Self insurer march 2017

March 2017

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The World’s Leading Alternative Risk Transfer Journal Since 1984

CAPTIVATING Options Variations in enterprise risk captive insurance help smaller or midsize firms cut costs and improve operational efficiency

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

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Editorial Staff PUBLISHING DIRECTOR Erica Massey SENIOR EDITOR Gretchen Grote CONTRIBUTING EDITOR Mike Ferguson DIRECTOR OF OPERATIONS Justin Miller DIRECTOR OF ADVERTISING Shane Byars

CAPTIVATING Options Variations in enterprise risk captive insurance help smaller or midsize firms cut costs and improve operational efficiency

By Bruce Shutan

EDITORIAL ADVISORS Bruce Shutan Karrie Hyatt

2017

Volume 101

22 ACA, HIPAA and Federal

Health Benefit Mandates

The Affordable Care Act (ACA), the

Health Insurance Portability and

Accountability Act of 1996 (HIPAA)

and other federal health benefit mandates 30 The Next Evolution of

Referenced Based

Reimbursement (RBR) Programs

36

Held Captive by Appeals

Editorial and Advertising Office P.O. 1237, Simpsonville, SC 29681 (888) 394-5688

2016 Self-Insurers’ Publishing Corp. Officers

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Lynne Bolduc, Esq. Secretary

and

DOWNS

Erica M. Massey, President

UPS

James A. Kinder, CEO/Chairman

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SIIA Endeavors

44

News from SIIA Members

for the Captive Sector in 2016

By Karrie Hyatt March 2017 | The Self-Insurer

3

CAPTIVATING Options Variations in enterprise risk captive insurance help smaller or midsize firms cut costs and improve operational efficiency

By Bruce Shutan

A

growing number of smaller and midsize companies have used enterprise risk captives (ERC) for more diverse risk exposure.

These alternative risk transfer arrangements, which generally address uninsured risks or gaps in commercial insurance programs, feature several variations that help reduce costs, administrative burdens or both.

Traditional “cells� are structured almost like a separate drawer in the filing cabinet of one corporate entity, explains Patrick Theriault, managing director of Strategic Risk Solutions. But unlike more recently developed incorporated cells, he says they do not require the employer to establish a separate corporation. The separation terms of both cell types are detailed in state insurance laws.

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CAPTIVATING OPTIONS | FEATURE

Another newer vehicle involves the “series” limited liability company (LLC), which was created under corporate law prior to being used in the captive insurance arena. This structure is “more separate in nature than the traditional cell, but it’s not fully a separate corporation like an incorporated cell,” Theriault notes.

These separate buckets are “administratively more efficient and less expensive, but not as separate as some people would like,” Simpson says. “On the other end, you have these bona fide separate entities, but there are some frictional costs and additional expenses. And in between, you have the series, which is sort of a function of coincidence.

He says insurance laws in Delaware and other states have started to address this concept. A key difference is that while a cell is a creation of and regulated under insurance laws, a series business unit on the other hand is a corporate law creation (state LLC statutes).

A captive is typically not defined by the type of entity that’s used. “When we talk about enterprise risk captives, they can be formed as separate corporations or a variety of different kinds of cells or series,” Simpson explains. That decision is often tied to cost and operational efficiencies associated with not having a separate corporation.

“The series was already there,” he continues. “It existed in a few limited liability company acts. It works very much like a cell, but it has more indicia of separateness than a cell does, however, not so much that it’s an actual separate entity.”

ERC cells arose from a desire to segregate some risks or lines of insurance from one another and run them as separate divisions or businesses, according to Jeff Simpson, an attorney with Gordon, Fournaris & Mammarella, P.A. By doing so, he says they escape the burden of having to establish a different entity or insurance company for legal or regulatory purposes.

Many business owners, particularly small or family held enterprises, are drawn to the cell structure because they require less capital than if they were dealing with a separate corporation.

A traditional cell is also known as a protected cell, segregated portfolio or separate account – all of which Simpson says are simply separate accounting buckets built inside of a single entity.

An incorporated cell company is essentially comprised of several separate entities, corporations, or LLCs that an insurance regulator is willing to treat as a single insurance company and amalgamate for regulation, he explains.

March 2017 | The Self-Insurer

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CAPTIVATING OPTIONS | FEATURE

“Some people when they form their captives seek the American dream. They want the house; they want the yard. If you’re going to do that, then you’re going to need a separate corporation. Other people want the least expensive place to live and that militates toward a condo, which is a cell.”

He makes a helpful analogy:

Renting vs. owning Traditional cells were an improvement to the original “rent-a-captive” concept that were initially used as a group captive hybrid in offshore domiciles such as the Cayman Islands where the different programs or participants were tracked separately from an accounting perspective, according to Theriault.

But since there was no legal separation of assets and liabilities, even though there was a business intent, all participants in these “rent-a-captive” arrangements could have (and some were) ultimately exposed to large claims of other participants where funds were insufficient. He says such experience gave rise to the creation of the protected cell concept involving traditional, incorporated and series to shield each participant from the activities of others (i.e., it converted a handshake arrangement to more formal legal contractual or corporate law separation).

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Cells will appeal to programs with a much smaller amount of premium that benefit from being able to bypass the statutory minimum level of capital otherwise required for a standalone captive, which Theriault says is already provided by the cell facility owner.

Instead, the focus is on a need for risk-based capital only as determined by the domicile regulators. All these cells need is risk-based capital, he adds.

CAPTIVATING OPTIONS | FEATURE

More midsize company owners are inquiring about these arrangements, which he notes have also drawn a growing involvement among attorneys, CPAs and new captive managers. Some have established their own facilities they can offer to their clients. In addition, he points to at least one or more sessions now devoted to ERCs at most captive industry conferences. ERCs are typically owned by small or privately held enterprises rather than big, publicly held companies.

from using cells vs. wholly owned captives are generally immaterial for groups with $1 million up to $2.2 million in premiums, with such annual savings typically in the 10% to 20% range but coming with some requirements.

“The majority of our clients prefer owning vs. renting because they get to have full control, and they’re not subject to any restrictions of the cell company owner,” he reports. “And they’re willing to pay a little bit more in operating costs to have that flexibility.”

How domiciles differ Nearly every U.S. domicile has some kind of protected cell provisions in its statute, according to Simpson. In most of those cases, a protected cell company can be formed while some have series LLCs under their local statutes.

Most of the ERCs Theriault’s company manages involve so-called single-parent pure captives that underwrite only risks of related entities. He believes cost savings derived

March 2017 | The Self-Insurer

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CAPTIVATING OPTIONS | FEATURE

“There is at least one state whose local law doesn’t allow for series, but will license series from other states within its borders, and so it’s broadening a little bit,” he says.

“North Carolina has licensed some series LLCs from other states within North Carolina.

It’s not so much about receptivity as it is about understanding and interest.”

While some states haven’t focused on attracting ERCs because they haven’t needed it, Simpson reports that others have tried to bring in that business or became known as good domiciles for understanding the concept, and therefore, improving efficiency.

Theriault has noticed an increasing focus around specific types of risk use in cells across various domiciles. For example, he has noticed that in general medical stop-loss cells primarily have gone to Vermont, while ERCs have gravitated to Delaware, North Carolina, Tennessee, Utah and Montana.

He says one possible driver is that a substantial percentage of the ERC structures participate in some form of reinsurance often referred to as “risk pooling” and some states are more receptive than others to those structures. As it relates to the continued rising interest in ERC structures, another reason could be a better understanding of risk exposures among brokers, TPAs, attorneys and other service providers, according to Theriault.

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Need for meaningful regulatory guidance The IRS has adopted a largely skeptical view of captive insurance, which recently landed ERCs for example on an infamous list of “dirty dozen” tax scams. The relative newness of these increasingly popular arrangements has made them prone to misconception or suspicion of ulterior motives, Simpson suggests.

As it relates to cell taxation, the IRS issued proposed guidance in 2010 and asked the industry for comments, but has yet to follow up with final regulations. It’s anyone’s guess when any meaningful guidance will come.

taxation of cells. Regulatory action, along with the pending outcome of some court cases, could help reverse a slowdown in the number of ERC cells or series adopted last year, he observes.

