated SBC must be provided prior to the first day of coverage.

Newly Eligible Participants and Beneficiaries (Special Enrollment) Individuals enrolling pursuant a HIPAA special enrollment on or after March 23, 2012, must receive the SBC within seven days of the request for enrollment. The SBC must be provided with respect to each benefit package option for which the special enrollee is eligible.

If any of the information required to be in the SBC changes before the first day of coverage (e.g., prior to the effective date of coverage), then an updated SBC must be provided prior to the first day of coverage.

Annual Enrollment (Renewal) The SBC must be provided as part of the plan’s annual enrollment process, even if the participants and beneficiaries have already received an SBC as part of the initial enrollment process. According to the Regulations, if eligible individuals must enroll in writing (or electronically), the SBC must be provided with the written or electronic annual enrollment materials that are provided. If annual enrollment is automatic, the SBC must be provided no later than 30 days prior to the first day of coverage for the new plan year. Practice Pointer: In some cases, a health plan’s annual enrollment procedure is passive or “negative,” which means that all elections currently in effect (including a prior election not to participate) are renewed for the following plan year unless an election change is affirmatively made. In such cases, notice of the annual enrollment opportunity is typically provided via postcard or email prior to the actual annual enrollment period; however, if the participant has no desired changes for the following plan year, the participant takes no action during the annual enrollment period and his/her election is automatically renewed. In the case of a negative annual enrollment period, where elections are automatic, must the SBC be provided when the notice of the enrollment period is sent or no later than 30 days prior the first day of the plan year? Although not clear, we believe the better approach is that the SBC must be provided when notice of the enrollment period is sent. Thus, if notice of the annual enrollment opportunity is sent 60 days before the beginning of the plan year, the SBC should be provided at that time as well.

Due to restrictions on the manner in which the SBC is distributed, this could be problematic for plans and insurers. See “How must the SBC be sent?” below for a more detailed discussion. Unlike the initial enrollment and special enrollment periods, only an SBC for the benefit package in which the individual is currently enrolled must be provided during annual enrollment, even if the covered individual is eligible for other benefit package options. Nevertheless, the covered individual is entitled to receive a copy of the SBC for the other benefit package options for which he is eligible upon request (see “Upon Request by a Participant or Beneficiary” below for a more detailed discussion). Practice Pointer: Individuals who are eligible, but not enrolled, must be sent a copy of the SBC for each benefit package for which they are eligible to enroll during the annual enrollment period. If a plan’s current enrollment system is unable to distinguish between those who currently have coverage and those who don’t, then the plan may have to provide everyone a copy of each SBC for which they are eligible, regardless of whether they are enrolled or not. If any of the information required to be in the SBC changes before the first day of coverage (e.g., between the date the SBC is provided in connection with annual enrollment and the first day of the next plan year), then an updated SBC must be provided prior to the first day of coverage.

Upon Request by a Participant or Beneficiary The SBC must be provided to an eligible individual in connection with a request for information about a plan or policy as soon as practical, but no later than seven days following the request. Practice pointer: Can a plan or health insurer charge the individual for copies provided upon request? The preamble to the Regulations indicate that the SBC must be provided free of charge.

Material Modifications Where a material modification is made to the terms of the plan that would impact the information in the most recently distributed SBC, and such change is made other than in connection with “renewal” (i.e., it is not a change required to be reflected in the SBC provided during annual enrollment), then notice of the modification must be provided at least 60 days prior to the effective date of the change. The preamble to the Regulations reflects that the mid-year notice can either be a separate notice describing the change or an updated SBC. Otherwise, the format of the notice and the manner in which it must be delivered must comply with the format and delivery requirements of the SBC. Practice Pointer: Changes to the plan that are effective on the first day of the next plan year are typically communicated during the annual enrollment period, which for many plans is less than 60 days prior to the start of the plan year. A literal reading of the statute suggested that notice of material modifications had to be provided 60 days prior to the effective date of the change, even if the effective date was the first day of the next plan year. This would have caused plans that wanted to continue notifying participants and beneficiaries in the annual enrollment period of changes effective as of the first day of the plan year to revise the date they send annual enrollment materials. The Regulations seem to apply the 60-day rule only to changes that are effective during the plan year.

The Self-Insurer

October 2011

From Health Insurance Issuer to Plan A health insurance issuer must provide an SBC to a group health plan (or its sponsor) at the following times: • With the plan’s application or as soon as reasonably practical, but no later than seven days following a request for information (e.g., by a group health plan not currently insured by the health insurer) by the group health plan. If the health plan (or its sponsor) requests information and then subsequently applies for coverage, the health insurer must provide another SBC only if the information provided in the first SBC provided upon request has changed. • If there is a change in the information before the coverage is offered, an updated SBC must be provided before the offer is made. Likewise, if there is a change in the information before

the first day of coverage, an updated SBC must be provided before the first day of coverage. • If written application for renewal is required, then the SBC must be provided when the written materials for renewal are provided. • If renewal is automatic, then the SBC must be provided to the plan no later than 30 days prior to the first day of the new policy year. • As soon as practical but no later than seven days following a request by a plan.

