The Self Insurer_June by SIPC

JUNE 2020

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COVID Captivity PANDEMIC SPOTLIGHTS ROLE OF CAPTIVE INSURANCE TO FILL TRADITIONAL COVERAGE GAPS, UNITE RISK MANAGEMENT AND BENEFITS MANAGEMENT

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TABLE OF CONTENTS

JUNE 2020 VOL 140

W W W. S I P C O N L I N E . N E T

FEATURES 4

COVID CAPTIVITY PANDEMIC SPOTLIGHTS ROLE OF CAPTIVE INSURANCE TO FILL TRADITIONAL COVERAGE GAPS, UNITE RISK MANAGEMENT AND BENEFITS MANAGEMENT By Bruce Shutan

WORK COMP’S VIRTUAL TOUCH COVID-19 HAS SPREAD TELEMEDICINE TO INJURY ASSESSMENTS, SAVING BOTH TIME AND MONEY FOR SELF-

INSURED PLANS AND KEEPING CLAIMANTS OUT OF HARM’S WAY

By Bruce Shutan

ARTICLES 18

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

CAPTIVE OUTLOOK POST PANDEMIC

BE READY FOR THE DRUG PRICING DEBATE TO RETURN WITH A BANG

38 SELF-FUNDED HEALTH CARE PLANS IMPROVING THE ODDS OF YOUR FUNDING STRATEGY 45

SIIA ENDEAVORS

SIIA PAST BOARD CHAIRMAN JOHN JONES PASSES AWAY

NEWS FROM SIIA MEMBERS

The Self-Insurer (ISSN 10913815) is published monthly by Self-Insurers’ Publishing Corp. (SIPC). Postmaster: Send address changes to The Self-Insurer Editorial and Advertising Office, P.O. Box 1237, Simpsonville, SC 29681,(888) 394-5688

Self-Insurer’s Publishing Corp.

PUBLISHING DIRECTOR Erica Massey, SENIOR EDITOR Gretchen Grote, CONTRIBUTING EDITOR Mike Ferguson, DIRECTOR OF OPERATIONS Justin Miller, DIRECTOR OF ADVERTISING Shane Byars, EDITORIAL ADVISORS Bruce Shutan and Karrie Hyatt, 2018 Self-Insurers’ Publishing Corp. Officers James A. Kinder, CEO/Chairman, Erica M. Massey, President, Lynne Bolduc, Esq. Secretary

JUNE 2020

FEATURE

COVID Captivity

PANDEMIC SPOTLIGHTS ROLE OF CAPTIVE INSURANCE TO FILL TRADITIONAL COVERAGE GAPS, UNITE RISK MANAGEMENT AND BENEFITS MANAGEMENT

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s far back as November 12, 2019, SIIA’s Captive Insurance Committee first

“There really wasn’t a consensus to move forward and possibly include pandemic risk in some of our captives,” recalls John Capasso, mulled responses to what was then described as the Wuhan virus.

president and CEO of Captive Planning Associates, LLC who chairs the committee.

“I don’t think anybody really grasped the magnitude once it hit our shores.” Fast forward about four months to when several state legislatures tried forcing insurance carriers to pay business-interruption claims related to novel coronavirus losses under currently in-force insurance policies. These efforts were pursued in spite of the fact that they don’t collect enough annual premiums to remain solvent, Capasso says.

Written By Bruce Shutan

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Covid Captivity It’s unlikely that pandemics are covered under most of these policies in the standard insurance marketplace, explains Harry Tipper, III, chief operating officer, insurance for CaptiveOne Advisors LLC. He says one exception would be if a company “already created a captive and considered that sort of thing as part of the insurance coverage that the captive would offer.” As an example of the standard market, he says the Lloyd’s of London and London market John Capasso insurers that offer contingency insurance (similar to the business-interruption line) “are reported to be slapping pandemic exclusions on every one of their renewals.” It’s not surprising considering that preliminary estimates from the U.S. Casualty Actuarial Society suggest the risk of retroactively adding losses from the current COVID-19 pandemic as a covered cause of loss “essentially bankrupts the U.S. insurance industry,” Tipper observes. His larger point is that based on how insurers have responded to the pandemic,

“may have to find alternatives to their traditional roots to protect their business… This pandemic will undoubtedly make companies take a second look at captives, an option that heretofore they may not have given serious consideration.”

What’s needed is a federal backstop for COVID-19, which he argues is also “just too much for a captive to handle.” He’d like to see lawmakers include language that allows captives to participate in any such legislative solution. “Otherwise,” he warns, “captives will not be in a position to take anything other than a reimbursement type of policy to help businesses out.” SIIA’s Captive Insurance Committee has discussed the possibility of a version of the Terrorism Risk Insurance Act of 2002 being crafted to deal with COVID-19, knowing the commercial market’s response to pandemic risk is akin to endorsements omitting terrorism after 9/11.

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MEDICAL STOP-LOSS CAPTIVE RENEWALS

Harry Tipper

Capasso’s firm is seeing COVID-19’s impact on renewal rates for some of the medical stop-loss captives it runs. While there has been some tightening in the market, he’s still receiving competitive quotes, especially on a reference-based pricing (RBP) platform.

While all types of businesses and industries worldwide have experienced serious disruption, the All-England Lawn Tennis Club must have had a prophecy. It paid for an insurance policy in each of the past 17 years to guard against losses in the unfortunate event that a pandemic would cancel the famed Wimbledon tournament. One report pegged the payment at $141 million, which would be nearly half the amount of expected losses.

COVID-19 claims for medical stoploss captives are expected to be $25,000 to $50,000 on the low end and $500,000 to $750,000 or more on the high end involving someone on a ventilator in intesive care, reports Donald McCully, president of Medical Captive Underwriters.

Many pure captives cover business interruption, supply chain interruption and administrative actions, which in the case of COVID-19, involves governmental agencies issuing stay-at-home orders. “There’s nothing out there right now that covers any of this other than the liberalization of policies that we wrote with our clients” to do just that, Capasso explains.

“There’s not a whole lot we can do to mitigate the risk” other than write into the plan document ways for employers to control the frequency and cost of testing for future pandemics, he says. “If the

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Covid Captivity claim shows up, we follow the fortunes of the stop-loss carrier that we reinsure.” Tipper notes that many captive managers have started to see some claims under various insurance coverages the captives that they manage write; for example, policies that involve employees or key partners who have fallen ill or died from COVID-19. Don McCully Turning to the medical benefits insurance or self-insurance marketplace, he notes that the captive’s owner must determine the terms of pandemic disease coverage under its plan documents and if it matches up to the coverage or coverage restrictions that stop-loss carrier may have imposed.

“you can have a captive which picks up what the stop-loss carrier doesn’t for such issues like experimentality of the treatment protocol,” he says. “It may not be able to do it for the full limits that the stop-loss carrier can do, but at least it can provide some financial relief.” Even under a self-insured benefits plan,

Turning to other captive forms such as a group captive also may fill coverage gaps provided that it does so in a manner that doesn’t render all of the other captive owners or members of the syndicate insolvent. Whereas a homogenous pool or group captive take on risks that are unique to particular industries, some captive managers and captive owners may prefer a heterogenous structure for better balancing of losses. Traditional thinking had been that the latter reduced risk by accepting risk from uncorrelated industries. “Pandemic diseases break that whole scenario,” Tipper explains. “They are endemic to every aspect of American society and every industry. Whether you’re homogenous or heterogenous, an individual or group captive, your owner or owners are going to be affected by a pandemic disease.” In short: no one is immune. For example, while some large self-insured employers moved many employees to part-time status or used other methods to reduce group benefit costs including those related to COVID-19, they will be less successful when workers’ comp liability may be unavoidable. Even gig economy business such as the Lyft and Uber ridesharing services, as well as essential services such as Uber Eats, Doordash and GrubHub, face the same challenge considering that the coronavirus likely will sideline a percentage of drivers, according to Tipper.

JUNE 2020

Covid Captivity An unintended consequence of claims from COVID-19 may be tipping the scales in individual jurisdictions to deem these drivers to be employees, not independent contractors, as those states seek funding sources to help finance an explosion in the number of stricken individuals who need to be treated. As the pandemic generates greater interest in captives, he believes COVID-19 claims may be the impetus that finally proves the captives’ worth to its critics. The next challenge will be captives’ passing muster with the IRS, which has continued its attacks on these alternative risk transfer arrangements even during the pandemic.

