self-insurer feb 2016

February 2016 | The Self-Insurer 3

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www.sipconline.net

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February 2016 Volume 88

Jason Davis

Bruce Shutan

22

12 INside the Beltway SIIA Formally Opposed ACA’s Cadillac Tax; Congress Agreed to Delay 40% Levy to 2020

16 OUTside the Beltway Federal PACE Act Defining Small Groups at 50 Reduces Impact of Maryland Stop-Loss Study

18 Legislation to Amend the LRRA Splits Industry Opinion

28 PPACA, HIPAA and Federal Health Benefit Mandates Staying on the Compliance Track: The 2015 Health Benefits Year in Review

40 SIIA Endeavors The Crescent City to Host the First Executive Forum of 2016

The Self-Insurer (ISSN 10913815) is published monthly by Self-Insurers’ Publishing Corp. (SIPC)

Postmaster : Send address changes to The Self-Insurer P.O. Box 1237 Simpsonville, SC 29681

Editorial StaffPUBLISHING DIRECTORErica Massey

SENIOR EDITORGretchen Grote

CONTRIBUTING EDITORMike Ferguson

DIRECTOR OF OPERATIONSJustin Miller

DIRECTOR OF ADVERTISINGShane Byars

EDITORIAL ADVISORSBruce ShutanKarrie Hyatt

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

2016 Self-Insurers’ Publishing Corp. Offi cers

James A. Kinder, CEO/Chairman

Erica M. Massey, President

Lynne Bolduc, Esq. Secretary

ReferenceBased

Top Lessons

PRICER

of a

Reining inUniqueRisks


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TOP 10 LESSONS | FEATURE

10 The Status Quo Reigns but…

Though RBP as a PPO replacement is a popular topic, the actual market percentage involved in such a full PPO replacement plan is quite literally decimal dust. That said, we would be well served to remember the words of Bill Gates,

“We always overestimate the

change that will occur in the next two years

and underestimate the change that will occur in the next ten. Don’t let yourself be lulled

into inaction.” 2

Perhaps for this reason, we are now seeing very large groups moving into this space or seriously considering this approach.

Say what you will about RBP (and many critics do) – but in many cases, it has (at least) been shown to actually save money – whereas complex, flashy and mainstream initiatives like Accountable Care Organizations (ACO) are reportedly not faring well (overall).3 As we migrate from volume to value-based models (away from fee-for-service), health systems with a 30 year dependency on volume are struggling to reduce utilization and the unit costs of care.

9 RBP: Know Your Flavors

We are seeing the largest movement ever of health plans treating out out-of-network (OON) claims to a percentage of Medicare calculation; using RBP solely as a

U&C replacement rather than as a complete PPO replacement. Further, we are seeing an expansion of the definition of OON to include out-of-area (OOA) wrap PPO networks. The variety of network arrangements and claim types (not to mention ways of using references for pricing and scope of RBP usage) has led to the need for categorizing RBP types:

• Layered Reference Based Pricing (LRBP)

» Payer imposes fixed prices on certain high-cost services, even when provided by an in-network provider that, in effect, overrides the already-negotiated contractual rate/ allowed amount

• Medicare Reference Based Pricing(MRBP)

» Application of Medicare pricing as the (primary) basis for determining plan indemnification for all claims

- These plans offer this reference price to any willing provider

• Hybrid Reference Based Pricing (HRBP)

» Combination of a professional (physician) PPO network with reference pricing for institutional claims4

At the Phia Group, we have not seen much in terms of LRBP usage despite the fact that it has certainly received the lion’s share of media coverage (due to the performance of the CALPERS program).5 The most common PPO-replacement model to date has in fact been HRBP. Admittedly, facilities see a PPO logo (regardless of sub-script text that says it is for professional services only) and tag the claim for the PPO discount. As expected, this causes disputes. Perhaps for this reason and in partnership with specialty data vendors, we are seeing

a recent surge in the market that uses

only a percentage of the Medicare

rate (or its equivalent) for all claims,

shifting from HRBP to MRBP.

8 Charges Under Attack from within...

Moody’s Investor Service

recently reported that, on average,

contracts result in collection of

nearly one-fifth of what providers

bill.6 In response to this reality and

some scathing critiques (think TIME

Magazine’s “Bitter Pill”7), we are

starting to see providers willingly

looking at their pricing because

consumers are shouldering greater

shares of the cost of care.8 Here is a

sampling of provider comments that

speak for themselves:

• “Charges are meaningless data –

virtually no one pays charges”9

• “(the chargemaster) Those are

not our real rates. I am not sure

why you care.”10

• “We acknowledge that we have

had a historically high charge

structure. It does not mean

however that we are receiving

high or unreasonable payments

from insurers. The CMS report

focuses on charges, not the more

meaningful payment data.”11

• “The biggest misconception is

that hospitals are charging too

much to rip off consumers. I

can’t think of anyone that is

happy with the current pricing

mechanism. We’d like it to be

simpler and more transparent.”12

7 Charges Under Attack from without…

California’s Fifth District Court of

Appeals ruled that hospitals cannot

seek reimbursement in amounts

exceeding the “actual” (fair market)

6 The Self-Insurer | www.sipconline.net


value of the services rendered. In the case of Children’s Hosp. Cent. Cal. v. Blue Cross of Cal. (226 Cal. App. 4th 1260),13 the court overturned a lower court’s ruling that would allow a hospital to argue that what is reasonable and customary – and payable – to a hospital is not limited to the facility’s billed charges and rather, the “value” of the service is determined by examining all rates that are the result of contract or negotiation, including rates paid by government payors.

Further, there is IRC § 501(r):14

when Section 501(c)(3) applies to a facility, upon billing self-pay patients directly, the law requires providers to not “engage in extraordinary collection actions before making reasonable efforts to determine whether the individual is eligible for... financial assistance... .” The law explicitly prohibits the use of gross charges. Providers may only bill the qualified self-pay patient at the “best” (meaning lowest) negotiated commercial rate, average of the three “best” (lowest) negotiated commercial rates, or the applicable Medicare payable rate.

The subtleties of Section 501(r) cannot be overlooked. If a patient has insurance, the patient’s liability is the billed charges and whatever “discount contract” the insurer may have; if a patient does not have insurance, the patient’s liability is a reduced or fair market value-based rate, but only via the financial assistance policy. When will this bubble pop?

6 Medicare is a Good Benchmark but Providers

Do Not Like It Providers that do not want to

explore RBP opportunities will not appreciate any metric (Medicare, “Costs,” etc.), aside from the very narrow scope of what they are willing

to accept (e.g., charges or a meaningless discount off random charges). If you ever speak or have ever spoken to providers about Medicare rates, you know that they will be quick to tell you that Medicare “does not cover costs.” This is supported by the American Hospital Association (AHA) Underpayment by Medicare and

Medicaid Fact Sheet:

• Medicare and Medicaid account for 58% of all call offered by hospitals;

• 85% of Hospitals participate despite the fact that doing so is voluntary (i.e., non-obligatory);

• Medicare pays for only 88% of costs;

• Medicaid pays for only 90% of costs;

• 65% of hospitals reported that Medicare payments were less than cost (the other 35% of hospitals reported that Medicare covered their costs); and,

• 62% of hospitals reported that Medicaid payment were less than cost (in other words, 38% of hospitals reported that Medicaid covered their costs).15

To be clear, 35-38% of hospitals have their costs covered by Medicare and Medicaid; the rest do not at varying levels. On that point, I would like to remind people that nearly one-third of healthcare is waste,16 so one could argue that if hospitals removed their share of the waste; Medicare would likely cover more reported costs and then some, wouldn’t it? Either way, MRBP plans pay Medicare plus a percentage. Though RBP payments may represent a shortfall from typical reimbursements; the payment is meant to pay a reasonable profit above responsible use of resources.

5 MOOP, the Willing Provider and You! The Department of Labor (DOL) has explained (see FAQ XXI)17

that amounts applied to an individual’s out-of-pocket maximum do not (but may, at the plan’s option) include “premiums, balance billing amounts for non-network providers, or spending for non-covered services.”

Confusion has since arisen regarding the FAQ, which presented “parameters” (like network adequacy) that must be met by RBP plans before this can apply. In other words, charges not covered by the RBP plan will not apply to the patient’s maximum out of pockets (MOOP), if the qualifications are met. It seems obvious that only LRBP plans were considered. Some read the FAQ as requiring plans to have (adequate) networks in place, while others read it to mean that only if you have a network, must it be adequate. According to some, plans with no network whatsoever are immune to the adequacy rules.