How must the SBC be delivered? An SBC provided by a plan or health insurer to a participant or beneficiary may be provided in paper form. Alternatively, for plans and issuers subject to ERISA (plans sponsored by private employers) and/or the Internal Revenue Code (e.g., church plans), the SBC may be provided electronically if

the requirements of DOL’s electronic disclosure safe harbor at 29 CFR Section 2520.104b-1(c) are met. Nonfederal governmental plans may comply with either ERISA’s electronic disclosure safe harbor requirements or, alternatively, the requirements applicable to insurers in the individual market. Nonfederal governmental plans that wish to comply with the electronic disclosure requirements for insurers in the individual market must provide an SBC (and any subsequent SBC) in paper form if, upon the individual’s request for information or request for an application, the individual makes the request in person or by phone, fax, U.S. mail or courier service. A nonfederal governmental plan may provide an SBC (and any subsequent SBC) in electronic form (such as on the Internet or via e-mail) if an individual requests information or requests an application for coverage electronically, or if an individual submits an application for coverage electronically.

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October 2011

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Practice Pointer: ERISA’s electronic disclosure safe harbor currently set forth in the regulations generally imposes strict requirements on plan administrators to ensure that the information sent electronically is sent by means “reasonably calculated to ensure receipt.” For example, if a participant is effectively able to access the electronic information from any location where the participant is reasonably expected to perform his duties and access to the employer’s electronic information system is an integral part of his/her duties (“worksite employee”), then the plan may generally provide the information electronically without consent provided that the participant is notified that a paper form will be provided upon request and certain other requirements are satisfied. On the other hand, if the participant is not a worksite employee, or the individual receiving the information is not an employee (e.g., a former employee or spouse), then special consent requirements must be satisfied. Plans may find it difficult to revise their electronic enrollment process to match the safe harbor requirements. Moreover, the SBC must be sent to spouses and dependents who would have to satisfy the special consent requirements in order to receive the SBC electronically. Obtaining such consent may not be practical. See also the instructions to the draft SBC template. Generally, the SBC must be a stand-alone document; however, the Agencies request comments as to whether the SBC may be sent with the plan’s summary plan description if the SBC is intact and provided at the front of the SPD. The Regulations further propose that a single SBC may be sent to the address at which all individuals to whom the SBC must be sent reside. However, if any eligible dependent’s address is different than the eligible employee’s address, a separate SBC must be provided to the beneficiary residing at a separate address. Practice Pointer: Must another SBC be sent if the spouse enrolls at a different location than the employee but resides at the same address as the employee? Although not clear, a separate SBC distributed to the spouse would appear to be required. For an SBC provided by an issuer to a plan, the SBC may be provided in paper form or electronically. For electronic forms, the format must be readily accessible by the plan, and the SBC must be provided in paper form upon request.

What are the format and content requirements for an SBC? An SBC must satisfy the following format requirements: • Four double-sided pages (i.e., a total of eight printed pages, front and back) • No less than 12-point font (and the instructions to the draft template reflect that the font must be Times New Roman). An SBC must satisfy the following content requirements: • uniform definitions of standard insurance terms and medical terms, so that consumers may compare health coverage and understand the terms of (or exceptions to) their coverage; • a description of the coverage, including cost sharing, for each category of benefits identified by the Departments; • the exceptions, reductions and limitations on coverage; • the cost-sharing provisions of the coverage, including deductible, coinsurance and copayment obligations; • the renewability and continuation of coverage provisions; • Coverage Examples which illustrate common benefits scenarios (under the

proposed regulations, a normal childbirth, breast cancer treatment and diabetes management) and related cost-sharing based on recognized clinical practice guidelines; • a statement about whether the plan provides minimum essential coverage as defined under Section 5000A(f) of the Internal Revenue Code, and whether the plan’s or coverage’s share of the total allowed costs of benefits provided under the plan or coverage meets applicable requirements (this information does not have to be provided until on or after January 1, 2014); • a statement that the SBC is only a summary and that the plan document, policy or certificate of insurance should be consulted to determine the governing contractual provisions of the coverage; • a contact number to call with questions and an Internet address where a copy of the actual individual coverage policy or group certificate of coverage can be reviewed and obtained; • for plans and issuers that maintain more than one network of providers, an Internet address (or similar contact information) for obtaining a list of network providers; • for plans and issuers that maintain a prescription drug formulary, an Internet address where an individual may find more information about the prescription drug coverage under the plan or coverage; • an Internet address where an individual may review and obtain the uniform glossary; and • premiums (or cost of coverage for self-insured group health plans).

The Self-Insurer

October 2011

Practice Pointer: The draft template SBC indicates that the premium reflected is the total premium charged by the insurer (if fully insured) or the total cost of the coverage, if self-insured, and instructs the recipient to contact the employer for the employee’s portion of the cost. The Agencies are requesting comments on whether the SBC should include the employee’s portion of the cost. • In addition, if at least 10 percent of the population in the county are literate only in a particular non-English language and speak English less than “very well,” as determined by the American Community Survey data published by the United States Census Bureau, then each SBC sent to a recipient with an address in that county must include a one-sentence statement in that non-English language about the availability of language services provided by the plan.