IRS revenue rulings in the early 2000s increased the comfort level among regulators regarding how an ERC structure might work, while cells and series have made the arrangements more efficient, Simpson says. “We’re at a point now where people who may have found this economically unfeasible now find it is feasible and that these are risks that, when it’s feasible, they do want to cover,” he says.

Simpson wonders when there will be meaningful guidance on ERCs, whose current state he describes as somewhat of a street fight between the industry and IRS. “There should be some guidance coming out in the not-so-distant future on recent changes to the 831(b) provisions,” he reports. “There are some pending cases, one of which should be decided in 2017, that should give us some instruction. And then, hopefully, those things together will add up to maybe an opportunity for the IRS to give you the more precise guidance that we can all rely on and work with.”

Theriault surmises that the agency is too busy focusing on other parts of the industry to produce regulations governing the

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The regulatory reins on small captives were loosened under changes to Section 831(b) of the Internal Revenue Code. Premiums allowed for property and casualty insurers under elections made to this part of the tax code increased to $2.2 million from $1.2 million and were adjusted to inflation for the first time since 1986. A subset of ERCs actually takes the 831(b) election, Simpson explains. The Protecting Americans from Tax Hikes Act of 2015 was signed into law by thenPresident Obama before Congress adjourned for 2015.

Whatever happens to the view of these arrangements inside the Washington, D.C., beltway, one thing is clear: ERC variations offer smaller and midsize employers more flexible options to meet their changing insurance needs.

Bruce Shutan is a Los Angeles freelance writer who has closely covered the employee benefits industry for nearly 30 years.

Do you aspire to be a published author? Do you have any stories or opinions on the self-insurance and alternati ve risk transfer industry that you would like to share with your peers?

We would like to in vite you to share your insight and submit an article to The Self-Insurer ! distributed in a digital and print format to reach over 10,000 readers around the world. The Self-Insurer has been delivering information to the self-insurance /alternative risk transfer community since 1984 to self-funded employ ers, TPAs, MGUs, reinsurers, stoploss carriers, PBM s and other service providers.

Articles or guideline to Editor Gretchen Grote at ggrote@sipconline.net also has advertising opportunities available. Please contact Shane

Byars at sbyars@sipconline.net for advertising information.

March 2017 | The Self-Insurer

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UPS

DOWNS

and

for the Captive Sector in 2016

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By Karrie Hyatt

016 did not see many changes in the United States captive sector. Other than the IRS’s continued offensive against captives using the 831(b) tax designation, there was very little federal involvement with the captive sector. More dynamic were developments in captive domiciles, with five states updating their captive laws and several newer domiciles staking a strong claim for themselves. Captive numbers were varied across the board with some established domiciles seeing a decline and other domiciles seeing exponential growth. Now several months into 2017, several domiciles have already instigated updates to their captive laws while several domiciles are forecasting a good year for captive formations.

UPS & DOWNS | FEATURE

Captive Law Updates Five captive domiciles updated their captive laws in 2016. In Vermont, updating the captive law has become an annual event. In April 2016, Governor Pete Shumlin signed new legislation that amended Vermont’s 20-year-old captive law. Changes included refining governance standards, expanding dormancy, and allowing for cells to be transferred, sold, assigned or converted to stand alone captives without affecting the rights or obligations of the cell.

Tennessee also updated its captive law in 2016. Tennessee is one of the oldest U.S. captive domiciles with captive law originally signed in 1978. However, after the 1980s the state was not promoted as a captive domicile until the law was amended in 2011 and the Tennessee Captive Insurance Association was formed to support the domicile. Since 2011, Tennessee has updated the law regularly. The 2016 update allows for a more efficient transition for redomesticating captives and offers an incentive, in the form of tax relief, for offshore captives choosing to redomicile to the state. Other changes include strengthening protections for cell company assets, self-procurement tax forgiveness, and the setting of March 15 as the due date for annual reports and premium tax payments.

Georgia was an early player in the captive arena, signing its original law in 1989, but after the insurance market fell in the late 1990s, did not pursue captives until they updated their law in 2015. Last year, the state once again updated the law to reflect current trends in the captive arena. Changes in 2016 included clarifying the coverage pure captives are authorized to write, removing the requirement that captive management companies be home-based in Georgia, clarifying that letters of credit can be used to capitalize pure captives, with the addition of several minor tweaks to make the law more user-friendly.

March 2017 | The Self-Insurer

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UPS & DOWNS | FEATURE

One of the newest domiciles, North Carolina, came into the market with a strong captive law and has updated it twice since it was originally passed in 2013. 2016’s update was included in a broader insurance bill for the North Carolina insurance department that included 44 items, five of which apply to captive insurance companies.

The changes made to the captive law removes the requirement that captives hold an annual board meeting if it uses at least two North Carolina service providers; updates rules for redomestication; allows for provisional approval for up to 90 days; allows the insurance commissioner to grant extensions to captives to file annual reports; and allows the commissioner the

discretion to deviate from capital and surplus requirements for protected cells.

Last year, Alabama updated its captive law for the first time since it was enacted in 2006. Alabama has proven to be a quiet but resilient captive domicile with 61 captives domiciled at the end of 2016. The amendments to the law offer two premium tax incentives to domiciling captives in the state.

More legislative changes are on the horizon for 2017. The Vermont, Tennessee, and Texas legislatures all introduced new captive legislation in January.

Utah and Oklahoma are also looking to update their law this year.

The first change allows for a $100,000 cap on annual premium tax. The second offers newly formed captives a one-year exemption from premium taxes. As the number of captives in the state rose from 42 at the end of 2015, the changes seemed to have spurred some growth for the domicile.

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UPS & DOWNS | FEATURE

Captive Domiciles By the Numbers Most domiciles saw fewer captive formations in 2016 as compared to 2015, but there were a few notable exceptions from some of the newest domiciles.

North Carolina doubled the number of captives, and cell captives, domiciled in the state to reach 550 risk-bearing entities—190 captives and 363 cell or series captives. In August, the domicile celebrated the licensing of its 100th pure captive and by the end of the year had reach 150 pure captives domiciled. The domicile has only been licensing domiciles since 2014 and is on a trajectory to match the numbers of some of the most well-established captive domiciles.

Texas and Ohio both saw an increase in formations. Texas’s captive law was enacted in 2013 and has grown by about ten captives each year, until 2016, when the domicile saw 14 captives licensed in the state. Three captives also withdrew their license which left the domicile with 32 active captives at year-end. Ohio, which enacted captive law in the middle of 2014, saw an increase of ten captives last year, bringing the total number of captives to 14. The domicile is optimistic about 2017, foreseeing continued growth.

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UPS & DOWNS | FEATURE

“Ohio’s reputation for common sense regulation continues to draw interest from businesses working to fulfill insurance needs,” said Lt. Governor Mary Taylor, also Ohio

“The number of captives more than doubled in 2016 and we expect to maintain that growth trajectory this year.”

Department of Insurance director.

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Another one of the newer domiciles, Oklahoma—which originally passed captive law in 2004 but didn’t begin recruiting captives until after the legislation was amended in 2013— gained seventeen captives in 2016, but 15 withdrew, leaving the total number of captives for the domicile at 75. According to James A. Mills, director of Captive Insurance with the Oklahoma Insurance Department. “The past year was very uncertain across the board, and we hope that [2017] brings stability to the financial markets and clarity to IRS treatments of captives that lends to a successful year for all.”

Nevada had a similar experience to Oklahoma, with 30 captives formed and 23 withdrawing.

The number was down from 2015. Robert Gallegos, with the Captive Program of the Nevada Division of Insurance, said, “I can tell you that the Division closed the year with a small-captive formation level equal to that of 2013-2014 (2015 was an exceptional year) and that closures were 60% or more higher than 2013-2015.” The domicile had 205 captives at the end of 2016 and it’s not optimistic about captive growth for the upcoming year.

