Self-Insurer Sept 2010

September 2010

PPaca, HIPaa and Federal BeneFIt MandateS:

A Guide for Compliance

InSurance MedIa cover

SIIA’s RRG Initiatives

We know what We you’re made of. you’re Ourself-funded self-fundedhealth healthplans plansare arecustom-fit custom-fitto tothe theunique unique profile profile Our of a company’s health and well-being.

Find the balance between of a company’s health and well-being. Find the balance between costcontainment containmentand andemployee employeesatisfaction satisfactiontoday. today.Visit Visithnas.com hnas.com cost learnmore. more.With WithHealthNow, HealthNow,everyone everyonebenefits. benefits. totolearn

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

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

September 2010

FEATuRES

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

REpORTS Other Things Not to Do Into the Wind

8 From the Bench: Mediation of Stop Loss Cases

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– Doughnuts as Teachable Moments Insurance Media Cover SIIA’s RRG Initiatives

12 A Case for Captives 18

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

24

Mather’s Grapevine

26

ART Gallery: Scared of Obamacare?

Here’s One Cure

James E. Burkholder, President/CEO TPABenefits, Inc. San Antonio, TX John Jones, Partner Moulton Bellingham PC Billings, MT Daniel Lebish, President & CEO HM Insurance Group Pittsburgh, PA Steven J. Link, Executive Vice President Midwest Employers Casualty Company Chesterfield, MO

Volume 27

4 Minimum Loss Ratio Requirements &

vice President Finance/cFo/ corporate Secretary* Robert Repke, President Global Medical Conexions, Inc. San Francisco, CA

SIIA DIRECTORS

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14

SAS 70 No More: SSAE 16 Brings Convergence & Change

SIIA COMMITTEE CHAIRS

DEpARTMEnTS 2 President’s Message: Hot Times

chairman, alternative risk transfer committee Kevin M. Doherty, Partner Burr & Forman LLP, Nashville, TN

28 Chairman’s Report: Sharing 30 Years of Success in Chicago

chairman, Government relations committee Jay Ritchie, Senior Vice President HCC Life Insurance Co. Kennesaw, GA chairwoman, Health care committee Beata A. Madey, Senior Vice President, Underwriting HM Insurance Group Pittsburgh, PA chairman, International committee Liz Mariner, Executive Vice President Re-Solutions Intermediaries, LLC Minneapolis, MN chairman, Workers’ compensation committee Chris Mason, Chief Operating Officer USATPA, Inc., Syracuse, NY

September 2010 The Self-Insurer (ISSN 10913815) is published monthly by

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

Statements of fact and opinion made are the responsibility of the authors alone and do not imply an opinion of the part of the officers, directors, or members of SIIA or SIPC. Publishing Director - James A. Kinder Managing Editor - Erica Massey Editor - Gretchen Grote Design/Graphics - Indexx Printing Contributing Editor - Tom Mather and Mike Ferguson Director of Advertising - Justin Miller Advertising Sales - Amanda Perry 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 Board John Hickman, Attorney, Alston & Bird David Wilson, Esq., Wilson & Berryhill P.C. Randy Hindman, Deloitte & Touche, LLP Armando Baez, Global Benefits Group

The Self-Insurer P.O. Box 1237, Simpsonville, SC 29681 Tele: (704) 781-5328 • Fax: (704) 781-5329 e-mail: ggrote@sipconline.net.

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

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

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

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

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

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

the Self-Insurer

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September 2010

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PreSIdent’S MeSSaGe Hot Times

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he on-line reference link Wikipedia gives one definition of the Dog Days of Summer as “a time period or event that is very hot or stagnant, or marked by dull lack of progress”. Wikipedia, by the way, was invented by an Alabamian, Jimmy Wales. While it certainly has been hot in most of the country, with record setting temperatures reported almost daily, I see nothing stagnant in our industry, nor do I see a lack of progress in any area.

This summer, all eyes turned to the South, where the oil spill and potential devastation of one of our nation’s most valuable natural resources were in danger. As a frequent visitor to the Gulf Coast region and provider of coverage to many of the employers affected by this disaster, my thanks go to the many volunteers and industry professionals who pitched in to help. The heat was a challenge, but did not deter the many who came to help.

While we have been faced with legislation that overhauls the delivery of health care in the United States, careful attention is being paid to the ultimate regulatory guidelines that most of the self-funding community will be implementing. These regulations are being drafted and discussed on a daily basis, with no clear grasp on the final product. Your organization, SIIA, is unique in that a Washington office and staff are keeping up and providing needed input on these

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proposals.

As we prepare for the 30th anniversary of SIIA, with its National Conference being held in Chicago October 12-14th, up-to-date information and “hot off the press” news on not only the health care provisions, but all aspects of the self-funded industry will be presented by excellent speakers and industry experts.

Also, updates will be given on SIIA’s involvement with the self-insured group fund situations which have made headlines in several states.

“SIIA’s foresight and initiative in reaching out to the international self-funding community has not only been incredibly successful, it has given our membership an additional benefit that no other organization can provide.”

On a very personal note, I had the most endearing and proud moment as a parent to welcome my son home from his recent tour in Iraq. This incredible and emotional experience was shared with me by SIIA’s Executive Vice-President Erica Massey, as she has proved to be not only a visionary of SIIA, but a true friend. The commitment of these men and women who serve our country should give us all strength to rise to any occasion, under any circumstances, even the heat. n God Bless Our Troops,

Freda Bacon President of SIIA

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LMC 5585 8/2010

MInIMuM loSS

ratIo requIreMentS

& Other Things Not to Do Into the Wind

By Bob Shupe

T

here is a phrase - I will leave it to your imagination - that many have heard and, several males have experienced; once. There are just some things that do not work well when facing the wind. For instance, trying to fly a kite in front of you while facing into the wind, holding the underside of an umbrella facing into the wind, and my favorite walking into the wind on Rush Street in Chicago in February without holding on to a rope. There are, however, some things that work well into the wind, like taking off in an airplane. What does this have to do with “Minimum Loss Ratio Requirements?” This seemingly vital piece of the new healthcare reform package may offer immediate relief from public opinion but it will make a mess and embarrass the ones who suggested it.

What is the intent of this section

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of the legislation? First, it is a lethal suggestion that all insurance companies are spending less than 85% of the money they take in on paying claims and second, suggests that the federal government is spending at least 85%, or more, of the money they take in on “pure” claims. I would debate this here except for one small detail. The whole argument is stupid. What if you just go ahead and say spend 99% of everything you take in on claims? Does that lower healthcare costs? No. It is what is not being said that should make you mad.

Nowhere in this section of the monolithic, so-called reform bill, or for that matter any section of this bill does the legislation simply suggest that what the 85%, 90%, 99%, or 65% of money being spent on claims, is actually paying for claims that should have been created, or more importantly, that the claims that are being paid are priced correctly to begin with. I worked hard to write that last sentence in the style of the new legislation. In short, setting an arbitrary cap on what any company or government must pay for claims does nothing to lower the cost of healthcare!

This has been my argument from day one, whenever that was, that the problem is not financing healthcare alone, but the delivery of, and the control of healthcare utilization. A minimum loss ratio will not create more dollars to spend on claims, it will create rationing.

