Nostradamus? Miss Cleo? The Phia Group? In a psychic feat of foresight, The Phia Group’s team has gazed into their crystal ball and identified four issues that may not presently be keeping you up at night, but will certainly be disturbing your slumber very soon. From being forced to pay for surrogate pregnancy and births, to the IRS actively issuing letters notifying employers of 2015 tax year penalties; from a new wave of fraud, errors, and abuse leading to heretofore unseen overpayments, to case law addressing the rights of plans to utilize reference based pricing – you’ve been warned! We predict this complimentary webinar will open your eyes. Miss this webinar at your own peril… You’ve been warned!
Click Here to View Our Full Webinar on YouTube
Click Here to Download Webinar Slides Only
Today Adam and Ron interview the industry, and nationally, renown Dr. Keith Smith of the Surgery Center of Oklahoma. This pioneer of transparent pricing and forefather of the Free Market Medical Association waxes poetic regarding everything from issues with provider pricing, the status of medicine today, and his predictions for the future of health care. If you don’t think surgeons can offer a clear and transparent price for care before they provide the treatment is provided, listen to this episode and prepare to be shocked!
Click here to check out the podcast! (Make sure you subscribe to our YouTube and iTunes Channels!)
By: Chris Aguiar, Esq.
I fight for the rights of my clients every single day. Typically, though, the fight takes place while sitting in the confines of my office by way of telephone or email communication. Recently, though, it has become increasingly more common for The Phia Group to have to actually appear in court in front of a judge or administrative board; such was the case last week. An administrative worker’s compensation board in California who is constantly attempting to reduce its workload and eradicate the existence of worker’s compensation liens they so lovingly refer to “Zombie Liens”, or liens that have been bought/sold/assigned. Simply, the board refuses to want to deal with those types of liens. What a surprise to me, then, when several of my clients had their liens summarily dismissed without any due process or a hearing on the matter since, as we know, no assignment of rights occurs to the administrator or vendor in a traditional self-funded situation. So, off to California I went on behalf of a client to explain to the board it’s fundamental misunderstanding of self-funding and how the interests of our clients have not been sold or assigned to The Phia Group or the claims administrator, rather, we are simply acting on their behalf in an effort to recoup funds that are rightly of the self-funded benefit plans and their beneficiaries.
Make no mistake, this was no easy task. The Administrative Judge was hell bent on removing our client’s lien and though I don’t think I made any allies, I was able to effectively convince her that the lien should be reinstated because although she was confident that her reading of the law was clear, members of her own organization had ruled all over the map with regard to the law that was so abundantly clear it could not possibly be interpreted in a manner inconsistent with this judges opinion (…. Can you sense my sarcasm here?).
In the end, The Phia Group was able to get its 2nd lien in as many attempts reinstated. We’ll keep fighting the good fight on behalf of our clients, and while I enjoy California very much, I hope to be able to win these from the comfort of our offices in Braintree from here on out. Here’s hoping!
By: Kelly Dempsey, Esq.
In past blogs, we’ve looked at eligibility issues from the perspective of leaves of absence, continuation of coverage, and the subsequent gaps that can arise if the plan language is not clear. For this blog, we’ll back up a bit and look at the bigger picture.
Eligibility issues are typically very fact specific – meaning employers and TPAs have to look at the details of an individual’s situation in order to determine if someone can join the plan, modify enrollment, and/or leave the plan during the plan year. Joining the plan involves HIPAA special enrollment rights and plan obligations – the requirements are clearly defined. Special enrollment rules also come into play when an employee’s life situation changes and the employee seeks to add dependents to the plan. At first thought leaving the plan seems to be a no brainer situation – if the employee wants to leave, let them leave…right? Not so fast.
More often than not, health plan contributions are made pre-tax through a cafeteria plan. If a cafeteria plan is involved, the situation can get complicated with the additional consideration of permitted election change rules. Section 125 permitted election change rules can limit an employee’s ability to leave the plan or make other modifications to elections, such as changing the amount of an FSA contribution. To add one more layer, Section 125 is essentially a ceiling and not a floor – meaning it is up to the employers whether or not to include only some of the permitted election changes instead of all permitted election changes available under Section 125.
Now an employer and TPA not only have to review specific facts, but they have to apply two sets of rules and two plan documents (the medical plan and the cafeteria plan). For example, an employee asks the employer to drop health plan coverage saying that “it’s too expensive.” Without a change in status, cost change, or other situation outlined in the permitted election change rules, the employee could very well be stuck in the “web.”
It can be tricky to reconcile rules that overlap each other (side note, overlapping rules happen a lot in this industry…). If you need an extra set of eyes (since we aren’t spiders and don’t have 8), don’t hesitate to reach out to The Phia Group – our consulting team can help get you untangled.
Who knew eligibility could be so difficult?
In this episode, Ron, Adam and Brady interview one member of our industry’s albeit too small youth movement. Our hosts discuss with Brian Olsen what we all can do to attract new interest, and talent, to the business of risk management and hopefully help our industry not only survive, but thrive.
Click here to check out the podcast! (Make sure you subscribe to our YouTube and iTunes Channels!)
By: Ron E. Peck
As the winds gust and snow continues to fall this first week of April (seriously?) I won’t allow myself to despair. I remind myself that warmer days are around the corner. My son and I gaze out the frosted window, looking to the skies hoping to see a ray of light, and a warming air, melting the frozen tundra that is our lawn. Our beloved New York Metropolitans aka “Mets” somehow continue to pull off win after win, and I know that – despite things seeming tough now – better days lie ahead. I could be talking about the weather, or I could be talking about a different climate. Do I have a (frozen) finger in the breeze, or, am I measuring the temperature of our industry? At the risk of uttering a cliché, in our industry, it truly is the best of times and the worst of times. Employers are moving to a self-funded model for their health benefits in heretofore-unknown volume; results are benefits that are more robust, at less cost for employees and employers. Yet, as this newly discovered bounty enriches the lives of its members, we also see a rise in regulation, and scrutiny. Consider the attorney, fresh from his or her attack against financial advisors – looking for another kill. Brokers who sold 401K plans and managed pensions suddenly found themselves the target of fiduciary breach lawsuits by the people they had previously served. All it took was an economic downturn, lost funds, and the employees suddenly asked, “Hey! What happened to my money, and who’s responsible for its absence?” If you think an advisor who is penalized for a few mistakes in their asset management services is bad, wait until those same employees ask, “Hey! Who used my money to buy a $500 box of tissues???” As the floodgates open, and more people join the happy ranks of the self-insured, let’s recall the words of “the bard” himself, The Notorious B.I.G.: “Mo money, mo problems.” As we service more plans, help more people, and work with more funds – we must (I believe) adopt a new level of prudent asset management. Sooner or later, someone will ask, “What did you do with my money?” And we must all be proud to report the truth. Like spring, we too need to weather the bad to enjoy the good. I see – like flowering flora in it’s infancy, poking forth from the thawing earth – members of our industry also emerging with ideas, drive, and an eye toward the best days to come. Offering advice, new services, and ways to do more with less, we must confidently say: I am a fiduciary that has done his or her duty, and then some!
Phone: 781-535-5600 | www.phiagroup.com
The Book of Russo:
From the Desk of the CEO
It is busy… I mean really busy. From conferences to claim issues, never has The Phia Group seen the volume and variety that it is seeing now. That is why this month’s webinar on April 19th is a must-see event. We are witnessing new and unique claim issues, ranging from surrogacy to scary IRS notices being sent to employers across the country. This webinar will discuss what we have learned and what you can do to protect yourselves and your clients. It is only spring here in Boston but the heatwave of self-funding is being felt across Phia. By the way, I wanted to congratulate the following 8 employees of The Phia Group for officially being approved to attend the Future Leaders Track at the 2018 National SIIA Conference in late September.