BREAKING SILOS Single-parent captives can write a policy that blends group health insurance premiums into their existing property and casualty captive, according to McCully. Although limited in scope, he notes that it might be for medical malpractice for a hospital or another P&C line. In fact, many of these organizations are in healthcare, which he says means “they’re going to have COVID-19 exposure for their employee population at a greater frequency” than others. The same would be true with a homogenous line of nursing homes that must shut down periodically if workers have been exposed and need to be quarantined or a restaurant chain whose sales have been significantly reduced by social distancing. Whatever the risk might be, one major strategic advantage of a captive is that it allows employers a meaningful

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opportunity to break silos along the road to uniting risk management and benefits management. A wellness initiative can be amortized over P&C and health insurance exposure for middle-market employers with 100 or 125 lives that self-insured through a captive because it’s going to impact both sides when implement, McCully explains. “You don’t have somebody on lost wages or out of the office sick with COVID-19 if you can manage that exposure and create that physical space that’s required for a safer work environment,” he adds. One real-world example could involve using digital thermometers to monitor the body temperature of workers multiple times a day, which not only would be less strenuous than drug testing but also more effective in managing pandemic risk. “That in and of itself might be a leading indicator for keeping that person out of work for a few days, as they see whether it’s a flu or virus, or they’re just fine and maybe it’s only two or three days vs. 14 in quarantine,” he says. Capasso predicts that BUCAH plans will likely raise their rates in a post-COVID-19 market, which would provide an advantage to group medical stop-loss captives, especially those that incorporate RBP or have some ability to use it in their plan design. “That’ll be a big help to midmarket companies,” he believes. Ironically, he isn’t sure if carriers are worried about the cost of caring for patients who require emergency care or hospitalization so much as other issues. Several underwriters, for example, have expressed to him their deeper concern about a

One of the greatest risks is having a premature baby, and one preemie can cover 15 to 20 patients on a ventilator,” he notes.

potential baby boom from about November to February. “

COVID-19’s impact might be a double-edged sword. On the one hand, McCully says there could be significantly reduced frequency and severity of catastrophic claims if enough elective surgeries are being deferred and eliminate any costly complications that would balloon those expenses. But one or two serious COVID-19 claims could wipe out those gains, especially when there’s such widespread exposure to the pandemic. But there also are opportunities to create a winning formula. “If I can avoid a few COVID cases, and my frequency and catastrophic is down, we’re going to have a very good underwriting year,” he says. Bruce Shutan is a Portland, Oregon-based freelance writer who has closely covered the employee benefits industry for more than 30 years.

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Virtual Touch

FEATURE

Work Comp’s Virtual Touch

COVID-19 HAS SPREAD TELEMEDICINE TO INJURY ASSESSMENTS, SAVING BOTH TIME AND MONEY FOR SELF-INSURED PLANS AND KEEPING CLAIMANTS OUT OF HARM’S WAY

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he art and science of telemedicine, also known as telemed or telehealth, has finally taken center stage after years of frustratingly low utilization across the self-insured community – and beyond. In a post-pandemic world, it could become a preferred gateway to health care providers if not already a standard health plan offering. The National Council of Compensation Insurance estimates that at least 7 million telehealth encounters occur around the U.S. each year, and the telemedicine market will continue to grow by at least 6% annually. But little has been revealed about how virtual visits are being applied to the workers’ compensation arena. Telemedicine visits are overwhelmingly on the group health side, says Mary Ann Lubeskie, VP of managed care operations with TRISTAR Managed Care who was part of a panel discussion on this topic at SIIA’s national conference in San Francisco.

Written By Bruce Shutan

THE SELF-INSURER

Virtual Touch Workers’ comp was late to the dance for a number of reasons. She says one is that the per-employee-per-month fee schedule doesn’t apply in a comp setting where payments are tied to services rendered. A few of her clients were using telemedicine comp claims prior COVID-19 when its use skyrocketed out of necessity. Aside from the group market being exponentially larger and, therefore, an unfair Mary Ann Lubeskie comparison, another factor involves regulatory restrictions. Two months prior to the emergence of COVID-19, a handful of states actually limited the use of telemedicine. They included Alabama, Arkansas, Louisiana, Nevada, Ohio and Washington. However, Lubeskie suspects all states will have at least passed emergency provisions for telemedicine by the end of 2020 considering how indispensable it became in the early days of social distancing when the nation’s healthcare system was seriously overloaded.

comp legal trends. “Telemedicine for work comp is a great idea, but there are HIPPA concerns. Most doctors in the U.S. are not set up for it and must be trained to use it.” Smartphone are liberating because people who work in an open office environment or factory can simply walk to their car and have a private video call, Lubeskie says. They also make it much easier to be treated for minor issues such as contact dermatitis, which can be photographed and uploaded for a physician to examine, and can be used to find the nearest pharmacy to pick up a prescription. An analysis of CorVel’s virtual visits found that more than half were done on smart devices vs. laptop or desktop computers.

A NEW NORMAL? That comfort level is expected to deepen. “Once people get used to it,” she opines, “it’s going to be tough to all of a sudden not have that as an offering, especially if we’re starting low-severity type of injuries that can easily be handled with telemedicine.”

TIME IS MONEY

David Lupinsky

The genesis of telemedicine for the worksite actually began with NASA’s medical treatment of astronauts in flight, according to David Lupinsky, VP of medical review services with CorVel. He says it then expanded to remote areas without neurologists in the ER to diagnose strokes. CorVel was among the first to launch telemedicine services in work comp, a solution that includes home delivery of prescriptions and durable medical equipment to injured workers who may not have the coronavirus but are required to shelter in place. The prevalence of smartphones has revolutionized the use of telemedicine. About five or six years ago when work comp began experimenting with virtual visits, Lubeskie says companies typically would set up a kiosk in an area where injured workers could have privacy.

Telemedicine can help save a substantial amount of time in returning someone to work. Lubeskie notes that injured employees might be gone from their job for only about 30 minutes on a convenient virtual visit. In stark contrast, she cites a 2015 Harvard Medical School study of indirect health care costs showing the average person spends about two hours traveling to and from a doctor’s office, as well as waiting to be seen and treated. She has been able to measure the benefit from a triage perspective, noting “we’re seeing almost 40% less claims as a result of that.” Moreover, the Harvard study pegs the cost of care at about $32 and time away from work at about $42.

“Patient confidentiality and privacy must be protected,” notes Jeffrey Adelson, comanaging partner and general counsel for Adelson McLean, a startup handling work

JUNE 2020

Virtual Touch Telemedicine also helps significantly streamline the work comp process. About 47% of virtual visits across CorVel’s book of business end up in self-care at the nurse level. “Almost half of your injuries can be handled by the nurse,” Lupinsky says. “They don’t even become claims.” He says physician practices that typically transition well into the digital world have three brick-and-mortar waiting rooms and a fourth dedicated to virtual visits. Those video chats may include making arrangements to obtain medication or equipment and scheduling follow-up, physical therapy visits or tele-ergonomics evaluation via telemedicine, as well as setting up a transitional work-from-home plan. Such steps are designed to speed claims, recovery and return to work. Since telemedicine isn’t bound by geography, it fosters integration between general practitioners, specialists, nurses and case managers and eliminates expenses associated with traveling to and from brick-and-mortar facilities. As such, Lupinsky says it helps break the silo mentality that separates each of these disciplines. He likens the arrangement to curbside consults from Kaiser Permanente.

FRONT-LINE WORKERS Telemedicine for work comp fits some types of self-insured employers or industries better than others. Lubeskie sees it mostly across her transportation book of business with regard to heavy haulers who don’t know where to locate medical providers on the road. Healthcare workers in nursing homes or pharmacies also are part of that list.

Having 24/7 access to physicians is critically important in industries that employ shift workers who can be encouraged to seek quicker and more appropriate care. “An ER is not going to do any better treating a strain than a telemedicine doctor is, and the ER’s going to be more expensive since they’re going to take an X-ray, MRI or other tests that really aren’t necessary,” according to Lubeskie. Other beneficiaries of telemedicine include injured workers in need of transportation or those in rural areas without access to nearby occupational providers who might otherwise have to travel 100 miles to be treated. Selfinsured employers can save on the cost of reimbursing these patients for mileage and other travel expenses to and from a provider’s office. Restaurant chains are among the early adopters of telemedicine for work comp. One such pioneer is the Cheesecake Factory, a client of CorVel whose physicians were able to limit cases

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Virtual Touch involving burns and lacerations simply by recommending that first-aid kits include certain items. Under this care model, as many as 60% to 65% of patients never stray from work. “When somebody leaves, it’s not just the cost of that patient leaving, it’s business continuity,” Lupinsky says. Of course, there are other meaningful advantages to using telemedicine in a work comp setting. For example, CorVel found a 60% decrease in litigation, 34% decrease in average incurred and 28% decrease in days open for cases that start in triage vs. those that do not. A key strategy is that nurses are required to make an empathetic statement to patients that Lupinsky notes can “tip the fence” in injured workers feeling that they need to hire an attorney. CorVel’s virtual visits are credited with slashing treatment wait times to just 10 minutes from an average of two hours over a five-year period. They also have reduced unnecessary prescriptions by nearly 50%, lowered treatment costs between $100 to $850 per visit and increased patient satisfaction rates to 4.8 from 3.65 on a scale of 1 to 5.

THE COVID FACTOR Whereas about 25% of CorVel’s work comp visits were via telemedicine before COVID-19, the number skyrocketed to roughly 80% when the pandemic began to restrict daily life. “We cannot get people to go to brick-and-mortar in this setting,” Lupinsky reports. “We’ve had providers that are recommending an X-ray, and patients are refusing.” Virtual

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visits certainly have helped overburdened hospital ERs, saving both substantial time and money. Since the pandemic struck with a vengeance, she has seen the biggest demand coming from public entities whose first responders perform essential functions. “They’re getting either Covid exposure claims or they’re having regular work comp claims, but they want to have a telemedicine visit because they just have no interest in going to a doctor’s office for fear of additional exposures,” Lubeskie explains. That adamance extends to follow-up care, as well existing cases wherein claimants would rather use telemedicine or tele-rehab. Telemedicine certainly could help stem the work comp price-tag of COVID-19 across all states that use it. California is bracing for the possibility that 42,000 COVID-19 cases could spark $33 billion in work comp claims. Gavin Newsom, the state’s Democratic governor, recently mulled whether essential employees who contract coronavirus would be presumed to have done so on the job. With millions of Americans working from home to comply with government-ordered lockdowns during the pandemic, Adelson recommends that employers set forth specific work-at-home rules, revise handbooks and share ergonomics best practices.