Here are the facts. A 2008 report by Price, Waterhouse, Coopers, commissioned

by America’s Health Plans, found that 87% of all premium dollars collected are being spent on care. The other 13% is not pure profit. This report states that in 2007, three-quarters of the increase in healthcare costs were driven by provider cost increases. Administrative costs - claims processing, consumer and provider support,

and taxes and profits accounted for record maintenance, case management, has but one agenda, cast shame of one tenth of the total increase. This AND a mountain of compliance with the insurance industry and push our report shows the average profit to be GOVERNMENT regulations and country toward national healthcare.

3%. Fortune Magazine reported last taxes. Setting a minimum loss ratio has It is about controlling almost 20% of year that insurance company profits nothing to do with cutting down on our GDP. The sad part is that those averaged 6.2% of revenue, far below utilization of services, poor life styles, pushing this current agenda are so other industries.

There are A 2008 report by price, numerous items Waterhouse, Coopers, commissioned by America’s Health that have to be plans, found that 87% of all premium dollars collected are paid out of that 13% including, being spent on care.The other 13% is not pure profit. in most states, setting aside a required 25% of paid eating choices, smoking, obesity, misuse convinced that the American public claims as a reserve, in case the client of imaging for profit, preventive tests to won’t question their motives that they leaves and the company has to pay the protect the physician (which they do can get by with it, and get re-elected. I run-out of claims incurred before the make money on), and a warehouse full really, really hope they are very wrong. group left. It includes the administrative of other cost producing items.

If not, then they can continue doing it cost of disease management programs, into the wind while the country does it The purpose of this section of the staffing, processing, electronic medical up a rope. n now over 3,000 plus pages of the bill

Here are the facts.

the Self-Insurer

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September 2010

5

INSURANCE MEDIA COVER

SIIA’s RRG Initiatives

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September 2010

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ne of SIIA’s top government relations priorities for 2010 has been to improve life for risk retention groups – selfinsured groups of like businesses or professionals organized under the federal Liability Risk Retention Act (LRRA) to insure against liability claims.

RRGs,” by Caroline McDonald included these points:

SIIA’s efforts to support RRGs resulted in the successful introduction in the House last March of “The Risk Retention Modernization Act” (HR 4802) that would allow RRGs to write commercial property coverage in addition to liability insurance, and also would establish federal enforcement of the LRRA’s preemption of non-domiciliary state interference with the operation of RRGs.

Mr. Doherty said the RRGs are fine with complying with “reasonable regulations.” The problem, however, is “prohibition against doing what they were authorized to do by their domiciliary state.” He said the study should serve as the basis for a federal dispute resolution process to prevent further unlawful abuses by states of these self-insured groups.

The latter effort was further strengthened by the directive of Rep. Dennis Moore (D-KS), a sponsor of HR 4802, that the Government Accountability Office shall investigate abuses of RRGs by some state insurance regulators.

SIIA issued a press release on July 23 in support of Rep. Moore’s directive that the GAO study instances where non-domiciliary states attempt to improperly regulate the operation of RRGs through such tactics as “cease and desist” orders, onerous filing requirements, imposition of fees, waiting periods, information requests or other means.

The SIIA release offered comments

by Kevin Doherty, chairman of SIIA’s Alternative Risk Transfer Committee. It was widely published in insurance trade publications and websites, and several significant publications interviewed Kevin further in coverage digested as follows:

National Underwriter Online News Services, July 23: “GAO to Probe State Regulation of

“Hopefully, we’ll start identifying specific situations to get people to understand the difficulty RRGs face in this climate,” Kevin Doherty, who chairs the Self-Insurance Institute of America’s Alternative Risk Transfer Committee, told NU Online News Service.

“With enforcement through a dispute resolution process, risk retention groups can be confident of their rights under federal law,” he said in a statement. SIIA said it is hopeful that this independent GAO study will bolster the case for the need of some sort of dispute resolution.

Business Insurance, August 2: “Lawmakers seek probe of states’ efforts to regulate RRGs” by Mark A. Hofmann included these points: Kevin Doherty, chairman of the Self-Insurance Institute of America’s

alternative risk committee and a partner in the Nashville, Tenn., office of Burr & Forman, stressed that the (LRRA) law has no enforcement provisions. The only legal remedy when an RRG believes a nondomiciliary state has overstepped its bounds is a federal lawsuit, which is very expensive, said Mr. Doherty.

“Most risk retention groups don’t have the capability to file a federal lawsuit to enforce their rights,” he said.

Best’s Review, August 2010 issue; The issue’s cover feature was headlined: “Rethinking the Regulations – Proposed federal legislation would increase the lines of business that risk retention groups could write.”

This broader article included the current legislative intent of HR 4802 and included these quotes from the author’s interview of Kevin Doherty: “It is very difficult to do liability (insurance) and not do property (insurance) because most people who buy the liability coverage would like to have the property as well. So what happens is that people have to cut and paste different programs around the RRG to make it work.

“So effectively what happens (in the case of state interference) is that RRGs are restricted in their operations because there is no dispute resolution.”

Alternatives to traditional insurance, including RRGs, now probably constitute about half of the business insurance marketplace, Doherty said.

“When you consider that, you’ve got to figure people are more and more familiar with captives and RRGs, and they are a more-accepted way of doing business. So I would presume all of that would lead to grand flexibility for RRGs and ultimately passage of the proposed law.” n

the Self-Insurer

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September 2010

7

Bench from the

By thomas a. croft, esq.

Mediation of Stop Loss Cases: Doughnuts as Teachable Moments

T

o understand and then explain is much of what lawyers do. To be effective, an advocate must first get it, and then teach it—to a judge, a jury, a mediator, an arbitrator, and even to opposing counsel. Indeed, the latter may be the most important audience a litigator has. After all, it is the opposing lawyer who has the ear—and the trust-- of the decision-maker on the other side of the dispute. Unless the case goes all the way through trial and final appeal, what the opposing lawyer thinks about her case—as informed by the efficiently communicated strengths of yours-- may well dictate the outcome.

An effective counselor, therefore, must also be willing to be taught by his

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opponent about their case and its merits as she perceives them. When both sides competently present to one another the best picture of their respective views of the case, a rational and informed resolution is most often not only possible, but probable. This yields efficiency and minimization of cost, which, of course, is beneficial to both sides of the dispute at hand, as well as the court system, and thus to society at large.

In mediation, these dynamics exist with the interposition of a neutral party. The teaching and learning that occurs in this context is facilitated by the fact of the mediator’s independence, and his singular agenda to reach a mutually acceptable settlement of the case in the time at hand. The often-encountered unwillingness of a party or its counsel to learn a thing about the weaknesses of their own case, sometimes resisted with swashbuckling intransigence and bravado, is minimized by the presence of a mediator, who can “cut-to the chase” in private caucus with each side. The ability of the mediator to “tell it like it is” to a lawyer’s myopic client is the great advantage that mediation provides.

Having said all this, I turn to what I really wanted to write about this month, which is doughnuts.

In the stop loss arena, doughnuts provide, in the current vernacular, “teachable moments.” This is why it is always a good idea to serve them at mediations of stop loss cases. Let me wax frivolous, and explain.

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Like most humans, mediators are not born with an understanding of stop loss.