What happens if I don’t comply? Potential penalties for failure to comply with the SBC requirement are severe, including agency-induced fines of up to $1,000 for each failure to distribute an SBC and the self-reported excise tax applicable to group health plans (other than governmental plans) under Section 4980D of the Internal Revenue Code. The Department of Labor (which has enforcement authority over ERISA plans) has indicated that it will issue separate enforcement penalty regulations in the near future. n

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October 2011

The Self-Insurer

So… Do You Want to be a

Fiduciary? by Adam Russo

October 2011

The Self-Insurer

t is the buzz word in our industry – fiduciary – and more and more discussions about what it is, and whether or not you want to become one, are taking place throughout the country. It is not very often that I become surprised anymore, but it happened to me back in June and I will never forget the conversation. I was talking to a well respected TPA owner about the growing number of TPAs getting into litigation or fighting with their employee benefit plans regarding TPAs taking on the role of a fiduciary, or at least handling some fiduciary duties for plans. What he said surprised me – “That is great. I want to be a fiduciary because I want to make the decisions for the clients. It is less of a hassle since I have the control and I can charge for it too.” That made me think: instead of backing away from having to make fiduciary decisions, should TPAs embrace the role? Recently, I had a conference call with a TPA client who stated that their plan was requiring them to take on a few fiduciary decisions and responsibilities, but not all of them. I brought up the obvious question - why not? He paused for a second and realized “maybe it is not such a bad idea as long as I know what I will be responsible for and potentially sued for. This way I have control over aspects of the plan since many courts are going this route anyways.” In fact, more and more vendors are taking on the role of a fiduciary when it comes to their specific services, and more and more plans are asking vendors to take on this role. Conflicts regarding fiduciary duties and determining who is responsible to make fiduciary decisions are arising with alarming frequency. After researching the subject for the past few months, I have realized that while most TPAs want no part of having fiduciary responsibilities, others embrace the

role of being the experts who should be responsible for the tough decisions and say so in their agreements. There is no grey area in their contracts. Faced with new regulations under health care reform, many employers who may have once simply executed a contract with one of the fullyfunded insurance carriers are now contemplating options such as selffunding. But most of these employers simply want to maximize benefits for their employees, while minimizing the cost of doing so, but to do this they need the assistance of brokers, TPAs, and stop loss carriers. Most plans that switch to self-funding do not realize the enormous responsibilities they take on in doing so. Think about how many of your plans even refuse to complete your plan document checklist. They expect you to do it for them! Under the Employee Retirement Income Security Act (“ERISA”), plan sponsors and plan administrators utilizing brokers, TPAs, and stop loss carriers have a fiduciary responsibility to properly monitor the services provided to their benefit plan. ERISA also requires, among other things, that an employer providing a health benefit plan to its employees perform certain duties as a fiduciary on behalf of said employees. Those duties include prudent management of benefit plan assets and making reasonable administrative decisions. Deciding how to fund and structure a benefit plan is a decision that must be made – neither arbitrarily nor capriciously – by the plan administrator. If an employer fails to adequately consider options available to it, and relies too much upon a broker or TPA’s assessment, it seems more likely than not that the broker and the TPA could be deemed a fiduciary in this circumstance. The passing of the “fiduciary buck” does not stop with determinations regarding how a

plan shall be funded and structured. In fact, this is only the first of many circumstances where the employer relies upon a third party to make fiduciary decisions for the plan. This clearly exposes the third party to legal repercussions as a fiduciary, and it is only the first instance of a third party making a fiduciary decision in lieu of the actual fiduciary – the employer. This type of reliance by the employer on a third party occurs every day. Even my staff here at The Phia Group is asked on a daily basis to make claim decisions. We have a detailed process in place explaining to our clients that we do not make their claims decisions for them – we can only advise and assist them. If the employer decides to self-fund, they will select a TPA and a stop loss carrier to provide coverage to the plan, should the plan pay claims in excess of a specific deductible. The TPA has the duty to receive the medical claims and process them in strict accordance with the terms of the plan document, and the plan administrator’s directives. In order to not be a fiduciary, the TPA cannot make its own decisions on the claim payments. Decisions must only be derived from the plan document, which is basically a collection of the plan’s decisions on everything. I review thousands of plan documents a year. Please do not laugh or feel pity for me as I actually enjoy it! What I read, in many instances, is not English or even understandable in any language. There are amendments that amend prior amendments and language that contradicts other provisions in different sections. If a TPA’s claim staff had to reach out to the plan in every instance where they do not understand something, they would never pay a claim and aggravate the plan to no avail. Plans need to update their plan documents and make them easy to understand, which would make processing claims more efficient.