It appears we have lived with networks for so long that this market and the Department of Labor, cannot conceive an environment where payer simply does not use network.

Healthcare providers all want volume; they want “steerage.” In contrast, payers want to encourage members to obtain the necessary services from a low-cost, high-quality facility – and hospitals have been known to sue if they are excluded from a network under “any willing provider” laws.18 In this context, providers want the patients to have the right to choose and choose them (and providers spend a fortune in direct to consumer marketing). “Any willing provider” laws allow any provider that meets a plan’s standards and agrees to the plan’s terms to become one of the Plan’s preferred providers. RBP plans address “any willing provider” concerns by nullifying them and the plan can actually save money in the process. It’s a beautiful thing.


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4 C’mon! Really? RBP programs (whatever

the flavor) require proper

plan language to be compliant and

user-friendly, as it relates to other

stakeholders in the self-funded

community. I have personally seen

RBP plans that had... drum roll please...

no plan document at all! More

common, however, are poorly drafted

documents. I am all for moving at the

speed of business, but you absolutely

cannot compromise when it comes

to actually granting the plan rights

(in writing) that it later exercises.

Also, let’s face it – RBP is en vogue;

nearly every industry vendor either

offers some RBP product, wants to,

or at least says that it can if clients

need it. All plan sponsors, TPAs and

brokers should view those options

with caution and concern. Fear the

potential that you may be sold on

a vendor that has only just started

to deal with RBP, because you, the

client, asked for it. Also, many vendors,

through active sales, may actually be

growing beyond their ability to scale

operations, the result being poor

service or no service at all – yet

charging top-dollar for it.

Finally, I have lost count of the

number of people in the industry

that are somehow equating the term

“fiduciary” with protection of patients

from balance billing. In response to

that let me summon my inner Bob

Newhart in emphatically saying

“STOP IT!” In the RBP context,

fiduciary responsibility means paying

claims according to the fixed fee

schedule explicitly stated in the plan

document. If Plan Administrators do

that, they have fulfilled their fiduciary

duty and can defend themselves

from those who would challenge this.

Balance billing is the responsibility

of the member. While the plan may

choose to step in and help protect the

member by settling claims (and I think

they should), strictly speaking, the plan

has no fiduciary or equitable obligation

to do so.

3 You’ve Got to Know When to Hold ‘em; Know

When to Fold ‘emOddly, we have seen many RBP

plans absolutely refuse to negotiate

claims with providers and openly opine

that all claims need to go to collections

before settlement can ensue. In

general, I disagree with that approach.

External collections can add a

difficult layer of liability: additional

cost. Once external collections are

in play, providers net less money on

any settlement. They now want more

to cover those costs; more than they

may have previously been inclined

to offer a payer, because they now

need to pay the collector (typically

20-35%). Plus, outside parties have

their own interests, which therefore

look to compromise budding positive

conversations between payers and

providers. Remember, collectors

(and RBP vendors too to a large

extent) make money from

disagreement in this market.

In many instances, a complete lack

of flexibility in strategic settlements

can galvanize a regional provider

community to “gang up” and reject

an RBP Plan. We have witnessed state

hospital associations actively campaign

against certain vendors, educating

their membership on how to fight

or even eliminate RBP plans. This can

involve en masse pursuing the patient

for payment or even pushing away

patients for non-emergent care (aka

“black balling”), which can damage

the viability of an RBP program (and

potentially all RBP programs).



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That is not to say that being inflexible cannot work at times; in some cases, rigidity has value and the trick is to be watchful and thoughtful about what is happening in the provider community context. For this reason, we recommend open strategy discussions between all parties involved in the RBP program, which typically involves input from TPAs, vendors and the plan sponsor. A mere subtlety in market dynamics or a key relationship can make all the difference between success and failure. In other words, the ideal RBP program is a customized one, tailored to the needs of a given client in a given situation. This is where many vendors show their true colors – whether in a positive or negative light.

2 Contract-o-PhobiaThe contracting process is not simple. The following is a redacted

excerpt from an actual communication we have received:

“I’m still unclear as to why a smaller TPA such as you would not contract

with a network such as [regional networks] for a statewide provider network.

Even if we could come up with a reasonable reimbursement rate, I am reluctant

to set a precedent with one TPA. I think I mentioned before that there is not

enough volume of covered lives in our service to negotiate a significant discount with you.

We might be more open to the idea of a small discount if we were the only

providers in a narrow network of choice.”

Regardless, it is imperative that plans who choose not to use a network at all must still work toward contracting with (or at least identifying) “safe harbor” providers that have agreed to refrain from balance billing in exchange for the plan’s maximum payable amount. The primary challenge is to avoid creating networks. In many ways, RBP expands the leverage with the provider as you now can combine both the claims incurred to date and future claims. We have seen some RBP plans able to get providers to compete for their business and would highly recommend pursuing these options when it makes sense.

From a contracting perspective, stop-loss coverage should be taken into consideration as well. If an RBP plan pays an amount rigidly defined in the plan document, then the carrier will be satisfied with that payment since it was what the carrier has underwritten. If, however, the RBP plan pays extra to settle the claim, various carriers will react to that expense in different ways. The best-case scenario is a plan document that supports payment of contracted or settlement amounts; if the carrier has indicated that it will honor negotiated rates as the plan’s proper payment, then a negotiated agreement may not only safeguard the

patient, but also can help safeguard stop-loss reimbursement.

1 Balance Billing; It’s About Punishing Non-Par Plans

The first thing I do when I call on an account undergoing balance billing is to ask the provider if it knows that it is billing a patient the balance up to 100% of its charges. I usually get a response in the affirmative and something like “well, the Plan is non-par and so charges are due.” I go on to explain that the Plan is not “non-par” in the traditional sense. In other words, this Plan has not rejected the provider as part of a network, but rather, the plan defined its benefits to be a percentage of Medicare and that it was the member who chose to seek care at the provider’s facility. In this context, the consumer has actively chosen that provider – over all other options – for services and the provider is billing the patient at its highest rate possible. I am pleased to report that many providers, when they truly understand this dynamic, write off the balance.

That having been said, there are and likely will always be, providers that are aggressive and will balance bill the member in every case. By acting in this manner, providers are effectively punishing patients who do have insurance. The purpose of this practice is to reiterate their expectation of greater payment from insured patients; even if the patient’s insurance does not cover the full balance, which self-funded plans very rarely do. This is a way to try and force insurers to pay more by holding the patients’ credit as ransom; and we are back to the status quo...

ConclusionRBP simply reduces the unit cost

or price of what is (one way or


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another) being consumed. Is this too simple or blunt an approach? At the end of the day, we are well served to recall the 2003 article from Gerard Anderson, Professor at Johns Hopkins Bloomberg School of Public Health, about the real problem in US healthcare: It’s the Prices, Stupid: Why the United States is so different from other countries.

Whether I’m purchasing a home (shelter) or a cheeseburger (sustenance), there is a general range of prices. Those prices are set by the seller taking various real elements into account, such as location, quality, supply and demand. Cost to the seller, necessary profit margins and other factors impacting the seller, as well as need, ability to pay and other options available to the buyer, are hallmarks of a free market, capitalistic, healthy economy. This is how we establish fair value, drive (healthy) competition and make sense of things. What we pay; what we charge; and why. Yet, for some reason, common sense economic concepts are moot when applied to healthcare. Without the shelter and sustenance referenced above, I’d perish – yet – we allow these concepts to apply to the obtainment of such goods. Healthcare does matter – of course – but it is not so unique that it should be treated like some invaluable, priceless commodity for which providers can charge whatever they wants, at will, randomly, without any controls or rationale. ■

Jason C. Davis is Business and Product Development Consultant at The Phia Group. He specializes in medical claim review/negotiations and cost-containment program development including vendor, network and provider contracting. With the goal of combating the steadily increasing costs, Jason routinely consults The Phia Group’s industry-leading attorneys on complex claims provider negotiations, payment disputes and balance billing management. Before joining The Phia Group, Jason was a key member of another cost-containment fi rm, holding positions in claim negotiations, cost-containment R&D, business development, and upper management.