“Some of us trip over cords, lose work on computers and sit in the wrong position for hours,” he observes. “Our backs and wrists hurt, and this type of work is going to generate claims.”

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Virtual Touch nurse case managers who are on the front lines working with injured workers. For example, nurse case managers can remotely attend an injured worker’s telemedicine visit and help claimants ask the right questions during appointments.

“With thorough clinical information, the nurse can better advocate for appropriate care for that injured worker,” according to Blue. Mariellen Blue It’s understandable that some injured workers may be wary of using telemedicine if they’ve never used it or

Telemedicine tools enable her firm’s nurse case managers to have “more face time with injured workers, and during a time when there’s great anxiety across the nation due to the pandemic, this social interaction can be pivotal to ensuring injured workers don’t fall into a depression that could delay their recovery.”

“But oftentimes, once they’ve used it, they’re pleasantly surprised at how convenient and effective it is, and when appropriate, they’re happy to continue using telemedicine for their care,” reports Mariellen

Bruce Shutan is a Portland, Oregon-based freelance writer who has closely covered the employee benefits industry for more than 30 years.

Blue, a register nurse and national director, case management services, product management and development with Genex Services.

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are intimated by the technology.

She has seen a significant increase in the use of telemedicine for work comp cases since the COVID-19 pandemic began, though the impact hadn’t yet been quantified. It’s easy to see why: Telemedicine allows providers, patients and nurse case managers to follow any stay-at-home orders, as well as social distancing best practices.

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A QQ& A

ACA, HIPAA AND FEDERAL HEALTH BENEFIT MANDATES:

Practical

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 Womenâ&#x20AC;&#x2122;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, and Carolyn Smith provide the answers in this column. Mr. Hickman is partner in charge of the Health Benefits Practice with Alston & Bird, LLP, an Atlanta, New York, Los Angeles, Charlotte, Dallas and Washington, D.C. law firm. Ashley Gillihan and Carolyn Smith are senior 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 questionerâ&#x20AC;&#x2122;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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CORONAVIRUS IMPACT ON HEALTH BENEFITS: AGENCIES ISSUE IMPORTANT GUIDANCE EXTENDING COBRA AND ERISA PLAN DEADLINES Our last article covered recent Coronavirus legislation impacting health benefits under the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The tri-agencies followed with additional FAQ guidance clarifying the impact of these laws.1

This article provides a high-level overview of the subsequent agency guidance extending certain COBRA and ERISA welfare plan claim and appeal deadlines.2

Once again, things are very fluid and further guidance will undoubtedly be issued. More to come.

In accordance with ERISA Section 518, the DOL and the IRS have jointly issued a notice (“Joint Notice”) that directs group health plans and group health insurers to disregard the period between March 1, 2020, and 60 days after the announced end of the COVID-19 National Emergency (the “Relief Period”) when calculating the plan related time periods described below.

Consequently, the application of the Joint Notice means that (i) any of the following time periods that began before March 1 but did not expire prior to March 1 are tolled until the end of the Relief Period, and (ii) the start date of any of the following time periods that would otherwise begin on or after March 1 is postponed until the end of the Relief Period:

• The 30-day or 60-day time period to request special enrollment in a group health plan (e.g., when a spouse loses eligibility for coverage under another group health plan due to a termination of employment, layoff or furlough). Note that as was the case pre-Guidance special enrollments are not required for certain excepted benefit plans (e.g., vision, dental, and Health FSAs);

• The qualified beneficiary’s 60day period to elect COBRA for group health plans;

• The plan administrator’s 14-day period (44 days in the event the plan administrator is the plan sponsor) for sending COBRA election notices;

• The 45-day period (initial premium) and 30-day (subsequent premiums) period for qualified beneficiaries to make COBRA premium payments. The Joint Notice indicates that plans and insurers may not deny coverage based solely on failure to pay premiums during this period but may retroactively make payments once premiums are paid;

JUNE 2020

• The qualified beneficiary’s 60day period to notify the plan administrator of a qualifying event or a qualified beneficiary’s second qualifying event during a COBRA period event (such as divorce, death, dependent child’s loss of dependent status or a qualified beneficiary’s determination of disability);

• The time period under any ERISA welfare plan for the claimant to file a benefit claim (including the run out period for Health FSAs) and the 180day period to file an appeal (if the plan offers a 2nd level internal appeal, the period for filing a 2nd level of appeal, as determined by the plan, is also impacted); and

• A claimant’s period to request external review or perfect an external review.

In addition to the Joint Notice , the agencies issued extensive FAQs. https:// www.dol.gov/sites/dolgov/files/EBSA/ about-ebsa/our-activities/resourcecenter/faqs/covid-19.pdf

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Church excepted benefit (vision, dental, FSA)

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Governmental excepted benefit (vision, dental, FSA)

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Other ERISA plan (e.g., disability)

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Non-ERISA plan (e.g., dependent care or transit)

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We don’t know when the National Emergency will be lifted. This means that election periods and payment periods that began or otherwise ended during the Relief Period could be open for a very long time—and plans will be required to track those time periods.

Thus, every plan sponsor and administrator (including COBRA administrators) should discuss these new requirements with their legal advisors. Some high level considerations follow:

• Although the guidance does not expressly require revisions to notices and/ or SPDs, the guidance references fiduciary duties related to notification. While an SPD or SMM may suffice, more expedient approaches may be possible – especially given the temporary nature of the guidance;

• Plan sponsors and administrators should review current notices and 20

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payment booklets to ensure compliance. It is extremely important to give qualified beneficiaries the information they need to stay on track. While QBs have an opportunity to delay electing and/or making payment, there are consequences to that (e.g., if you don’t pay for 4 months and then decide that you need coverage for those 4 months, you have to pay for 4 months of COBRA premiums, which will be cost prohibitive for most people).

Employers and plan administrators should discuss these issues with counsel in advance to ensure ongoing compliance with their legal requirements during the Relief Period.

• Consideration should be given to creating a supplement covering the COBRA extension provisions and including it with election and premium notices. Including the supplement with current notices and communications could suffice for prospective notice, but consideration should be given to how to address covered individuals and current qualified beneficiaries (including individuals who have not yet made their elections).

• The early termination notice that is typically sent following a failure to pay the premium by the end of the monthly grace period should be reviewed. Under the extension, failure to pay by the end of the normal grace period doesn’t terminate the QB’s right to COBRA as it otherwise would—the QB can still retroactively reinstate it by paying the premium at any time up to 30 days after some the end of the Relief Period in the future.

• The guidance makes it clear that plans are not required to pay claims during the Relief Period where elections are not made and/or premiums are not paid in reliance on the extension; but it also states that the plan cannot deny coverage when premiums haven’t been paid.

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References 1

https://www.dol.gov/sites/dolgov/

files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-42.pdf 2

https://www.federalregister.gov/

documents/2020/05/04/2020-09399/ extension-of-certain-timeframes-for-employee-benefit-plans-participants-and-beneficiaries-affected

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CAPTIVE OUTLOOK POST PANDEMIC

Written by Karrie Hyatt

W W

hile the economic issues surrounding COVID-19 are widespread and still evolving, companies are facing both financial and operational impacts. For captives, this crisis highlights their value. This high-risk, low-frequency situation is what many captives were created for. Right now, captives are showing how valuable they are.

The flexibility that captives are known for is allowing them to help their owners in ways that companies with traditional insurance cannot. Captives are helping their owners bridge financial uncertainty by using their surplus capital as intercompany loans or as dividends to owners, helping them to address cashflow demands during state mandated shutdowns. Captives are making changes to policies to plug gaps in coverage.

Regulators are helping both owners and captives too. In Vermont, regulators are allowing policy coverages to continue at no charge or at reduce premiums for captive owners that have been hit hard during the crisis.

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According to Sandy Bigglestone, director of Captive Insurance with the Vermont Department of Financial Regulation, “We plan to continue to work with captive owners to help them accomplish their goals as they manage the crisis. With a degree of variability and future unknowns, we need to prioritize with a sense of reality and regulate with a balanced approach. We do not see the value in holding onto excess surplus in captive insurance companies when it can be used to ease the stressed environments captive owners are already experiencing.”

The future for most businesses is uncertain right now, but for captives, the future looks bright.

OUTLOOK FOR CAPTIVES IS POSITIVE

Coming into 2020, captives were poised to have a successful year and while the pandemic has considerably changed the market, captives are positioned to not only to rise to the challenge, but to grow in a contracting marketplace.

Michael A. Corbett, senior vice president with Pinnacle Financial Partners and former Tennessee captive regulator, “Since the end of last year, I’ve heard talk about renewals [in the traditional market] that are increasing by 50, 75, 100 percent. Businesses facing those kinds of premium increases are saying, ‘I’ve got to do something different.’ Captives are going to be a great solution to a lot of players.”