• Toussaint Anderson
• Ulyana Bevilacqua
• Brady Bizarro
• Amanda Grogan
• Garrick Hunt
• Amanda Lima
• Maribel McLaughlin
• Victoria Pace
These fine people will represent our company at SIIA’s first foray into ensuring the future of self-funding. I would encourage all of you to identify the future leaders of your organization and send them to SIIA as well. Happy reading!
Service Focus of the Quarter: Plan Appointed Claim Evaluator (PACE)
Phia Case Study: Overpayment Schmoverpayment
Success Story of the Quarter: The Phia Group Saves an Employer Thousands of Dollars
Phia Fit to Print
From the Blogosphere
The Phia Group’s 2018 Charity
Phia’s Speaking Events
Employee of the Quarter
Register for The Phia Group's Next Webinar
4 Horsemen of the Plan-pocalypse
Nostradamus? Miss Cleo? The Phia Group? In a psychic feat of foresight, The Phia Group’s team has gazed into their crystal ball and identified four issues that may not presently be keeping you up at night, but will certainly be disturbing your slumber very soon. From being forced to pay for surrogate pregnancy and births, to the IRS actively issuing letters notifying employers of 2015 tax year penalties; from a new wave of fraud, errors, and abuse leading to heretofore unseen overpayments, to case law addressing the rights of plans to utilize reference based pricing – you’ve been warned! We predict this complimentary webinar, taking place at 1pm (EST) on April 19, 2018, will open your eyes. Miss this webinar at your own peril… You’ve been warned!
Click HERE to Register!
Service Focus of the Quarter: Plan Appointed Claim Evaluator® (PACE)
Making determinations on medical claim appeals is a frightening prospect. The process can involve complex factual, legal, and medical issues, and can distract an employer plan sponsor from its ordinary business functions, posing a significant resource drain. The PACE service allows the plan sponsor to shift fiduciary duty away, onto the PACE, for final, internal claim appeals. With PACE, plan sponsors and TPAs assign the riskiest fiduciary duty (that is, the power to make payment decisions in response to final, internal appeals), to The Phia Group. This authority carries with it the most risk, because it is this final payment directive that may be scrutinized upon external review or in the courtroom.
Self-funding veterans and novices alike will benefit from PACE. Groups that are moving from fully-insured or ASO arrangements can use PACE as a valuable tool to aid in the transition; these groups have never before been faced with such fiduciary liability - with the PACE, that daunting responsibility can be delegated to a neutral and capable third party. In addition to having a third party expert analyze all final, internal appeals, before they reach an external review, the PACE also ensures that legally mandated independent review organizations (IROs) are in place, and the PACE handles facilitation of external appeals with these IROs. Regardless of whether the PACE upholds or reverses a denial, the PACE's service continues to apply. This includes coordinating efforts with stop-loss, plan sponsors, brokers, and TPAs whenever these partners do not align. PACE is a way for the employer to be able to focus less on the complexities of its health plan, fiduciary duties, and stop-loss concerns, and more on what matters - its business. PACE is also a way for the payor to rest easy knowing that it is not unwittingly assuming fiduciary duties on final, internal appeals.
For years, self-funded plan sponsors and TPAs have asked how they can avoid the risks inherent in self-funding, while still enjoying the benefits of that plan structure. According to The Phia Group's CEO, Adam Russo, "With a PACE in place, we're taking a giant step in the right direction. It's a game changer." Contact Tim Callender at firstname.lastname@example.org or 781-535-5631 to learn more about how PACE can help you.
Phia Case Study: Overpayment, Schmoverpayment!
The Phia Group was presented with a situation in which a TPA had processed a claim in error. The issue was one of eligibility; the TPA processed the claim as usual, without realizing that the member had in fact termed the prior week. The TPA had the information, but through a fairly common record update delay, the claim was paid at the appropriate out-of-network rate - but for a termed member.
The group's broker contacted the TPA and was somewhat upset at the erroneous claim processing. The TPA explained the circumstances - and the TPA's Administrative Services Agreement did not hold the TPA responsible - but the broker expressed interest in pursuing the matter, given the sizeable amount of money involved. The broker was also looking into having the group switch TPAs.
When this matter was brought to the attention of The Phia Group's consulting team, our first two actions were to try to diffuse the situation between the broker and TPA, and to try to recoup the overpayment to keep both sides happy.
As it happened, The Phia Group's dedicated overpayment team had a prior relationship with this particular provider, and our overpayment recovery specialists were able to recover $40,000.00 of the $42,000.00 erroneous payment. That recovery satisfied the broker and the group, and the TPA agreed to credit the group the remaining $2,000.00 as a gesture of good faith (and a smart business decision to boot).
The recovery obtained by The Phia Group's overpayment team not only salvaged $40,000.00 for the group, but it avoided a feud between a TPA and broker, and also helped the TPA keep a valuable block of business that it would otherwise have lost.
Fiduciary Burden of the Quarter: Following the Plan Documents…Unless…
Generally, it is fairly simple to comply with the duty to follow the terms of the plan documents. That important duty, however, applies only "insofar as such documents and instruments are consistent with the provisions of [ERISA]." In other words, you must follow the plan documents, unless the plan documents violate ERISA, in which case you must follow ERISA instead. The powers that be have interpreted this as applying not just to ERISA, but to all federal laws. The result is that federal law "overrides" any conflicting terms of the plan documents - so Plan Administrators are sometimes forced to ignore the terms of the plan documents in favor of following federal law.
So what does this mean? Well, if the plan documents have provisions that violate federal law, the fiduciary duty morphs from one requiring the fiduciary to comply with the terms of the plan documents to one requiring the fiduciary to comply with the law instead of the plan document.
An example we have seen are the new regulations promulgated under ACA Section 1557 regarding transgender surgery. There is a certain amount of legal discord at the moment surrounding the interpretation of these regulations, but the status quo is that self-funded health plans are not permitted to exclude transgender surgery, or they risk violation of the Affordable Care Act. Many employers, however, have taken a stance against this mandate, by excluding transgender surgery within their plan documents. This is a textbook instance where the fiduciary duty would change: if following the terms of the plan document would be noncompliant with other federal laws, then the fiduciary is required to follow those federal laws instead.
This can be a very tricky situation, and it emphasizes the notion that the plan documents should always be as compliant and current as possible to avoid having to analyze situations like this. As always, if you have questions about your plan documents, fiduciary duties, or how to reconcile the two, please contact PGCReferral@phiagroup.com.
Success Story of the Quarter: The Phia Group Saves an Employer Thousands of Dollars
The IRS has recently been enforcing the Employer Shared Responsibility Mandate (“employer mandate”) by sending letters to employers implicating that they may have violated the employer mandate rules and may owe a substantial penalty called an Employer Shared Responsibility Payment (“ESRP”). This employer mandate was put in place by the Affordable Care Act (“ACA”). The ACA requires Applicable Large Employers (“ALEs”) who have 50 or more employees to (1) provide minimum essential health coverage to all full-time employees and their dependents (or the employer will face a subsection (a) penalty); or (2) offer eligible employer-sponsored coverage that is “affordable” and meets “minimum value” (or the employer will face a subsection (b) penalty). Employers who receive these letters may have to pay the ESRP, but have a chance to respond to the letter before the penalty is mandated.