References1If RBP is a new concept for you, I refer you to an excellent primer by my colleague, “In Reference to Reference Based Pricing” by Ron E. Peck, Esq., Sr. Vice President and General Counsel, The Phia Group LLC, The Self-Insurer, May 20142Bill Gates, “The Road Ahead” published in 1996, quoted by Nancy Weil and IDG News Service http://abcnews.go.com/Technology/PCWorld/story?id=5214635 June 23, 20083See, Are Medicare ACOs Working? Experts Disagree, KHN News as republished by www.medpagetoday.com/PublicHealthPolicy/Medicare/54215) October 21, 2015 4Timothy D. Martin. Cost-Sharing, Maximum Out of Pocket Limits, and Balance Billing: An Analysis of Regulatory Guidance for Reference-Pricing Plans Under the Affordable Care Act. 5David Frankford and Sara Rosenbaum, Go Slow On Reference Pricing: Not Ready for Prime Time, http://healthaffairs.org/blog/2015/03/09/go-slow-on-reference-pricing-not-ready-for-prime-time/ March 9, 20156Melanie Evans, Hospitals Rethink prices as patients grow more cost-conscious, www.modernhealthcare.com/article/20151205/MAGAZINE/312059981?utm_source=modernhealthcare&utm_medium=email&utm_content=20151205-MAGAZINE-312059981&utm_campaign=am December 5th, 2015 7http://time.com/198/bitter-pill-why-medical-bills-are-killing-us/; “Bitter Pill: Why Medical Bills Are Killing Us” By Steven Brill, Feb. 20, 20138Melanie Evans, Hospitals rethink prices as patients grow more cost-conscious, www.modernhealthcare.com/article/20151205/MAGAZINE/312059981?utm_source=modernhealthcare&utm_medium=email&utm_content=20151205-MAGAZINE-312059981&utm_campaign=am December 5th, 20159Jan Emerson-Shea, Vice-President for External Affairs for the California Hospital Association, quoted by Roni Caryn Rabin, Wide Range of Hospital Charges for Blood Tests Called Irrational, http://www.npr.org/sections/health-shots/2014/08/15/340637076/wide-range-of-hospital-charges-for-blood-tests-called-irrational August 14 201410Statement from an unnamed Hospital spokesperson as reported by Stephen Brill, Bitter Pill – Why Medical Bills are Killing Us, Time Magazine, April 4 201311Grant Gegwich, vice president of public relations and marketing for the Crozer-Keystone Health System, as quoted by Patti Mengers, Study: Crozer is #12 in U.S for high patient mark-ups, Delaware County Daily Times, www.delcotimes.com/article/DC/20150610/NEWS/150619980 June 10th 2015 12James Wentz, CFO of University of Mississippi Medical as quoted in Emily Le Coz, The Big Shell Game: What you need to know about your hospital bills, http://archive.clarionledger.com/article/20131006/NEWS01/310060034/The-Big-Shell-Game-What-you-need-know-about-your-hospital-bills October 13, 2014 13Children’s Hospital Central Cal. v. Blue Cross of Cal. 72 Cal. Rptr. 3d 861, 876, Cal. App. 2014), review denied, http://law.justia.com/cases/california/court-of-appeal/2014/f065603.html 1426 U.S. Code § 501 - Exemption from tax on corporations, certain trusts, etc www.irs.gov/Charities-&-Non-Profi ts/Charitable-Organizations/New-Requirements-for-501(c)(3)-Hospitals-Under-the-Affordable-Care-Act 15ibid16Health Policy Brief, Reducing Waste in Health Care. A third or more of what the US spends annually may be wasteful. How much could be pared back – and how- is a key question http://healthaffairs.org/healthpolicybriefs/brief_pdfs/healthpolicybrief_82.pdf December 13, 201217U.S. Department of Labor, FAQs Aboout Affordable Care Act Implementation (Part XXI) http://www.dol.gov/ebsa/faqs/faq-aca21.html October 1018Susan K. Livio 17 N.J. hospitals sue state for approving Horizon’s new health plans www.nj.com/politics/index.ssf/2015/11/11_nj_hospitals_challenge_state_approval_of_horizo.html November 19th 2015



SIIA Formally Opposed ACA’s Cadillac Tax; Congress Agreed to Delay 40% Levy to 2020

INSIDE the BeltwayWritten by Dave Kirby

When Congress delayed implementation of the Affordable

Care Act’s (ACA) “Cadillac Tax” on high-value employee benefi t plans from 2018 to 2020, it pushed further into the future the draconian tax’s damaging effects on self-insured benefi t plans and the nation’s economy.

“This excise tax on some employee benefit plans would have a far-reaching effect on the U.S. economy,” said Ryan Work, SIIA’s Vice President of Government Relations. “The National Coalition on Benefits, to which SIIA belongs, estimates that the 40% tax would result in job losses totaling 2.6 million, reduce personal income by almost $3,800 per household and cut GDP by 1.7% by 2035.”

A cross-section of America including Members of Congress from both sides of the aisle, major corporations, labor unions, local political jurisdictions and business organizations have joined in opposing the Cadillac Tax and many now predict its ultimate demise.

SIIA’s Government Relations Committee (GRC) recommended support for efforts to repeal the Cadillac Tax at its meeting prior

to Congressional action and the Board of Directors concurred. “While the delay may be a welcome reprieve, the tax still lurks on the horizon,” said Jerry Castelloe, GRC chairman. “Without repeal or major restructuring the Cadillac Tax is an unfair burden on employers working diligently to provide quality benefits to their plan members.”

Bob Shupe, a member of the GRC and CEO of ESP, LLC, a health plan management company in Brentwood, Tennessee, said that the tax on some employee health plans would be a disaster for employers sponsoring self-insured plans whenever it may be implemented.

“Whether you agree with the ACA or not,

it has to be funded and the only way to do

that is through some kind of tax,” Shupe said.

In addition to providing revenue to fund the ACA, Shupe believes the Cadillac Tax was conceived to reduce the number of self-insured plans. “It would make it so expensive and complicated that employers may

throw up their hands and let the government take over.”

Shupe finds a particular problem in the way the tax would be structured over a period of years. “Annual increases of the cap on allowable health benefits would be pegged to the national consumer price index (CPI) while employers would likely face continued increases in health costs which are entirely different economic indicators. For example, this year the cap would have moved up only a fraction of one percent while health costs were going up seven or eight percent. Over years, this could push many more employer plans into the tax. Instead of a Cadillac Tax it would be a Chevrolet Tax because everyone could have one.”

Shupe said SIIA and others must remain vigilant about this and other elements of the ACA, particularly this year. “Some big changes are likely because of the national election, no matter how it turns out,” he said.

GRC member Ron Peck, senior vice president and general counsel of The Phia Group of Braintree, Massachusetts, which partners with self-insured employers on their operation of health plans including subrogation and claims recovery, recalls the meeting in Austin where


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SIIA’s formal support of Cadillac Tax repeal was established. “Our discussion focused on who really wanted this tax,” he recalled. “It is opposed by business and employee organizations across the political and economic spectrum.

“But one cause of concern is that if the government doesn’t get money

to support the ACA through this means, it will attempt to get it through another form of taxation, he said.

We’re going to have to keep an eye on this process to make sure the

next repressive tax isn’t even worse.”

IRS Reporting Delays WelcomedA good number of SIIA members relayed the news of IRS delays for

reporting health coverage information to their constituent clients and colleagues after receiving SIIA’s bulletin on Dec. 28, 2015, which was the first notification they received of the changes.

To recap, the 2015 IRS form 1095-C must be provided to employees and dependents covered by self-insured plans by March 31, 2016, rather than January 31; electronic filing of the 2015 Form 1094-C with the IRS for employers with

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250 or more forms must be done by June 30 rather than March 31; and paper or electronic filing of the 2015 Form 1094-C (for fewer than 250 forms) must be done by May 31 rather than February 28. ■

Further information of these and other issues of federal legislation or regulation remain available by contacting Ryan Work in SIIA’s Washington offi ce at [email protected] or (202) 595-0642.


Federal PACE Act Defi ning Small Groups at 50 Reduces Impact of Maryland Stop-Loss Study

OUTSIDE the BeltwayWritten by Dave Kirby

Some of the air went out of the Maryland Insurance Administration’s (MIA) current study on stop-loss

insurance for sponsors of self-insured employee benefi t plans when Congress passed the PACE act last year that revised the ACA to allow states to continue defi ning small employers at 50 head count.

Following last year’s Maryland legislation regarding small

group health plans, MIA was tasked by the legislature to conduct a study of how stop-loss insurance is used by small group employee plans with the goal of establishing “certain protections and prohibitions for small employers,” then thought to include groups of up to 100.

Prominently noted in the MIA interim report in December was the fact that the federal PACE Act will keep the definition of small employers at 50 employees for the foreseeable future (early in this process Maryland accepted that it would follow the government’s definition of small groups). This eliminated MIA consideration of groups in the 51-100 range and so appears to have greatly reduced the possible

future impact on self-insured plans in Maryland while potentially diminishing the purposefulness of the study. A final report is scheduled to be delivered to legislative committees in October.