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UPS & DOWNS | FEATURE

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Continuing its strong growth, Delaware added 164 captives, series, and cells. The domicile has created a niche for itself in developing series captives with 80 formed in 2016. However, the domicile also licensed 77 pure captives, two special purpose captives, three special purpose financial captives, and Utah continues to see strong growth, with 68 captives and 13 cell captives formed last year two cell captives. for a total of 81 new risk-bearing entities. South Carolina saw 17 new captives which was down by 13 from the previous year.

According Gallegos, “Given

the impact of IRS changes to the 831(b) tax code, and in consideration of certain internal adjustments, we have forecast fewer formations for 2017.

We are in ‘renewal season’ now, and serving the fiscal and reporting needs of our base is of primary concern.”

Tennessee continues to see solid growth with the addition of 37 new captives and an additional 67 cell captives for a total of 104 for the year. In total the state has 159 captives and 379 protected cells for a total 538 risk-bearing entities. The domicile’s amended captive legislation, which makes redomestication to the state attractive, seems to be working. In a statement from the Tennessee Department of Captive Insurance, Director Michael Corbett said, “The redomestication of nine captive insurance companies to our state shows that more and more leaders in this industry are comfortable setting up their captives here. We especially appreciate the efforts of the Tennessee Captive Insurance Association (TCIA) in helping to make this growth happen.”

March 2017 | The Self-Insurer

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UPS & DOWNS | FEATURE

Captive juggernaut Vermont, saw 26 new captives in 2016. Steady has always been Vermont’s approach to growing their captive industry. According to a statement from David Provost, Vermont’s Deputy Commissioner of Captive Insurance, “The quality of Vermont’s 2016 licensees was outstanding. Vermont’s focus will always be licensing quality companies and regulating them in an appropriate manner commensurate with their risk.” Of the 26 new captives there were 15 pure captives, five risk retention groups, three special purpose financial insurers, one sponsore d captive, one industrial insured captive, and one association captive.

Vermont had 584 active captives at the end of 2016.

Karrie Hyatt is a freelance writer who has been involved in the captive industry for more than ten years. More information about her work can be found at: www.karriehyatt.com.

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ACA, HIPAA AND FEDERAL HEALTH BENEFIT MANDATES:

Practical

Q& A T

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

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

by E-MAIL to Mr. Hickman at john.hickman@alston.com.

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Whack-a-Mole – IRS Takes Aim at Latest Wellness Program Scheme,

more traditional fully insured health indemnity plans. Our primary focus in this article is on that topic.2

But Overly Broad Language Can Be Taken Too Far As Applied to Traditional Coverage

The classic double dip arrangement involved two steps. First, employees would make a salary reduction election to pay for their portion of the cost of an excludable employer health plan. Next, employees were reimbursed for a portion of their salary reduction contribution purportedly on a tax free basis.

Background

These arrangements were touted as a winwin: employers and employees get to pocket tax savings generated by the pre-tax salary reduction, while employees have no reduction in take-home pay due to the purported tax free reimbursement.

As we addressed in a prior column, there are a number of abusive tax arrangements marketed (primarily to small employers) that utilize a wellness program to provide tax advantages similar to the classic double dip arrangements first prohibited by the IRS in the early 2000s. One recent manifestation sought to convert otherwise taxable wages to tax free “reimbursement” under a hybrid health indemnity plan/wellness program combination.

The Classic “Double Dip”

If it seems too good to be true, it probably is. While the pre-tax salary reduction for the employee health coverage was permissible, the so-called tax free “reimbursement” to employees for the premiums used to pay for the health coverage was not!!

Under the program, disproportionally large “benefits” (which often corresponded to the amount of wages sought to be sheltered) would be paid for non-traditional triggering events.

There simply is no basis in the tax code for tax free reimbursements of premiums paid by the employee with pre-tax salary reductions, and the IRS made that clear in Revenue Ruling 2002-3.

Whereas most health indemnity policies are fully insured, and triggered solely by an accident or sickness (as required under the Internal Revenue Code), benefits under the self-funded health indemnity plan lacked economic substance in that payments could be made for merely completing a health risk assessment or calling a health coach.

Recent “Wellness Plan”

In a follow-up Chief Counsel Memorandum (CCM)1 the IRS exposed the fatal defects under the self-insured program. As discussed herein, however, some overly broad statements in the CCM appear to be contrary to established law with regard to

Arrangements and IRS Response Fast forward to some fifteen years later where there has been a resurgence of similar health benefit schemes, this time characterized as “wellness plans.” In the arrangement addressed in our prior column, purportedly tax free “wellness benefits” were funded with pre-tax salary reduction wages.

Under a recent iteration of the arrangement, tax free “premium” contributions are funneled through a purported self-funded

health indemnity plan that purportedly pays a substantial tax free indemnity benefit when the participant engages in certain wellness activities provided by the arrangement (e.g., participating in a health fair, contacting a wellness coach, etc).

Unlike more traditional fixed indemnity health insurance, the plan is self-funded and the purportedly tax free benefit payments are not triggered by events that result in medical expenses for the participant. As described by the IRS:

Situation 4.

An employer provides all employees, regardless of enrollment in other comprehensive health coverage, with the ability to enroll in coverage under a “wellness plan” that qualifies as an accident and health plan under § 106. Employees electing to participate in the wellness plan pay an employee contribution by salary reduction through a § 125 cafeteria plan (and therefore the amount of the salary reduction is not included in compensation income at the time the salary would otherwise have been paid). The wellness plan pays employees a fixed indemnity cash payment benefit of $100 for completing a health risk assessment, $100 for participating in certain prescribed health screenings, and $100 for participating in other prescribed preventive care activities, without regard to the amount of medical expenses otherwise incurred by the employee.

March 2017 | The Self-Insurer

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Situation 5. An employer provides all employees,

regardless of enrollment in other comprehensive health coverage, with the ability to enroll in coverage under a wellness plan that qualifies as an accident and health plan under § 106.

Employees electing to participate in the wellness plan make an employee contribution by salary reduction through a § 125 cafeteria plan (and therefore the amount of the salary reduction is not included in compensation income at the time the salary would otherwise have been paid). The wellness plan pays employees a fixed indemnity cash payment benefit each pay period (for example, equal to a percentage of the salary payable for the pay period) for participating in the wellness plan, without regard to the amount of medical expenses otherwise incurred.

The IRS had little difficulty concluding that benefits paid under the purported wellness programs were taxable. However, as background to the wellness rulings they were trying to address, the IRS went even further, seemingly concluding that benefits under any fixed indemnity health policy would be taxable because the amount of payment does not correlate to the amount of medical expense incurred. The CCM states:

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The value of coverage by an employer-provided wellness program that provides medical care (as defined under § 213(d)) generally is excluded from an employee’s gross income under § 106(a), and any reimbursements or payments for medical care (as defined under § 213(d)) provided by the program is excluded from the employee’s gross income under § 105(b). However, any reward, incentive or other benefit provided by the medical program that is not a payment for or reimbursement of medical care (as defined under § 213(d)) is included in an employee’s compensation income, unless excludible as an employee fringe benefit under § 132. That is because under § 1.1052, the exclusion under § 105(b) does not apply to amounts which a taxpayer would be entitled to receive irrespective of whether or not the taxpayer incurs expenses for medical care, including amounts paid irrespective of the amount of expense incurred by a taxpayer.

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limited to the amount of unreimbursed medical expense. Section 105 and 106 work together to provide an exclusion from income for both the value of employer provided health coverage (regardless of amounts received) and the benefits received by the employee through such coverage but only to the extent such benefits reimburse otherwise unreimbursed medical expenses.

A fixed indemnity health plan is a plan that pays covered individuals a specified amount of cash for the occurrence of certain health-related events, such as office visits or days in the hospital. The amount paid is not related to the amount of any medical expense incurred or coordinated with other health coverage. Consequently, while the payment by the employer for coverage by a fixed indemnity health plan is excludible from gross income under § 106, any payments by the plan are not excluded under § 105(b).