Nor have they likely encountered it previously in their law or mediation practices.

At least I’ve never run across one who did at the start of a mediation, although there are probably some out there. It is therefore necessary and desirable to bring things into focus for them using a simple visual aid. Enter the common doughnut:

Stop loss spec claims, like doughnuts (excepting the cream-filled or jelly variety), have holes: These holes represent the amount of the medical claim that must ultimately be borne by the Plan. The size of the hole is the size of the Specific Deductible set forth on the Schedule of the stop loss policy. The doughnuts themselves can be thought of as the stop loss claims to be reimbursed under the policy, i.e., eaten by the carrier and not the Plan. Some doughnuts are small—barely larger than the hole. Others can be quite large. However, no doughnut can be larger than the maximum reimbursement available under the stop loss contract.

The part of the doughnut larger than that must be eaten by the Plan. I do not deal here with lifetime maximums, as they are, as a practical matter, destined to go the way of the Dodo because of PPACA (“Pee-Pee Ahh-Cah” to some).

The function of the TPA is to bake the doughnuts and serve them up to the stop loss carrier: The circular symmetry of the doughnuts can be spoiled by certain exclusions and/or limitations in the stop loss contract limiting the reimbursement available beyond the specific deductible (doughnut hole).

The bites out of the doughnuts are taken by claims personnel, enforcing these limitations in the stop loss policy. They are then spit out and returned to the TPA submitting them. A common bite is the one resulting from enforcement of the U&C limitation in the stop loss policy (as opposed to the one, if it exists, in the Plan). Sometimes the bite takes away the whole doughnut, as where the claim is wholly excluded by a policy exclusion. These can get especially messy when expectorated by an MGU or carrier.

Lasers can be explained in terms of special “large reimbursement holes” for claims relating to certain specified individuals identified during underwriting with especially problematic diagnoses.

Then there is the matter of the rotten doughnuts. These are doughnuts sent to the stop loss carrier for which there was no disclosure during underwriting, though

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there should have been. Stop loss carriers won’t eat these, and routinely send them back to their source after their unpleasant odor is detected.

Explaining the aggregate feature of a stop loss contract is an easy matter once we’ve gone down the doughnut road. In somewhat oversimplified terms, an agg. feature is a promise by the stop loss carrier to eat the excess amount of doughnut holes left for the Plan if the bag that holds them exceeds a certain size (typically 125% of expected volume), as determined by the aggregate corridor during underwriting. Note that the size of the holes in the agg. bag can vary from miniscule up to the size of the Spec. Stop loss carriers do not like to eat the holes as a general matter, and therefore they almost never plan on doing so. They tend to get a bad cases of indigestion of they do. If there is an agg. claim, most underwriters and claim personnel will tell you that something is amiss, i.e., there is a rotten agg. somewhere, perhaps in Denmark.

Litigation over stop loss claims is essentially an ongoing dispute over who must eat the doughnut served up by the TPA that the MGU/Carrier has spit out, or refused to eat because it was allegedly spoiled—as in the case of non-disclosure. Nobody wants to eat the doughnut, but ultimately somebody must. At mediation, the spoiled or partially chewed doughnut is placed on a plate in the middle of the table between the parties, who look at it most of the day with disgust while the lawyers urge the opposite party to chow down. The mediator’s role is to explain to both sides why the doughnut really won’t taste as bad as they fear. By the end of the day, both sides usually agree on a division, eat their share, and then go on with their lives.

Bon appetit. n

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Bermuda · Kentucky · Montana · South Carolina · Washington, DC

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September 2010

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A Case for

CAptiVeS

By F. Hale Stewart

W

hen talking with prospective captive insurance owners, it’s important to have a list of benefits to mention.

Here are some of the primary reasons people should consider forming a captive insurance company.

Case law provides one of the most common reasons: a company is forced into creating its own captive because the insurance market no longer provides adequate coverage, or the private market only provides coverage at prohibitive prices. The plaintiff in Consumer’s Oil owned property in a flood plain but could not find insurance.

The plaintiffs in U.S. v. Weber faced the exact same problem. The plaintiff in Ocean Drilling was an offshore oil company that could not find adequate insurance for its offshore activities. The plaintiff in Humana was a large nationally known hospital chain that almost went without insurance because of the cost. In all of the preceding cases, the private market did not provide the plaintiffs with the coverage they needed; hence, all the companies were forced to create their own captives.

A second reason for creating a captive is to obtain more control over the insurance policy. Case law provides a classic example: in Beech Aircraft the plaintiff wanted an insurance policy where the company had more control over the attorneys during litigation.

The company lost a large tort claim, which the company felt was caused by its attorneys, who were appointed by its insurer. The company went so far as to try to have its insurance companyappointed counsel removed during

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trial. Beech needed an insurance policy that gave it far more control over the attorneys appointed in case of a claim.

This leads to two reasons for forming a captive insurance company.

A third reason for forming a captive is cost reduction. For example, in the second quarter of 2009, the Traveler’s Insurance Company had selling, general and administrative expenses of $839 billion. Over the same period, Aetna had selling, general and administrative expenses of $1.4 billion. To a certain

extent, each company’s premiums reflect these costs. Compare that to a captive that has little selling and marketing expense because it is dealing with a limited number of insureds. This lowers the cost of insurance issued by the captive.

Fourth, the insured can use its own loss experience in determining insurance rates. While underwriters used to consider each insured’s unique loss experience, that situation rarely exists now. If the parent has a good

Fifth, captives can be used as wealth transfer vehicles. Here is the general plan. A company owned by a high net worth individual establishes a captive.

The captive has written premiums higher than $350,000 and lower than $1.2 million. As a result, the captive is taxed on its taxable investment income, which is usually lower than net premiums received. At the same time, the estate’s beneficiaries are shareholders of the captive. It is best if they own the captive through a trust to protect the shares from future creditor’s claims. The children receive the benefit of increased share prices caused by an increase in the captive’s overall net worth. However, the captive is subject to a lower level of taxation because of the 831(b) exception.

Because of certain tax attributes of insurance companies (such as the ability to deduct contributions to reserves from its gross income), the captive can act as a wealth accumulation vehicle.

Sixth, owning a captive gives the owner direct access to the reinsurance market. Reinsurers usually have lower costs of operation and regulatory barriers, along with lower administration expenses. This spares the captive the cost of insurance mark-ups. However, most reinsurers are only interested in large premiums, thereby preventing the smaller captive from meaningfully participating in the reinsurance market.

Seventh, a captive can provide the insureds with a negotiation tool when dealing with other insurers. The reasoning is simple: when the insured has a captive, he is not in dire need

of insurance. Instead, he may be able take or leave the policy provided by an independent third party insurer. This changes the dynamic of a negotiation, giving the insured more leverage when dealing with an insurer.

in the captive’s premiums. In contrast, insurance provided by a third party insurer places the insured at the whims of similar insureds covered by the insurer. n

Eighth, a captive can provide stable pricing. If the insured already has a good loss history – or if the insured develops and successfully implements a comprehensive loss program in conjunction with forming the captive –VHN_SelfInsurer_4.5x6.75_bw:Layout the loss experience can be reflected

F. Hale Stewart, JD, LLM, CTEP, CAM, CWM is a tax attorney in Houston, Texas and who also authored the book A Practitioner’s Guide to U.S. Captive Insurance Law, which is available from IBLS.com. His website is http://www.