A client was presented with one of these letters from an employer. The employer was facing over $50,000.00 dollars in penalties if they did not respond to the letter properly and explain why they were/were not at fault. The IRS has specific guidelines of how to respond to these letters. This can become very daunting and confusing for employers facing these high penalties. The client reached out to The Phia Group for consultation. Attorneys Krista Maschinot and Erin Hussey analyzed the situation and explained what the employer may or may not have done wrong to receive this large employer mandate penalty, and with their consultation, the employer was able to identify their mistake and properly respond to the IRS letter. After the employer explained their mistake and properly responded to the IRS letter, the IRS sent a second letter to the employer which lowered their penalty to less than $2,500.00, saving the employer thousands in penalties.
Disclaimer: As these forms are heavily based in IRS regulations and taxation, we strongly recommended to the broker that the employer should discuss this with their tax advisor and/or the entity that assisted in preparing their tax forms.
Phia Fit to Print:
• Self-Insurers Publishing Corp. - Buyer Beware - No Good Deed Goes Unpunished - January 3, 2018
• Money Inc. - Too Good to Pass Up: How we Over Come the Loss of the Individual Mandate - January 24, 2018
• Money Inc. - The Best of Times and the Worst of Times… How Imperfect Regulatory Action May Still Create Opportunities for Self-Funding - February 22, 2018
• Self-Insurers Publishing Corp. - Trump Tax Bill Signals the Swan Song for Obamacare's Individual Mandate - March 4, 2018
• Money Inc. - Freedom Blue: Why the Trump Administration Picked Obamacare over Idaho - March 29, 2018
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From the Blogosphere:
• Contraceptive Update - Appeals and Intervenors There is a process that must be followed before a party can intervene.
• What do All These New Paid Sick Laws Mean for Employers? The regulations vary by state (and city).
• Even the Best Plans can Backfire! It's very important in subrogation cases to consider all options.
• Your Plan isn't a Cadillac …Yet. The ACA Health Insurance Provider Tax is applicable for fully-insured plans
To stay up to date on other industry news, please visit our blog.
Nostradamus? Miss Cleo? The Phia Group? In a psychic feat of foresight, The Phia Group's team has gazed into their crystal ball and identified four issues that may not presently be keeping you up at night, but will certainly be disturbing your slumber very soon. From being forced to pay for surrogate pregnancy and births, to the IRS actively issuing letters notifying employers of 2015 tax year penalties; from a new wave of fraud, errors, and abuse leading to heretofore unseen overpayments, to case law addressing the rights of plans to utilize reference based pricing - you've been warned! We predict this complimentary webinar, taking place at 1pm (EDT) on April 19, 2018, will open your eyes. Miss this webinar at your own peril… You've been warned!
On March 20, 2018, The Phia Group presented, "Transparency: Using it to Your Advantage," where we discussed the need for, and effects of, contractual and price transparency on the self-funded industry - and how health plans, TPAs, and brokers can use transparency to their advantage.
On February 27, 2018, The Phia Group presented, "Evolve or Dissolve - Responding to Today's Tax Law to Save the Health Benefit Plan Industry Tomorrow," where we discussed what you need to know about the new law, and how to navigate the treacherous path that lies ahead.
On February 22, 2018, The Phia Group presented, "Keeping it Under Wraps: What the Networks Don't Advertise," where we discussed how the importance of cost-containment is at an all-time high.
On January 30, 2018, The Phia Group presented, "Plan on Saving by Saving Your Plan - Applying Lessons Learned to Create the Perfect Plan Document," where we discussed The Phia Group's Flagship Template.
On January 18, 2018, The Phia Group presented, "A Taxing Time: The Tax Bill's Impact on Self-Insurance," where we discussed the latest tax law.
Be sure to check out all of our past webinars!
•On March 23, 2018, The Phia Group presented, “Loopholes, Untouchables, and An Unlikely Ally,” where Adam, Ron, and Brady went around the horn discussing a few hot button topics.
•On March 16, 2018, The Phia Group presented “Partners in Empowerment – A Prescription for Savings,” where Ron and Brady were thrilled to interview LG Hanzel of Rx Results.
•On March 1, 2018, The Phia Group presented “Red Cross Blood Drive Special Episode,” where The Phia Group in partnership with the Red Cross hosted an on-site blood drive. Ron Peck interviewed members of The Phia Group staff and Red Cross regarding personal experiences, the Phia event, and the ever present need for donors.
•On February 26, 2018, The Phia Group presented “3 Scoops of Knowledge,” where Adam, Ron and Brady celebrated the forthcoming change in seasons and warming weather, by each selecting a unique topic that was bugging them, and offered their opinions regarding how we should react.
•On February 16, 2018, The Phia Group presented “Fireside Chat with The President,” where our first Empowering Plans guest, the Self-Insurance Institute of America’s CEO and President, Michael Ferguson, sat down with Adam, Ron and Brady to discuss everything – from past wins and losses, to plans for 2018.
•On February 7, 2018, The Phia Group presented “Disruption or Not?,” where our hosts discussed the recent announcement that Amazon, Berkshire Hathaway and JPMorgan are looking to collaborate on “health care.”
•On January 29 2018, The Phia Group presented “Game-changers” where our hosts discussed Adam’s recent travels and review events.
•On January 22, 2018, The Phia Group presented “Mandate? We don’t need no stinking mandate,” where Adam, Ron, and regular co-host – Brady Bizarro – addressed the new tax law, elimination of the individual mandate, and how it may impact benefit plans of all types.
•On January 10, 2018, The Phia Group presented “Lightning Strikes Twice – Top 2017 Issues Impacting 2018,” where the “Phia Group Boys” freestyled as they shared the issues they felt defined 2017 and are likely to influence 2018.
Be sure to check out all of our latest podcasts!
The Phia Group’s 2018 Charity
At The Phia Group, we value our community and everyone in it. As we grow and shape our company, we hope to do the same for the people around us.
The Phia Group's 2018 charity is the Boys & Girls Club of Brockton.
The mission of The Boys & Girls Club is to nurture strong minds, healthy bodies, and community spirit through youth-driven quality programming in a safe and fun environment.
The Boys & Girls Club of Brockton (BGCB) was founded in 1990 to create a positive place for the youth of Brockton, Massachusetts. It immediately met a need in the community; in the first year alone, 500 youths, ages 8-18, signed up as club members. In the 25 years since, the club has expanded its scope exponentially by offering a mix of Boys & Girls Clubs of America (BGCA) nationally developed programs and activities unique to this club.
Since their founding, more than 20,000 Brockton youth have been welcomed through their doors. Currently, they serve more than 1,000 boys and girls ages 5-18 annually through academic year and summertime programming.
On Thursday, February 8th, CEO of The Phia Group, Adam Russo, invited 50+ children from The Boys & Girls Club of Brockton to a Seussical play at the Inly School in Adam's hometown of Scituate, MA. It was truly a pleasure to see the look on their faces while watching the play.
The Phia Group invites its staff to donate various items for the benefit of The Boys and Girls Club of Brockton. For more information or to get involved, visit www.bgcbrockton.org.
Trump Tax Bill Signals the Swan Song for Obamacare's Individual Mandate
By: Sean Donnelly, Esq. - March 2018 - Self-Insurers Publishing Corp.
The "tax" bill that Congress passed in late December was somewhat of a wolf in sheep's clothing from a health care perspective. It certainly overhauled the tax code and instituted tax cuts for corporations and many American taxpayers, but it also doubled as a thinly veiled health care bill through its repealing of Obamacare's individual mandate. Authors of the tax bill postulated that such a repeal could save the federal government more than $330 billion over the next decade, as fewer Americans will end up receiving subsidies or Medicaid, savings that could then be used to finance the bill's tax cuts and lower tax rates. The tax bill was not the complete eradication of Obamacare that the Trump administration had set its sights on during the first year of Trump's presidency, but the dismantling of the individual mandate marks the first removal of a key pillar in the Obamacare foundation.