The CCM, which by its terms is not controlling law and cannot be cited as precedent, is inconsistent with current controlling law under Code Section 105, which would allow amounts paid under a pre-tax funded health indemnity policy to be received tax free, but only up to the amount of otherwise unreimbursed medical expenses. Indeed, at the time Section 105 was enacted, many employer funded health plans paid benefits on a fixed indemnity basis, without necessarily coordinating coverage from other sources.

The IRS specifically addressed such situations in a 1969 Revenue Ruling3 which clarified that any “excess” fixed indemnity benefits would be included in gross income. If fixed indemnity payments are never (as seems to be suggested by the CCM) considered to be a reimbursement for medical expenses—such as when the payment is triggered by a health care related event that likely triggers medical expenses, such as hospitalization or an office visit, the Revenue Ruling would be unnecessary, and not make sense.

The Applicable Law The federal tax laws start from the premise (in Code Section 61) that all income is taxable unless a specific exception applies. If the wellness and fixed indemnity payments are excludable from gross income, they would be excludable under either Code Section 105 or 106; however, Code Sections 105 and 106 do not support the conclusion that all wellness and fixed indemnity payments are excluded. Rather, as discussed below, any exclusion is 26

The Self-Insurer | www.sipconline.net

For example, with regard to the value of coverage, if an insurance carrier charges the employer $300 per month to provide selfonly coverage, the value of that coverage is $300. If the employer chooses to pay $200 for that coverage, then the $200 is excluded from income under Code Section 106.

Amounts that the employee elects to reduce from his or her compensation on a pre-tax basis through a Code Section 125 cafeteria plan to pay for health coverage are also considered “employer” contributions.

See Prop. Treas. Reg. 1.125-1(r)(2). Thus, the value of the coverage paid for with pre-tax salary reductions is also considered provided by the employer and excluded from income by virtue of Code Section 106.

In the example above, if the employee pays for the remainder of the $300 premium not paid by the employer through salary reduction, that $100 would also be excluded from income under Code Section 106.4 Section 105 determines the extent to which benefits received through employerprovided accident or health coverage are excluded from income. If the coverage was paid for on a pre-tax basis, then the general rule in Code Section 105(a) is that benefit payments received under the coverage are taxable.

However, Code Section 105(b) provides an important exception to this general rule.

Under Section 105(b), benefit payment

amounts received under such coverage are excludable from income if such amounts represent direct or indirect reimbursements for expenses actually incurred for medical care (as defined in Code Section 213(d)) that if paid directly by the employee would give rise to a deduction under Section 213.

The applicable IRS regulation (Treas. Reg. 1.105-2) provides as follows:

Section 105(b) provides an exclusion from gross income with respect to the amounts referred to in section 105(a) (see section 1.105-1) which are paid, directly or indirectly, to the taxpayer to reimburse him for expenses incurred for the medical care (as defined in section 213(e)) of the taxpayer, his spouse, and his dependents (as

defined in section 152). . . . Section 105(b) applies only to amounts which are paid specifically to reimburse the taxpayer for expenses incurred by him for the prescribed medical care.

Thus, section 105(b) does not apply to amounts which the taxpayer would be entitled to receive irrespective of whether or not he incurs expenses for medical care.

For example, if under a wage continuation plan the taxpayer is entitled to regular wages during a period of absence from work due to sickness or injury, amounts received under such plan are not excludable from his gross income under section 105(b) even though the taxpayer may have incurred medical expenses during the period of illness. . . . . If the amounts are paid to the taxpayer solely to reimburse him for expenses which he incurred for the prescribed medical care, section 105(b) is applicable even though such amounts are paid without proof of the amount of the actual expenses incurred by the taxpayer, but section 105(b) is not applicable to the extent that such amounts exceed the amount of the actual expenses for such medical care.

Thus, as long as an amount is triggered by a medical event giving rise to an expense, some portion may be excludable, even if it is paid without proof of the amount of the actual expense incurred by the taxpayer. Because most traditional insured health indemnity policy benefits are only paid when a medical event has

March 2017 | The Self-Insurer

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resulted in a medical expense being incurred, it cannot be said that such benefits are paid “irrespective of whether an expense is incurred for medical care.”

References:

Further support for this position can be found in IRS Revenue Ruling 69-154. In that ruling, the IRS looked at several situations in which health indemnity benefits exceeded the amount of medical expenses incurred. As with traditional insured health indemnity benefits today, the health indemnity policies in the ruling did not coordinate with other coverage or otherwise reduce benefits because the medical expense had been fully reimbursed. Yet the IRS concluded that the health indemnity coverage in the ruling would provide tax free benefits to the extent of any unreimbursed medical expenses.

from last year addressing abusive wellness programs can be

1 https://www.irs.gov/pub/irs-wd/201703013.pdf . The CCM

found at https://www.irs.gov/pub/irs-wd/201622031.pdf

2 Note: The vast majority of employer wellness arrangements provide meaningful incentives to employees to incent healthy behavior. We do not take issue with such programs. Rather, the “fatal defect” arises with respect to the incorrect tax treatment of certain programs as described in more detail herein.

3 Rev. Rul. 69-154 https://www.irs.gov/pub/irs-drop/rr-69-154.

Conclusion

pdf

As noted above, we understand that the CCM was intended to address certain abusive practices associated with the hybrid wellness/self-funded health indemnity coverage arrangement that was under review. We stress that traditional health indemnity policies are fully insured and only pay benefits in the event of a medical event that triggers medical expenses.

In light of the foregoing, we believe that to the extent traditional health indemnity benefits are examined, IRS Rev. Rul. 69-154 and the regulations under Code Section 105 control.

Thus, amounts payable under such health indemnity policies should be excludable from an employee’s income to the extent of any otherwise unreimbursed medical care expenses.

Any claim payments (combining the total from all health and medical policies/plans) that exceed the amount of unreimbursed Section 213 medical expenses would be taxable.

4 What if the value of the coverage was $300 but the salary reduction for that benefit was $1,000? Would the cost of the coverage still be excluded from income? The IRS did not specifically address this issue in the CCM but we note that such excessive cost of coverage may not even qualify for exclusion under 106 in that instance. If not, the benefit would not constitute a qualified benefit that can be offered under the cafeteria plan—thereby jeopardizing the tax status of the cafeteria plan.

When it comes to reducing healthcare costs and plan management, you may need some help.

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The Next Evolution of Referenced Based Reimbursement (RBR) Programs Written by Corte B. Iarossi

QUICK OVERVIEW

O

ver the past several years, the group health insurance and cost-containment markets have seen interest and growth in Reference Based Reimbursement (RBR) solutions.

Options range from repricing out-of-network (OON) medical bills at a percentage of Medicare or other reference based reimbursement model like “cost plus�, to a complete replacement of the PPO or managed care network.

The latter approach has gained traction with small to medium sized self-funded employers (typically 50-500), though larger employers, especially companies with lower wage and/or transient employees have also considered this solution to battle increasing medical Plan costs.

Likewise, many Brokers and TPAs have promoted these options as tools to reduce Plan medical spend, as well as being a differentiator for them in the market. There are now multiple organizations offering this type of program nationwide. In this article, we will focus specifically on the use of RBR as a partial or total replacement of a PPO as part of the medical benefits Plan.

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THE BASICS OF RBR

• Partial PPO Replacement:

This service offers a physician only network and applies the RBR solution to all facility charges. This enables the employer to take a smaller step into the RBR world by offering standard PPO access for physician and professional services, while also impacting approximately 50% of the total medical costs represented by inpatient and outpatient facility services (1). This approach can be used as a transition product to full PPO replacement.

The concept is to eliminate reliance on network discounts in favor of savings obtained through the application of a percentage of Medicare, “cost plus”, or other reference based repricing mechanism. The most common method appears to be using Medicare as a benchmark for recommending provider payment since that is the most recognized and used reference based repricing tool.

Most RBR vendors set a standard percentage of Medicare in recommending a payment. For services where no Medicare reimbursement is available or applicable, other pricing mechanisms are used including cost-plus and usual, customary and reasonable (UCR). The vendors then support their recommendation through a combination of telephonic interface with the providers and members, along with varying levels of legal assistance.