1 6/24/09 11:40 AM Page 1 captiveinsuranceinfo.com/

©2009 Virginia Health Network

loss profile, the captive can use this in determining premiums. As a result, the captive will allow the insured to tailor the insurance policy to the insured’s unique loss experience.

YOU SAY,

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

WE SAY,

“We crafted a lower-priced PPO network.

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

And put our creativity to work for you.

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September 2010

13

SaS 70 no More:

SSAe 16 Brings Convergence &Change

By Rick Scarfino, CPA, CITP, CISA and Josh Ayers, CPA, CITP, CISA

T

hird-party administrators (TPAs), managing general underwriters (MGUs), electronic claims SSAE clearinghouses, and other organizations that provide 16 brings U.S. services directly to the self-insurance industry auditing and attestation have to contend with the ever changing landscape of health standards more in line care reform and additional regulation like the Health with international auditing Insurance Portability and Accountability (HIPAA) Act and attestation standards and the Health Information Technology for Economic but retains much of the and Clinical Health (HITECH) Act. Now those guidance that was already organizations must also contend with a significant included in SAS 70. There will change in accounting and auditing standards.The be a few practical changes to American Institute of Certified Public Accountants service auditor procedures, but (AICPA) Auditing Standards Board (ASB) there are some important changes recently released Statement on Standards for Attestation Engagements no. 16, service organizations should know when SSAE 16 becomes effective.

Reporting on Controls at a Service Below are a series of frequently asked Organization (SSAE 16). SSAE 16 will questions and answers that will help supersede the requirements and guidance for service organizations implement the service auditors that was previously included in Statement on Auditing Standards No. 70, relevant changes necessary to transition Service Organizations (SAS 70). to SSAE 16.

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1. If we have a SAS 70 Type I or II Report, when will we have to transition to the new standard and what happens if we do not?

assertion about the fairness of the presentation of the description of controls, the suitability of its design and, in a Type II engagement,

• Risk Assessment The service organization will be required to perform a formal or informal risk assessment that

Answer: The new standard must be applied to all reports that cover periods ending on or after June 15, 2011 with early adoption permitted.

If a service organization does not transition to the new standard, its clients and its clients’ auditors will be unable to rely on the report. This could result in the service organization incurring unnecessary costs related to the time and resources needed to accommodate additional on-site audits and requests for information by its clients or its clients’ auditors.

It should be noted that by the time you read this article your first period under SSAE 16 may have already started.

2. Are all of the control objectives and specified controls we have in place for SAS 70 still relevant under SSAE 16?

Answer: Yes. At this point, no significant changes to control objectives and specified controls are considered to be necessary. As a result, the majority of the testing your auditor performed prior to SSAE 16 will be applicable once the new standard is in place.

3. What are the significant changes we will have to consider in preparing for our transition to SSAE 16?

Answer: Three significant changes will need to be considered by service organizations: • Management’s Assertion The service organization will be required to provide the service auditor with a written

its operating effectiveness. The assertion must either accompany the service auditor’s report or be included in the service organization’s description of controls. Depending on its service auditor, the service organization may be required to have a responsible individual sign the management assertion.

SSAE 16 provides an example management assertion that your service auditor can help you tailor to your service organization.

• Suitability of Criteria The service organization will be required to use suitable criteria to measure, present and evaluate the management assertion. The new SSAE 16 standard includes the suitable criteria to be used in a Type I or Type II engagement. The service organization should discuss these criteria with its current service auditor.

identifies the risks that threaten the achievement of the control objectives and specified controls already established and, if applicable, identifies additional control objectives and specified controls needed to meet the users’ needs.

The risk assessment should include the consideration of changes to the description of controls and how the service organization monitors the effectiveness of its control environment.

4. Will there be changes in my service auditor’s procedures under SSAE 16?

Answer: Yes. The service auditor will have to consider additional acceptance and continuance procedures to ensure the service organization has the ability to provide a reasonable basis for its assertion and the service organization has implemented a risk assessment methodology. The service auditor’s application of materiality

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in SSAE 16 engagements will now consider both qualitative (the nature of observed deviations) and quantitative (the tolerable rate compared to the observed rate of deviations) components. The service auditor’s use of a service organization’s internal audit department will also be required to be disclosed with respect to the reliance on the specific tests performed 5. My organization outsources certain processes to a subservice organization. What impact will this relationship have on my report under SSAE 16?

Answer: Under SSAE 16, service organizations will still have to consider whether to include (inclusive method) or exclude (carve-out method) relevant sub-service organization control objectives and related controls in their report. However, choosing the inclusive method will have a greater

impact on the service organizations under SSAE 16. When the inclusive method is used, the requirements of SSAE 16 that apply to the service organization will also apply to the sub-service organization. This means the sub-service organization will also

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have to provide a written assertion regarding its description of controls relevant to the service organization and provide evidence of its effectiveness.

In order to provide the appropriate evidence of its effectiveness the subservice organization would need to supply its SSAE 16 report or be subject to additional procedures performed by the service auditor. As a result, service organizations will have to consider whether they will be able to coordinate and obtain the necessary information to use the inclusive method.

6. What changes can I expect to see in the service auditors’ opinion letter?

Answer: Many of the changes to the service auditors’ opinion letter will relate to the topics covered above.

For example, there will be references to management’s assertion, there will be an indication as to whether

the carve-out or inclusive method is being used with respect to sub-service organizations, there will be specific reference to the complementary user control considerations, and, in Type II engagements, the opinion will now express whether the internal

controls were properly designed and implemented for the entire period, not just as of the period end date as previously reported.

7. Are there any plans to publish additional guidance with respect to SSAE 16?

Answer: Yes. Keep in mind that the AICPA will issue an audit guide that provides additional guidance and clarity sometime in late 2010 and possibly early 2011. As a result, both service auditors and service organizations will still have some questions regarding the implementation and impact of the changes until this guidance is released to the public.

8. I am a service organization that feels SAS 70 is not relevant to my organization because the services I provide do not affect a user’s financial statements, yet my clients continue to request one.

Is there any relevant guidance for service organizations like data centers, software as a service providers, or electronic claims clearinghouses?

Answer: As mentioned above, the AICPA is scheduled to release audit guidance in late 2010 and possibly early 2011, which will address this concern as well. The expectation is they will allow service auditors to provide three different types of Systems of Controls (SOC) reports. SSAE 16 reports will be considered SOC 1 reports and AICPA Trust Services (WebTrust and SysTrust) reports will be issued as SOC 3 reports. SOC 2 reports will be available to service organizations that do not process transactions that affect their client’s financial statements but are concerned with the security, availability, and/or confidentiality of their client’s data (e.g. data centers).

9. Will the new standard provide us with any additional advantages?

Answer:Yes. The new standard converges U.S. and International auditing and attestation standards. Depending on the needs of the users and/or their auditors, those service organizations that have been required to provide a separate report under the International Standards on Attestation Engagements (ISAE) 3402 in addition to their SAS 70, may now be able to meet their reporting obligations with a single SSAE 16 report.