Click here to read the rest of this article
The Best of Times and the Worst of Times… How Imperfect Regulatory Action May Still Create Opportunities for Self-Funding
By: Jen McCormick, Esq. - February 2018
Regulators have been busy over the course of the past few months. Between the issuance of executive orders, a tax bill, and state regulatory action, employers are scrambling to understand the implications. And while regulatory action has been quick, it has not necessarily been thorough, creating possibilities and opportunities for self-funded health plans. Upon review of the various regulations, it seems new incentives for the creation of self-funded employer plans now exist. Employers may investigate taking advantage of this environment to form, create, or modify their self-funded benefit plans. Let's examine certain recent regulatory developments.
Click here to read the rest of this article.
Buyer Beware - No Good Deed Goes Unpunished
By: Ron E. Peck, Esq. - January 2018 - Self-Insurers Publishing Corp.
Employers and their advisors may soon find themselves accused of breaching their fiduciary duty if they continue to allow their benefit plans to pay inflated rates for medical services, without any justification for the excessive prices. Blindly paying fees that are not revealed until after the service is provided, to practitioners who cannot explain why their rates are many times more than comparable providers of equal or greater skill, is not a prudent use of plan assets and does violate one of the core tenets of the Employee Retirement Income Security Act of 1974 ("ERISA") and fiduciary law.
Click here to read the rest of this article.
To stay up to date on other industry news, please visit our blog.
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Phia’s 2018 Speaking Events:
Adam Russo’s 2018 Speaking Engagements:
• 1/23/18 - Q4 Intelligence Conference - Tampa, FL
• 2/2/2018 - Benefit Intelligence School District Conference - Phoenix, AZ
• 3/7/2018 - SIIA Self-Insured Health Plan Executive Forum - Charleston, NC
• 3/9/2018 - CGI Business Solutions Seminar - Manchester, NH
• 3/14/2018 - Pareto StructuRE Meeting - Park City, UT
• 4/12/2018 - Caprock Health Care Forum - Dallas, TX
• 4/25/2018 - Berkley Captive Symposium - Grand Cayman Islands
• 4/26/2018 - Innovative Risk - Grand Cayman Islands
• 4/30/2018 - World Health Care Congress - Washington, DC
• 5/17/2018 - Prairie States Broker Event - Chicago, IL
• 6/21/2018 - GBSI Conference - Springfield, MO
• 6/26/2018 - Leavitt Annual Event - Big Sky, MT
Ron Peck’s 2018 Speaking Engagements:
• 1/25/2018 - HealthFirst TPA Client Conference - Tyler, TX
• 3/6/2018 - SIIA National Conference - Charleston, SC
• 3/7/2018 - CGI Business Solutions Seminar - Manchester, NH
• 3/23/18 - Health Rosetta - Module 5: Next-Gen Plan Design - Boston, MA
Tim Callender’s 2018 Speaking Engagements:
• 2/14/2018 - BevCap Captive Group, 10th Anniversary Meeting - Kona, HI
• 4/25/2018 - Cypress University - Las Vegas, NV
• 5/7/2018 - UBA Spring Conference - Chicago, IL
• 5/16/2018 - Sun Life MVP Forum - Kansas City, KS
• 5/24/2018 - Pareto Captive Services, Contrarian Re Captive Meeting - Nashville, TN
• 6/25/2018 - Leavitt Conference - Big Sky, MT
• 7/17/2018 - HCAA TPA Summit - Minneapolis, MN
Jen McCormick’s 2018 Speaking Engagements:
• 4/17/2018 – Texas Association of Benefit Advisors – Dallas, TX
• 5/16/2018 – IOA RE – Indianapolis, IN
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Get to Know Our Employee of the Quarter: Catherine Dowie
Congratulations to Catherine Dowie, The Phia Group's Q1 2018 Employee of the Quarter!
When we think of passion, we think of Catherine. Not only is she working full time, but she is also going to law school full time at night. Even with all the work she has from attending law school, she still manages to find time at night, after school and on weekends, to work. Anyone can always go to her with a question on case law, and if she does not have an answer right away, she is always able to find an argument on the Plan's side.
Congratulations Catherine and thank you for your many current and future contributions.
2017 Community Partner of the Year Award!
The Phia Group and Adam Russo were recently awarded the "2017 Community Partner of the Year Award" in Easton, Massachusetts, on March 1, 2018. The Community Partner of the Year Award is presented annually to a company, foundation, or community organization that has made significant contributions to advance the work of the Boys & Girls Club of Brockton. In 2017, The Phia Group gave more than just financial support to propel the programs forward, and their employees and leadership gave generously of our time and talents to create special, lasting memories for the boys and girls throughout the year.
The American Red Cross Visits Phia!
The American Red Cross came to visit The Phia Group and 18 of our employees successfully donated a pint of blood. With those 18 donations, we were able to save 54 lives. We take great pride in knowing the impact this can have. To learn more about the American Red Cross and how you can help save a life, make sure you check out The American Red Cross website.
• Health Benefit Plan Administration - Attorney
• Consultant I
See the latest job opportunities, here: https://www.phiagroup.com/About-Us/Careers
• Brady Bizarro was promoted from Staff Attorney to Director, Healthcare Attorney
• Amanda Lima was promoted from Medical Bill Negotiator to Team Lead, Provider Relations
• Ulyana Bevilacqua was promoted from Consultant I to Supervisor, PGC
• Jillian Painten was promoted from Claim Recovery Specialist IV to Team Leader
• Toussaint Anderson was promoted from Project Manager, PGC to Manager, PDM
• Kelly Dempsey was promoted from Staff Attorney to Director, Independent Consultation & Evaluation (ICE)
• Sabrina Centeio was promoted from Case Investigator to Claim Recovery Specialist III
• Amanda Grogan was promoted from Sr. Claim Recovery Specialist to Team Lead
• Kerri Sherman was promoted from Team Lead, CI / BI to Sr. Team Lead, CI / BI
• Cara Carll was promoted from Team Lead, Recovery MPC/WC to Sr. Team Lead, CA/CSR
• Lisa Tangney was promoted from Manager, Accounting to Controller
• Rose Jardim was promoted from Accounting Administrator to Team Lead, Accounting
• Hemant Dua was promoted from Dir. Applications & Business Intelligence to Sr. Director of Technology
• Garrick Hunt was promoted from Sales Executive to Sales Manager
• Grace Barron was hired as a Customer Care Representative
• Jacob Falkof was hired as a Customer Care Representative
• David Clasby was hired as an IT Technologist
• Cindy Royle was hired as a Legal Assistant
Fun at Phia:
The Phia Family is one good-looking group of footballers! Our Superbowl Party was a hit and we thank all those who participated. Although we did have fans from both teams in the office that day, there were no casualties; and that in itself was a huge success!
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Benefest 2018 is less than a month away and I wanted to reach out and let you know about some of the amazing participants we have at the conference this year. The theme of Benefest 2018 is disruptive innovation and we’re looking at how it's reshaping the entire healthcare industry, from the way employers purchase coverage to the impact of increasing premiums on the economy.
Carrier panelists will include executives from BlueCross Blue Shield MA, Fallon Health, Harvard Pilgrim Health Plan, Tufts Health Plan, Neighborhood Health Plan, and Aetna.
Make sure you join us for a series of discussions on the future of the industry! For more details and to register, click here (website).