Several organizations will even take on the “fiduciary” responsibility of the Plan, protecting it from legal action by providers. This may include paying attorney’s fees, court costs and even additional payments to the provider. Fees for these services may be based on a percentage of savings, a percentage of billed charges, or a per employee per month (PEPM) fee.

• Complete PPO Replacement:

RBR Options: There are several options for employers to consider when discussing RBR as a network replacement solution:

With this option the employer eliminates the PPO and replaces it with RBR based payments to all providers, including services for urgent and emergent care.

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THE UPSIDE For employers, the Plan savings can be dramatic, especially if a total replacement strategy is implemented. Instead of network savings ranging from 20% to mid-40% (depending on if accessing a rental PPO vs. a carrier network), they can achieve savings of 50% to over 70%, depending on the baseline percentage of Medicare used for payment recommendations. Additionally, the member can see significant out-of-pocket savings since these reductions can impact applicable deductibles, coinsurance and copays.

The number of employers implementing RBR plans is increasing, especially in markets where providers have shown a willingness to accept “reasonable” reimbursement. For many, 150% of Medicare has been acceptable as payment in full, especially for physician services. In fact, many physicians are accepting fees at or below 120% of Medicare.

Even some facilities have been willing to accept 150% to 180% of Medicare in lieu of balance billing members. In addition, these solutions provide members open access to any provider regardless of location.

THE CATCH There always seems to be a catch with solutions promoting Plan savings that seem too good to be true, and the RBR product is no different. With the elimination of the PPO network there’s no longer an out-ofpocket cost safety net for members, putting them potentially at risk for significant fees above their Plan deductibles, coinsurance and copays. In some cases, depending on the service and the percentage of Medicare applied, they could be balanced billed for tens of thousands of dollars, or more.

Though most of the organizations providing this service offer aggressive “patient advocacy” services to assist in reducing or eliminating balance billing, there are no guarantees.

When the vendor takes on “fiduciary” responsibility for the Plan, it does NOT usually apply to the individual members.

This fact can cause significant concern and potential employee dissatisfaction with the Plan and the employer. And because interaction with the provider on behalf of the member can take months, even up to a year, there may be a risk to the financial well-being of the member, including impacting their credit worthiness. However, considering the lack of contractual leverage with providers, the incidence of cases resulting in legal action directly against members appear to be relatively small. For some employers, the risk is worth the reward of the medical savings to the Plan.

THE EVOLUTION Despite the significant savings that can be generated through these programs, many employers are still reticent to offer them due to the concern it could create employee dissatisfaction, and potentially lead to the loss of high value employees. Consequently, some RBR vendors are now offering services to help mitigate or eliminate provider push back on payments, and member balance billing.

• Concierge Services: Several vendors now offer a range of concierge services, including “pre-negotiation” of elective facility and high cost services. The goal is to encourage members to notify the vendor when high cost services are needed so they can identify providers willing to accept a set percentage of Medicare or other fee in return for having care directed to the them.

Typically, the vendor will contract with the appropriate provider(s), which may even include making payment prior to the delivery of care to secure the savings. The concierge services will often include coordinating and contracting

for all care for the member, scheduling pre-testing as well as post treatment to enhance the level of service. The result is significantly reduced costs for the Plan and the member, eliminating balance billing, and providing a positive member experience. Some vendors have gone as far as identifying highly utilized providers for the employer with the goal of contracting prior to the need for services.

• Medical Tourism: Another tool being used to limit the impact on members while also generating impressive savings is directing care to providers outside of the Plan’s geographic market, including internationally. Again, the goal is to obtain an aggressive contracted rate in return for directing care to the provider(s).

Many times, the employer will cover the travel costs for the patient and a family member because the savings are so significant to the Plan. This may be included as part of the concierge service offering, or as a standalone product.

• Specialty PPO Access: Some vendors have taken a further step to help eliminate provider balance billing and increase employee satisfaction by including specialty network access, including, but not limited to diagnostic and radiological services, Centers of Excellence and transplant.

It is important to note that the member may still have the option to waive these options and select any provider with the understanding that there may be significant additional out-of-pocket costs.

March 2017 | The Self-Insurer

33

FULL CIRCLE What is most interesting about the next iteration of RBR products is the focus on developing solutions that can limit or even eliminate provider balance billing. This can be done through a combination of services as mentioned above. If enough providers are contracted, we have what can loosely be defined as a “narrow network”. In some markets, vendors that have a significant volume of business are proactively contracting with highly utilized physicians and hospitals. In other cases, they may contract on a client specific basis. Consequently, RBR products could become a stepping stone for groups to move to formal narrow/high value networks.

The more these solutions add direct negotiated provider agreements, including other contracted specialty networks, the more employers may gravitate toward PPOs offering limited provider access with agreements based on a percentage of Medicare similar to, or even less than that used by RBR replacement solutions. We are already seeing an increase in narrow/high value network offerings and anticipate that over the next several of years RBR replacement and narrow networks will vie for many small to medium sized employers.

Some vendors may offer both options recognizing that one size doesn’t fit all. Only time will tell which product may gain significant traction in the market. Certainly, with the change in our governmental leadership and the potential of repealing or modifying the Affordable Care Act, we may see an environment that is conducive to accelerated growth of one or both options.

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ABOUT THE AUTHOR Corte B. Iarossi has over 25 years’ success in the group health, cost-containment, PPO and managed care markets. He’s led sales, marketing, and product development teams for large managed care organizations including Prudential, BCBS, and the George Washington University Health Plan, and fast moving entrepreneurial businesses including United Claim Solutions, Coalition America (now Zelis Healthcare), and Memorial Health Services. He can be reached at corteiarossi@outlook.com, and 423-5059128.

REFERENCES: 1.

2015 Milliman Medical Index

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Held Captive by Appeals By: Tim Callender, Esq.

P

rior to the passage of the Affordable Care Act, self-funding was already healthy and growing. Since the passage of the Affordable Care Act (and predominantly due to the ironic increase in healthcare insurance costs through the fully-insured, carrier model) we have seen self-funding grow even more.

Although this growth has been significant, there are some employer groups – primarily small and mid-sized groups – that have struggled to find a sustainable path into self-funding nonetheless. For purposes of this article I will refer to these employers as “Small-Mids.”

Obviously, opinions differ as to what a “small” or “mid-sized” employer group is, but for today’s discussion, we are looking at employer groups ranging from 50 employees up to approximately 200 employees.

One of the primary barriers to entry for Small-Mids is the financial risk inherent to the selffunded model. Even with a stop-loss policy in place (assuming the employer is domiciled in a state that has not regulated stop-loss to the point of making it prohibitive to gain a policy for a small to mid-sized employer), many Small-Mids do not have the cash reserves necessary to make it through a high health spend year before stop-loss reimbursement might kick in.

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The Self-Insurer | www.sipconline.net

• (2) The claim is adjudicated, by the TPA, pursuant to the terms of the governing plan document, as created and adopted by the plansponsor;

• (3) The claim is denied pursuant to the terms of the plan document;

• (4) The Claimant files a first-level appeal.

• (5) The first-level appeal is handled by the TPA. Sometimes input from the plan-sponsor is solicited, sometimes not. Every TPA / plansponsor relationship is different.

• (6) The denial of benefits is upheld by the TPA / plan-sponsor at the conclusion of the first-level appeal process.

• (7) The Claimant files a secondlevel appeal.

There are programs in the market such as “level-funding” whereby an employer’s risk is effectively capped at a certain figure in exchange for a set monthly expense, but such programs are still in their infancy and not very widely-used.

In the traditional market, however, figure in a handful of dialysis claims, one or two air ambulance claims, and one plan member on a growth hormone prescription, and the SmallMid is running for the hills.

Lest we forget that Small-Mids are often terrified of financial ruin on many fronts to begin with, let alone bearing the risk of high claims exposure. For them, it is unquestionably easier to sign up for that prototypical fully-insured option and trade financial risk for predictable premiums. The problem, though, is that predictable premiums are generally high premiums.