“When I read the report I wondered why they didn’t just stop the process right there,” said SIIA member Rodger Bayne, CEO of Benefit Indemnity Corp. of Towson, Maryland.

The report states: “Since Maryland employers with 50-100 employees will continue to be

considered large employers, it does not appear there will be any impactful movement by small

employers which would result in adverse selection that would affect the stability and

visibility of the small group market.”

MARYLAND


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That statement seems to preclude

the need for further consideration of

stop-loss insurance by Maryland

lawmakers and regulators but the rule,

that once a government bureaucratic

process is launched it must be

completed, appears to be in force.

The report recounted how

thoroughly MIA mined for information

about small group self-insured benefit

plans in establishing the parameters of

its survey. MIA held a series of town

meetings around the state and an

informational hearing last September

(reported in the November issue of

The Self-Insurer).

The MIA’s appetite for data

appears not yet satisfied as its report

indicates that further information will

be invited in a 2016, “data call letter”

to be sent to carriers participating

in the Maryland small group market.

Presumably “carriers” includes stop-

loss insurers as well as traditional

group health insurers.

Even beyond MIA’s data initiative,

Bayne of Benefit Indemnity believes

that employers and members of

the self-insurance industry should

continually and without specific

invitations express to the regulator

their support for stop-loss insurance

as a vital part of self-insurance.

“It’s up to people engaged in self-

insurance to initiate their responses,”

Bayne said. “SIIA is working hard along

with the Maryland Association of

Health Underwriters to support the

stop-loss market.

“The longer our industry goes

without challenging government

intervention, the state becomes

more comfortable with the idea

of regulating self-funded plans by

attaching regulations to stop-loss

insurance.” Bayne believes that

Maryland and other states can or

even have edged into regulating self-

insurance, which is overtly denied by

the federal ERISA law, by regulating

the level of risk employers accept

(stop-loss attachment points) and the

size of self-insured groups.

“The camel’s nose has come under

the wall of the tent,” Bayne says, “and

if we allow it to become comfortable

there we’ll be living with the whole

beast.” He points to the federal Fourth

Circuit ruling in the 90’s that self-funded

plans are able to buy all the insurance

they want without changing their status

to an insured plan, therefore should

not be subject to interference by the

states. “Our industry should forcibly

remind state government about that precedent,” he said.

“Our primary concern in protecting self-insurance is that stop-loss insurance

does not become regulated as a health

insurance product, which it is not,”

said Adam Brackemyre, SIIA Director of State Government Relations. “We take the position that all state minimum attachment point laws or regulations are ERISA violations.”

The MIA interim stop-loss survey report has been distributed to SIIA members. Information remains available from Brackemyre at the Washington, DC, office (202) 463-8161 or [email protected]. ■


Legislation to Amend the LRRA Splits Industry Opinion

Written by Karrie Hyatt

Since the Liability Risk Retention Act (LRRA) was signed into law nearly thirty years ago, the industry has been attempting to get the law amended, with the most recent attempts centering on property coverage. As it stands, the LRRA allows risk retention groups (RRGs) and risk purchasing

groups (RPGs) to insure liability only. Legislation introduced into Congress last October is the most recent effort to amend the LRRA, but it is meeting with opposition from some industry supporters.

The Nonprofit Protection Act (NPPA), H.R. 3794, introduced by Congressman Dennis Ross (R-FL) and Congressman Ed Perlmutter (D-CO), would allow a small subset of RRGs the opportunity to provide property insurance to its members. The bill, spearheaded by Pamela E. Davis, the founder, president and CEO of Nonprofits Insurance Alliance Group which manages Alliance of Nonprofits for Insurance, Risk Retention Group, would allow for certain RRGs that provide coverage for nonprofits to write property coverage.

Amending the LRRAEfforts to amend the LRRA began shortly after it was enacted in 1986. Early

efforts intended to “shore up” language about domicile regulation and state registration fees and processes. However, beginning in 2002, efforts at amending


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the law have centered on enabling RRGs to write property for their members. Since 2010, proposed legislation has also included creating a dispute resolution process for RRGs and addressing corporate governance concerns. While the continual efforts of the risk retention industry have resulted in several bills introduced into both the House of Representatives and the Senate, none of the bills have made it to the floor for a full vote.

Previous efforts to amend the law intended all RRGs the opportunity to offer property, NPPA will only apply to RRGs whose members are 501(c)(3) nonprofits. The pool of RRGs that qualify to offer property would be further reduced by several stipulations in the bill. A RRG must also have been in operation for at least ten years and have surplus of at least $10 million. The total insured value of risks covered by additional forms of commercial insurance would be capped at $50 million for any one member of the RRG. If NPPA is passed the law would apply to an estimated six RRGs out of more than 230 currently operating groups.

Why Only Nonprofi ts?One of the RRGs that would

benefit from NPPA has led the way for the bill’s introduction into Congress. Alliance of Nonprofits for Insurance, Risk Retention Group (ANI) was formed in 2000 to provide small nonprofits affordable liability insurance. The motivation behind ANI’s campaigning for the NPPA is primarily its inability to provide auto physical damage insurance to its members.

“Unlike most commercial business who purchase their professional liability separate from the General Liability and Property, nonprofits are typically offered their coverage from traditional insurers on a combined

basis... on a ‘take it or leave it’ basis,” explained Pamela David. “ANI has been using a partner commercial carrier for both the property and auto physical damage, but we have grown a lot and are reluctant to have the vast majority of our members insured by one company over which we have no control.”

Several years ago, ANI discovered that traditional insurance companies won’t provide BOP (business owner’s policy) property coverages without also writing the corresponding liability coverage. ANI has found no company willing to write small auto physical damage policies without writing the liability. “We knew that that we had to get this law changed,” said Davis. “Eighty percent of the nonprofits ANI serves have annual budgets of less than $1 million per year. These are very small community-based organizations with virtually no clout in the insurance marketplace.”

Davis said that she had been traveling between California and Washington, DC nearly once a month for two years to meet with members of Congress. Members of ANI and associated brokers sent “about 450 letters” to Congress in support of the proposed legislation.

The original bill started out with much broader language, but received considerable opposition. According to Davis, “We were challenged to demonstrate through market surveys that the monoline property and auto physical damage coverage we are seeking to offer our members is simply not available in the traditional market. While other RRGs would like to have the option of providing property and auto physical damage, no other market segment was able to demonstrate, like ANI was, that the property coverage our members need is simply not provided by traditional insurers. The

bill was crafted to solve the specific market failure that has been proven.”

Opinion is SplitThe NPPA has the support of

ANI and several national insurance associations according to Davis, including the Reinsurance Association of America, the Council of Insurance Agents & Brokers and Property Casualty Insurers Association of America. The bill has also been endorsed by the Vermont Captive Insurance Association (VCIA). According to Richard Smith, president of the association, “I see the LRRA legislation as a step forward for the industry. The industry has been pursuing the expansion of the LRRA to allow property coverage for over a decade to no avail. Although the current legislation is too limited, my hope is that it brings a greater chance of passage if it is more narrowly defined. My hope that if it passes, there will be the proverbial ‘foot in the door’ to expanding it for all RRGs in the future.”

Conversely, the board of the National Risk Retention Association (NRRA), the trade association for RRGs and RPGs, voted in December to oppose the NPPA. The association is primarily opposed to certain language in the bill. A new clause redefines commercial liability within the bill to exclude, “health, life, or disability insurance or workers compensation insurance or express contractual obligations.” This added section would not allow RRGs to offer contract liability or warranty coverage. Several existing RRGs primarily write this type of commercial insurance.

According to Jon Harkavy, executive vice president and general counsel, Risk Services, LLC and an active member of NRRA, “[The NPPA] has a new definition of commercial


insurance which doesn’t exist in the LRRA and which was totally unnecessary for the purpose that the legislation seeks to address. I see this as both disqualifying a number of RRGs and I see it also, if passed, as encouraging states like California, who have a very restricted definition of liability insurance, to seize upon this and make their law more restrictive.”

The NRRA Board is also concerned with the narrow scope of the proposed legislation. The number of nonprofit RRGs who would benefit from this legislation is smaller than the number of RRGs and PGs that currently offer contractual liability products. Joe Deems, executive director of NRRA said that, “The legislation was pursued without any advance knowledge or submission to us for input as to the potential effect it might have on the RRG industry. NRRA’s Government Affairs Committee tries to address issues for their possible effect upon the industry as a whole.”