The healthcare industry experts and practitioners that MassAHU is showcasing during this one day dynamic program will include:
The data is clear...one of the biggest drivers behind wage stagnation and middle class wealth erosion is healthcare. The cost of healthcare is quickly approaching 20 percent of our GDP. We continue to see employee out of pocket shares balloon while premiums increase (which means we are paying more for less). Medical bills account for a staggering number of bankruptcies in the U.S. - with nearly 75 percent of those people having had health insurance. Traditional brokers, showing traditional options, getting paid in traditional ways, are not only failing to solve the problem ... may be facilitating it. In this session, learn about why this is happening in the opening program presented by David Contorno: To Deliver Real Value in this Business - You Have to Become Uncomfortable.
In a world where the healthcare industry is more concerned about how many patients a doctor can see every day, rather than the quality of medicine practiced, we need a change. That change needs to start at the provider level, but it needs to have the insurance industry behind it. Get an introduction to the concept of Direct Primary Care from featured Benefest Speaker, Dr. Jeffrey Gold entitled A Model of Primary Care that is Innovative and Affordable. Learn how making an investment in high-quality primary care along with self-insured plans can reduce cost, improve outcomes, and result in happier employees/employers.
As President Trump approaches his 500th day in office, and we get closer to the 2018 mid-term elections, major changes could still be in store for the employer based health insurance system. States are back in the Court system challenging the constitutionality of the Affordable Care Act, there will soon be new rules governing Association Health Plan, and new players have announced they will be entering the health insurance marketplace. Buckle Your Seats: Preparing Your Clients for A (Potentially) Bumpy Ride Ahead with James Slotnik
In this episode, part of our Partners in Empowerment series, we interview Doctor Jeff Gold of Gold Direct Care (golddirectcare.com). Join us as we ask the questions you want answered regarding this innovative and interesting approach to “real” medical care.
Click here to check out the podcast! (Make sure you subscribe to our YouTube and iTunes Channels!)
Trump Tax Bill Signals the Swan Song for Obamacare’s Individual Mandate
By: Sean Donnelly, Esq.
The “tax” bill that Congress passed in late December was somewhat of a wolf in sheep’s clothing from a health care perspective. It certainly overhauled the tax code and instituted tax cuts for corporations and many American taxpayers, but it also doubled as a thinly-veiled health care bill through its repealing of Obamacare’s individual mandate. Authors of the tax bill postulated that such a repeal could save the federal government more than $330 billion over the next decade as fewer Americans will end up receiving subsidies or Medicaid, savings that could then be used to finance the bill’s tax cuts and lower tax rates.1 The tax bill was not the complete eradication of Obamacare that the Trump administration had set its sights on during the first year of Trump’s presidency, but the dismantling of the individual mandate marks the first removal of a key pillar in the Obamacare foundation.
The individual mandate, one of the linchpins of the Affordable Care Act, required Americans who did not otherwise qualify for an exception to obtain minimum essential health coverage. Those Americans who did not have minimum essential health coverage for any month during the year were required to pay a penalty during tax season. This mandate was essential to pressure younger and healthier Americans to purchase insurance coverage, thereby bringing balance to the risk pools and stabilizing the health insurance marketplace.
The concept of the individual mandate was actually spawned by conservative policymakers who posited that health coverage should be mandatory in order to produce a sustainable insurance pool with the right balance of healthy and sick individuals to properly spread the risk. The underlying theory was that by compelling healthier Americans to enter the marketplace and obtain coverage, premiums would begin to decrease across-the-board as the influx of healthier participants would help to absorb the costs of those less healthy and more expensive participants. In 2006, Mitt Romney, Massachusetts’ Republican governor, was able to convince the largely Democratic state to adopt an individual mandate as part of its health care overhaul. The relative success of the mandate’s Massachusetts audition eventually paved the way for then-President Obama to include an individual mandate as a vital component of the 2010 Affordable Care Act. Even as the Trump tax bill begins to take effect this year, the individual mandate will still remain in effect in 2018. The repeal of the individual mandate won’t actually take effect until 2019. Accordingly, the mandate’s penalties will continue to be levied in 2018 unless the Trump administration otherwise attempts to have them waived.
A Short and Bumpy Ride
The individual mandate faced intense partisan scrutiny both before and after the passage of the Affordable Care Act. Republicans viewed the mandate as an unconstitutional scheme to coerce Americans to participate in a commercial activity, an act that they argued amounted to an impermissible overreach of Congress’ powers to regulate commerce. Following the enactment of the Affordable Care Act, a total of twenty-seven states challenged the law’s constitutionality in federal court.2 In the seminal case of National Federation of Independent Business v. Sebelius,3 the Supreme Court agreed with the Republican position and held that the individual mandate was outside of the scope of Congress’ authority to regulate commerce because the Constitution’s Commerce Clause does not afford Congress the power to force people to engage in commerce. However, the individual mandate ultimately managed to withstand judicial scrutiny as the Supreme Court held in its 5-4 decision that the mandate penalty amounted to a permissible tax that Congress could lawfully levy under its taxing and spending power.
Even though the mandate survived its main Constitutional challenge, it nonetheless sustained a shellacking in the court of public opinion. A tracking poll conducted by Kaiser Health4 just a week after the presidential election in November 2016 found that sixty-three percent of Americans viewed the individual mandate as “very unfavorable” or “somewhat unfavorable.” Comparably, only thirty-five percent of Americans viewed the mandate as “very favorable” or “somewhat favorable.” A whopping sixty-one percent of Republicans polled perceived the individual mandate as “very unfavorable.”
The Heritage Foundation, the conservative think tank that many credit as the originator of the concept of the individual mandate, renounced any affiliation with Obamacare’s iteration of the mandate and opposed it as an unconstitutional anachronism no longer considered necessary to achieve universal coverage.5 Notable among those who continued to champion the repeal of Obamacare and its individual mandate in the wake of the Sebelius decision was Mitt Romney, the very same architect behind the individual mandate’s debut in Massachusetts. The mandate was branded by its challengers as an un-American and officious overreach of government authority, a pariah in the land of free people, free markets, and free choice.
Broad Implications of the Repeal
Despite President Trump’s pronouncement that the tax bill “essentially repealed Obamacare,” the Affordable Care Act will continue to be the law of the land. Left untouched in the wake of the tax bill are the federal income-based subsidies intended to assist American consumers with purchasing individual policies, the expansion of Medicaid for low-income adults, the prohibition against denying coverage to consumers with pre-existing health conditions, and the edict that insurers must cover those health benefits deemed “essential” by the Department of Health and Human Services. Also surviving is the employer mandate, which requires certain employers to provide affordable health care coverage to their employees or else face a penalty. However, the repeal of the individual mandate will undoubtedly trigger some significant shifts in the health care landscape.
The majority of Americans won’t be personally impacted, since most people already obtain health insurance either through their employer or through a public program such as Medicare, and thus were never really at risk of being subjected to the individual mandate penalty. Nevertheless, for those Americans who do not receive health insurance from an employer or public program and who instead purchase coverage from an Obamacare health exchange, such individuals are now free to forego their coverage entirely without fear of having to pay a penalty. Those who are completely healthy and those who are financially well-off may now decide to ditch their health coverage as being needless or expendable. Comparably, even those who are sick or less financially stable may ultimately decide not to carry health insurance without the looming threat of the penalty to force them into action.
Consequently, the Congressional Budget Office (CBO) is estimating that the individual mandate repeal will result in thirteen million fewer Americans being insured within the next decade. The CBO is also forecasting that the premiums for coverage obtained on the health exchanges will rise approximately ten percent per year over the next decade due to healthy participants scattering from the markets without fear of the penalty and leaving the sicker participants behind to overburden the risk pools. Some health policy experts are expecting that the removal of the individual mandate will simultaneously give rise to increased premiums and decreased coverage rates, ultimately leading to a market collapse.7 In order to head off this potential outcome, lawmakers in states such as California are already looking to push legislation that would adopt versions of the individual mandate as state law, à la Massachusetts.