“We had an approaching hard insurance market before this pandemic put a stop to everything so if we can get back to the economy we had before the shut down in relatively short order, I believe captives will increase in formation simply due to the hard market,” said Jeffrey Kenneson , president, Davies Captive Management.

“As far as the pandemic, I think it will affect captives like 9/11 did where there will be some formations due to the event but more likely existing captives will expand coverages to address the shortfalls they’ve identified in their coverages during this shutdown phase.” The traditional insurance market is being hit hard by the COVID-19 crisis. Capacity will be further tightening which will leave many businesses without key coverages. Again, this is where captives hold their own and will likely see an increase in new captives and new lines added to existing captives. Corbett expects to see established captives expanding their coverages to cover pandemics, business interruption, or loss of employees. “There’s going to be a lot of amendments to existing plans over the next year.”

JUNE 2020

Bigglestone said that Vermont is still seeing new applications coming in at this time. “The hard market had cycled in before the pandemic, and I do not anticipate it will change post-pandemic as commercial carriers try to make up for their operational and financial impacts. The commercial market may fall short with providing the needed capacity or specific coverage needs of businesses, so captive insurance will continue to thrive.”

ISSUES CAPTIVES ARE FACING

While the overall outlook for captives is positive, there are a number of issues that captives of all sizes will face. Some of the issues are those that are affecting the financial sector as a whole and some are exclusive to captives.

As captive owners see large business losses or are forced to close their doors,

“If we see a major downturn in the economy once we’re technically back in business, whatever that’s going to look like, and the economy ends up being in recession or worse, some of these businesses that are thinking about captives may not need them due to the retraction in their businesses.”

“If the captive owners’ business does not survive, the captive will not survive either. We anticipate there will be a serious impact. We have only had one (newly approved) protected cell close due to the owner’s financial distress caused by the pandemic on its business.”

For Biggleston,

captives will be likewise shut down. According to Kenneson,

As the traditional market will likely be contracting steeply and increasing premiums exponentially, it will become harder for captives to secure fronting arrangements, and perhaps even reinsurance. “You can get somebody to take the upper layers a lot easier than the lower layers. Lower layers are the ones that cost the most,” said Corbett.

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According to Bigglestone, “When you consider the lines of insurance coverage in captives, combined with the nature of the owners’ operations, you can begin to make preliminary assumptions about business continuity. The Vermont DFR formed a COVID-19 task force within the captive insurance division to gather information. One of the tasks we are focused on is assessing risks by industry sector to better understand the potential impacts to our companies. So far, we are seeing direct impacts on the captive owners, but only indirect or minimal impact on the captives.”

Many segments of the captive marketplace will be impacted by the pandemic—transportation, hospitality, retail, entertainment, and the energy and oil industries. These sectors have

seen a steep reduction in business due to COVID-19 pressures and the shutdown of business operations. While the businesses themselves in these sectors are experiencing a retraction of income, their insurance exposures are much reduced which could be reflected in their next round of premiums.

Then there is the Healthcare industry. Exposures in general liability, professional liability, workers compensation, medical stop loss—all of these lines will be very stressed, and there will be a knock-on effect from the traditional sector that will be felt even by captives. Some of this exposure may be reduced by actions through states that may provide immunity related to COVID-19.

“We are mindful that COVID-19 may create a broad professional liability crisis across the healthcare industry,” said Bigglestone. “There are so many factors to consider and all kinds of possibilities that remain to be seen. We may see more closures, so preparing for what is to come. In the meantime, we are watching closely and working diligently on keeping abreast of COVID-19 issues as the crisis evolves.”

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There are 34 people working on Delaware’s Captive team. Of this total 15 are financial analysts. Under Delaware’s regulatory organization, the financial analyst is the first-line regulator who communicates with the captive manager or owner. As a result, all inquiries, business plan changes, dividend requests, and other related matters are first addressed by the analyst. The experience level of these analysts is unmatched. STEVE KINION, DIRECTOR

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EMERGING COVERAGES

One of the most thought-provoking issues to come out of the COVID-19 crisis are the revelatory gaps in coverage along many lines of insurance, particularly business interruption. Not only holes in coverage, but also coverages that are not being triggered by the crisis the world is currently facing.

“I think owners of non-micro captives are finding holes in their coverages especially when it comes to business interruption. For owners in the hotel, retail, tourism and other businesses that rely on the free flow of consumers throughout the economy, this shut down and sudden stop to commerce has given them a reason to look at their insurance policies. In that process, they are finding that their business interruption policies are only triggered when there is some other covered event that occurs.”

According to Kenneson,

Pandemic liability coverage is the most obvious new product to come out of the current situation, yet it will not be easy to insure. Lack of actuarial data is going to make this a very hard to insure risk. “Pandemic cover is not going to be an off the shelf item at some of the main traditional carriers. It’s going to be something that you have to get from companies like Lloyd’s,” said Corbett. “I am particularly interested in the idea that PRIA [Pandemic Risk Insurance Act] may see the light of day to help companies manage risks that may have become too big for the reinsurance industry.”

Most businesses will probably not seek pandemic coverage but will look to expand their business interruption coverage. “Enhancements to business interruption coverage is one way that COVID-19 might find its way into an organization’s risk management program,” said Bigglestone. “The typical contingent business interruption policy will not likely cover a shutdown or slowdown of business due to a global pandemic. Event cancelation coverage and possibly stand-alone pandemic coverage are other options. Captives are ideal vehicles for businesses to fund these risks.”

Lines of coverage that would fall under business interruption are things like payroll protection or loss of employee insurance. Corbett said, “What everyone is facing today is a business not losing employees because they quit [or they had to let them go], it’s because they couldn’t afford to pay them anymore.” Payroll protection liability would allow for businesses to keep their employees during temporary shutdowns.

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From a business travel perspective, both individuals and companies have found during the shut-down that standard travel insurance does not account for pandemic and ‘no travel’ government notices and have resulted in losses for cancelling trips.

“The travel insurance industry is not going to redo their policies to include pandemic. That’s a great opportunity for captives to expand their coverages. If the insurance isn’t going to cover all cases, then companies may be able to put corporate travel insurance into their captive.” According to Corbett,

Employee benefits risk has been a fastgrowing addition to captive insurance during the last decade, and industry professionals believe that the COVID-19 crisis will only accelerate this trend. The employee benefits liability sector is being strained over the pandemic as many businesses are seeing multiple concurrent incidents of insureds being hospitalized. Employers without this insurance will be sure to be adding it and businesses that already have the coverage will be looking to increase its coverage.

Lining up with incorporating travel insurance into a captive would be adding event cancellation coverage. Events have been cancelled on every level—from board meetings to multi-day music festivals—which means millions of dollars lost. Event cancellation coverage, which is a common coverage for large events, will become more common for events of all sizes—utilized by both hosts and attendees.

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JUNE 2020

For now, the COVID-19 pandemic is still evolving and how it will ultimately affect the financial and operational impacts on captives is still a long way off, but the captive sector is poised to take these changes and thrive. Bigglestone said,

“The insurance market is in turmoil; having a captive insurance company brings a certain level of order and a degree of certainty to a chaotic environment. Mid or post-crisis, a captive insurance company is a risk management and financial tool that can represent a bright spot in an organization.”

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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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Celebrating 10 years of Employee Benefit Group Captives We’ve been innovating for a very long time. Ten years ago, Berkley Accident and Health was an industry pioneer with EmCap®, our employee benefit group captive program. Today, we are a market leader with an impressive track record of building and managing successful captives. For group captives, it’s a clear choice. Choose the team with a decade of experience and success. These statements are illustrative only and not indicative of actual past or future results. Stop Loss is underwritten by Berkley Life and Health Insurance Company, a member company of W. R. Berkley Corporation and rated A+ (Superior) by A.M. Best, and involves the formation of a group captive insurance program that involves other employers and requires other legal entities. Berkley and its affiliates do not provide tax, legal, or regulatory advice concerning EmCap. You should seek appropriate tax, legal, regulatory, or other counsel regarding the EmCap program, including, but not limited to, counsel in the areas of ERISA, multiple employer welfare arrangements (MEWAs), taxation, and captives. EmCap is not available to all employers or in all states.

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BE READY FOR THE DRUG PRICING DEBATE TO RETURN WITH A BANG

A A

s 2020 dawned, one of the fiercest debates around containing healthcare costs pivoted on addressing the runaway prices of prescription drugs. In May of 2018, the Trump administration first floated their “blueprint” to lower drug prices, but hit a number of walls, legal and political.

Meanwhile, Congress labored on a number of pieces of legislation to curtail drug prices, with House Democrats’ approach culminating in the Elijah Cummings Lower Drug Costs Now Act. Written By Nicholas Bonds, Esq. Named for the late Baltimore Democrat who pressed the Trump administration to do more to rein in drug costs, the bill was designed to empower the federal government to negotiate Medicare drug prices directly. The bill would have also placed a cap on the out-of-pocket prescription drug costs paid by those covered by Medicare Part D, while expanding dental, vision, and hearing coverage for Medicare recipients.

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Though far from perfect, the legislation was ambitious policy and it received broad support from Democrats. Meanwhile, Republicans in the House and Senate released their own drug pricing plans, both echoing the Democrats’ approach of tuning up Medicare Part D.

The House Republicans’ policy package, the Lower Costs, More Cures Act, included a suite of transparency measures and caps on insulin costs. Senate Republicans’ Prescription Drug Pricing Reduction Act imposed penalties for price increases above inflation for Medicare Part B and Part D drugs, and capped expenses for seniors, among other things.