“I’m sympathetic to non-profits,” said Harkavy. “But I think that there are medical practitioners and others equally deserving of the opportunity to write property and have an equal amount of difficulty being able to provide property coverage as ANI says nonprofits have. I have trouble isolating ANI’s situation from any other group or policyholder as far as difficulties in not writing property.”

NRRA has long endorsed an amendment to the LRRA that would allow its members to write property coverage, but considers the language in the NPPA too exclusive and contentious to be the right bill for the industry, Deems added. “NRRA has not changed its position regarding of the inclusion of property coverage into the LRRA for qualified companies,” said Deems, “and is looking forward to the next session of Congress to work with the bill’s sponsors and proponents to draft a broader bill that is more inclusive and beneficial to the RRG and PG community.”

OutlookThere has been no movement on the bill since it was referred to the House

Committee on Financial Services in late October. As 2016 is an election year, bills will be much harder to get passed. While NPPA has some positive backing, those against it will be lobbying hard to keep it from being passed.

“Any bill in Congress is a long shot,” said Davis. “However, I have been pleasantly surprised with the reception we have had, especially the past six months. I believe that our message is starting to get traction. We are not asking for any handouts from Congress, only the ability for small and mid-sized nonprofits to pool their resources to jointly provide a type of coverage that the traditional insurance market simply is not providing.” ■

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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Some risks are so unusual to insure that they actually have

their own self-funding mechanism. One such

approach involves the use of an enterprise risk captive (ERC), which weathered a nearly yearlong legislative attempt to render the

arrangement and other captive programs useless.

ERCs generally address uninsured risks

or gaps in commercial insurance programs for first party, claims-made exposures of the short-tail variety, including business interruptions.


Reining inUniqueRisks

Enterprise risk captives fi ll niche for small and midsize fi rms, but preserving their power has proven to be an ongoing quest

Written by Bruce ShutanWritten by Bruce Shutan


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They’re also typically owned by small or privately held enterprises rather than big, publicly held companies. In contrast, a medical stop-loss captive or workers’ comp captive is designed to simply help manage the cost of a commercial insurance program.

“What we have here is a tool that is meeting a risk

management need and that’s why it continues to be

popular and grow, despite the whirlwind

of controversy around it,”

says Jeff Simpson, an attorney with Gordon, Fournaris & Mammarella, P.A. who chairs SIIA’s Alternative Risk Transfer Committee. It’s seen as particularly useful for small and midsize employers.

The tie-in to self-insurance is that many captives mitigate against stop-loss risk, according to Ryan Work, SIIA’s VP of government relations.

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

Work says quite a bit of headway

has been made since a legislative proposal made in February 2015 that could have been disastrous for the captive industry. “SIIA has really stepped up to the plate in terms of our protection and advocacy for the ERC industry,” he reports.

That effort includes educating policymakers and members of Congress about what 831(b) captives mean, especially to small and midsize businesses and their ability to mitigate unique risks such as cyber security or wind damage.

Simpson believes the relative newness and mounting popularity of captives may explain why they landed on the IRS’s infamous “dirty dozen” list of tax scams and are prone to misconception or suspicion of ulterior motives. “The IRS hates captives, always has,” he says. Regulators, on the other hand, in large part appreciate and generally understand captives, he adds, though there are still a fair number of them who are skeptical or misinformed.

Filling a VoidWhatever happens with respect to government oversight in the months

and years ahead is anyone’s guess, but there’s no doubt that ERCs fill a void in the marketplace. They’re essentially alternative risk insurance companies that insure unique risks that are not covered in traditional market policies, explained Mike O’Malley, managing director of Strategic Risk Solutions, Inc., during a panel discussion at SIIA’s recent national conference.

They not only complement other types of coverage, but also offer protection against unusual or rare sets of circumstances based on a very different set of actuarial methods and assumptions, noted Rob Walling, a principal and consulting actuary with Pinnacle Actuarial Resources, Inc.

He cited two client examples. One involved product contamination and recall coverage purchased for a consumer food producer that experienced three large claims over an eight-year span. These claims fell under the policy exclusions and created material financial volatility. Another case involved a computer software developer that purchased cyber liability that expanded software use to a handheld sales environment, including personal information.

“Those kinds of conversations are nontraditional, to say the least, but they require a dialogue between the insured and captive at a bare minimum to understand what the real problem is and what the risk is,” he said.

The educational workshop – “Enterprise Risk Captives: How does the Insurance Actually Work?” – examined the inner-workings of ERCs and what makes them unique. Simpson acted as moderator and deftly fielded questions throughout the session.

Assessing RisksThe focus is on risk management, since each captive structure requires real risk.

As such, “a good starting point is a formal risk assessment to quantify the frequency and severity of each risk considered,” according to O’Malley. It’s also vital that risk is re-evaluated annually to determine any changes in underlying exposure.

Two other tips he imparted is that the resulting captive premium be calculated on an arm’s-length basis by a qualified actuary or underwriting professional and that captive operations be governed by a common-sense approach that’s similar to the traditional insurance market. For example, it’s important to price risks and determine premiums just like other insurance companies perform these functions.

Mindful that an ERC’s business purpose is insurance, Walling said these captives are expected to produce a myriad of documentation to support their

REINING IN UNIQUE RISKS | FEATURE


mission. Included in that mix are financial statements; premium and loss accruals; and cash flows – especially premiums, reinsurance premiums and losses. Other key areas address the treatment of loan backs and dividends; as well as an actuarial loss reserve analysis; statement of actuarial opinion; and audit opinion.

Walling also identified the need for market-comparable pricing and to determine the rate-of-return model being used. In addition, he said actuaries need to consider nontraditional data sources and it’s important to recognize the length of a captive. “Oftentimes you’re dealing with losses from 10 or 12 years ago,” he added.

Dana Sheridan, general counsel and chief compliance officer at Active Captive Management, LLC, detailed several best practices in insurance policy drafting and claims adjusting for ERC insurers. Her checklist for standard policy features included application documents, a declarations page, insuring

agreement, definitions, exclusions and conditions to coverage.

She also reiterated what she’d written in the April 2015 issue of Captive Visions: “Any captive policy should adequately describe the risk transferred in a way that insurable interest could be substantiated in the contract terms itself.”

That same article noted that “artful policy drafting happens when it’s possible to hand craft policies tailored specifically to the risk, which is why captive policies can present an ideal policy drafting scenario… [and] it’s not always possible for the commercial market to hand tailor a line for a single insured, or a single series of related insureds, or for the nuanced risk of a particular type of industry.”

ERC captives should follow best practices not only in how they write their lines, she said, but also in how they interpret them in the context of claims, which means taking consistent

coverage positions under the same policy language for all claims that trigger the coverage.

With regard to claims adjusting, Sheridan stated that proper claim documentation is at the center of effective adjusting. Claims adjusting generally involves investigating claims and documenting the coverage evaluation, as well as setting and documenting reserves, she added.

Questions to AskIn looking at the big picture,

O’Malley suggested there are several meaningful questions to ask when considering an ERC and assessing risk. They include the following:

– What are the major risks that impact long-term viability of the operations?

– What controls are currently in place to manage these risks?

– How effective are the controls in place?

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2016Schedule of Events

April

march

may

Self-Insured Taft-Hartley Plan Executive ForumMay 18-19, 2016 | Chicago, IL

Taft-Hartley plans refer to the multi-employer pension plans collectively bargained by a union and a group of employers, usually in related industries. Taft-Hartley plans are governed by a trust, half of whose trustees are appointed by the employers and half by the union. This retirement plan model has enabled tens of thousands of small and medium-sized businesses to provide workers with the traditional defi ned benefi t pensions that used to be standard among larger employers, but have now vir tually disappeared in the non-unionized private sector.

Self-Insured Workers’ Compensation Executive ForumMay 24-25, 2016 | Scottsdale, AZ

SIIA’s Annual Self-Insured Workers’ Compensation Executive Forum is the country’s premier association sponsored conference dedicated to self-insured Workers’ Compensation employers and group funds. In addition to a strong educational program focusing on such topics as analytics, excess insurance, wellness initiatives and risk management strategies, this event will offer tremendous networking opportunities that are specifi cally designed to help you strengthen your business relationships within the self-insured/alternative risk transfer industry.

International Conference April 5-7, 2016 | San Jose, Costa Rica

SIIA’s International Conference provides a unique opportunity for attendees to learn how companies are utilizing self-insurance/alternative risk transfer strategies on a global basis. The conference will also highlight self-insurance/ART business opportunities in key international markets. Participation is expected from countries all over the world.