The Self-Insurer

October 2011

Let me use my wife Kelly in a hypothetical example. I am in Chicago with Kelly speaking at an event and she asks me if she can go shopping on Michigan Avenue with my credit card. The “shopping” plan document would be the document that she can refer to that explains where she can shop, what she is excluded from buying, what is payable, what the reasonable amount allowable per item is, and how much time she has to purchase items. It would be a very clear and understandable document that would allow my wife to adjudicate her items. The same should be said for your plan document. Your claims examiners should be able to turn to the specific page, read the provision and easily know what to do in almost every circumstance. The plan document is telling your staff what the plan covers - simple. Of course there may be situations where you need to contact the employer, but it would be a minimal amount of times. ERISA creates a scenario where the employer, acting as the plan administrator, makes decisions regarding how the plan will be funded, drafts the terms of the plan, makes claims processing decisions, interprets the terms of the plan, and applies unique facts to individual situations. This could all be done by the TPA, but not for free. It would almost place the employer in the same situation as if it was fully insured. The stop loss carrier’s role is to merely provide stop loss reimbursement to the plan when the plan pays claims in excess of the specific deductible. The TPA’s role is to process claims and perform ministerial tasks, referring issues that require interpretation and decision making back to the plan administrator. If the plan were truly managed in that fashion, only the decision maker – the entity with the right and ability to decide how the benefit plan will apply in unique situations – would be deemed to be the fiduciary, and be required to meet the fiduciary responsibilities set forth by ERISA. Is it really a worthwhile endeavor to avoid fiduciary status? If and when a fiduciary makes a mistake, and breaches the fiduciary duty they owe to the plan members, they are at risk of being accused of breaching their fiduciary duty. Many TPAs draft service agreements that explicitly state that the third party is not a fiduciary. Unfortunately, the courts have determined that what you say means less than what you do. More frequently, benefit plan sponsors, who are supposed to be the fiduciaries in accordance with ERISA, are coming to rely upon their TPAs to make plan administration determinations. In turn, many TPAs then ask the same of their stop loss carriers. The biggest example of benefit plans relying upon the TPA to make fiduciary determinations relates to claims processing. TPAs are supposed to process claims in accordance with the terms of the applicable plan document. But the TPA is not supposed to decide as the claim decisions should be as clear as day. If there are unique facts and the TPA is not sure what to do based on the terms of the plan document, the TPA must refer the matter to the plan administrator for a decision and advise the plan to update their plan language. We all know that this is not the reality in our world when there are prompt pay rules, discount deadlines and stop loss expiring contracts. Sometimes a decision has to be made. However, if the TPA makes any type of judgment call, which cannot be directly attributed to a plan administrator directive or plan language that is explicitly on point, then the TPA has assumed the fiduciary mantle. With many plan documents today having 20 plan amendments, many of which contradict each other, it is almost impossible for TPAs to know what to do. Plan administrators also seem to be relying on TPAs to execute network contracts with PPOs. The ability to access the network and secure its discounts is

October 2011

The Self-Insurer

addressed in network agreements. In reality, the plan administrator should be negotiating and signing these network agreements. Yet in many instances, the TPA signs the agreement despite the fact that the TPA is not a payer, does not pay claims with its own assets, and realistically should play no role in the arrangement between the benefit plan and the PPO. But the reality of our industry is that the employers expect TPAs to do these things for them and not get involved in the day-today issues of health plans. This is the underlying dilemma. The concept that a TPA can be deemed a fiduciary is one that is gaining in popularity. Consider the recent case of Laura A. Cyr v. Reliance Standard Life Insurance Co., 9th Cir., No. 07-56869 D.C. No. CV-06-01585DDP & 08-55234 D.C. No. CV-0601585-DDP, (June 22, 2011). In this case, the 9th U.S. Circuit Court of Appeals in San Francisco ruled that ERISA does not specifically limit which parties can be sued to recover benefits due under the terms of an employee benefits plan. The Court held that a plan administrator has certain defined responsibilities involving reporting, disclosure, filing and notice and that any entity exercising these types of responsibilities and taking these types of actions may be deemed a fiduciary of the benefit plan. This creates quite a conundrum for TPAs. Most employers are not familiar with the rules and regulations that govern employee benefit plans, and do not have the resources to handle all of the administrative requirements of such plans internally. They have their own businesses to run. The responsibility falls on the employer and the plan administrator to make sure that the plan is properly maintained. That is why the employer

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October 2011

and plan administrator must make the final decisions and oversee the operation of the plan. Whether a TPA will be exposed to fiduciary liability under ERISA depends on how it establishes and maintains its service relationship with the plan. A plan may employ a TPA to give it options and advice, to keep abreast of the changes in the laws that may affect the plan, its operation and its participants, to perform the ministerial tasks, and to do whatever other tasks that the parties agree upon. The TPA is working at the plan administrator’s direction just as any other agent would. The TPA gives advice, but the plan administrator makes the decisions. The TPA should not be able to make discretionary decisions about the plan’s claims and should not have any control over the plan or its assets, unless it decides to take on that role and is paid for it. If, however, a TPA exercises discretion and control over the plan, or some part of it, then, to that extent,