Overtones for Employer-Sponsored Plans
As a result of the repeal of the individual mandate, the CBO is projecting that fewer employees will be joining their employer’s self-funded plans with the mandate’s penalty no longer in play. Specifically, the CBO anticipates that the removal of the individual mandate will result in three million fewer Americans having coverage through their employer over the next decade.8 Accordingly, employers may begin to experience a decline in health plan enrollees.
As noted earlier, however, the Affordable Care Act’s employer mandate will remain after the enactment of the Trump tax bill. Employers subject to the mandate, those with fifty or more “full-time equivalent employees,” face penalties if they fail to offer minimum essential coverage that provides minimum value and at least one full-time employee receives a premium tax credit for purchasing individual coverage on the health insurance marketplace. Timothy Jost, a law professor at the Washington and Lee University School of Law, deduced that if fewer Americans end up seeking coverage through the health care exchange, then it follows that some employers may be able to avoid paying the employer mandate penalties that are only levied if at least one full-time employee receives a premium tax credit through the exchange. In this way, the individual mandate repeal is somewhat of a double-edged sword; fewer employees may end up enrolling in employer-sponsored plans, but fewer may also look to purchase coverage on the exchange, thereby reducing the risk to their employers who would otherwise be exposed to the strict penalties imposed by the employer mandate. Still, Jost surmises that as over 150 million Americans already have health coverage through their employers, the “effects of the individual mandate repeal on the employer-sponsored market will be marginal.”9
The repercussions of the repeal will certainly be felt hardest in the individual market, but employer-sponsored plans will likely experience some fallout as healthier, lower-risk employees begin to question if it might make more financial sense to withdraw from their plans entirely. As these healthier, less expensive employees begin to disenroll, the all-important balance each plan seeks to achieve will be disrupted as the scales start to tilt back towards the sicker, higher-risk and more expensive employees. A resulting risk pool made up of a disproportionate number of the costliest employees is the kiss of death for an employer-sponsored plan. As employees are no longer “mandated” to enroll in the plans offered by their employers, self-funded plans will need to devise more alluring and increasingly innovative methods to retain their healthiest participants. With the individual mandate repealed, the driving force of the mandate’s penalty can no longer be relied upon to funnel low-risk lives towards enrollment. Employer-sponsored plans will need to fill this void by offering more comprehensive benefits, designing more creative incentive programs, and prioritizing enrollee engagement in order to secure these vital, low-cost lives.
1See Congressional Budget Office, Repealing the Individual Health Insurance Mandate: An Updated Estimate (November 2017), https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/53300-individualmandate.pdf.
2Park, Katie & Rolfe, Rebecca (2013, September 23). How states approached health-care reform. The Washington Post. Retrieved from http://www.washingtonpost.com/wp-srv/special/politics/state-healthcare-progress/.
3See 567 U.S. 519 (2012).
4Kirzinger, Ashley, Sugarman, Elise & Brodie, Mollyann (2016, December 01). Kaiser Health Tracking Poll: November 2016. The Henry J. Kaiser Family Foundation. Retrieved from https://www.kff.org/health-costs/poll-finding/kaiser-health-tracking-poll-november-2016/.
5Butler, Stuart M., Ph.D. (2012, February 06). Don’t Blame Heritage for ObamaCare Mandate. The Heritage Foundation. Retrieved from https://www.heritage.org/health-care-reform/commentary/dont-blame-heritage-obamacare-mandate.
6See Congressional Budget Office, Repealing the Individual Health Insurance Mandate: An Updated Estimate (November 2017), https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/53300-individualmandate.pdf.
7Sanger-Katz, Margot (2017, December 21). Requiem for the Individual Mandate. The New York Times. Retrieved from https://www.nytimes.com/2017/12/21/upshot/individual-health-insurance-mandate-end-impact.html.
8See Congressional Budget Office, Repealing the Individual Health Insurance Mandate: An Updated Estimate (November 2017), https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/53300-individualmandate.pdf.
9Jost, Timothy (2017, December 20). The Tax Bill And The Individual Mandate: What Happened, And What Does It Mean? Health Affairs. Retrieved from https://www.healthaffairs.org/do/10.1377/hblog20171220.323429/full/.
iBennett, Brian (2017, December 20). ‘We have essentially repealed Obamacare,’ Trump says after tax bill passes. Los Angeles Times. Retrieved from http://www.latimes.com/politics/washington/la-na-pol-essential-washington-updates-trump-sees-an-end-to-obamacare-in-the-1513794883-htmlstory.html.
The Best of Times and the Worst of Times … How Imperfect Regulatory Action May Still Create Opportunities for Self-Funding
By: Jen McCormick, Esq.
Regulators have been busy over the course of the past few months. Between the issuance of executive orders, a tax bill, and state regulatory action, employers are scrambling to understand the implications. And while regulatory action has been quick, it has not necessarily been thorough, creating possibilities and opportunities for self-funded health plans.
Upon review of the various regulations, it seems new incentives for the creation of self-funded employer plans now exist. Employers may investigate taking advantage of this environment to form, create, or modify their self-funded benefit plans. Let’s examine certain recent regulatory developments.
Executive Order 13813
On October 12, 2017 President Trump issued Executive Order 13813 to save “the American people from the nightmare of Obamacare.” While this executive order did not modify any laws or regulations, it did direct the Department of Labor (DOL), the Department of Health and Human Services (HHS), and the Department of the Treasury to issue proposed regulations concerning expanded coverage under health reimbursement arrangements (HRAs) and association health plans (AHPs).
HRAs are tax advantaged arrangements subject to the Affordable Care Act (ACA) regulations. As a result, an HRA may not impose annual dollar limits on benefits unless it is integrated with a group health plan. An exception exists, however, for small employers. Pursuant to a provision within the 21st Century Cures Act, certain small employers may offer a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). This provision allows small businesses (i.e. employers with under 50 employees) to reimburse employees for out of pocket costs and premiums on the individual market. The regulations, however, impose tight restrictions on the employers’ ability to offer a QSEHRA.
Based on the current regulations and guidance for QSEHRAs issued by the Internal Revenue Service (IRS) in Notice 2017-67, an employer offering any group health plan is ineligible. As a result, even employers who only offered group dental coverage, for example, would be disqualified. The IRS did request comments on this guidance (due January 19, 2018).
The anticipated comments on Notice 2017-67, combined with the executive order directing the agencies to propose regulations expanding opportunities for employers to offer an HRA, may loosen current restrictions and expand the employer eligibility requirements. Guidance is still pending, but the proposed regulations could present options for self-funding which do not currently exist.
Proposed DOL Regulations
In addition to the expansion of HRAs, the executive order directed regulators to increase access to health care by allowing a broader pool of employers to create AHPs. In early January 2018, responding to the executive order, the DOL issued proposed regulations to extend the circumstances under which an association may function as an employer under the Employee Retirement Income Security Act (ERISA).
Currently, coverage provided via an AHP is regulated pursuant to the same standards applicable to the individual and small employer health insurance market. Under ERISA, an AHP’s reach is currently limited to circumstances where it is an employer sponsored plan. Specifically, association members must share a common interest, connect for reasons other than providing health insurance, exercise sufficient control over the health plan, and have at least one non-business owner employee.
The proposed rules may be game-changing for working owners (i.e. sole proprietors and self-employed individuals), allowing them to function as both the employer – for purposes of joining the association – and as the employee – for purposes of being covered by the plan. This unique dual status could allow working owners to participate in association health plans, and the adjustment could allow a new class of individuals (and potentially attract a large and previously ineligible pool of individuals) to self-funding.