Self-Insured Health Plan Executive ForumMarch 21-23, 2016 | New Orleans, LA

The educational focus for this event will be to address the interests of plan sponsors, in addition to third party administrators and stop-loss entities. This forum delivers high quality educational content of interest to executives involved with the establishment, management and/or support of self-insured group health plans. In addition to the educational program, the event will feature multiple unique opportunities.

36th Annual National Educational Conference & Expo September 25-27, 2016 | Austin, TX

SIIA’s National Educational Conference & Expo is the world’s largest event dedicated exclusively to the self-insurance/alternative risk transfer industry. Registrants will enjoy a cutting-edge educational program combined with unique networking opportunities, and a world-class tradeshow of industry product and service providers guaranteed to provide exceptional value in three fastpaced, activity-packed days.

For more information visit › www.siia.org

sept


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April As part of that process, he said it’s critical to conduct a risk assessment to identify potential hazards and analyze what could happen if a hazard occurs. In addition, a business impact analysis will help determine the potential impacts resulting from the interruption of time-sensitive or critical business processes.

The risk-assessment process involves several major steps that identify or assess relevant business objectives, events that could affect the achievement of objectives and risk tolerance, as well as both the inherent and residual likelihood and impact of risks in those two scenarios. It’s also important to evaluate the portfolio of risks and determine risk responses – and as such, consider the captive approach as one of several options to help control cost.

Another key theme involved the risk-sharing terms associated with risk distribution. There must be sufficient exposure units and the involvement of many insured individuals, while one test occasionally used is that an insured not pay its own losses.

Each member of the ERC shares its respective risk and exposure and in return, receives the benefits of “pool risk,” which O’Malley noted evenly distributes the risk and is “the foundation of insurance in general.”

The panel also discussed risk shifting, citing Revenue Ruling 2002-91. It was noted that any financial loss by the insured is offset by an insurance payment after some or all of the financial consequences of the potential loss is transferred to the carrier.

Any prospective ERC customers should be on their guard when assessing this arrangement, according to O’Malley, whose parting words were: “If it’s too good to be true, it’s too good to be true.” He suggested a strong need to closely consider the fact pattern of the entity and follow fundamental core concepts such as arm’s length pricing, limited rollback and premiums being paid on time.

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Although ERCs represent an alternative to traditional insurance, the arrangements still must adhere to basic principles to pass muster with industry regulators and draw customers.

“Insurance companies need to act like insurance companies and captive insurance companies are no different,” Walling opined. That means posting reserves for unpaid claims, producing income statements, conducting rigorous reviews, ensuring that the captive’s capitalization is reasonable after dividends are paid and the funds available to pay claims are unimpaired after a runback. ■

Bruce Shutan is a Los Angeles freelance writer who has closely covered the employee benefi ts industry for 28 years.



PPACA, HIPAA and Federal Health Benefi t Mandates:

PracticalQ&AStaying on the Compliance Track: The 2015 Health Benefi ts Year in Review

Have you ever attended a NASCAR race? We’re not asking if you’ve ever watched a race on TV, but whether you have actually ever attended a race. Unlike TV, with the benefi t of many camera angles and varied vantage points, you can’t simply watch the cars go leisurely

around the track when watching live. There are so many cars going so fast that you have to focus on a single car directly in front of you and stay focused on that one car and only that car, as it speeds down the front straightway. Otherwise, all you see is blur – total blur.

Lately, it has felt like monitoring legislative and regulatory activity related to health and welfare benefits is similar to watching a NASCAR race live. There are so many rules and regulations coming out and they come out so fast, that if you don’t focus on each rule or regulation as it passes by you, then all you see is a blur.


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Unfortunately, if you are reading this, you are already an active participant in

the race and charged with knowing all of the rules and regulations that impact

your plans and/or your clients’ plans. This is why we do this “year in review”

each year – so that you can better see all the cars on the compliance track and

hopefully avoid a year-end crash. In 2015, there was so much activity – legislation,

regulations, Supreme Court cases, FAQs and other subregulatory guidance – that

we aren’t able to cover everything. We do, however, hit the high points of 2015.

Final Health Insurance Reform RegulationsIn November, the Department of Labor (DOL), Department of the Treasury

and Department of Health and Human Services (HHS) issued final, final tri-agency

health insurance reform regulations. The final regulations, which are applicable

for plan years beginning on or after January 1, 2017, combine the interim final

regulations issued during the first few years after the health insurance reforms

became effective and the subregulatory guidance (e.g., the FAQs posted on

the agencies’ websites) subsequently issued by the agencies without significant

changes or clarifications; however, there are a few clarifications worth noting.

Grandfather Plan StatusIf applicable, grandfathered status enables plans to avoid some, but not all, of

the ACA insurance reform provisions. The regulations clarified the following:

• A loss of grandfather plan status that occurs during a plan year due to a

decrease in the employer’s share of the total cost of a fully insured plan is

not effective until the start of the next renewal date (as opposed to the

effective date of the change) so long as the employer warranted grandfather

plan status at the time of the prior renewal.

• Adding new contributing employers to a multiemployer health plan does not,

in and of itself, cause the multiemployer plan to lose grandfather plan status.

Practice Pointer : The regulations fail to address a few open issues related to

grandfather status, including the potential impact that a wellness program premium

surcharge has on grandfather plan status or, for purposes of losing grandfather status

due to a coverage reduction, when benefits necessary to treat or diagnose a condition

have been substantially eliminated.

Dependent Child• An HMO cannot limit eligibility to children under age 26 who live in the

service area. NOTE: The regulations do not require the HMO to provide

services outside of the service area; the regulations merely prohibit limiting

eligibility to children who live in the service area.

Year End Update:

As addressed in our separate

advisory (www.alston.com/

advisories/year-end-employee-

benefits/), the PATH Act, which

was signed into law December

18, provides for a two-year delay

of the 4980I tax (the so-called

“Cadillac Plan” tax), making its

start date 2020 and makes the

tax deductible. The thresholds

will continue to be adjusted

for inflation during this period.

The legislation also provides

for permanent parity for transit

benefits retroactive for 2015. Also,

the IRS issued comprehensive

guidance in Notice 2015-87 that

addresses health reimbursement

accounts (HRAs) and cafeteria

plans and Notice 2013-54;

affordability, creditable hours

and other issues under 4980H;

and certain compliance issues

associated with flexible spending

account (FSA) carryovers,

including COBRA. IRS Notice

2015-87 will be the subject of a

forthcoming article.


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Rescissions • Voluntary retroactive

terminations are not rescissions. Thus, if an employee erroneously enrolls in a group health plan and wishes to retroactively undo that enrollment, the plan may allow that (subject, of course, to any Code Section 125 restrictions) even in the absence of fraud or failure to pay the applicable premiums.

Claims and Appeals• For plans subject to the federal

external review process (e.g., self-funded ERISA plans), the final regulations make permanent the limitation on external review of benefit claims to those adverse benefit determinations that the independent, external reviewer determines involve medical judgment and rescissions.

• In addition, the final regulations add two more to the list of claims subject to external review:

» Whether an individual is entitled to an alternative standard under a wellness program due to a medical condition.

» Whether the plan satisfies the nonquantitative treatment limitation requirements of the Mental Health Parity and Addiction Equity Act.

Practice Pointer : The external review requirements appear to only apply to wellness programs that condition the reward upon completion

of an activity (such as walking, exercise or a diet program). If a reward is conditioned on completion of an activity, then a plan must

provide an alternative standard only to those who are unable to complete the activity due to a medical condition. If, however, the reward is

conditioned on achieving a health standard (e.g., cholesterol below a certain level), the plan must make available a reasonable alternative

to those who are unable to achieve the standard without regard to medical condition.


Prohibition Against Annual Dollar Limits on Essential Health Benefits

• Self-funded plans may use any of the effective State or Federal Employees Health Benefit Plan benchmark plans to determine which of its benefits qualify as “essential health benefits.” Prior guidance indicated that any of the plans that could have been adopted as a benchmark (whether adopted by a state as a benchmark or not) could have been selected.

Practice Pointer : A literal interpretation of the rule suggests that no nexus is

required between the benchmark plan

and the geographic reach of the plan.

For example, a plan with no participants

in Utah could nevertheless use Utah’s

chosen benchmark plan as its guide

to define essential health benefits.