While there was no consensus on the precise approach, there was virtually universal acceptance that the American people wanted to see movement on drug pricing reform.

Even so, partisan gridlock kept any of those bills from becoming law. The dust up did, however, lead President Trump to put even greater pressure on HHS Secretary Alex Azar to get the ball rolling on their plan to encourage state importation of a significant number of cheaper Canadian prescription drugs – one of the many steps laid out in the aforementioned blueprint to reduce drug prices.

The President then doubled down on his renewed push for drug pricing legislation at the most recent State of the Union, using his address to make the issue one of the central planks in his 2020 election platform.

Drug pricing discussions have taken a back seat to the more pressing pandemic. The federal government has understandably been more focused on dealing with the dual health and economic crises of unprecedented scale.

To that end, the Families First Coronavirus Response Act (“FFCRA”) and Coronavirus Aid, Recovery, and Economic Stimulus (“CARES”) Act were passed rapidly and with wide-ranging bi-partisan support. Together, these laws took steps to ensure Americans receive testing and treatment for COVID-19, but the financial toll of contracting the virus will still be a devastating blow to most individuals.

The world may have a year or longer to wait for a vaccine to prevent COVID-19, and nascent treatments for the virus have yet to be perfected.

While some therapies are showing promise (even some involving llamas), no treatment has received quite so much of the limelight as remdesivir. An experimental drug developed by Gilead Sciences, remdesivir has received the blessing of White House coronavirus task force member Dr. Anthony

JUNE 2020

Alternatively, under a more traditional “costeffectiveness” pricing model, ICER estimates place the cost of that same course of treatment closer to $4,500.

Fauci, and been granted an emergency use authorization (“EUA”) by the Food and Drug Administration. Effectively, this EUA means that under the FFCRA and CARES Act, health plans will be required to cover this therapy, but an unanswered question lingers: How much does remdesivir cost?

Gilead Sciences has yet to set the price for its drug, though the company has donated 1.5 million doses. The drug maker faces a difficult decision, needing to balance the development costs and potential profits of remdesivir against the desperate public need for viable treatments. Estimates of the drug’s prospective price vary wildly.

The Institute for Clinical and Economic Review (“ICER”), a Boston-based nonprofit that performs cost analyses on medical treatments, released a recent report estimating that a “cost recovery” pricing model may run as low as $10 for a ten-day course of treatment.

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To complicate matters, Gilead Sciences may actually have a viable patent on remdesivir, so until other therapies are developed the company may have a governmentbacked monopoly on the treatment of COVID-19.

The development of the drug, however, may well have been at least partially subsidized by federal money. Gilead previously faced a similar situation with their HIV treatment Truvada – which led the government to sue for a license to the drug.

Gilead Sciences will have to balance public opinion, social responsibility, their own finances, and the potential government response as they consider how to price remdesivir, as will any other drug maker who develops a treatment for COVID-19.

Whatever price point Gilead settles on, the fallout from their decision will certainly linger. A drug this high profile, coming along amid a global emergency, cannot help but reignite the drug price debate. It may be a slow burn – that debate may need to be tabled until the pandemic is under control, maybe even beyond the 2020 election – but the fuse is most certainly lit.

Nicholas Bonds, Esq. joined The Phia Group, LLC as an attorney in the winter of 2018. He is a member of Phia Group Consulting’s Independent Consultation & Evaluation (ICE) team, working on consultation, plan document review, and regulatory compliance with state and federal laws including ERISA, ACA, HIPAA, COBRA, FMLA and more.

Nicholas attended McMurry University in Abilene, Texas, graduating cum laude with his B.A. in History. He earned his Juris Doctor at New England Law where he was a member of the Intellectual Property Law Association and the International Law Society, and graduated with an intellectual property concentration. He is licensed to practice in the Commonwealth of Massachusetts.

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JUNE 2020

SELF-FUNDED HEALTH CARE PLANS IMPROVING THE ODDS OF YOUR FUNDING STRATEGY

Written by Philip Castevens, ASA, MAAA

ecently, several of our clients have asked for help in funding their plans. Usually this is because they have had a “bad year”1 and ended up short, having to dip into reserves or if there are not sufficient reserves, having to take from their general funds. Sometimes, there is a single person with a lot of claims. For example, I heard about a “black swan” event, a premature infant who stayed in the NICU for over a year and whose hospital charges exceeded $10 million dollars. At other times, it is just a lot of above-average claim totals for several people. Now with COVID-19 affecting the population, we see that there is a non-zero chance that a broad portion of the US population will be impacted by the pandemic. This has the potential to affect the claims experience of self-funded health care plans. Nobody likes to get caught short at the end of a year. We will consider funding strategies involving both the reserve and the monthly funding budget that will increase the odds of having a “good year”, accomplishing the funding goals set at the beginning of the year. Of course, the more money is budgeted to cover plan costs, the better the odds.

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This article examines the question: “How much should be funded in order to lower the risk of having a shortfall to an acceptable level?” This will give the plan sponsor some options so they can choose a level of risk that is tolerable to them. We will look at one example that will serve to illustrate many reallife situations and apply statistical techniques to increase the odds of a good year.

AN EXAMPLE: THE ABC COMPANY Let’s say you are a plan sponsor of The ABC Company’s self-funded health care plan covering Medical and Rx benefits for 75 employee lives, mostly white-collar office workers. Fixed costs, because they involve no risk, are handled separately from the claims, so I will ignore them in this discussion. In the past, your CFO has been budgeting for claims based on the previous year’s claims adjusted for trend, amendments and so on. As part of the budgeting process, say in November each year, the CFO asks your actuary to calculate a traditional (IBNR) claim reserve2. So, at the beginning of the year you have the reserve amount set aside as an asset in your general funds. You also have your monthly budget amount equal to 100% of expected claims. Each month you either have a surplus or a deficit depending on whether the actual claims are less than the budgeted amount or greater than the budgeted amount.

If it is a surplus, you can add this to the reserve to use in future months (or use it for other purposes). If there is a deficit, you can withdraw that amount from the reserve (or from general funds). At the end of the year, there is a 50/50 chance that the cumulative deficit/ surpluses from the 12 individual months will be positive or negative. If it is positive, no problem; it is like getting an income tax refund. If it is negative, it is like doing your personal taxes and finding that you owe the government money that you have not budgeted for. Not good. Not a “good year”. You want to budget enough money to fund the actual claims during the year and to keep the reserve at its current level, 100% of the Traditional Reserve.

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What can the you do to increase the odds of having a good year? The first step in improving your odds is to know what the odds are. This is the kind of thing that actuaries are trained to do.

ACTUARIAL ANALYSIS As an actuary, I recently calculated the odds for a group similar to The ABC Company. My results are described below, modified slightly for this example. I looked at 6 years of actual claims history for the company and compared these to the amounts budgeted for each year. The Surplus/Deficits are shown in the chart below on a PEPM (per employee per month) basis.

deductible ($45,000). The average PEPM claims were high because (1) the generous nature of the plan and (2) the awareness of the employee population that health care was now very affordable for them, which increased utilization.

2016-2017 CHANGES WERE MADE This was the beginning of a transition to a more stable claims trend. This was due to some plan changes: now there was a $1500 deductible and a $6550 out-of-pocket with a 20% patient copay. Also, there was more resistance to RBP from the provider community. This led to an awareness of the employee population that health care was now not as generous and they were likely to run into headaches dealing with the providers who were balance-billing. Note that 2016 was a transition year between the 2015 “catastrophe” and the 2017 stability.

2018-2020 STABILITY ACHIEVED A period of high turnover and decreasing employee count leads to fewer people participating in the plan since there are more employees who have not yet met the “service waiting period” requirement. Plus, the new people are not as familiar with navigating their new plan; Reference Based Pricing may be a totally new concept to them.

RESULTS OF THE ACTUARIAL ANALYSIS To be on the safe side, I decided to base my calculations on the full 6 years, including the chaotic beginning of the plan.

Distribution of the actual PEPY claims history during the past 6 years It is obvious that the plan has experienced large unexpected fluctuations which is more typical for smaller employee groups like this. We will look more closely at other reasons for the fluctuations below.

2015 A CATASTROPHIC YEAR3 2015 was the first full year of a new Reference Based Pricing (RBP)4 plan. Expectations for very low claims were based on other Reference Based Pricing plans (which had dramatic savings), and the immature experience from the first year (2014). The plan design was very generous ($500 out-of-pocket) and there were 3 claimants that maxed out their specific

ACTUAL PEPM

SUMMARY STATISTICS

Net Annual History Claims YEAR

MONTHLY

YEAR

MONTHLY

ANNUAL

Mean

$551

$6,611

$188

$2,261

0.34

2019

$424

$5,088

Standard Deviation

2018

$498

$5,975

Coefficient of Variation

2017

$473

$5,682

2016

$696

$8,358

2015

$857

$10,284

2014

$357

$4,281

The main results of my analysis are shown in the tables above

JUNE 2020

Annual claims for groups this size are known to have a normal distribution. This is the familiar “bell-shaped curve”. The Coefficient of Variation5 value, .34, is important because this reflects the variability of the underlying experience. This value is above average compared to other plan experiences that I have seen. When I trended the older years for medical inflation, I came up with an adjusted annual PEPM mean of $7,440 ($620 per month). I then used 34% of this for the Standard Deviation, which equals $2,530. These results above allowed me to determine the levels of risk involved in different funding options. I used probability and statistics to arrive at my conclusions. If you are interested in the computations, a separate article entitled “Improving the Odds Technical Details” is available from the author.