10.The new SSAE 16 standard mentions early adoption as an option for service organizations.

Are there benefits to early adopting?

Answer: Those that choose to early adopt will have more time to assess and evaluate whether the service

organization has implemented the processes necessary to comply with SSAE 16. There are certainly challenges to be faced in organizations transitioning from SAS 70 to SSAE 16 however, service organizations that choose to early adopt could be perceived as market leaders and their users may consider their control environment to be stronger than their competitors.

organizations, clients, and users will allow key individuals within those organizations to know what to expect when your SSAE 16 report is issued. Gaining an early understanding of SSAE 16 and taking charge of the transition process will help your organization avoid the stress and disruption of costly mistakes and missed opportunities associated with delaying the transition to the new

You may be thinking about the most important question, what do I do now? The answer is to take charge of the transition process. Ask your service auditor to educate you on the new standard and help you start planning your course of action. Start discussing whether early adoption is appropriate, who in the organization is responsible for the management assertion, and if there are any additional compliance and risk assessment processes that need to be implemented to comply with the new standard. Developing a communication plan for sub-service

compliance requirements. n Rick Scarfino, CPA, CITP, CISA is a Senior Manager with Stone Carlie & Company, LLC. Rick can be reach at rscarfino@ stonecarlie.com. Josh Ayers, CPA, CITP, CISA is a Manger with Stone Carlie & Company, LLC. Josh can be reached at jayers@ stonecarlie.com. Stone Carlie & Company, LLC (www.stonecarlie.com) is a full service accounting firm that specializes in SAS70 engagements for TPAs and other entities within the insurance industry.

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q&a

PPACA, HIPAA AND FEDERAL HEALTH BENEFIT MANDATES:

practical

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

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

Departments issue Mandatory preventive Care Regulations The Departments of Health and Human Services (HHS),Treasury and Labor (collectively the “Agencies”) issued interim final regulations (“Regulations”) on July 14, 2010 regarding the new preventive care coverage requirements set forth in new Public Health Service Act (PHSA) Section 2713, as added by the Patient Protection and Affordable Care Act (PPACA). This rule is effective for plan years beginning on or after

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September 23, 2010 and it affects all

date (see “Applicable Effective Date”

plans that are not grandfathered health

below for more detail) and waive all

plans. The following is an overview of

cost-sharing requirements (See “Cost

the Regulations.

Sharing Requirements” below for more details) for the following “recommended

Recommended preventive Services Generally, group health plans that

preventive services”: • Evidence-based items or services with an “A” or “B” rating from the

are not “grandfathered health plans”

U.S. Preventive Services Task Force

must cover, by the applicable effective

(USPSTF);

• Immunizations for routine use in children, adolescents and adults with a recommendation in effect from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention; • Evidence-informed preventive care screenings for infants, children and adolescents provided in guidelines supported by the Health Resources and Services Administration (HRSA); and • Evidence-informed preventive care and screening for women provided in guidelines supported by HRSA and not otherwise addressed by the USPSTF. The Regulations note that HHS is developing these guidelines and expects to issue them no later than August 1, 2011.

Recommendations of the USPSTF regarding breast cancer screening, mammography, and prevention issued in or around November 2009 are not considered to be current under the regulations.

The complete list of recommendations and guidelines that must be covered by plans is located at http://www.HealthCare.gov/center/ regulations/prevention.html (the “List”) and will be continually updated to reflect both new recommendations and guidelines and revised or removed guidelines. You will find the current list in Appendix A attached to this overview.

Plans are not required to provide coverage (or waive cost-sharing) for any item or service that ceases to be a recommended preventive service, such as if the USPSTF downgrades a recommended preventive service from a rating of “B” to a rating of “C” or “D”.

Likewise, plans may provide coverage for items and services in addition to those included in the recommendations and guidelines (and such services may be subject to cost sharing).

nOTE:The Regulations provide that a plan or issuer may use reasonable medical management techniques to determine the frequency, method, treatment, or setting for preventive services, to the extent such specifications are not specifically included in the relevant recommendations or guidelines.

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Applicable Effective Date Non-grandfathered plans must cover the recommended preventive services beginning with plan years beginning on or after September 23, 2010. However, for recommendations or guidelines that went/go into effect after September 23, 2009, specified services must be covered for plan years that begin on or after the date that is one year after the date the recommendation or guideline was/is issued. While the majority of services currently identified in the List must be covered within the first plan year beginning on or after September 23, 2010, several current recommendations and guidelines went into effect after September 23, 2009, and therefore, the coverage requirement is delayed until one year after the issue date with respect to those services.

Cost Sharing Requirements Generally, cost sharing for network providers with respect to “recommended preventive services” is prohibited. “Cost sharing” for purposes of these rules includes deductibles, co-payments, and coinsurance.

Cost sharing is permitted for any item or service that ceases to be a recommended preventive service or for services or treatments in addition to those included in the specified recommendations. In addition, the Regulations indicate that a plan may impose cost-sharing requirements for a treatment not included in the specified

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recommendations even if the treatment results from a recommended preventive service. Finally, the regulations clarify that nothing prevents a plan or issuer from using reasonable medical management techniques to determine the frequency, method, treatment, or setting for a required preventive care item or service to the extent not specified in the recommendation or guideline Example: Child A visits an in-network pediatrician for a preventive care screening. As a result of the preventive care screening, the pediatrician recommends that Child A undergo surgery for a heart disorder. Because the preventive care screening is a recommended preventive service, the plan cannot impose a cost sharing requirement.

However, the plan may impose a cost sharing requirement for Child A’s heart surgery, which resulted from the preventive care screening.

Furthermore, the Regulations clarify the cost-sharing requirements when a recommended preventive service is provided during an office visit: • Cost sharing with respect to the office visit is prohibited if... − the primary purpose of the office visit is the recommended preventive service and the recommended preventive services is NOT billed separately (or tracked separately as individual encounter data).

Example: Child B covered by a group health plan visits an in-network pediatrician to receive an annual physical exam that is a recommended preventive service. During the office visit,

the child receives additional items and services that are not recommended preventive services.

The provider bills the plan for the office visit. Because the primary purpose for the office visit was to provide recommended preventive services, and the plan was not billed separately, the plan may not impose a cost-sharing requirement with respect to the office visit.

• Cost sharing with respect to the office visit is permitted if... − the recommended preventive service is billed separately from the office visit (or is tracked separately as individual encounter data). Although cost sharing with respect to the office visit is permitted, cost sharing with respect to the separately billed/ tracked recommended preventive service is not permitted.

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Example: Joe, who is covered by a group health plan, visits an in-network health care provider.

While visiting the provider, Joe is screened for cholesterol abnormalities with a rating of A or B (i.e. recommended preventive services). The provider bills the plan separately for the office visit and for the laboratory work of the cholesterol screening test. The plan may not impose any cost-sharing requirements with respect to the separately-billed laboratory work of the cholesterol screening test.

However, the plan may impose cost-sharing requirements for the office visit since it was billed separately from the recommended preventive service. − the preventive service is not billed separately (or is not tracked as individual encounter data separately) from an office visit but the primary purpose of the office

visit is not the delivery of such an item or service.