October 2011

The Self-Insurer

the TPA may become a plan fiduciary. Many of you have decided that this is a role you want to take on under your agreement with your plans, since many of them expect you to do it anyway, and courts across the country are ruling that you are a fiduciary even if your contracts say that you are not. From the plan’s perspective, if your TPA wants to limit its liability, you must educate the plan sponsors about the roles regarding the operation of the plan and to make sure the TPA does not make discretionary decisions with respect to the plan. In order to do so, you need to update your plan documents and your administrative service agreements (“ASA”). The ASAs need to spell out the role, the services, and responsibilities of the parties. It is clear that many third parties such as brokers and TPAs are acting as fiduciaries when they make claims determinations and plan administration decisions. In addition, most plan administrators are not acting as

fiduciaries when they rely upon their brokers and TPAs to handle everything. Regardless of what is stated in the plan documents or in the administrative service agreement, a TPA with any discretionary authority, control, or responsibility to pay claims may be seen as a fiduciary. It is up to you to decide if this is the role you want to play. Whatever you decide, make sure it is spelled out clearly in your agreements and that your staff understands the consequences of their actions. n Adam V. Russo, Esq. is the Co-Founder and Chief Executive Officer of The Phia Group LLC; an innovative cost containment and consulting leader in the health insurance industry. In addition, Attorney Russo is the founder and managing partner of The Law Offices of Russo & Minchoff, a fullservice law firm with offices in Boston and Braintree, MA. He is a frequent speaker and author on health care and employee benefits topics at webinars, conferences and seminars across the country.

SIIA GRASSROOTS & Political Advocacy Monthly Wrap Up Report

SIIA Members Carry Message in DC and Home Districts

t’s working! Members of SIIA’s Grassroots Lobbying and Political Action Network have been successfully engaging their Congressional representatives both in Washington, DC, and in their home districts. Recently two members reported meetings with key Senatorial staff:

Knowles, State Director and General Counsel for Sen. Saxby Chambliss (RGA) in Atlanta, to discuss employersponsored healthcare plans and risk retention groups, plus Medicare set asides their use in the claim settlement process. “I really enjoyed the opportunity to meet with Senator Chambliss’ staff,” Martino said later. “The Senator’s staff was very receptive to meeting with SIIA to get information on topics important to our industry and the public. They feel SIIA is the expert in this area and genuinely appreciate our assistance.”

Bob Shupe, president of ESPinc., met with Michael Schultz, Nashville Field Representative for Sen. Lamar Alexander (R-TN). They discussed protecting self-insured employer-based healthcare programs as well as association health plans. “My experience has been that the visits at the ‘home offices’ of members of Congress have the greatest impact,” Shupe reported. “All members of SIIA owe it to themselves first and then to their industry to participate in the process.”

Meetings are being finalized on an ongoing basis. These meeting include Stu Thompson, CEO of The Builders Group, with Rep. John Kline (R-MN) in Eagan, MN; Jim LeRoy, senior vice president of Meadowbrook Insurance Group, meeting Minnesota Democratic Senators Al Franken and Amy Klobuchar in Washington; and Bob Madden, vice president of First Niagra Benefits Consulting, meeting with Sen. Kirsten E. Gillibrand (D-NY) in Buffalo, NY.

Connecting SIIA With State Employer Organizations

Ken Martino, president and CEO of Broadspire, met with Camila

October 2011

The Self-Insurer

Furthering SIIA’s strategy to develop partnerships with employer groups directly with employer business groups in order leverage the association’s grassroots lobbying capabilities, Chief Operating Officer Mike Ferguson represented SIIA at the Central Illinois Healthcare Cost Containment Conference for Employers in Peoria, IL, this month, sponsored by the Illinois Chamber of Commerce.

“My role was to inform them of how self-insured plans have already been affected by reform and how they may be affected by future legislative and regulatory developments,” Mike reported. “In a nutshell, I told them that 70 million Americans currently receive their health benefits through self-insured group health plans, and that that number has actually been growing since the passage of health care reform legislation.”

SIIA Reps Speak at Industry and Member Events TPAC Underwriters client conference: Mike Ferguson’s presentation at this recent event in Minneapolis sparked a lively discussion on specific topics related to PPACA regulatory guidance, legislative developments and legal challenges to the health care law. Texas Association of Benefit Administrators: More recently, Ferguson delivered a similar presentation at this group’s fall conference in Fort Worth, Texas. This event typically attracts a good number of SIIA members. Nevada Captive Insurance Association: Director of Government Relations Jay Fahrer went out west to brief the NCIA conference on proposed legislation to modernize the Liability Risk Retention Act so that Risk Retention Groups would be able to write commercial property insurance. n

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

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The Self-Insurer

WE’LL GIVE YOU AN EDGE®

October 2011

RISKRetention by Karrie Hyatt

The Majority of Risk Retention Entities Would Use Property Coverage

n June, the Risk Retention Modernization Act (HR 2126) was introduced into the House of Representatives. If passed HR 2126 would do three things; it would create a mediator in the Office of Federal Insurance to settle disputes between nondomiciliary states and risk retention groups (RRGs) and purchasing groups (PGs), it would set corporate governance standards for RRGs, and it would allow both RRGs and PGs to write property coverage. Since the Liability Risk Retention Act (LRRA) was signed into law in October, 1986, entities that form under the auspices of the LRRA, RRGs and PGs, have only been able to provide liability insurance. To write property coverage, they would have to use a fronting carrier. With the ability to write property coverage, RRGs would be able to bring “inhouse” that arm of coverage and provide all types of insurance for their members. The Risk Retention Reporter, the journal for the risk retention marketplace, conducted two surveys this past summer – one aimed at managers of RRGs and the other at managers of PGs – asking if they would be interested in the opportunity to write property coverage for their members. The response for both RRGs and PGs was a twothirds majority in favor of it. In the survey of RRG managers, two-thirds of the respondents, 65%, answered that there would be a moderate to high likelihood that their RRG would add property coverage to the products offered to their members. This group was split roughly equally between those who felt that there was a high to very high possibility that they would offer the coverage and those that thought there was only a moderate likelihood of