Another barrier to entry for the Small-Mids is the appeals experience. “What do you mean, ‘appeals experience,’ Tim?” you might ask. In short, as those of us working in the self-funded health plan space know, a health claim’s denial triggers appeals rights. These appeals may be pursued by the plan member, a plan beneficiary, or even the medical provider through an assignment of benefits or appeals authorization. The typical claims and appeals cycle tends to look something like this:

• (1) A claim for health benefits is submitted to the plan-sponsor’s third-party administrator by the Claimant (the Claimant might be the plan member, a plan beneficiary, or a medical provider);

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• (8) The TPA will handle the second-level appeal in one of two ways: (i) it will review the second-level appeal, provide a recommendation to the plan-sponsor regarding the determination, and ask the plan-sponsor to make a final determination based on the TPA’s recommendation; or (ii) the TPA will submit the second-level appeal to the plan-sponsor, in its entirety, for the plan-sponsor to review and determine, on its own, whether the denial should be upheld or overturned.

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It is step (8) where the wheels typically come off for an existing self-funded plan and it is step (8) that is a significant barrier for Small-Mids to get past when they analyze and consider self-funding. Imagine a Small-Mid that is privately held and made up of hard-working, blue-collar employees and blue-collar leaders who have risen to positions such as Vice President of H.R., or Chief Operations Officer.

Suddenly, it is these leaders who are faced with a second-level appeal based on the medical necessity of cortisone injections for the treatment of migraines; suddenly it is these leaders who are faced with a second-level appeal based on the interpretation of a complex plan exclusion, such as the “hazardous activities exclusion” or the “illegal acts exclusion.” We have all heard these stories and we are all familiar with the fallout that might occur when a Small-Mid is faced with this daunting task.

Additionally, how many stories exist of the closely held Small-Mid’s leadership team suddenly faced with a second-level appeal that directly concerns their highest performing

40

sales person? Or, more generally, consider the heartache involved for any Small-Mid’s leadership team when they must decide an appeal on a health claim for a well-known and well-loved employee, regardless of his or her title! Many Small-Mids have close-knit employee populations, many of whom have been coworkers and friends for years.

How many times have we heard, “we

make motorcycle clutches and just wanted to provide our employees with good health benefits! We never signed up to make these types of decisions!”

governing plan document, simply because of the emotion, heartache, and the difficulty of handling complex appeals.

Solutions to the problems discussed above do exist, and these solutions are exploding across the industry and across the country.

The captive model is one such solution, primarily focused as a remedy to the SmallMid’s concern over self-funding and financial devastation. Captive risk-sharing is not a new idea – yet it is not as common in the self-funded health space as we all might think.

Another group leaves self-funding and then the horror stories trickle downstream, preventing other Small-Mids from moving toward self-funding.

Time and again, my colleagues and I are surprised as we travel and speak on self-funding topics, all around the country, to learn that many employers, not to mention their brokers, have either never heard of captive risk sharing or have simply never invested the time to learn much beyond the basics.

Or, if the Small-Mid stays in the self-funded space, there is a very real chance that they unknowingly breach their fiduciary duty as a plan-sponsor, time and again, when they throw their hands in the air and pay claims that should not be paid pursuant to the

The proof is in the pudding. The numbers show that properly-run captive programs, filled with Small-Mids, are breaking down doors and bringing Small-Mids into self-funding through the assurance of responsible, managed risk-sharing.

The Self-Insurer | www.sipconline.net

Whether heterogeneous (made up of groups spanning multiple industries) or homogeneous (groups within the same industry) in makeup, a captive provides a common goal amongst its members to keep costs down and prop one another up through the safety net of a pool of funds that many might view as a “rainy day fund.”

Regarding the second barrier to entry for Small-Mids, directly handling health claim appeals, there are solutions covering that problem as well. Third-party, second-level appeals outsourcing is becoming more prominent in the self-funded industry.

Historically, the only option that might exist for a plan sponsor was to hope it landed with a TPA that might be willing to handle second-level appeals, usually for a fee. But,

most TPAs steer away from this administrative add-on for two reasons. (1) it drastically blurs the line between who is acting as a fiduciary for the plan and (2) it can create a potential conflict of interest and call objectivity into question when the same entity has adjudicated the initial claim, handled the first appeal, and then went on to handle the second appeal.

Figure in a solution that can handle the appeals concerns discussed above and we are looking at the pinnacle method to eliminate the two most prominent barriers to self-funding faced

by Small-Mids: financial concerns over claims exposure, and managing appeals.

Tim Callender serves as the Vice President of Sales and Marketing for The Phia Group, LLC, headquartered out of Braintree, Massachusetts. Prior to his current role, Tim served as a Staff Attorney and Lead PACE Counsel for The Phia Group. Before joining The Phia Group in 2015, Tim spent years functioning as in-house legal counsel for a third party administrator. Tim is well-versed in complex appeals, direct provider negotiations, plan document interpretation, stop-loss conflict resolution, keeping abreast of regulatory demands, vendor contract disputes, and many other issues unique to the self-funded industry. Tim works out of The Phia Group’s newest office, in Boise, Idaho.

®

29343B

March 2017 | The Self-Insurer

41

SIIA

Endeavors

Condado Vanderbilt Hotel in San Juan, Puerto Rico

SIIA will hold its annual International Conference at the Condado Vanderbilt Hotel in San Juan, Puerto Rico April 18th-19th. This event will be focused on helping U.S.-based companies identify and understand potential business opportunities related to self-insurance/captive insurance in key countries throughout Latin America and the Caribbean. In addition, the event will provide a truly unique networking environment designed to connect U.S. attendees with attendees from Latin America for purposes of exploring partnership and/or business development opportunities.

Join us early and participate in the pre-conference tour to the Bacardi Distillery, including access to the Cathedral of Rum with an assigned Brand Specialist, and a lesson on how to prepare three legendary Bacardi cocktails.

The program continues all day Wednesday, April 19th with sessions discussing Puerto Rico Financial Services Environment – Advantages For Off-Shore Companies, Medical Travel Trends, International Insurance Center (Act 399 Overview), Export of Services and Investor Relocation (Act 20 & 22 Overview), Big Data Solutions for the International Insurance Buyer, and the Evolving Regulatory Environment for SelfInsured Health Plans in Latin America.

The educational program begins Tuesday April 18th, with welcome remarks from SIIA President Mike Ferguson. Sessions on Tuesday will be covering topics such as The Latin American TPA Experience and a Puerto Rico Captive Manager Panel Discussion.

On April 20th, conference attendees have the option of participating in a tour of local medical travel facilities.

For more information on the program, tours, sponsorship opportunities and registration, please visit www.siia.org.

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NEWS

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Members

2017 MARCH MEMBER NEWS

SIIA Diamond, Gold & Silver Member News SIIA Diamond, Gold, and Silver member companies are leaders in the selfinsurance/captive insurance marketplace.

Provided below are news highlights from these upgraded members. News items should be submitted to Wrenne Bartlett at wbartlett@siia.org. All submissions are subject to editing for brevity. Information about upgraded memberships can be accessed online at www.siia.org. For immediate assistance, please contact Jennifer Ivy at jivy@siia.org. If you would like to learn more about the benefits of SIIA’s premium memberships, please contact Jennifer Ivy and jivy@siia.org.

Diamond Members

Zelis™ Healthcare Announces Chief Commercial Officer Zelis™ Healthcare, a market-leading healthcare information technology company, is pleased to announce that Patrick O’Keefe is Chief Commercial Officer for Zelis Healthcare.

Mr. O’Keefe joins the executive team with responsibility for Sales, Account Management and Commercial Operations.

Mr. O’Keefe is a proven healthcare leader with deep expertise in building and leading high performing businesses and sales organizations with small to large size organizations.

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The Self-Insurer | www.sipconline.net

Mr. O’Keefe was General Manager of Anthem|Empire BlueCross Blue Shield where he had P&L accountability for financial and operational results of a New York Commercial business generating over $1 billion in revenue.