Then the next year, they could continue funding at the 110% level and increase the higher probability of a good year to 74%, assuming that the Company is willing to use the Margin for Safety to pay any claims in excess of the 110% budget. So even if it is a “bad year” for claims, the extra margin in the reserve will increase the odds of having a good year overall.

NOTE ODDS OF HAVING A GOOD YEAR Funding 100% of the funding factor6 provides a 52% chance of ending up with a good year. The expected surplus/deficit is zero. A 10% increase in the funding factor would only increase the chances of a good year to 63%. The expected surplus/deficit is $55,800. Note there are other funding options as shown in the table below:

Beginning of Year

SUMMARY

Monthly Budget Amount

Annual Budget Amount

Odds of Good Year

Expected Surplus (deficit)

Reserve

As % of Annual Claims

$502,200

40%

($55,800)

$22,320

% of Expected Claims

Reserve

As % of Annual Claims

90%

$78,120

14%

$41,850

End of Year

100%

$78,120

14%

$46,500

$558,000

52%

$78,120

14%

110%

$78,120

14%

$51,150

$613,800

63%

$55,800

$133,920

24%

120%

$78,120

14%

$55,800

$669,600

73%

$111,600

$189,720

34%

TWO FUNDING STRATEGIES TO INCREASE THE ODDS Instead of simply budgeting 100% of expected claims, here are two changes the company could make to improve their odds from 52% to 73%. Strategy 1 - Fund 120% of expected claims This extra margin for safety means that about three-fourths of the time the claims budget will not have a shortfall. Strategy 2 – Build up the reserve to 24% of annual claims and 110% funding If the company had room to budget 110% of expected claims, then if, as expected, the company ends up with a 10% surplus of $55,800 at the end of the year, this can be added to the reserve account, so the reserve will be at 24% of the annual claims at the end of the year.

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It is not always true that the company can keep adding the surplus to the actual reserve held. I never recommend holding a reserve that is more than 35% of Annual Claims, and usually not more than twice the Traditional IBNR reserve.

We have seen how we can use simple probability theory to measure the odds of different funding/reserve options. The plan sponsor then has the option to increase the odds of a good plan experience in the upcoming year. We used an example of a group with an unstable history and the increase in odds can be described as “moderate”. For a larger and more stable group, it is much easier to increase the odds. For example, for a large stable group, a 10% increase in the claims budget could immediately increase the odds to 75%. And a 20% increase could increase the odds to over 99%. A visual example of this is provided in the article “Improving the Odds Technical Details”.

• Consulting • Case Management • Big and Small Data Analysis & Predictive Modeling • Claims Audits • Risk Management

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Aratai International provides services to build and develop cost-effective and high quality healthcare strategies. We invest time in understanding your business goals, and we develop programs to help you reach them. We are committed to developing strong business relationships by exceeding your expectations. MEDICAL LEGAL

C O N S U LT I N G

MANAGEMENT

D A T A A N A LY S I S

Philip Castevens, ASA, MAAA

Philip has been an Actuary since 1976. He was a coworker, apprentice, and long-time friend of Carl Harker. Carl has been well-known as the author of Self-Funding of Health Care Benefits, and was a regular contributor to this magazine. Philip took over the responsibilities of running Self-Funding Actuarial Services, Inc. in 2015. Philip is now the co-owner of the company with his wife Cindy Castevens. He continues to work alongside Amy Sanders, Cathy Nmetsov, and Nicole Zier. They strive to maintain the integrity of the business, and to uphold the values Carl instilled in them. Philip and Cindy live in Winston-Salem with their sons Noah and Sam. Philip is publishing a biography of Carl Harker to be released in 2020.

References 1

Bad Year: any year with a claim experience that does not fall within the company’s

funding goals 2

Traditional “IBNR” Reserve: the standard IBNR based on a lag table, using the

“triangle method” to extrapolate future lag claims based on the past history 3

Catastrophic Year: an informal term in this article. I would categorize 2015, which

had claims more than twice what was expected, as a “catastrophic” year, and 2016, which had claims 25% above expected, as a “bad” year 4

Reference Based Pricing (RBP): a plan design that involved limited plan payments

to a percentage of the amount that Medicare would pay for the same services, usually between 110% and 160% 5

Coefficient of Variation: a statistical term referring to the ratio of the standard devia-

tion divided by the mean 6

Funding Factor: another name for PEPM; refers to the average claims experience for

a group for an entire year, prorated down per employee per month

THE SELF-INSURER

Do you aspire to be a published author? We would like to invite you to share your insight and submit an article to The Self-Insurer! SIIA’s official magazine is distributed in a digital and print format to reach 10,000 readers all over the world. The Self-Insurer has been delivering information to top-level executives in the self-insurance industry since 1984. Articles or guideline inquires can be submitted to Editor Gretchen Grote at ggrote@ sipconline.net The Self-Insurer also has advertising opportunties available. Pleae contact Shane Byars at sbyars@ sipconline.net for advertising information.

ENDEAVORS

SIIA ENDEAVORS

A A

s we transition into summer, your friends at SIIA would like to take the opportunity to quickly preview what we have planned in the coming months, as well as remind you of current resources, services and activities. National Conference & Expo Of course, what most members are likely wondering about now is the status of SIIA’s National Conference & Expo, scheduled for October 11-13, 2020 in Phoenix given ongoing COVID-19 developments. Given the fluidity of these developments, SIIA continues to evaluate a range of contingency plans and plans to make an announcement in early July, so please stay tuned. Mentor Connection Forum In another event news, SIIA has rescheduled it popular Mentor Connection Forum for November 18-19 in Philadelphia. It is hoped that this postponement will allow the event to take place assuming continued public health improvements. Webinar Series As you probably know, SIIA has produced several webinars over the last two months to fill the void created by cancelled live events, as well as to keep you posted on the latest COVID-19 regulatory compliance guidance. All of these webinars, as well as much great educational content can now be accessed at www.siiacanoe.org if you have not yet had a chance to check out SIIA’s on-line educational hub, there is really no better chance to do so. For the summer months, we plan to limit our webinar schedule to time sensitive topics, such as breaking legislative/regulatory developments. When there is something you need know, we’ll make sure to continue deliver that information in real time, so watch for announcements.

JUNE 2020

ENDEAVORS The Self-Insurer Articles The Self-Insurer Magazine has featured several great articles this year with more scheduled to published for the coming months. In case you missed any past editions, you can access these online through the following link https:// www.sipconline.net/i4a/pages/index. cfm?pageid=327 If you are not on the email distribution list for The Self-Insurer, but would like to be, please contact Michiale Machado at mmachado@siia.org Self-Insurance Solutions Provider Directory SIIA regularly receives inquiries from those looking for various self-insurance and/or captive insurance service providers. We refer them to our SelfInsurance Solutions Directory, which is available on-line along with a printed edition. This directory is updated year over the summer, so now is the time to submit your information if you would like your company included. Please contact Shane Byars at sbyars@siia.org for more information. SIIA Members at Work to Improve the Industry SIIA volunteer committees and task forces will continue work over the summer on a variety of projects and initiatives with a common objective of improving the self-insurance industry for all participants. Areas of focus include prescription drug costs, access to health claims data, reference-based pricing, captive management best practices and engaging younger members. Watch for specific updates in the coming months.

SIIA’s Government Relations Team to Remain Busy Representing Your Interests While Congress may be working remotely and continuing social distancing, SIIA continues to be active with policymakers and regulators to ensure our collective industry voice remains engaged and active. While conducting several webinars on the impacts of recently enacted COVID stimulus legislation on self-funded plans, SIIA’s government relations team is having ongoing dialogue with Congress on future stimulus package provisions ranging from COBRA premium subsidies, to treatment coverage mandate parameters, prohibiting surprise billing, and the role self-funding plays in delivering healthcare. The association also continues to ramp up its advocacy campaign focused on captive insurance issues. Virtual Congressional Town Hall Series SIIA will continue to offer the opportunity for our members to remain engaged in the policy process. Over the past few weeks, SIIA’s government relations team has conducted virtual town halls with U.S Senator Jacky Rosen of Nevada, and House Ways and Means Committee Members Rep. Jackie Walorski (IN) and Rep. Davie Schweikert (AZ). These virtual congressional events are SIIA’s way to bring Congress to you as we continue to engage and advocate on policy issues that remain top of mind. Over the summer, SIIA expects to confirm additional town halls with important Members of Congress. Please be on the lookout for more information in the coming weeks. SIPAC Evolves for 2020 Election While COVID developments have caused a brief delay in fundraising and political contributions, The Self-Insurance Political Action Committee (SIPAC) has now reengaged to support federal candidates who support our industry. Over the summer months, SIPAC expects to support many more candidates in advance of the November elections. Those members who have authorized direct SIPAC communications should watch for the more details on SIPAC campaign contributions and how you can support the cause. To request be included for these communications, contact Dakota Jackson at djackson@siia.org Follow SIIA on LinkedIn Finally, if you are not already doing so, please consider following SIIA on LinkedIn as the association regularly disseminates information via this platform. Please click here to follow. Not a SIIA Member but May be Interested in Joining? For immediate assistance, please contact Jennifer Ivy at jivy@siia.org.