Additionally, the proposed regulations contemplate the formation of an association for the purpose of offering health insurance. The rule does not impose prohibitions on forming new associations (or specify size limitations), but it does provide formal organizational requirements for associations. These newly formed associations would need affordable health insurance options, and may want to explore the benefits of self-funding. This could also create a new pool of entities for self-funding.
Tax Cuts and Jobs Act
In December 2017, the Tax Cuts and Jobs Act (Act) was signed into law, reforming both individual and corporate income tax issues in the most sweeping and drastic changes to the Tax Code since 1986.
While the Act maintains 7 tax brackets for individuals, it reduces the rates and increases the thresholds on the brackets for individuals. Potentially even more significantly, the Act reduces the individual mandate penalty to $0 (as of January 1, 2019). While the elimination of the individual tax penalty will likely have a significant negative impact on employers, and their employer sponsored health plans, the greater fear is that if individuals are no longer required to have coverage, the healthy, low risk individuals will terminate coverage altogether (whether individual or employer based). Without healthy lives the risk pools will suffer.
While the Act affects the individual mandate, it does not alter current employer mandate requirements; employers are still required to offer affordable coverage meeting minimum value requirements, or face an excise tax. This is troubling for employers. If, with the reduction of the individual mandate penalty to $0 employees are effectively no longer required to maintain coverage, employers anticipate covering a less balanced risk pool, making (still) mandated employer coverage more expensive.
While the individual and employer mandate were intended to work together to increase access to care and balance risk, the elimination of the individual mandate does not fully undermines the continued value of offering employer sponsored coverage as an employee benefit. Employers still recognize the culture and corporate benefits that attract and retain a talented work force, like employee health plans. Many employees (even healthy ones) value the benefit of comprehensive healthcare and the elimination of the individual mandate will not deter them from continuing coverage under an employer plan, or seeking an employer that provides one.
This does mean, however, that employers will need to be creative and flexible to counterbalance the potential new costs. One way to offset costs would be to create a tailored plan, designed specifically for the individuals that value healthcare as an employee benefit, and the best way to offer flexibility is via a self-funded plan. This might be an opportunity to attract more employers who are concerned about rising costs and investigating new solutions. Only with self-funding can an employer implement a targeted health plan that is loaded with unique benefits and creative cost-containment methodologies.
The Act also creates tax savings for businesses by slashing the corporate income tax rate from 35% to 21%, and creating a 20% deduction for qualified business income (QBI). While the specifics of the business tax changes are beyond the scope of this discussion, and the determination of QBI is not a straightforward analysis, the takeaway is that these tax benefits should (in theory) generate opportunities for employers to save on their tax bill. With the savings, employers invest in more creative employee benefits, like self-funded healthcare plans.
Despite the complexity of the Act and the continued uncertainty of some of its implications, the potential opportunities for self-funding should not be overlooked. Employers should discuss the impact of the Act on their individual situation with their tax advisors to better understand planning opportunities.
In response to the Act’s repeal of the individual mandate, certain states are taking action. For example, a Maryland proposal would require individuals to have insurance or pay a penalty of 2.5% of their income or $696 (whichever is greater). The imposition of insurance mandates at the state level would encourage participation in employer plans, making employer sponsored coverage an attractive option and broadening the risk pool. If states like Maryland join Massachusetts in mandating coverage it could positively impact self-funding. More individuals would be looking for cost effective health plan options, something that an employer with a self-funded plan would be able to provide.
While recent regulatory developments have been swift, leaving anxiety over their interplay and interaction, employers should look for opportunities to embrace change as it relates to benefits they must offer (i.e. employers are still subject to the employer mandate), and those that could be advantageous or strategic to offer.
With new challenges come new opportunities for HRAs, AHPs, and employers under the executive orders, proposed DOL regulations, tax reform, and state level developments. Self-funding, with unmatched flexibility for employers of all sizes, could be a cornerstone of the solution to reduce costs in the provision of healthcare.
Buyer Beware – No Good Deed Goes Unpunished
By: Ron E. Peck, Esq.
Employers and their advisors may soon find themselves accused of breaching their fiduciary duty if they continue to allow their benefit plans to pay inflated rates for medical services, without any justification for the excessive prices. Blindly paying fees that are not revealed until after the service is provided, to practitioners who cannot explain why their rates are many times more than comparable providers of equal or greater skill, is not a prudent use of plan assets and does violate one of the core tenets of the Employee Retirement Income Security Act of 1974 (“ERISA”) and fiduciary law.
Employers who choose to provide quality health insurance for their employees are generally performing an act of generosity. Certainly studies show that employers who offer health benefits recruit and retain the best employees, but not all benefit plans are equal - and those employers who choose to offer more than the mandated minimum coverage are indeed combining generosity with good business sense.
As mentioned, however, not all benefit plans are the same. For many, purchasing what we label as “fully funded” or “fully insured” traditional insurance, is enough. For these consumers, risk aversion is king, and they will pay a premium (more likely than not more costly than their employees’ health expenditures) to an insurance carrier. In exchange for that premium, said carrier will take on the risk associated with paying the employees’ medical bills. Is there a chance some catastrophic claim, injury, or illness will cause the total medical expense to exceed the collective value of the premium? Sure. Is it likely? No. Insurance carriers are in the business of assessing risk, and calculating premium that will earn profit.
For other employers less concerned with risk, the decision to keep the profit that would otherwise be paid to the carrier, and fund only the actual medical expenses, leads them to engage in the act of self-funding or self-insuring. It is to those employers that I now direct my commentary.
Studies have shown time and again that employers who self-fund their benefit plan are more likely to save money over five years of doing so, when compared to a comparable fully insured policy. This is due in part to customizing the plan to address only that population’s needs, adjusting benefits as the data requires, quickly implementing cost containment programs, shopping around for the best vendors, stop loss, and other elements of the plan, and otherwise ensuring that a customized approach trims the fat and applies each plan dollar where it will do the most good. So, you ask, if self-funding is such a panacea, why doesn’t everyone do it?
The answer is multifaceted. First of all, if you plan to provide benefits to a population with high medical expenses, you may benefit from fully insuring and working with the carrier to spread the risk over their entire risk pool. A self-funded employer takes on the entire plan’s expense, with few exceptions. Next, some employers prefer to pay “more” when that amount is something they can afford, to avoid the risk of paying “MORE” when that amount is something they cannot afford (even if the likelihood of such a massive claim is slim).
Another consideration employers seeking to self-fund must consider (but few sadly do) is the matter of fiduciary authority. Indeed, ERISA dictates, among other things, that an employer who self-funds a benefit plan either acts as or appoints a plan administrator. That administrator is a fiduciary of the plan and its members, with a very serious legal obligation to perform numerous tasks – all with the plan’s best interest in mind. Make one wrong move, and you’ll not only have to fix the damage you cause, but potentially be liable for up to treble-damages.
It is true that a self-funded plan administrator can transfer some or all of their fiduciary duties – meaning they share the burden – but most agree that at best the plan administrator is still responsible to monitor that assignee’s actions, and at worst, they maintain the burden as well.
As a result, employers who self-fund are not only at risk for the medical bills they will pay on their employees’ behalves, but are also at risk of being deemed to have “breached” their fiduciary duty if and when they make a mistake resulting in expenditures not in the best interest of the plan, and take action not in accordance with the terms of the plan document.