Mr. O’Keefe served as Northeast Region Mergers & Acquisitions Partner for Digital Insurance, National Practice Leader for UnitedHealth Group, Vice President of Key Accounts and Regional Vice President of TriState Small Business for United. In addition, he held various sales leadership positions at Fitzmaurice & Company, LLC, (now Willis Towers Watson), ChannelPoint, Inc. (now TriZetto) and HIP of New York (now EmblemHealth).

“Pat has an outstanding record in our space, and I am confidence that he will assist us in reaching our major milestones,� said Doug Klinger, CEO of Zelis Healthcare. “I am thrilled to have the opportunity to join the Zelis team,� said Mr O’Keefe. “It is an exciting time for Zelis and I look forward to utilizing my market experience to support our efforts to achieve our growth objectives and ensure the highest satisfaction of our clients.�

To learn more about Zelis Healthcare, visit us on Facebook, follow us on Twitter, or connect with us on LinkedIn.

About Zelis™ Healthcare Zelis Healthcare is a healthcare information technology company and market-leading provider of end-to-end healthcare claims cost management and payments solutions including network solutions, claims integrity and electronic payments serving healthcare payer clients, healthcare providers and healthcare consumers in the medical, dental and workers’ compensation markets nationwide. Zelis Healthcare is backed by Parthenon Capital Partners.

Mr. O’Keefe earned his BA in Economics & Political Science from Villanova University.

INNOVATIVE STOP LOSS AND ANCILLARY SOLUTIONS At BenefitMall, we know that employer groups benefit most from treating their health plan as an investment rather than an expense. Our team of self funded consultants can help you succeed by offering: U 1˜Lˆ>Ăƒi`ĂŠ Ă?ÂŤiĂ€ĂŒÂˆĂƒiĂŠ>˜`ĂŠ,iĂ›ÂˆiĂœ U ĂŠ Â˜ÂˆĂŒÂˆ>Â?ĂŠ*Â?>Vi“iÂ˜ĂŒ]ĂŠ “Â?i“iÂ˜ĂŒ>ĂŒÂˆÂœÂ˜ĂŠ>˜` ,i˜iĂœ>Â?ĂŠÂœvĂŠ ÂœĂ›iĂ€>}i U ĂŠ Â?>ÂˆÂ“ĂƒĂŠ Ă•`ÂˆĂŒ]ĂŠ-Ă•LÂ“ÂˆĂƒĂƒÂˆÂœÂ˜]ĂŠ/Ă€>VŽˆ˜}] >˜`ĂŠ,iĂƒÂœÂ?Ă•ĂŒÂˆÂœÂ˜ĂŠ-iĂ€Ă›ÂˆViĂƒ U ĂŠ,iÂŤÂœĂ€ĂŒÂˆÂ˜}]ĂŠ ÂœÂ“ÂŤÂ?ˆ>˜ViĂŠ-iĂ€Ă›ÂˆViĂƒĂŠ>˜` *Â?>Â˜ĂŠ ÂœVՓiÂ˜ĂŒĂŠ,iĂ›ÂˆiĂœ U ˆÂ?Â?ˆ˜}ĂŠ>˜`ĂŠ*Ă€iÂ“ÂˆĂ•Â“ĂŠ ÂœÂ?Â?iVĂŒÂˆÂœÂ˜ U ˜VˆÂ?Â?>ÀÞÊ*Ă€Âœ`Ă•VĂŒĂƒĂŠ>˜`ĂŠ-iĂ€Ă›ÂˆViĂƒ

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Silver Members Oklahoma Approves Atlas as Captive Manager Atlas Insurance Management has been accepted by the Oklahoma Department of Insurance to act as a manager for captive insurance business in the state.

The approval makes Atlas the first North Carolina-based captive manager to be accepted by Oklahoma.

Martin Eveleigh, chairman of Atlas Insurance Management, said: “We are pleased to have received approval to do business in Oklahoma.”

“The state is a growing domicile, and we are looking forward to working with Oklahoma’s captive insurance division. Atlas already has two captives that we will be managing in this new domicile.”

In addition to Oklahoma, Atlas Insurance Management recently received approval to act as a captive insurance manager in South Carolina.

Capstone’s CEO Named Top ERC Pioneer 2016 Industry publication, Captive Review, announced honors for Capstone and its CEO and General Counsel, Stewart A. Feldman, for their work in the captive insurance industry.

Earning a spot on its 2016 Enterprise Risk Captive (ERC) Pioneers List for the second time, Feldman received recognition for being one of the top 20 U.S. persons involved with mid-market captive insurance.

“I am honored to receive this recognition once again by Captive Review with my inclusion onto its Enterprise Risk Captive - Pioneers List,” said Feldman. “This recognition is a testament to the ongoing commitment that Capstone and The Feldman Law Firm LLP have to our clients -- providing industry-leading, comprehensive

Great care doesn’t have to mean great cost The BridgeHealth Surgery Benefit Program connects plan members with quality care for less • Little or no out-of-pocket expense • Concierge service • No balance billing

| www.bridgehealth.com

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Would you climb a mountain without a guide?

Healthcare is complicated. As a risk management expert, Berkley Accident and Health can guide you in the right direction.

Our creative, nimble approach to risk, backed by the strength of a Fortune 500 company, gives us a unique perspective. Count on Berkley to show you the way.

Stop Loss | Group Captives | Managed Care | Specialty Accident Insurance coverages are underwritten by Berkley Life and Health Insurance Company and/or StarNet Insurance Company, both member companies of W. R. Berkley Corporation and both rated A+ (Superior) by A. M. Best. Coverage and availability may vary by state. Š2015 Berkley Accident and Health, Hamilton Square, NJ 08690. All rights reserved.

BAH AD-2014-0140

www.BerkleyAH.com

captive planning services. As enter into 2017, Capstone and the Firm will continue to offer high quality, turnkey planning, encompassing insurance, accounting, tax and legal representation for captive clients.

I want to thank Team Capstone, headed

by Charles B. Earls III, its President and by its VP-Operations, Megan M. Brooks, for their ongoing commitment to excellent client service, as well as the contribution of our law firm’s attorneys, particularly tax lawyer Logan Gremillion, senior tax attorney, Steve D. Cohen, head of our law firm’s tax department; and senior corporate lawyer, Michael T. Kelly, in making this recognition possible.”

Mr. Feldman has been the chief executive officer of Capstone Associated Services, Ltd. for over 19 years. Under his leadership, in collaboration with The Feldman Law Firm LLP, Capstone has formed over 200 separate and distinct captive insurance companies (exclusive of cell and series arrangements), for business owners nationwide. The Firm has also led more than 55 tax controversies to successful conclusions, which include three tax court cases. They are among the leaders in identifying industry issues, including those imposed by the 2010 Dodd Frank Act, and more recently have called industry attention to the many impaired “LLC-type” cell and series arrangements.

Feldman draws upon a strong tax, financial, and accounting background, dating back to a career in public accounting in the 1970s following his completion of graduate business school.

Mr. Feldman brings 30+ years of experience on the substantive business side of transactions along with the perspective offered as an attorney and as a former practicing CPA. Stewart A. Feldman earned a position on the ERC Pioneers List in 2015 as well as the 26th worldwide position on the publication’s Power 50 List in 2014.

6

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We appreciate the positive response our medical stop loss coverage has received coast to coast. We look forward to bringing our iconic brand name, stellar balance sheet, and decades of underwriting experience to the medical stop loss marketplace for years to come.

Thanks.

Asheville | Atlanta | Boston | Chicago | Houston | Irvine | Indianapolis Los Angeles | New York | San Francisco | San Ramon | Seattle | Stevens Point Auckland | Brisbane | DĂźsseldorf | Hong Kong | Macau Melbourne | Singapore | Sydney | Toronto

www.bhspecialty.com/msl

Gold Members QBE’s Phillip Giles Selected for Captive Review›s ‘Power 50’ List Phillip Giles, Vice President of Sales & Marketing for QBE North America’s Accident & Health division, was recently named to Captive Review Magazine’s ‘2017 Power 50’ list. The Power 50 is a ranked list recognizing the most influential professionals in the global captive insurance industry who are likely to continue influencing the industry’s direction and progress in the future.