THE SELF-INSURER

SIIA PAST BOARD CHAIRMAN JOHN JONES PASSES AWAY John Jones, a past board chairman of the Self-Insurance Institute of America, Inc., passed away on May 7, 2020 due to complications of an autoimmune disease.

Born on Dec. 2, 1956, to James and Mary Ann Jones, Johnâ&#x20AC;&#x2122;s earliest years were spent playing baseball and picking crab apples near their family home on Pryor Lane in Billings. As a young man, he worked alongside his brothers in the family construction business.

JUNE 2020

Venturing outside Montana after high school, he attended Willamette University and completed studies abroad at the University of Munich. While at Willamette, he met the love of his life, Darla, and forever endeared her at the campus Sweetheart Dance in February of 1979. They traveled across the country while he pursued a law degree at the University of Puget Sound, followed by an LL.M. degree in taxation from Boston University. Continuing his professional work, John clerked for the Montana Supreme Court in Helena. Then, in 1985, he began a long career at Moulton Bellingham PC in Billings, where his aptitudes were welcomed, and his leadership encouraged. In addition to his self-insurance industry leadership role with SIIA, John also served as president of the Montana Captive Insurance Association, Inc. (MCIA). John’s community contributions were many, which included the philanthropic work of the C.M. Bair Family Trust, as well as serving on the Rocky Mountain College Board of Trustees. Over his life, he coached several athletic teams, and he was overjoyed when former athletes passed him in town with a “Hey Coach Jones.” His passion for sports included also being an avid fan of the Baltimore Orioles and the Seattle Seahawks.

THE SELF-INSURER

He is survived by his wife, Darla; sons, Sean (Elissa), Nathan (Carolina); grandson, Henry; granddaughter, Isabella; siblings, Pati (Laird), Kathy, Jimmy, Greg, Jerry (Ann), David (Kelly), Danny (Kari); mother-in-law, Lori Davis; brother-inlaw, Tim Deering; sisters-in-law, Debby Deering and Pam Davis. A private family service will be held, followed by a celebration of life to be announced at a later date. Memorial contributions can be made to Family Promise of Yellowstone Valley, the AJ Blain Foundation, and Rocky Mountain College. MCIA will be making contributions to each of these organizations.

NEWS

NEWS FROM SIIA MEMBERS

2020 JUNE MEMBER NEWS SIIA Diamond, Gold & Silver Member News SIIA Diamond, Gold, and Silver member companies are leaders in the self-insurance/captive insurance marketplace. Provided below are news highlights from these upgraded members. News items should be submitted to membernews@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 SIIAâ&#x20AC;&#x2122;s premium memberships, please contact Jennifer Ivy at jivy@siia.org. 50

THE SELF-INSURER

NEWS DIAMOND MEMBERS ELMC RISK SOLUTIONS TO MERGE RXREINS, LLC WITH IOA RE, LLC BRINGING PRESCRIPTION DRUG STOP LOSS EXPERTISE TO IOA RE East Norriton, PA -- ELMC Risk Solutions, LLC, (“ELMC”) is pleased to announce that Rx Reins, LLC will merge with IOA Re, LLC (“IOA”), and become a division of IOA, expanding IOA’s portfolio of risk management and stop loss solutions. Crystal Williams will continue to lead the sales and marketing effort for Prescription Drug solutions. Crystal and her staff will work closely with IOA’s team of veteran underwriters. Ms. Williams

brings her expertise as an industry leader and extensive experience in working with state and municipal governments, school districts, and commercial clients to IOA. RxReins offers Prescription Drug Aggregate stand-alone coverage as well as Guaranteed Cost Coverage. The Aggregate program is popular among state and municipal agencies as well as school districts. The Guarantee Cost Coverage is available to middle market and level-funded clients working to manage claim funding spikes. Both products are designed to help employers grapple with the rising cost of specialty drugs. Richard J. Fleder, CEO of ELMC, believes this is a logical step in strengthen IOA’s position as a leader among brokers and Third Party Administrators. With the increased impact of prescription drug costs on self-funded plans, it is a natural progression to leverage the market leading positions of IOA and RxReins to offer the expertise developed by the RxReins team to IOA’s partners. “The world of prescriptions drugs, and particularly specialty drugs, has changed drastically over the past five years. Understanding the risks and helping clients navigate the challenges for this coverage requires the kind of expertise that Crystal brings to self-funding.”

Thank you Thank you to our clients and producers who have given us the privilege of working with them over the years. Please be assured that we are here for you in 2020 and beyond. To our friends in the MGU community, we are growing, and our family is growing. To learn more about joining our family of companies, please contact us.

Richard Fleder, President rfleder@elmcgroup.com

ELMC Risk Solutions has assembled some of the most innovative minds in stop-loss reinsurance and prescription drug consulting businesses.

elmcgroup.com

JUNE 2020

NEWS

“We are excited about joining forces with the industry leading underwriters at IOA”, says Williams. “Our risk strategies and creative solution will to help IOA’s producers better manage the rising cost of prescription drugs.” John O. Parker, President of IOA agrees, “We bring an outstanding roster of underwriters to our self-funded clients and producers. Being able to add dedicated prescription drug solutions to our portfolio is a true benefit to our producers. This is going to be a strong fit for the IOA team.” For more information on IOA’s prescription drug solutions, please contact Crystal Williams at cwilliams@rxreins.com or Jim Haggerty at jhaggerty@ioare.com About ELMC ELMC owns, manages and seeks to acquire premier MGUs across the nation that specialize in underwriting stop loss insurance for self-funded health plans as well as reinsurance for providers and managed care companies. ELMC provides a best-in-class platform for delivering solutions to brokers, carriers and clients. Visit www.elmcgroup.com.

Expect More from Your Underwriter At TPAC, we’ve raised the bar on what you get from your underwriter. We approach problems creatively, deliver transparency, build long-lasting relationships, and boast unrivaled turnaround times. Some may consider that unheard of—but that’s our standard. It’s time you got the underwriting you deserve. Contact us today to get started. tpac.com

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About IOA IOA Re has operated in the insurance/ reinsurance marketplace for more than 40 years and provided Medical Stop Loss services for more than 35 years. IOA Re is recognized as leader in the Medical Stop Loss industry for its creative, innovative, and profitable underwriting and the caliber of the services provided to clients. Visit www. ioare.com.

NEWS BERKLEY ACCIDENT AND HEALTH APPOINTS MATT ROBB AS HEAD OF IT AND DATA INFRASTRUCTURE Hamilton Square, NJ – Berkley Accident and Health, a Berkley Company, has appointed Matt Robb as Head of IT and Data Infrastructure. In this role, Matt is responsible for driving all aspects and components of data management, and for developing and executing the strategy and vision for client technology solutions. “The Head of IT and Data Infrastructure is an essential role to drive and support our client’s ever-changing technology and data needs, and I’m thrilled to have Matt joining us as a key leader in our organization,” said Brad Nieland, President and CEO of Berkley Accident and Health. Matt brings a tremendous background and expertise in IT and data management with 20+ years of experience. He is joining the team from his most recent role as Senior Business Operations and IT Communications Lead at a health sciences company in Pennsylvania. Throughout his career, Matt has held various IT roles of increasing responsibility, and brings a strong track record of collaborating with business partners to deliver successful technology solutions. Matt is a graduate of Rider University and is located in Hamilton Square, New Jersey.

About Berkley Accident and Health Berkley Accident and Health is a member company of W. R. Berkley Corporation, a Fortune 500® company. Berkley Accident and Health provides an innovative portfolio of accident and health insurance products. It offers four categories of products: Employer Stop Loss, Group Captives, Managed Care (including HMO Reinsurance and Provider Excess), and Specialty Accident. The company underwrites Stop Loss coverage through Berkley Life and Health Insurance Company, rated A+ (Superior) by A.M. Best. Contact Linda King, Director, Marketing, at lking@BerkleyAH.com and visit www.BerkleyAH.com and www. Berkley.com.

SYMETRA PROMOTES HARRY MONTI TO LEAD BENEFITS DIVISION BELLEVUE, WA — Symetra Life Insurance Company announced the promotion of Harry Monti, who will lead the Benefits Division. Monti will join the Symetra Leadership Team reporting to Margaret Meister, president and chief executive officer, Symetra Financial Corporation. “One of Symetra’s longtime strengths is the breadth of talented leaders on our team. I am pleased to recognize the significant contributions of Harry to our Benefits business lines," said Meister. “Our Symetra Empowers strategic vision remains focused on helping our customers, partners, employees and communities thrive in the changing world we live in. Harry will play a key part in executing that long-term vision, prioritizing our initiatives and successfully navigating this unprecedented business environment.” Harry Monti joined Symetra in June 2014 as vice president, Life and Disability (LAD), bringing 25 years of group benefits experience spanning financial, operations and strategy roles. Named senior vice president, Life and Disability (LAD) and Select Benefits, in April 2018. Mr. Monti played an integral role in the evolution of those business lines and in the development of Symetra’s new voluntary benefits practice. His operational leadership and strategic oversight has seen customer service evolve into a key differentiator for Symetra in the benefits marketplace. Prior to Symetra, Mr. Monti was director, Insurance Advisory Services with PricewaterhouseCoopers (PwC) in Hartford, Connecticut. He had previously spent 13 years in senior level operational and claims roles at The Hartford. About Symetra Symetra Life Insurance Company is a subsidiary of Symetra Financial Corporation, a diversified financial services company based in Bellevue, Washington. In business since 1957, Symetra provides employee benefits, annuities and life insurance through a national network of benefit consultants, financial institutions, and independent agents and advisors. Visit www.symetra.com.