This may not sound like a big deal to you. You may be saying, “Ron! I ain’t afraid of no breach!” Indeed; it would be great if all we had to do was follow the terms of the plan document like the instructions that come with your kid’s new toy. Yet, like those instructions, saying is easier than doing; (where did I put that screw driver)? This is particularly true in today’s self-funded industry. Why? Because things are so good! Because today is a great time to be self-funded. What??? At this point you should be thoroughly confused. I did just say that today is the riskiest time to be a plan fiduciary because it is the best time to be a plan fiduciary. Let me explain.
More so now than ever before, innovators are developing new services, products, and methodologies to maximize benefits while minimizing costs. They are taking advantage of the self-funded plan structure, using our ability to customize, and targeting the high cost claims while increasing coverage elsewhere. Everything is being examined and new approaches are being applied to old issues and new. From medical tourism, to carve outs. From technologically advanced subrogation tactics to reference based pricing network alternatives. These are just a few examples of new and amazing ideas helping self-funded plans to evolve. Unfortunately, just like Kevin McCallister (Macaulay Culkin) who, in that 1990 classic film, is left “Home Alone” when the rest of his family rushes out the door to embark on an exciting adventure… so too are plan administrators and their supporting cast rushing into fun and exciting adventures without making sure their plan document is along for the ride.
Too often, these self-funded benefit plans – which are controlled by the terms of their plan document – implement a new, shiny service, product, or process and forget to update their plan document to match. The plan document is how the plan administrator communicates to the plan members (current and prospective), providers, department of labor, etc., what the plan does and doesn’t do – and sets forth the terms by which people decide whether to enroll and contribute their hard earned money in exchange for membership. If the plan in practice doesn’t match the plan in writing, that is bad news.
Many self-funded employers believe that by hiring brokers, third party administrators, and advisors, they can somehow protect themselves from this fiduciary threat. Yet, case after case has shown that – even though the broker, TPA, and the rest may ALSO be a fiduciary – the employer / plan administrator is still going to come along for the ride.
The case that has “set me off” and gotten me to head down this mental-path is the case of Acosta v. Macy's, Inc., S.D. Ohio, No. 1:17-cv-00541; (August 29, 2017). In that case, among other things, we see a benefit plan sponsor and their TPA attempting to contain costs by applying a reference based pricing methodology to their claims. This is great, and I applaud their efforts. Unfortunately, however, it appears that they may not have adjusted the applicable plan document to adequately reflect this new approach. While I’m sure this employer is thinking, “I thought the TPA does this for me?” Regardless of the truth of the matter, the employer – as a fiduciary – will be dragged into the complaint. This will – at best – harm the relationship between the plan and TPA, but – at worst – it will cause the plan to leave the TPA and possibly self-funding altogether.
This is why I feel that TPAs, and all of us in the business of servicing self-funded employers, need to protect employers even when we’re not obligated to do so. I fear, as in this case, that even if a self-funded employer “gets burnt” by something that is in no way, shape, or form our “fault” or “responsibility,” it’s still a black eye for the industry as a whole.
This takes me, then, to my next concern. For some time now, (since the last major economic downturn), we’ve been hearing via mass media all about situations where employees are suing employers, and their brokers, over mismanagement of 401(K) and pension plans. Indeed, these advisors are in many instances fiduciaries of these employee investors, and – in most of these cases – the employees are accusing their “fiduciaries” of wasting the plan’s (aka their) money on less-than-advisable investments. Consider, for instance, the case of Lorenz v. Safeway, Inc., 241 F. Supp. 3d 1005, 1011 (N.D. Cal. 2017). In this class action suit, the Plaintiff (Dennis M. Lorenz) asserted claims under ERISA against the “Safeway 401(K) Plan's” fiduciaries. Lorenz alleged, amongst other things, that the Defendants breached their fiduciary duty by selecting and investing the plan’s assets with funds that charged higher fees than comparable, readily-available funds, and which had no meaningful record of performance so as to indicate that higher performance would offset this difference in fees. Why does this scare me? I am scared because we could just as easily take this lawsuit (and the many like it) and replace the players with members of our own industry. Health benefit plans routinely spend plan assets to pay medical bills and compensate providers that may be more costly “than comparable, readily-available [providers], and which had no meaningful record of performance so as to indicate that higher performance would offset this difference in fees.” Ouch! If I am a member of a self-funded health plan, and my administrator is taking my money, and using it to pay for a $3,000 colonoscopy, when a facility down the road would do it for $750… and the more expensive facility has an “as good” or “worse” record when it comes to quality and outcomes… wouldn’t I say: “Hey! It looks like that fiduciary isn’t prudently managing my assets.” I truly believe that, for anyone that is a fiduciary of these plans, the day participants turn on us may not be a matter of “if,” but rather, “when.”
Consider also the recently filed, McCorvey v. Nordstrom, Inc. filed in the California Central District Court on November 6, 2017. In this case, a former participant in the Nordstrom Inc. 401(K) Plan sued plan executives alleging breaches of fiduciary duties in the management of the plan, and is seeking class action status for their claim. The basis of the claim, similar to the Safeway case discussed above, challenges the reasonableness of fees paid with plan assets, and further, that the plan fiduciaries failed to take advantage of cost-cutting alternatives. The lawsuit literally contends that the defendant failed to adequately and prudently manage the plan, by allowing plan funds to be used in the payment of unreasonable fees and not acting prudently to lower costs.
It doesn’t take a rocket scientist to see the parallels between these lawsuits, and out of control spending by health plans. Whether you are someone offering better care for less cost, or someone who can revise the plan’s methodologies to maximize benefits while minimizing costs, these trends in fiduciary exposure should galvanize us all to either offer help, or seek it, when it comes to prudent use of plan assets.
“But Ron,” you say, “even if we (or the TPA and broker) are fiduciaries of the plan, the decision to contract with over-priced facilities, agree to their fees, and pay these claims, is ultimately a decision made by the plan sponsor (employer) – right? So, while your previous comments about self-funded employers leaving the market when they realize they’ve been taken for a ride may be true, we are at least safe from liability for fiduciary breach. Right?” Maybe not. Consider Longo v. Trojan Horse Ltd., 208 F. Supp. 3d 700, 712 (E.D.N.C. 2016). In this case, the plaintiff employees of Trojan Horse and Glen Burnie Hauling filed a putative class action against defendant Ascensus Trust. In this case, the Defendant was collecting contributions, submitting them for investment, and keeping a fee for themselves. There is some dispute regarding what happened to the investments, but ultimately it appears the funds weren’t properly invested. The Defendant argued that they did their job, and the issues about which the complaint was filed was outside their immediate control. Yet, the court held that Defendant had a fiduciary duty in regard to the contributions, and that they failed to take affirmative steps to investigate. In other words, pursuant to 29 U.S.C. § 1132(a)(2), fiduciaries are responsible to ensure the plan’s welfare is priority number one, even when the actions in question may be taken by another entity or fiduciary. So… following that line of logic… if a TPA, broker, or other advisor is a fiduciary of the plan, and we are aware (or should reasonably be aware) of actions being taken by another fiduciary, that are detrimental to the plan … or options that available to the plan to contain costs, but we knowingly allow another fiduciary to ignore them… we may be on the hook too!
So – in summary – I believe it is proper and necessary for any and all fiduciaries of these self-funded plans to step back, look for wasteful or imprudent behavior – both by the fiduciary itself, and other fiduciaries of the plan – and determine whether there is any action, option, or alternative that would constitute a more prudent use of plan assets. Likewise, those who seek to help these fiduciaries and the plan reduce their expenditures without harming the plan need to raise their voices and warn their prospective clients of the cost of not working with them. In other words, fiduciaries need to stop clinging to the status quo, and the onus is on all of us to help them do so.