Example: Bob visits his network provider for abdominal pain. During the visit, he has a blood pressure screening that is a recommended preventive service. The provider bills the plan for the office visit (i.e. there is not a separate bill for the blood pressure screening). The plan may impose cost sharing on the office visit because the primary purpose of the office visit was not the delivery of a recommended preventive service.

Impact on network plans The Regulations clarify that a network based plan is not required to provide coverage for recommended preventive services delivered by an out-of-network provider and may impose cost-sharing requirements for any such out-of-network services that are offered. n

AppEnDIX A Current as of July 16, 2010

Grade A and B Recommendations of the united States preventive Services Task Force: • Screening for abdominal aortic aneurysm • Counseling to reduce alcohol misuse • Screening for anemia • Aspirin to prevent CVD: men • Aspirin to prevent CVD: women • Screening for bacteriuria • Screening for blood pressure • Counseling for BRCA screening • Screening for breast cancer (mammography) • Chemoprevention of breast cancer • Counseling for breast feeding • Screening for cervical cancer • Screening for chlamydial infection: non-pregnant women • Screening for chlamydial infection: pregnant women

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CRITICAL ILLNESS ACCIDENT DISABILITY INCOME TERM LIFE

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LIMITED BENEFIT MEDICAL

• Screening for cholesterol abnormalities: men 35 and older • Screening for cholesterol abnormalities: men younger 35 • Screening for cholesterol abnormalities: women 45 and older • Screening for cholesterol abnormalities: women younger than 45 • Screening for colorectal cancer • Chemoprevention of dental caries • Screening for depression: adults • Screening for depression: adolescents • Screening for diabetes • Counseling for diet • Supplementation with folic acid • Screening for gonorrhea: women • Prophylactic medication for gonorrhea: newborns • Screening for hearing loss • Screening for hemoglobinopathies • Screening for hepatitis B • Screening for HIV • Screening for congenital hypothyrodism • Iron supplementation in children • Screening and counseling for obesity: adults • Screening and counseling for obesity: children • Screening for osteoporosis • Screening for PKU • Screening for Rh incompatibility: first pregnancy visit • Screening for Rh incompatibility: 24-28 weeks gestation • Counseling for STIs • Counseling for tobacco use: adults • Counseling for tobacco use: pregnant women • Screening for syphilis: non-pregnant persons • Screening for syphilis: pregnant women • Screening for visual acuity in children

Recommended Immunizations (compilation of vaccines on all required schedules):

SACHDnC Recommended uniform Screening panel CORE COnDITIOnS:

SACHDnC Recommended uniform Screening panel SECOnDARY COnDITIOnS:

• Hepatitis B • Rotavirus • Diphtheria, Tetanus, Pertussis • Haemophilus influenzae type b • Pneumococcal • Inactivated Poliovirus • Influenza • Measles, Mumps, Rubella • Varicella • Hepatitis A • Meningococcal • Tetanus, Diphtheria, Pertussis • Human Papillomavirus • Zoster

• Propionic academia • Methylmalonic acidemia (methylmalonyl-CoA mutase) • Methylmalonic acidemia (cobalamin disorders) • Isovaleric acidemia • 3-Methylcrotonyl-CoA carboxylase deficiency • 3-Hydroxy-3-methyglutaric aciduria • Holocarboxylase synthase deficiency • ß-Ketothiolase deficiency • Glutaric acidemia type I • Carnitine uptake defect/ carnitine transport defect • Medium-chain acyl-CoA dehydrogenase deficiency • Very long-chain acyl-CoA dehydrogenase deficiency • Long-chain L-3 hydroxyacylCoA dehydrogenase deficiency • Trifunctional protein deficiency • Argininosuccinic aciduria • Citrullinemia, type I • Maple syrup urine disease • Homocystinuria • Classic phenylketonuria • Tyrosinemia, type I • Primary congenital hypothyroidism • Congenital adrenal hyperplasia • S,S disease (Sickle cell anemia) • S, βeta-thalassemia • S,C disease • Biotinidase deficiency • Classic galactosemia • Severe Combined Immunodeficiences • Cystic fibrosis • Hearing loss

• Methylmalonic acidemia with homocystinuria • Malonic acidemia • Isobutyrylglycinuria • 2-Methylbutyrylglycinuria • 3-Methylglutaconic aciduria • 2-Methyl-3-hydroxybutyric aciduria • Short-chain acyl-CoA dehydrogenase deficiency • Medium/short-chain L-3-hydroxyacl-CoA dehydrogenase deficiency • Glutaric acidemia type II • Medium-chain ketoacylCoA thiolase deficiency • 2,4 Dienoyl-CoA reductase deficiency • Carnitine palmitoyltransferase type I deficiency • Carnitine palmitoyltransferase type II deficiency • Carnitine acylcarnitine translocase deficiency • Argininemia • Citrullinemia, type II • Hypermethioninemia • Benign hyperphenylalaninemia • Biopterin defect in cofactor biosynthesis • Biopterin defect in cofactor regeneration • Tyrosinemia, type II • Tyrosinemia, type III • Various other hemoglobinopathies • Galactoepimerase deficiency • Galactokinase deficiency • T-cell related lymphocyte deficiencies

Recommendations for preventive pediatric Health Care: • History (Initial/Interval) • Measurements (Length/ Height and Weight; Head Circumference; Weight for Length; Body Mass Index; Blood Pressure) • Sensory Screening (Vision/Hearing) • Developmental/ Behavioral Assessment (Developmental Screening; Autism Screening; Developmental Surveillance; Psychosocial/Behavioral Assessment; Alcohol and Drug Use Assessment) • Physician Examination • Procedures (Newborn Metabolic/Hemoglobin Screening; Immunization; Hematocrit or Hemoglobin; Lead Screening; Tuberculin Test; Dyslipidemia Screening; STI Screening; Cervical Dysplasia Screening) • Oral Health • Anticipatory Guidance

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MatHer’S GraPevIne

I

t was a hot summer day in South Carolina. We were flying the Cessna 170 over the football field at Furman University.The plane was operating perfectly.The pilot was not. My instructor, Joe Kaminski , kept saying “left stab Tom, left stab.” He was trying to teach me how to fly in circles without losing altitude, a very important maneuver to be sure. We were using the football stadium as the circle that we were following around at about 3500 feet in altitude. Eventually I got it right and much to his satisfaction we made a smooth, safe landing at the Greenville/ Spartanburg Airport.

industry and self-funding the workers compensation coverage in group programs was literally the last option for most firms.

The end result of this was that in the following several years, numerous groups in Georgia, North and South Carolina, Florida, Alabama, Michigan and many other States were formed, most of which remain today either in the Self-Insured Group format or as Captive arrangements. Little did we know at the time that the movement we were starting would grow to the extent that it has across the country.

traveled through the back woods and lumber mills across the country with both Hewitt Coleman and eventually with CoreSource and AON. As time went by we moved into similar programs in the foundry business, government agencies such as road commissions, rural electric supply cooperatives, construction companies and a host of other entities.

Self-Insured Workers Compensation groups have been an insurance savior for many industries in this country over the years.They have also resulted in much improved working environments for thousands of workers and a means

Joe was my flight instructor and a darned good one. Many years before, Joe had been licensed as the youngest private pilot in the United States at the age of 15, unheard of in those days. I eventually got my VFR license but never went on beyond that. I truly loved learning to fly. All these years later, with over 2 million commercial air miles accumulated, I still love to fly.