JUNE 2020

NEWS GOLD MEMBERS ECHO HEALTH, INC. ANNOUNCES ISSUANCE OF US PATENT FOR MEDICAL CLAM PAYMENT PROCESS Westlake, OH -- ECHO Health, Inc. (ECHO), a leading provider of electronic healthcare payment solutions, has added a new patent to their portfolio of proprietary health insurance payment processing technology. The company, which develops and provides payment processing services and solutions to healthcare payers of all sizes, today announced that the United States Patent and Trademark Office granted US Patent 10,599,813 to ECHO.

This patent covers health insurance payment methods and systems, including the generation and delivery of a consolidated payment and related translated explanation of benefits (EOBs) to a medical service provider. ECHO’s innovative systems consolidate individual medical provider and vendor payments, including an aggregation of health insurance payments covering multiple claims into a single ERISA and HIPAA compliant format, remits electronic payments and provides an explanation of payment details to providers. “The granting of this patent further validates our mission to develop innovative technology that drives business improvement for our clients and their groups,” said William Davis, Chairman and Chief Executive Officer of ECHO. “With the issuance of this patent, ECHO and its trading partners remain the only healthcare payment processors that can generate and deliver a consolidated payment and translated EOB to a medical service provider. This key functionality, combined with other unique capabilities, offers a substantial competitive advantage to our channel partners and customers enabling them to deliver the most efficient, cost-effective provider payments.”

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STOP LOSS

MANAGED CARE REINSURANCE

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54 THE SELF-INSURER

NEWS About ECHO Health, Inc. ECHO Health, Inc. is the leading provider of electronic healthcare payment solutions. ECHO processes more than 200 million claims and pays more than $40 billion annually to providers and members from industry-leading payers. Founded in 1997, ECHO is a privately held company located in Westlake, Ohio. Visit www.echohealthinc.com and call 440.835.3511, ext. 118.

SILVER MEMBERS MEDLIMINAL’S NEW ADVOCACY PROGRAM REVOLUTIONIZES MEDICAL BILL REVIEW Manassas, VA – Medliminal, LLC announced the launch of its trailblazing Employee Medical Bill Champion (EMBC) program. EMBC is a medical bill compliance solution designed to protect employees from overpaying on medical bills. In normal conditions, over 90% of medical bills contain errors, with the current COVID-19 crisis projected to cause greater pressures on the medical industry. EMBC (pronounced “embassy”) leverages powerful artificial intelligence to verify employees only pay what is actually owed. Employers who already have a medical bill review service also benefit: EMBC finds an average 17-49% in savings beyond its competition. EMBC’s innovative technological approach starts with Medliminal’s awardwinning RPA system, H-CAT™, reviewing submitted bills. Medliminal nurses and medical coders then provide a hands-on line-by-line compliance review, identifying errors and overcharges before the employee pays the bill.

“With EMBC, employers and their employees finally have a tool that helps them fight back against exorbitant medical costs,” said Jim Napoli, CEO of Medliminal. “The program revolutionizes the process by identifying billing errors on medical bills. Workers finally have a champion in their corner." EMBC is a continuation of the pioneering “Health Savings Program” pilot, with the name changed to avoid confusion in the marketplace around HSA (health savings account) products and to emphasize the program’s mission of championing accurate and transparent medical billing. To learn more about EMBC, please contact Alliyauna Collins at alliyaunaw@ medliminal.com and visit www.medliminal.com. About Medliminal, LLC At Medliminal, we specialize in medical cost containment by bringing world-class resources and exceptional service to each and every one of our clients. Through our award-winning Robotic Process Automation (RPA) technology known as H-CAT™ coupled with our highly trained medical staff, we identify non-compliant charges for all payers on a national level. Our proprietary technology empowers us to act as a medical bill advocate for our clients. Visit www.medliminal.com.

TMS RE WELCOMES PETER PARENT AS EXECUTIVE VICE PRESIDENT Andover, MA - TMS Re is extremely pleased to announce that Peter Parent joined the Company on May 4, 2020 as Executive Vice President and a member of our leadership team. Most recently, Peter served as the President of a long-standing MGU located in the Northeast. Peter’s main responsibilities will be to drive revenue growth through the development of client relationships and support the underwriting and claims operations. Peter will also contribute to TMS Re’s strategic and financial planning. Peter will report to Travis Micucci, President and COO, and work out of Portland, ME. “We are excited to have someone with Peter’s extensive experience and outstanding reputation join TMS Re” says Micucci. "We continue to explore opportunities to serve our producers and policyholders by hiring talented individuals and improving our processes. Peter built an organization with a very similar culture to TMS Re and will be an asset to our team”.

JUNE 2020

NEWS “I am very excited to be joining the team at TMS Re and helping grow the employer stop loss business.” said Peter. “TMS Re is a highly respected organization with very talented personnel. They are well positioned in the employer stop loss market and our values are very similar. I look forward to helping execute their strategic vision.” "We are thrilled to have someone of Peter's caliber join our team," states Mike Shevlin, CEO. “We are committed to recruiting and fostering the best people in our industry. I am confident that his knowledge, experience and leadership will further strengthen our position in the employer stop-loss market.”

Peter can be contacted via email at pparent@tmsreinc.com or by phone at 978-9334037. About TMS Re, Inc. TMS Re is one of the largest and most experienced medical stop loss MGUs in the market today. TMS is committed to delivering excellent service, unparalleled expertise, and creativity in our product and service solutions for our customers TMS Re, Inc. provides comprehensive excess loss products and services tailored to the insurance needs of your employer and provider groups. Established as Cairnstone, Inc. in 1996, the Company was acquired by one of the world’s largest reinsurers, and in July 2018 was purchased through management buyout. Our team of highly experienced underwriting, actuarial, claims, and medical management professionals work closely with you to understand your long-term objectives and design the optimal stop loss solution to minimize your risk. Contact: TMS Re, Inc. at (978) 933-4009, Info@TMSReInc.com and visit www.TMSReInc.com.

CLAROSANALYTICS.COM

THE SELF-INSURER

SIIA 2020 BOARD of directors & committee chair ROSTER

CHAIRMAN OF THE BOARD*

DIRECTORS

COMMITTEE CHAIRS

David Wilson President Windsor Strategy Partners, LLC Princeton, NJ

Kari L. Niblack, JD, SPHR CEO ACS Benefit Services Winston-Salem

PRESIDENT/CEO

Jeffrey K. Simpson Attorney Womble Bond & Dickinson (US) LLP Wilmington, DE

CAPTIVE INSURANCE COMMITTEE John R. Capasso, CPA, CGMA, PFS President & CEO Captive Planning Associates, LLC Medford, NJ

CHAIRMAN ELECT*

Peter Robinson Managing Principal EPIC Reinsurance San Francisco, CA

Mike Ferguson SIIA Simpsonville, SC Robert Tierney President StarLine Osterville, MA

TREASURER AND CORPORATE SECRETARY* Gerald Gates President Stop Loss Insurance Services AmWins Worcester, MA *Also serves as Director

SIEF BOARD OF DIRECTORS Nigel Wallbank Chairman Heidi Leenay President

Thomas Belding President Professional Reinsurance Marketing Services Edmond, OK Laura Hirsch Co-CEO Aither Health Carrollton, TX Lisa Moody President & CEO Renalogic Phoenix, AZ

GOVERNMENT RELATIONS COMMITTEE Steven B. Suter President & CEO Healthcare Management Admtrs., Inc. Bellevue, WA CHAIR, INTERNATIONAL COMMITTEE Liz D. Mariner Ford Senior Vice President Re-Solutions, a Risk Strategies Company Minneapolis, MN CHAIR, SIIA FUTURE LEADERS COMMITTEE Brady Bizarro Director, Healthcare Attorney The Phia Group, LLC CHAIR, TPA BEST PRACTICES TASK FORCE Jerry Castelloe Principal Castelloe Partners, LLC CHAIR, WORKERSâ&#x20AC;&#x2122; COMP COMMITTEE Shelly Brotzge Regional Underwriter, Group Self-Insurance Midwest Employers Casualty

Freda Bacon Director Les Boughner Director Alex Giordano Director

JUNE 2020

SIIA new members JUNE 2020 GOLD MEMBERS

EMPLOYER CORPORATE MEMBER

Paul Broughton Managing Director Markel Glenn Allen, VA

Ryan Donovan Manager of Insurance and Risk Management Sourcewell Staples, MN

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The Self Insurer_June

Articles inside

SELF-FUNDED HEALTH CARE PLANS

BE READY FOR THE DRUG PRICING DEBATE TO RETURN WITH A BANG

COVID CAPTIVITY

SIIA ENDEAVORS

WORK COMP’S VIRTUAL TOUCH

SIIA PAST BOARD CHAIRMAN JOHN JONES PASSES AWAY