October 2011

The Self-Insurer

offering the coverage. Only one-third of the respondents, 35%, answered that there was little to no possibility that their RRGs would offer the coverage. The PG survey returned even more positive results for the addition of property coverage. The majority of survey respondents, 65, indicated that there would be a high to very high chance that they would add property to their available coverages. Twentyfive percent indicated that there was a moderate to low chance that they would add the coverage and 10% responded that they would not add the coverage if it were available. Both groups were asked whether the addition of property coverage would be a boon to their business and allow them to expand the base of insureds. PGs were overwhelmingly more positive about the impact that HR 2126 would have on

their business. Of PG respondents, 63% indicated that there was a high to very high chance that the additional coverage would positively aid their business, while 30% responded that there was a moderate to low chance that it would affect their business. Only 7% thought that it would not affect their business at all. RRG managers were less enthusiastic; 30% answered that there was a high to very high chance that it would help them. Twenty-six percent believed there would be a moderate impact on their competitiveness, and 43% indicated that there was a low to no chance of impact for their RRGs. Another question asked respondents if they thought that the ability to write property insurance would make their business sector more competitive, with new RRGs and PGs forming to write that type of coverage. Only 35% of PG respondents thought that it would negatively affect their business. Sixtyfive percent thought that there was moderate to no chance that the addition of property coverage would make their business sector more competitive. While

the majority of RRG respondents, 59%, answered that they believed that the chance of new competition would be low to unlikely. Only 17% expressed that there was a chance of new competition in their fields. Also asked was how likely it would be for a respondent’s RRG to form a purchasing group to handle property coverage in which all of the risk would be transferred to the PG insurer. A small but significant percentage of respondents (14%) answered that there was a high to very high probability that they would utilize a PG. Nearly 65% answered that there was a low to no possibility that they would enter into this type of arrangement. Conversely, when PG respondents were asked whether or not their PG would consider forming a risk retention group to handle property coverage, 35% of respondents indicated that they would be interested in forming a risk retention group to handle property coverage for their PGs, while 65% said they would have little or no interest in using that mechanism.

Many respondents were enthusiastic about the opportunity to offer property coverage (especially auto) even if they were not interested in it for their own RRG. However, several respondents noted the substantial differences between underwriting and claims handling for liability and for property and that many existing groups would not have the experience to manage property coverage. While there was strong support for expansion to the LRRA, many noted that careful preparation would be needed before jumping into the property arena. In 2006, the Risk Retention Reporter conducted a similar survey, canvassing only RRGs. At that time, only 40% of respondents were interested in property coverage for their group and 60% were not interested in providing the coverage. The 2011 survey results, only five years later, now show a majority of RRGs, and a majority of PGs, would take advantage of writing property coverage if the law allowed for it. n Karrie Hyatt is the managing editor of the Risk Retention Reporter.

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The Self-Insurer

October 2011

ART GALLERY by Dick Goff

ART may provide an ‘out’ for NY SIGs

aced with some massive deficits among mismanaged (and probably earlier misregulated) workers’ compensation self-insured groups, and despite the presence in the state of many healthy SIGs, New York chose to throw the babies out with the bathwater by effectively tossing out SIGs by the end of this year.

New York, of course, isn’t the only state that has SIGs in the crosshairs. There are indications that California could be the next state to clamp down on SIGs with other states possibly to follow. I wouldn’t be bringing this up now if I didn’t sense an ART-based solution. Let’s fantasize for a moment that a healthy SIG may be collapsed into a fronted captive insurance company that protects members from losing their equity and provides solid coverage moving forward with insured owners still participating in the rewards of the risk.

This is not breaking news, folks. The decisions were a long time coming, including attempted but failed legislation a couple of years ago. But what the legislature couldn’t accomplish at that time, a state task force did by recommending cessation of all SIGs, and that was ratified earlier this year by the legislature. The current rule doesn’t say “death penalty,” of course. Nothing so crude as that. It provides a “new start” for existing SIGs beginning in 2012. All they have to do is post funds equaling claims liability for the prior year, and by 2014 they must fully fund all prior losses plus anticipated losses for the upcoming year. Plus, oh yes, no new SIGs may be formed in the state. This is not insurance, but simply advance payment of workers’ compensation costs. One leading agent for workers’ compensation coverage knows of one, and maybe two, SIGs that plan to comply with the new highly restrictive rules. That’s from a current SIG population of about 25, down from more than 65 in recent years.