Giles, ranked number 35, is distinguished by the publication as a key player in the medical stop loss industry. In 2016, he successfully worked to promote greater expansion, education and integrity within the medical stop loss and alternative risk industry. “This is an amazing honor, especially considering the level of professionalism that is represented by the other individuals on this list,” said Giles.

The Captive Review “Power 50 List” can be viewed at the following link: http://captivereview. com/digitaleditions/reports/Power%2050%202017/index.html About QBE

QBE North America is part of QBE Insurance Group Limited, one of the largest insurers and reinsurers worldwide. QBE NA reported Gross Written Premiums in 2015 of $4.6 billion. QBE Insurance Group’s 2015 results can be found at www.qbena.com. Headquartered in Sydney, Australia, QBE operates out of 37 countries around the globe, with a presence in every key insurance market. The North America division, headquartered in New York, conducts business through its property and casualty insurance subsidiaries. QBE insurance companies are rated “A” (Excellent) by A.M. Best and “A+” by Standard & Poor’s. Additional information can be found at www.qbena.com, or follow QBE North America on Twitter. Contact Phillip Giles, Vice President - Sales & Marketing, at Phillip.

Giles@us.qbe.com, 910.420.8104 and visit www.qbena.com.

QBE’s North American-based Accident & Health division provides exemplary coverage and services to support the specialized needs of self-insured employers as a leading direct-writing provider of medical stop loss, including single-parent and group captive programs requiring stop loss insurance.

Lockton Associates and Partners Are Experts At: F O C US E D O N C L IE NT S .

Medical Benefits

Life & Disability

Retirement Services

Risk Management

Serving Employers Around the World

D E DIC A T E D T O R E S UL T S .

C OMMI TTED TO MA KIN G YOU R BUSINESS BETT ER. WE LIVE SERVICE!®

Insurance • Risk Management • Surety Expertise

444 W. 47th Street, Suite 900 Kansas City, MO 64112 • 816.960.9000 www.lockton.com © 2017 Lockton Companies. All rights reserved.

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ELMC Group, LLC Appoints Industry Veteran John Gedney to the Role of Executive VP, Chief Growth Officer ELMC Group, LLC, (“ELMC”), a manager of premier, full-service managing general underwriters (“MGUs”) specializing in underwriting medical stop-loss insurance, announces the hiring of John Gedney into the role of Executive Vice President, Chief Growth Officer.

Gedney is an employee benefits entrepreneur with more than 30 years of experience helping companies optimize their benefits plans and is considered an industry expert in the emerging Private Exchange market.

Gedney holds a Bachelor’s Degree in Business from Adelphi University. He is a former finalist in Ernst & Young’s Entrepreneur of the Year award and has mentored entrepreneurs in formulating and growing their businesses.

In his new role, Gedney will drive business development and new market opportunities that will further ELMC’s accelerated rate of growth and profitability. Prior to joining ELMC, Gedney held the position of Vice President of National Partnerships at Liazon, a Willis Towers Watson company, where he was responsible for creating, developing and overseeing the national broker partner channel.

“John is known throughout the industry as a pioneer who has been on the leading edge of significant industry shifts including managed care and technology,” said Richard Fleder, cofounder and CEO of ELMC. “His expertise and experience uniquely positions him to lead our business development efforts, and he will be a great addition to our senior leadership team,” said Fleder.

Gedney’s previous industry experience includes executive positions with Oxford Health Plans and EBP Healthplans, at the time the nation’s leading mid-market, Third Party Administrator and MGU. Prior to joining EBP, John owned an employee benefits advisory firm, Securis, and was a founder of OnlineBenefits, the creator Benergy, the industry leading benefits communications portal.

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No matter your industry, Delaware’s award-winning Captive Insurance Bureau can help your business gain the upper hand...

Call us today to begin a conversation about your goals and our solutions.

BUREAU OF CAPTIVE & FINANCIAL INSURANCE PRODUCTS The Nemours Building | 1007 Orange Street, Suite 1010 | Wilmington, DE 19801

Phone: 302.577.5280 | Fax: 302.577.3057 Web: http://captive.delawareinsurance.gov

Insurance Commissioner Karen Weldin Stewart 2

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SIIA would like to Recognize our Leadership and Welcome New Members 2016 Board of Directors CHAIRMAN* Jay Ritchie Executive Vice President Tokio Marine HCC – Stop Loss Group Kennesaw, GA PRESIDENT/CEO Mike Ferguson SIIA, Simpsonville, SC TREASURER & CORPORATE SECRETARY* Duke Niedringhaus Senior Vice President, J.W. Terrill, Inc. Chesterfield, MO CHAIRMAN-ELECT* Robert A. Clemente CEO Specialty Care Management LLC Lahaska, PAKennesaw, GA

Directors Adam Russo Chief Executive Officer The Phia Group, LLC Braintree, MA Joseph Antonell CEO/Principal A&M International Health Plans Miami, FL Kevin Seelman Senior Vice President Lockton Dunning Benefit Company Dallas, TX Andrew Cavenagh President Pareto Captive Services, LLC Philadelphia, PA Mark L. Stadler CEO BridgeHealth Denver, CO

Mary Catherine Person President HealthSCOPE Benefits, Inc. Little Rock, AR David Wilson President Windsor Strategy Partners, LLC Princeton Junction, NJ

Committee Chairs CAPTIVE INSURANCE COMMITTEE Michael P. Madden Senior Vice President Artex Risk Solutions, Inc. San Francisco, CA

HEALTH CARE COMMITTEE Kari L. Niblack Executive Vice President of Client Engagement & Services Apex Benefits Indianapolis, IN INTERNATIONAL COMMITTEE Robert Repke President Global Medical Conexions, Inc. Novato, CA WORKERS’ COMP COMMITTEE Stu Thompson CEO The Builders Group Eagan, MN

GOVERNMENT RELATIONS COMMITTEE Lawrence Thompson Senior Vice President, Sales & Client Services POMCO Group Syracuse, NY

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SIIA New Members Regular Corporate Members Mark Fiechter Director of Account Management AXA Assistance USA Chicago , IL Mark Jacobs President/CEO Captive Alternatives LLC Atlanta, GA Bryan Ridgway Managing Principal CIC Services LLC Knoxville, TN

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Daniel Davey Principal Mercer Princeton, NJ Lisa Schanbacher VP of Employer Strategies Parkview Health Plan Services Fort Wayne, IN William Jones CEO Payer Matrix Sharon Hill, PA Terri Rainge Underwriting Practice Leader United Benefit Advisors Indianapolis, IN

Michele Bell VP Partnerships Cognoa Palo Alto, CA

Silver Member

Robert Nizzi President Enterprise Risk Strategies Leawood, KS

Sherif Khattab M.D. Managing Director Direct Health Delivery Torrance, CA Employer Member

David Liptz Partner HKG CPA Newport Beach, CA

Thomas Barcelona CEO Barcelona Creative Group Burr Ridge, IL

David Stewart Principal Insurance Professionals of Arizona Mesa, AZ

William Lawrence Risk Manager Sanford Contractors Inc. Lemon Springs, NC

Edward Bernacki MD Director Johns Hopkins Occupational Medicine Baltimore, MD

Felipe Danglapin Chief Operating Officer Teachers Health Trust Las Vegas, NV

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Diamond Member Harry Tipper COO - Insurance CaptiveOne Advisors LLC Wellington, FL

Better Service.

Better Performance.

Experience Zelis Healthcare.

Network Solutions

Claims Integrity

Payments

Provides Discounts and Access to Networks

Ensures Appropriate Reimbursement for Care

Efficient and Timely Payment and Data

Zelis Healthcare is a healthcare information technology company that provides solutions which address pre-payment to payment needs across the claims life cycle.

Find out what Fully Integrated Healthcare Cost Management can do for you!

Visit us at Zelis.com Copyright 2016 Zelis Healthcare. All rights reserved.

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