• Account-based plans may be integrated with an employer’s group health plan in order to satisfy the annual dollar limit prohibition. Account-based plans are defined as any fixed amount reimbursement arrangement that reimburses medical expenses, other than insurance premiums for coverage in the individual market. Account-based plans include HRAs, health FSAs and

medical expense reimbursement plans (MERPs). This clarification was needed because Public Health Service Act Section 2711 contains an exclusion only for integrated HRAs, which technically require a carryover.

• In an expansion of the relief in Notice 2015-17, these regulations indicate that an employer with fewer than 20 employees that offers coverage to non-Medicare eligible employees but does not offer coverage to Medicare eligible employees may still reimburse a Medicare eligible employee’s premiums.

• In order to allow group health plan participants to be eligible for an exchange subsidy, Notice 2013-54 indicated that to be integrated, HRA funds must be forfeited upon termination or the participant must be permitted to opt out and waive reimbursements. It was unclear whether any such waiver was permanent under Notice 2013-54. These regulations clarify that the waiver is effective even if the reimbursements can be reinstated at a later date (e.g., the start of the next plan year or death or the earlier of the two) so long as the waiver is irrevocable prior to the occurrence of the reinstatement event.

Patient Protections • Plans may impose reasonable

geographic limitations on primary care physicians who may be chosen by a participant; however, they do not define reasonable geographic limitations.

Proposed Disability Plan Claims Procedures

On the same day that the agencies issued the final health insurance reform regulations, the DOL issued proposed claims procedure rules applicable to disability plans. The proposed rules would incorporate into ERISA’s claims procedure rules the following requirements previously made applicable to group health plans by the ACA:

• Rescissions of disability benefits not triggered by a claim (e.g., through an audit) are considered adverse benefit determinations.

• Letters must be available in a culturally and linguistically appropriate language.

• If new evidence is relied on during appeal, the plan must provide the claimant with the new evidence prior to the due date of the determination and the claimant must be provided a reasonable opportunity to respond.

Practice Pointer : The regulations do not specifically address employer payment plans. Employer

payment plans were defined by Notice 2013-54 and subsequent FAQs as plans that facilitate the payment or reimbursement of premiums for policies issued in the individual market.

The regulations indicate that the subregulatory guidance that severely constricts such

arrangements for individual major medical coverage continues to apply.


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• Claimants can forgo the internal appeal process if the plan fails to follow a

full and fair review process, as set forth in Section 503 (and the regulations),

unless those failures are minor.

EEOC Proposed Wellness Program Rules Under the ADA and GINA

Not to be outdone by the agencies, the Equal Employment Opportunity

Commission (EEOC) issued proposed regulations in 2015 that attempt to clarify

the application of the Americans with Disability Act (ADA) and the Genetic

Information Nondiscrimination Act (GINA) to wellness programs. These proposed

regulations were the subject of our prior Self-Insurer articles.

U.S. Supreme Court CasesThere were three U.S. Supreme Court cases in 2015 that significantly impact

health and welfare plans:

Obergefell v. Hodges In a 5-4 decision written by Justine Kennedy,

the Court held it unconstitutional for a state to deny same-sex couples the

right to marry. While the case did not specifically require welfare plans to offer

the same benefits to same-sex spouses that are offered to opposite-sex, the

case paved the way for federal-like income tax exclusions under state law for

employers that offer benefits to same-sex spouses (although not every state has

changed its laws to be consistent with Obergefell). Also, the case likely paves the

way for federal (e.g., Title VII) and state anti-discrimination claims (to the extent

not preempted by ERISA) against employers that choose not to offer the same

benefits to same-sex spouses.

Practice Pointer : See IRS Notice 2015-86, which was issued in early December,

for a more detailed description of the impact Obergefell has on welfare plans.

King v. Burwell In a 6-3 decision written by Justice Roberts, the

Court held that premium tax credits and advance premium subsidies were

available to individuals enrolled in policies issued by federally run exchanges.

Had the Court held that they weren’t available, then exchange participants in

a majority of states would have lost their premium subsidies/tax credits. For

employers, a different decision would have lessened the impact of the ACA’s

employer-shared responsibility provisions (i.e., the IRC 4980H so-called “pay or

play” provisions) on “applicable large employers,” especially employers with most if

not all of their employees in states with federally run exchanges.

M&G Polymers v. Tackett In a 9-0 decision written by Justice

Thomas, the Court held that you cannot infer an intent by parties to a collective

bargaining agreement to vest retiree health benefits merely because a termination

provision is absent in the collective bargaining agreement, reversing the inferences

created by the Sixth Circuit’s decision in Yard-Man (716 F.2d 1476).

ACA ReportingAfter several draft forms and

instructions, the IRS issued 2015 final instructions and draft 2015 Forms 1094 and 1095 B and C series to be used in connection with reporting required under Code Sections 6055 and 6056. The final instructions contained a few clarifications and changes from previous instructions and guidance.

Practice Pointer : See also Notice 2015-68 for

additional guidance regarding various

aspects of reporting, including special

rules for reporting coverage under an expatriate health

plan and guidance on exemptions from

reporting for coverage the enrollment that

is conditioned on having other minimum

essential coverage.

Code Section 6055• Each employer that “maintains”

a self-insured plan that provides minimum essential coverage has a reporting obligation under Code Section 6055 to identify all employees and their dependents who are covered under the plan. IRS officials informally indicated that the employer would be obligated to report under Section 6055 for former employees last employed by that employer. However, members


• Employers that maintain a self-insured plan (such as an HRA), the eligibility

of which is conditioned on being enrolled in other minimum essential

coverage, have no Code Section 6055 reporting obligation for that self-

insured plan coverage. If eligibility is conditioned on being enrolled in

another employer plan, then the exception from reporting applies only if the

other coverage is maintained by the same employer.

Practice Pointer : Employers that maintain self-insured retiree medical plans for retirees

age 65 and older (i.e., Medicare eligible retirees) are not exempt from reporting unless the

employer conditions enrollment in the plan on actually being enrolled in Medicare. Likewise, an employer that maintains a

self-insured account-based plan (such as an HRA) is exempt from reporting the account-based plan

only to the extent eligibility is conditioned on being enrolled in a major medical plan maintained by the same plan sponsor.

of a controlled group that each

participate in a single self-insured

plan but are not also applicable

large employers may designate a

single employer to file on behalf

of all employers.

• An applicable large employer

that maintains a self-insured plan

that provides minimum essential

coverage must satisfy its Section

6055 obligation for any individual

employed at any time during the

year. Such employers may use

a C-Series form to satisfy the

Code Section 6055 reporting

obligation for non-employees

(e.g., a former employee whose

termination of employment

occurred last year) so long as

they have the social security

number of the responsible

individual (typically the individual

who has the enrollment right

under the plan).


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Code Section 6056• Applicable large employers that

contribute to multiemployer plans need not report offers of coverage or enrollment in the plan by an employee who is full time at least one month during the year if the employer is taking advantage of the multiemployer transition relief from Code Section 4980H excise taxes. In other words, employers report no offer of coverage – even if coverage is actually offered by the multiemployer plan – for each month that the employer is also indicating that it made a contribution that month to the plan for that employee.

• Applicable large employers also report no offer of coverage for former employees offered COBRA coverage, even though COBRA was offered. There is still much confusion regarding the rules for reporting offers of COBRA coverage to active employees. The instructions prescribe a somewhat ambiguous rule and even though FAQs issued shortly after the final instructions were issued provide a clear and concise rule (with examples), IRS officials have informally indicated that the FAQs need to be updated.

Code Section 4980I (So-Called “Cadillac Tax”) Guidance

The IRS issued two notices in 2015, Notices 2015-17 and 2015-52,regarding the so-called “Cadillac tax” imposed by Code Section 4980I. The notices were primarily a request for comments on a variety of issues necessary to implementation and administration of the tax; however, the IRS did propose a number of possible rules, including the following:

• Self-insured dental and vision plans that qualify as excepted benefits (under final agency regulations) would likely be excluded from the definition of applicable employer-sponsored coverage (the statute only literally excludes fully insured dental and vision benefits). This provides an exception for most standalone vision and dental plans, including limited purpose vision/dental HRAs.

• Employee assistance plans that qualify as excepted benefits would also likely be excluded from the definition of applicable employer-sponsored coverage.

• Health FSAs are not excluded and neither are employer and employee pre-tax HSA contributions (although much effort is underway to get them excluded).

As addressed in our separate advisory,1 the PATH Act, which was signed into law December 18, provides for a two-year delay of the 4980I tax (the so-called “Cadillac tax”), making its start date 2020 and makes the tax deductible. The thresholds will continue to be adjusted for inflation during this period.