Joe and I became friends as a result of our meeting as fellow employees with the TPA firm of Hewitt Coleman & Associates. He’s gone now, but not forgotten. Dick Hewitt, a great innovator of approaches to self-insurance had started the company primarily to serve one of the most dangerous industries in the country at that time. Logging and lumbering led the list. Dick felt that selfinsuring these businesses in the group workers compensation venue could help reduce the costs to the employers while at the same time, with proper safety engineering practices, reduce the terrible losses that had been occurring for decades.The reality was that most writers in the primary market had essentially bailed out of the logging

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Dick Hewitt is long gone from this earth today but certainly not forgotten.

When I first met him I was in a very comfortable position with the Zurich American Insurance Company as the safety engineering manager for the MidWest Division. I had no desire to move anywhere. Dick flew into town with Joe Kaminski as his pilot. It took him one expensive dinner and about two hours to talk me into joining his firm, a move that I never regretted. Nearly thirty years later I retired from the business, having

for businesses to succeed without the appalling losses previously suffered in these occupations.

Surely it is not over.This market will continue to expand as it has since the beginning. SIIA has always been an integral part of it as the meeting place for participants in such programs and will continue to be into the foreseeable future. I have fond memories of its development and progress. And it gave me the opportunity to do a lot of flying, even if not in the pilot’s seat. n

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ART Gallery By dick Goff

Scared of Obamacare? Here’s one Cure

O

bamacare’s apparent threat of providing unlimited lifetime health benefits to members of employee health plans has become the monster in the closet – you’re afraid to open the door and you’re afraid not to open the door.

Stop-loss insurance costs are expected to zoom to the stratosphere, or else employers will chuck the whole thing and just write a check for the new tax.

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

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

Would that be ART coming to the rescue of employers?

It will take a few words of explanation to wrap your mind around this concept.

Heck, it’s taken me a couple of years just to try writing it down.

Let’s start at the beginning with first principles of self-insurance for an ERISA employee health plan. Traditionally the plan sponsor self-insures losses up to a selfelected retention level, and buys traditional stop-loss insurance to cover specific and aggregate losses in excess of the retention.

Self-insurance 101, right?

Now, moving into less familiar territory, let’s say several self-insured benefit plans (or 1,000) become members of a pool for the purposes of their stop-loss coverage.

If a captive insurance company were to be formed for that purpose, it could insure each plan’s excess losses over their retention levels.

All it takes is for someone like an insurance company, a big MGU or TPA to start the captive. A few of these excess coverage captives already exist on a modest level and you can learn more about them at SIIA’s national conference in October. Check sessions in the ART track.

The strength of this kind of ART structure is that it’s got the law of large numbers working for it. That law has

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nothing to do with tickets for threedigit speeds in a western state where enforcement was supposed to be lax but that’s another kind of large number story.

For today’s purpose, the law simply and irrefutably states that the more risk-takers there are in a pool, the less any given risk will cost its members.

Or the captive could be structured in individual incorporated cells to keep everyone’s risks in separate silos up to an actuarially predetermined assumption level prior to buying stop-loss coverage for all but specific named risks that potentially could become catastrophic losses. This would benefit plan sponsors that could actuarially forecast their most expensive risks. And the captive can be counted on for underwriting profit, investment profit and possibly tax advantages for the owner-insureds.

A point to be considered is that by using a captive to insure excess losses, and then buying reinsurance through the captive on a pooled basis to cover catastrophic losses, insureds are pushing traditional commercial involvement in their risk management farther out – or farther up the financial ladder, whichever image you prefer.

This could be called stair-stepping risk attachment levels for specified risks. I predict stair-stepping will replace cherrypicking in the benefits lexicon. Of course

the metaphors are already related as some harvesters climb ladders to pick cherries.

In this kind of risk attachment level stair-stepping, a health plan could determine various attachment points, moving higher as the risks become increasingly expensive.

Conditions such as certain cancer treatments, premature babies or organ transplantation come to mind.

While each cell within the large group captive could attach its excess loss coverage at varied levels to cover specific and aggregate health risks, all cells would participate in a pool to cover those few truly catastrophic claims.

As an aside, the million dollar claims that everyone fears are not that common in reality.

I asked an executive of a leading stop-loss carrier how many he had seen in his career and he estimated that number would be five.

An ART structure like this would certainly surmount Obamacare’s scary requirement of unlimited lifetime benefits for members of employer benefits plans. The question is: Why doesn’t everyone do it?

One response resides within that law of thermodynamics stating that an object in motion tends to continue in motion. My corollaries are: A buyer of stop-loss insurance tends to continue to buy the same product, and a seller of stop-loss insurance tends to continue to sell the same product.

But the joker in that deck is the difficulty of pricing unlimited stop-loss insurance without creating a captive-reinsurance structure that can deal with the catastrophic anomalies.

As I noted earlier, it will take a visionary service provider with access to a large number of self-insured benefit plans to make this work. Do we have any volunteers?

Dick Goff is managing member of The Taft Companies LLC, a captive insurance management firm and Bermuda broker at dick@taftcos.com. n

InSIDER InForMatIon AUL named a Voluntary Sales Growth Leader Indianapolis (Aug. 3, 2010) –The Employee Benefits Division at American United Life Insurance Company® (AUL), a OneAmerica company, has been named a Voluntary Sales Growth Leader by Eastbridge Consulting Group, Inc. “This year, we congratulate AUL,” said Gil Lowerre, president of Eastbridge Consulting Group. “AUL has experienced double-digit sales growth in the group voluntary insurance market for each of the last three years, and the company’s 2009 growth rate for these products was in excess of 50 percent.”

As group voluntary insurance sales continue to grow industry-wide, AUL’s Employee Benefits division has exceeded the average rate of growth for these products over three consecutive years, according to Eastbridge’s U.S. Worksite Sales Report.

“We’re honored to be recognized for sales growth on the group voluntary insurance side,” said Len Cavallaro vice president of AUL’s Employee Benefits division. “It shows that we’re a stable company and further confirms our position as a leader in the group voluntary insurance market.”

The AUL Employee Benefits Division works with Eastbridge Consulting Group throughout the year by providing information related to practices, processes and marketing.

Eastbridge uses the information to create industry-wide surveys that allow AUL to track trends and see where they’re headed in the marketplace. iNetiCO is excited to announce the addition of Jennifer Gilkison to our Account Services division. Jennifer’s role as Account Services Coordinator will serve as a liaison between the departments of INETICO / INETICARE and our clients, delivering enhanced reporting and valuable resources to help them achieve their goals.

Jennifer comes to INETICO with a Bachelor of Arts degree in English and American Literature from the University of South Florida, 13 years of account management experience with Beech Street, preceded by 7 years experience in group health as Sales Coordinator for Mutual of Omaha and Proposal Writer for Guardian Life.

“We understand the importance of the role that Jennifer will play within the INETICO / INETICARE family, and know that she will bring a highly valued service to our clients. The entire INETICO family is dedicated to building relationships and providing exceptional service and results for our clients and partners.