October 2011

The Self-Insurer

This is actually being done right now elsewhere in the country, and provides a method for agencies of all types – TPAs, brokers, MGUs, the whole industry – to take control of their books of business and participate in the risk. The fronted captive appears to a regulator as a fully-insured traditional workers’ compensation plan by an A-rated insurer – pick any household name insurance company. The front cedes back first dollar risk to the captive up to a defined level where the fronting company takes over covering excess losses. It’s also possible to isolate any one company’s losses from affecting other members of the captive. This is possible through segregated or incorporated cell structures that are currently available in captive domiciles including Delaware, the District of Columbia, Tennessee, Montana and Vermont among others. The key to this plan is for the captive to be able to attract a fronting partner on mutually beneficial terms. Big insurance companies look for two things: lower than average risk and as little labor/systems input as possible.

To a fronting company, the ideal workers’ compensation captive would be able to demonstrate two characteristics: First, a controlled book of business that is profitable based on insureds’ loss history and actuarial projections. This approach is probably best for niche specialized industries that have low claims experience or incident exposure. Second, the fronting company will ask how good an administrator will be involved. The program administrator will need bulletproof systems providing computer-friendly consumer online access for claims and other administrative matters. Safety and other loss-control programs will give extra credit. The captive will have to prove it can smartly manage, market, and distribute the business. A Texas company, Workers Comp Solutions (WCS), is working in this area as a workers’ compensation wholesaler with $25 million-plus of business written through independent retailers. WCS tracks all its applicants and can document that it declines about half for one reason or another. That’s a golden statistic when a captive approaches a potential fronting partner. The captive and fronting partner company will operate most efficiently when they build an “underwriting box” that defines acceptable parameters of coverage. Inside the box, you can sign up an applicant and manage all aspects of the business. Applications that fall outside the box can still be submitted for approval on exception. If this ART-based approach gains momentum toward market prevalence it could create a two-tier workers’ compensation universe with all the good risks covered by fronted captives and the poor risks facing expensive commercial coverage or state funds. That will provide the incentive to increase safety management to gradually decrease claims and reduce employers’ risk profiles. And that would be a good thing. n Dick Goff is managing member of The Taft Companies LLC, a captive insurance management firm and Bermuda broker at dick@taftcos.com.

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The Self-Insurer

October 2011

INSIDER INFORMATION INETICO proudly introduces Ronnie Brown as Vice President of Business Development and Joyce Folkenson as Director of Claims As Vice President of Business Development, Ronnie’s primary role will be to expand and grow INETICO’s presence in the TPA, selffunded employer group and carrier arena through new business sales, acquisition, and organic growth. She will be working with the Sales and Operations team to highlight existing cost containment services as well as introduce new and innovative solutions that address business concerns facing third party payers and self-insured plans. Ronnie has over 25 years of experience in employee benefits, with an emphasis on self-funding and TPA operations. Ronnie is a licensed Health, Life and Variable Annuities agent in the state of Florida and remains active as a National Past Chairman of the Society of Professional Benefit Administrators (SPBA). She holds a Marketing degree from New York Technical College. With over 20 years of insurance experience, Joyce Folkenson has held successful leadership roles with three Third Party Administrators, including Vice President of Operations for American Insurance Administrators, in Clearwater, FL. She has extensive knowledge of operations, program management, compliance, and client relationship development. Joyce joined the INETICO team in May of 2011 and will be instrumental in expanding existing cost containment programs as well as identifying and defining innovative new services such as INETICO’s exclusive Advance Negotiation Service. ANS capitalizes on opportunities for both In and Out-of-Network Negotiations prior to service as identified through the

October 2011

The Self-Insurer

precertification process. Just another example of the powerful partnership INETICO has created between their Claims and Care Management Divisions. “We understand the importance of the roles that Ronnie and Joyce will play within the INETICO / INETICARE family, and feel that their experience and success in the TPA market will make them assets to the organization, and a valuable resource for our clients. The entire INETICO family is dedicated to building relationships and providing exceptional service and results for our clients and partners,” said Joseph C-W Hodges, President.

OneAmerica names new Chief Financial Officer INDIANAPOLIS, IN – OneAmerica Financial Partners, Inc. announced today that Jeff Holley has been named senior vice president and chief financial officer. Holley will lead the financial and actuarial functions of the OneAmerica companies, filling the position vacated earlier this year by Scott Davison who was promoted to executive vice president. “In Jeff, we have found someone who fits our culture, understands the importance of our mutual structure and has the experience and talent to take our already strong finance organization to the next level,” said Dayton Molendorp, chairman, president and CEO. Holley served as CFO of CUNA Mutual Group from 2000 to 2009 and served as CUNA’s interim CEO from 2004 to 2005. He has also been employed previously at CNA and PriceWaterhouseCoopers and served on the board of directors of the United States Chamber of Commerce. Holley holds a business degree from the University of Wisconsin. “I am delighted to join OneAmerica. I have great respect for the way it does business as a mutual organization,

always putting the customer first,” said Holley. “The OneAmerica companies have demonstrated strong revenue growth and excellent profitability over the past few years despite a very challenging economy. I am extremely excited and looking forward to working with Dayton, Scott and the rest of the OneAmerica team to build further on the financial and operational strengths of the enterprise.”