Miscellaneous Roundup

Deadlines Expiring December 31December 31 marks an important

deadline for two different requirements:

• The transition relief provided by Revenue Ruling 2014-32, allowing cash reimbursement of transit pass expenses in areas where the only “transit voucher” that is readily available in the area is a terminal restricted card, will come to an end. Beginning January 1, 2016, if the only

voucher that is readily available in an area is a terminal restricted card, cash reimbursement will no longer be available. As addressed in our separate advisory, the PATH Act, which was signed into law December 18, provides for permanent parity for transit benefits retroactive for 2015.

• Cafeteria plans that implemented the new election changes prescribed by Notice 2014-55 in 2014, have until December 31, 2015, to retroactively amend the cafeteria plan.

Other Guidance • The IRS approved issuance of a

12-month transit pass so long as one-twelfth of the annual value did not exceed the monthly limit for transit passes (see PLR 201532016).

• The IRS issued Revenue Notice 2015-43, which addresses the application of certain ACA-related requirements to expatriate health plans.

• The IRS issued an information letter that expands the circumstances that permit an employer to recoup contributions erroneously made to an HSA. The September 9, 2015, information letter provides that if there is “clear documentary evidence demonstrating that there was an administrative or process error,” corrections can be made. Although not binding,2 this guidance seems to express the IRS’s view that in certain circumstances, a mistaken HSA contribution can be reversed.

• The IRS issued a chief counsel memorandum (CCA 201547006) addressing the situations in which an HRA can


reimburse premiums for coverage provided through a spouse’s employer’s health plan.

• Also, the IRS issued comprehensive guidance in Notice 2015-87 that addresses HRAs and cafeteria plans and Notice 2013-54; affordability, creditable hours and other issues under 4980H; and certain compliance issues associated with FSA carryovers, including COBRA. IRS Notice 2015-87will be the subject of a forthcoming advisory. ■

2016 COLA Adjusted AmountsVery few limits were adjusted for 2016. We identify below the relevant limits for 2016 (amounts that changed for 2016 are in bold).

The Affordable Care Act (ACA), the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and other federal health benefi t mandates (e.g., the Mental Health Parity Act, the Newborns and Mothers Health Protection Act and the Women’s Health and Cancer Rights Act) dramatically impact the administration of self-insured health plans. This monthly column provides practical answers to administration questions and current guidance on ACA, HIPAA and other federal benefi t mandates.

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

References1www.alston.com/advisories/year-end-employee-benefi ts/

2According to Section 2.04 of IRS Rev. Proc. 2015-1, information letters call attention to certain general principles of law and are not binding on the IRS

ITEM 2015 2016

Health FSA Salary Reduction $2550 $2550

Transit Pass $130 $130

Parking $250 $255

Health Savings Account Contribution Limits (self only)

$3350 $3350

Health Savings Account Contribution Limits (other than self only)

$6650 $6750

Health Savings Account Minimum Deductible (self only)

$1300 $1300

Health Savings Account Minimum Deductible (other than self only)

$2600 $2600

Health Savings Account Maximum OOP (self only)

$6450 $6550

Health Savings Account Maximum OOP (other than self only)

$12,900 $13,100

ACA Maximum OOP (self only)

$6600 $6850

ACA Maximum OOP (other than self only)

$13,200 $13,700

PCORI $2.08 $2.13

Transitional Reinsurance Fee$44.00

($33 contribution/$11 for treasury)

$27 ($21.60 contribution/

$5.40 for treasury)

4980H(a) Excise Tax $2080 ($173.66/mo)

$2160 ($180/mo)

4980H(b) Excise Tax $3120 ($260/mo)

$3240 ($270/mo)

Defi nition of HCE for 414(q) and Cafeteria Plan testing purposes

$120,000 $120,000

Key Employee Offi cer Compensation Threshold for Section 125

$170,000 $170,000

SS Wage Base $118,500 $118,500


The Crescent City to Host the First Executive Forum of 2016

SIIAEndeavors

Highlights of the educational program include the follow sessions:

The Role of the Self-Insurance Industry in Advancing the Health Care Transparency Movement

» Martin Makary, MD, MPH, Professor of Surgery at John Hopkins University School of Medicine, author of the widely-acclaimed Unaccountable: What Hospitals Won’t Tell You and How Transparency Can Revolutionize Health Care, shares his unique view on the state of the health care transparency movement and how the self-insurance industry in playing an increasingly important role in helping to disrupt the status quo for the benefit of patients and their employer plan sponsors.

Employer Health Care Coalitions-Breaking the Grip of Health Insurance Monopolies One State at a Time

» Karen van Caulil, Chairwoman of National Business Coalition on Health will highlight and describe how employer coalitions are re-shaping the

health care marketplace in various states to help even the playing field for self-insurers when competing against insurance carriers for provider pricing and related arrangements.

Breakout Sessions Include:• Big Data for Stop-Loss – Adding Value or Just Adding Cost and Complexity? with Heather Lavallee, President, Employee Benefits Distribution of Voya Financial and Matt Rhennish, President and COO of HM Insurance Group

• Provider Sponsored Health Plans – A New Role for TPAs with Karin Landry, Managing Partner, Spring Consulting Group, LLC

The Self-Insured Health Plan Executive Forum is March 21-23, 2016, at The Westin New Orleans Canal Place

in New Orleans, Louisiana. Executives involved with the establishment, management and/or support of self-insured group health plans will fi nd this educational conference exceptionally valuable. Anticipated attendee profi les include: corporate benefi t directors, third party administrators, brokers/consultants, stop-loss insurance carriers/MGUs, captive managers and industry service providers.


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• Self-Insurance Industry ICD-10 Transition Update with Rick Raup, President & CEO of Business Administrators & Consultants, Bruce Carlson, FSA, Windsor Strategy Partners, LLC and Chris Haugan, Stop-Loss Supervisor of Employee Benefit Management Services, Inc.

• The Evolution of TeleHealth Solutions for Self-Insured Plans with Dr. Jeffrey Kesler, President and COO of Salus

The conference will conclude with a Legislative/Regulatory Update from Adam Brackemyre, Director of State Government Relations for SIIA and Ryan Work, Senior Director of Federal Government Relations for SIIA.

For more information, visit us online at hcc.com/life.A subsidiary of HCC Insurance Holdings, Inc. msl2221 - 09/15

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In addition to the educational program, the event will feature multiple unique networking opportunities and multiple high profile companies exhibiting. ■

For more information visit www.siia.org.


SIIA would like to recognize our leadership and welcome new members Full SIIA Committee listings can be found at www.siia.org

SIIA New Members

Regular MembersCompany Name/Voting Representative

Scott Larson VP Sales AEU Benefits Bonita Springs, FL David Reynolds CEO Capitol Administrators Rancho Cordova, CA Paul Skrtich Senior Vice President Odyssey Re Stamford, CT Lucille Connors CEO Significa Benefit Services Inc. Lancaster, PA

Employer Members

Dwight Hanna Richland County Columbia, SC

DirectorsJoseph AntonellChief Executive Offi cer/PrincipalA&M International Health PlansMiami, FL

Adam RussoChief Executive Offi cerThe Phia Group, LLCBraintree, MA

Andrew CavenaghPresidentPareto Captive Services, LLCPhiladelphia, PA

Mark L. StadlerChief Marketing Offi cerHealthSmartIrving, TX

Robert A. ClementeChief Executive Offi cerSpecialty Care Management LLCBridgewater, NJ

David WilsonPresidentWindsor Strategy Partners, LLCJunction, NJ

Committee ChairsART COMMITTEEJeffrey K. SimpsonAttorneyGordon, Fournaris & Mammarella, PAWilmington, DE

GOVERNMENT RELATIONS COMMITTEEJerry CastelloePrincipalCastelloe Partners, LLCCharlotte, NC

HEALTH CARE COMMITTEELeo GarneauChief Marketing Offi cer, SVPPremier Healthcare Exchange, Inc.Bedminster, NJ

INTERNATIONAL COMMITTEERobert RepkePresidentGlobal Medical Conexions, Inc.Novato, CA

WORKERS’ COMP COMMITTEEStu ThompsonFund ManagerThe Builders GroupEagan, MN

*Also serves as Director

2016 Board of DirectorsCHAIRMAN* Steven J. Link

Executive Vice President, Midwest Employers Casualty Co.Chesterfi eld, MO

PRESIDENT Mike FergusonSIIA, Simpsonville, SC

TREASURER & CORPORATE SECRETARY* Duke NiedringhausSenior Vice President, J.W. Terrill, Inc.

Chesterfi eld, MO


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