Jennifer’s role is another example of our commitment to set the standards within the industry for client satisfaction and loyalty.”

INETICO is also proud to have been selected as a finalist for the Tampa Chamber of Commerce 2010 Small Business of the Year Award We are honored to be recognized along side the other great local companies who have been nominated for this award. Each of these organizations strived to not only create a unique business model and become the employer of choice within the Tampa Bay area, but also to make a positive impact within their industries and communities.

Rockport Healthcare Adds 25,000 OptumHealthSM physical Medicine Specialists Network expansion enhances access to workers’ comp medical care providers for Rockport customers HOUSTON,TX (July 27, 2010) – Rockport Healthcare Group announced it is adding more than 25,000 OptumHealth physical medicine specialists to its workers’ compensation Preferred Provider Organization (PPO) network. The PPO program launched May 1, 2010.

Adding OptumHealth’s nationwide network of care providers to Rockport’s workers’ compensation PPO gives workers enhanced access to best-in-class treatment for their musculoskeletal conditions.

A commitment to understanding local jurisdictions is the hallmark of Rockport’s approach and has helped the company steadily expand in a competitive marketplace.

The company’s network currently includes more than 525,000 care providers, making it one of the largest national networks dedicated to workers’ compensation care.

“Our goal is to ensure that we offer our clients access to the best possible array of workers’ compensation providers,” said Mark Neer, Senior Vice President of Network Development at Rockport. “We are continually striving to grow the specialty areas most frequently utilized in workers’ compensation. OptumHealth offers a complete range of specialists along with integrated, personally relevant health guidance and services designed to assist people in their recoveries.”

For more information: Company Contact: Media Contact: Doug Markham Brenna Harrington 615-221-2625 770-338-0357 dmarkham@rhgnet.com

SiiA New Members REGULAR MEMBERS

Company name/Voting Representative

Josh Holzer, President, American Healthcare Recoveries, New York, NY Craig Irvine, Vice President of Sales, BCS Financial Corporation, Oakbrook Terrace, IL Reney Clifford, Director Strategic Accounts, Capital District Physicians Health Plan, Albany, NY Angelo Nardi, Executive Vice President, Gallagher Benefit Services, Inc., Itasca, IL Daniel Kloiber, National Director of Sales, MedVantx Pharmacy Services, Sioux Falls, SD David Angelone, Partner, One Hundred Years, New York, NY Peggy Collins, Vice President Group & Claim Svcs., Pekin Life Insurance Co. Pekin, IL EMPLOYER MEMBERS

Company name/Voting Representative

Paul Pinckney, CEO, Healthcare Industry Self-Ins Program of CA, Irvine, CA Cora Beth Hartfield, Administrator, MS Truck, Food & Fuel SIF, Jackson, MS Rebecca Millar, The Mahoney Group, Casa Grande, AZ

Brenna@scottpublicrelations.com

the Self-Insurer

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cHaIrMan’S rePort armando Baez

Sharing 30 years of Success in Chicago

t

his October, SIIA’s annual educational conference, themed “Sharing the Success of Self-Insurance” will be held in Chicago.This is the right place for SIIA members to come together on this pivotal year. Chicago is, by population density, airline distances and fares, the center of the U.S. We expect a terrific turnout for our 30th Annual National Educational Conference and Expo.

Your Association continues to take a bold and optimistic stance despite continued government meddling in our healthcare system bordering on repression.The center of the nation is an appropriate place to meet and determine how best to fight this menace.

I remember last year’s conference in Orlando with pride! We were all very anxious as Obama’s healthcare “reform” proposal coupled with an overwhelmingly democrat controlled congress seemed poised to end the best healthcare system in the world.

Some thought then that this threat signaled the death knell of our industry. But I now look back with pride that, through our Association’s work in Washington in coalition with many, many others, we saved – I’m not overstating the result of our combined lobbying efforts – repeat, we saved the employer-based self-insured health care system. The private health care system survives to fight for survival another day.

Now we will gather in Chicago and celebrate the continued success of selfinsurance and alternative risk transfer. As your Board Chairman for 2010, I invite all our members to join us.

To showcase the real advantages of self-insurance, our conference committee has developed many sessions that highlight successful company self-insured plans into a unique educational effort – kind of live, three-day Harvard Business Review-type of case studies.

This year our conference features more than 100 speakers covering everything about self-insurance and ART from the global to the local. Many of our speakers are true pioneers of our industry and developed self-insured plans covering employee health benefits, workers’ compensation, business or professional liabilities and international risk exposures.

We’ll feature corporations who have come to rely on self-insurance to better manage their risks. Participating are: Intel, Lowe’s, Marriott International, Mayo Clinic, McDonalds, Mohawk Industries and many others.

This year’s conference will also include many of the biggest names in insurance and reinsurance, who will demonstrate how they can be instrumental partners to corporations in managing self-insurance risks: This group includes Chubb, HCC Life, HM Insurance Group, Marsh, Munich Re, Zurich, GBG and others.

We have keynoters scheduled to help us make sense of our self-insurance world: Joe Plumeri, Chairman and CEO of Willis Group Holdings, Inc. will present “The

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Changing Nature of Risk,” and Stephen Hayes, highly regarded journalist of The Weekly Standard and Fox News will share his “Election Day Preview.”

We will receive a briefing on the federal Patient Protection and Affordability Act to learn how the current version of healthcare reform will affect self-insured group health plans and how all our organizations must be prepared for a new and very intrusive regulatory environment.

And we will discover how self-insurance and alternative risk transfer leaders are already responding to healthcare reform with innovative financing and administrative structures. Watch for sessions like these: • The National System Contractors Association leader Chuck Wilson will describe a self-insured ERISA plan now operating in 50 states.

• How 15 school districts in Ohio have banded together in the self-insured Butler Health Plan that provides 20,000 individuals with negotiated prices at hospitals throughout the covered region.

• How TPA Employee Benefits Management Services (EBMS) formed a captive to provide a layer of stop-loss coverage to self-insured clients that cuts costs and returns profits to insured members.

These are but a few highlights to show the depth and scope of our scheduled sessions – our session tracks this year will provide the most intense and valuable educational experiences ever at a SIIA conference.

Our hope is that this vast and varied celebration of self-insurance will inspire

many of our members to greater levels of personal involvement in our business and political issues. We have seen some increase in that regard over the last year or two and we are so grateful to our members who worked so hard last year to defeat the worst elements of ObamaCare. But the fight is not yet over!

My own wish is that individual members will join the Self-Insurance PAC in greater numbers and that company members will raise their SIIA membership category one level up – both examples of taking responsibility for the improved opportunities their companies will enjoy through greater participation in the political process.

Finally, I hope our meeting this year will give our members support in our grassroots efforts to pressure federal and state representatives to improve the political climate for our issues, and to participate in the campaigns of those representatives who will serve our interests. If I’m describing a perfect but elusive world, forgive me. But that world can become possible and the starting point will be in Chicago.

I will be traveling to Chicago from Shanghai where I have been working to help Chinese Companies develop insured and self-insured solutions to an inadequate government health care system.

So, I will be in Chicago in October.

Please join me. Our future is at stake! n Saludos!

r Self-Insured Employe 456 American Way Anytown, USA

September 15, 2010

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