PMSI’s Eileen Auen Named as Tampa Bay Business Journal’s 2011 Business Woman of the Year in the Business Services Category TAMPA, FL – PMSI, one of the nation’s largest providers of specialty workers’ compensation products and services, announced today that Eileen Auen, Chairman and Chief Executive Officer, was named Business Woman of the Year, in the Business Services category, by the Tampa Bay Business Journal. “Tampa Bay has produced some outstanding female leaders over the years,” noted Auen. “I’m honored to be included in this group representing women who are working hard to improve their profession, the livelihood of others and the community. This is an honor I have achieved not on my own, but through the support of a dedicated team of employees and professional colleagues.” Auen is a recognized leader in the insurance industry with more than 20 years of experience in senior-level positions. In 2010, she was named one of the “Women to Watch” by Business Insurance, a leading industry trade publication. Eileen has led PMSI since December 2008. Her previous positions include serving as Chief Executive Officer of APS Healthcare as well as holding executive positions at Aetna, CIGNA and HealthNet.

About PMSI Founded in 1976, PMSI is a leader in developing solutions to control the growth of medical costs in workers’ compensation. PMSI’s Pharmacy, Medical Services and Equipment, and Settlement Solutions products deliver quantifiable results and improve the quality of care for injured workers. For more information, visit www. pmsionline.com or call 877.ASK.PMSI.

No. 155 on the list of Top Health Companies on the Inc. 5000. “We are honored to once again be included on the Inc. 500|5000,” commented Steve MacDonald, Chairman and CEO of myMatrixx. “We are among a great group and to be considered one of America’s fastest-growing companies is an accomplishment we are extremely proud of,” added MacDonald.

myMatrixx Ranks On Inc. 500|5000 As One of the Nation’s FastestGrowing Pharmacy Benefit Managers and Private Companies

About myMatrixx myMatrixx is a full-service pharmacy and ancillary medical benefits management company focusing on the “Customer Experience.” The company’s Technology Plus™ platform and approach combines advanced technology, expert clinical support, productivity-improving processes, real-time alerts and comprehensive reporting to simplify the management of worker’s compensation claims. For more information visit www.mymatrixx.com. n

Tampa, FL - Inc. magazine ranked myMatrixx No. 1918 on its fifth annual Inc. 500|5000, an exclusive ranking of the nation’s fastest-growing private companies. The list represents the most comprehensive look at the most important segment of the economy - America’s independent entrepreneurs. myMatrixx also ranked

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The Self-Insurer

October 2011

MATHER’S GRAPEVINE by Tom Mather

wo hundred years ago our 3rd president, the eloquent Thomas Jefferson, voiced the following: “I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretence of taking care of them.” Much more recently our 44th President, Barack Obama, also an excellent speaker, said: “If the people cannot trust their government to do the job for which it exists-to protect them and to promote their common welfare- then all else is lost.” Of course the argument will continue for next two hundred years over the need for more or less government, but there have been events in recent times that suggest that the Federal Government is not only growing in its power to control the actions of both public and private activities, but is also entering areas of control over matters that have for over one hundred years been controlled by state run programs put in place by state legislation. Since its beginnings in the early 1900’s, Workers Compensation programs have always differed from state to state. In the early 1930’s, during the development of Social Security being put forth by the Roosevelt administration, considerable controversy went on as to moving workers compensation to a federally run program as part of the social security act. But it became clear early on that it might endanger the passage of the about to be introduced Social Security Act to Congress, so they let it drift on. In the 1960’s, under

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The Self-Insurer

the moves by President Johnson to produce Medicare, the subject came up again but for the very same reasons was let slide. The introduction of the Occupational Health and Safety Act in 1970 changed the picture with inclusion of federal involvement in matters of health and safety issues in the workplace. Run by the Department of Labor, its early intrusions into management of safety issues in businesses across the country are remembered today as a frightful example of big government takeovers of the function of business, with fines in the billions of dollars and even shutdowns of the operations of some industries. Under several changes in the Act since that time by several Presidents and Legislators who were appalled with the earlier activities, OSHA has largely lost its teeth, with a swing toward more of an educational activity, largely moved to state run programs monitored by the federal government. Now we come up to the present day and once again we have legislation afoot that has the odor of the past. One such piece, proposed by Representative Joe Baca (DCA-43) would establish a national commission to review workers compensation laws of the fifty states. Proposed is a 14 member body that would determine whether the workers compensation laws of each state provide prompt and equitable systems of compensation as well as medical care for work-related injuries.

authority to determine if proper administrative procedures have been followed in accident investigations. Most recently, there has been talk in the backroom about the elimination of state run programs altogether and replacing them with what we now call the Social Security Disability Insurance (SSDI) System, a Federal program that protects disabled workers. Those of us who have been involved in workers compensation programs of every type across the country are well aware that there are flaws in each, and I suspect that there will be into the future regardless of what we do. But the idea of a federal takeover of state run activities, no matter what they are, is a terrible mistake that probably can’t be reversed. What better evidence than Social Security, Medicare, or the United States Postal Service. It causes me to think of yet another Thomas Jefferson quote: “My reading of history convinces me that most bad government results from too much government.” n Until Next Time.

We also have the issue in which a court ruling gave OSHA the ability to subpoena an employer’s/plan’s voluntary safety audits, with broad

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