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The Stacks - 3rd Quarter 2018

Conflicting Policies and Courts: When Plan Language Creates More Litigation than Coverage

By: Catherine Dowie

Mostly, working on any given subrogation file for a private, self-funded benefit plan is all about the hurry up and wait.  Hurry to communicate with the injured party, their attorney, the adjusters, investigators, and make sure everyone knows to about the plan’s involvement and rights.  Then wait for the completion of treatment, the compilation of damages and some initial negotiations before racing to remind everyone of those rights, and potentially racing to the courthouse to make sure those rights are preserved.  As the Supreme Court reminded us in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, timing is everything.   136 S. Ct. 651 (2016). 

For the most part, the bulk of the plan’s cost-containment opportunity has always come at the resolution of some liability claim, which is usually years after the bulk of the treatment and payments.  Although many states require Medical Payments Coverage, Personal Injury Protection or some other form of no-fault coverage, they are typically in very small amounts.  There are exceptions, of course, Michigan’s unlimited PIP scheme, potential advancement of funds in Montana under Ridley v. Guaranty National Insurance Co., and high-minimum states like New York and New Jersey, but usually very little coverage is available to alleviate the burden on a plan to pay up front or leave a member to address bills with providers directly.  951 P 2d 987 (Mont. 1997).

In some circumstances, however, acting quickly when the case begins does turn up a policy that will meaningfully impact the plan’s liability from the start, where there is a policy for a specific loss or a high no-fault policy.  The problem arises when these policies are designed to be excess, which they usually are.  An excess policy is a policy designed to provide coverage only when no other coverage exists.  They are often inexpensive because they are designed to often only bear liability for a patient’s copayment or deductible obligations, rather than the bulk of the responsibility for medical claims.  Some are also only designed to cover bills associated with a specific event or activity, such as high school sports.

This issue frequently arises not only in the context of automobile no-fault coverage, but with school and recreational policies.  Schools will often secure excess policies for athletes or even students hurt in gym class, and they are common in adult recreational leagues (usually soccer, but I’ve handled a case where an adjuster was shocked to find that his company had issued a policy for a lawnmower racing league…).

So what happens when a health plan has a valid excess provision, but the accident or automobile policy that covers a specific incident does as well?  Although ERISA might allow a plan to preempt state laws, policy or plan provisions may call for a slightly different analysis.

Various Federal Circuit Courts of Appeal have heard this question and have reached a somewhat surprising conclusion, especially following the Montanile decision from the Supreme Court in 2016.  There is a long-standing split between the circuits on this question.  See Auto Owners Ins. Co. v. Thorn Apple Valley, Inc., 31 F.3d 371 (6th Cir. 1994) (terms of an ERSIA plan are enforceable over conflicting policy language of an insurer) c.f. Winstead v. Ind. Ins. Co., 855 F.2d 430 (7th Cir. 1988) (apportioning liability for claims pro rata).  Both of these cases addressed Michigan PIP policies, which provide unlimited coverage for, among other things, medical bills related to automobile accidents.  Both the PIP policy and the health plans involved in the dispute had excess provisions, and in both cases the auto insurer filed suit, asking the court to declare that the that the health plan should pay the bills as primary.

The 6th Circuit concluded that the ERISA plan terms were not entitled to any deference over the terms of the auto policy and ordered the two litigants to pay the claims on a prorated basis.  Straightforward enough.  Neither policy had a cap on coverage, and the outstanding bills could be split on a 50/50 basis.  One significant problem with this decision as applied to slightly different facts, is how does one pro-rate a theoretically infinite policy with a more standard PIP policy which might have limits of $10,000 or less. McGurl v. Trucking Emps. of N.J. Welfare Fund, Inc. , 124 F.3d 471, 485 (3d Cir. 1997) (noting that it is “unclear how the rule [prorating] would operate in practice”).

The 7th Circuit, when faced with the same issue, gave more weight to the primary purpose of ERISA.  These conclusions were perfectly in line with what the Supreme Court would later point out, the whole reason that the plan, “in short, is at the center of ERISA” and “[t]his focus on the written terms of the plan is the linchpin of ‘a system that is [not] so complex that administrative costs, or litigation expenses, unduly discourage employers from offering [ERISA] plans in the first place.’” Helimeshoff v. Hartford, 134 S.Ct. 604, 612 (2013) (quoting Varity Corp. v. Howe, 516 U.S. 489, 497 (1996)).  Without giving force to valid and clear terms, uniform nationwide enforcement would be undercut.

In the last 5 years, this issue has been somewhat frequently litigated in the context of non-automobile excess policies.[1]  In addition to the existing split on what weight to give the terms of an ERISA plan, courts have now drawn a distinction based on if the plan paid claims before initiating suit.  Courts have allowed plans to pursue declaratory relief, obligating the insurer to issue payment in the future, but not recover from insurance policies with excess provisions once the plan has already paid claims.

This pre/post payment distinction is based on the idea that plans can only seek a monetary award with a court if they can identify a specific pool of money that they have a right to, like a settlement fund, which does not exist when benefits are being coordinated between two payors.  Additionally, some insurers have argued that ERISA is irrelevant even to the determination of primary liability for payment, asking courts to leave these “run-of-the-mill contract disputes” to state courts.

As one court noted:

The paradoxical result [of this argument] is that as an ERISA plan, has fewer remedies than it would if it were a non-ERISA plan, and its beneficiary, through no fault of his own, is considerably worse off for having two policies that coincidentally had conflicting language than he would be if he had only one. One might think that the underlying purposes of ERISA and of equitable relief generally would permit a court to fashion an appropriate remedy.

Cent. States, Se. & Sw. Areas Health & Welfare Fund v. Gerber Life Ins. Co., 771 F.3d 150, 159 (2d Cir. 2014).

As long as these issues remain unresolved, health plan liability will remain uncertain, and insurers and plans alike will be encouraged to leave claims denied and turn to courts before issuing payments.  This leaves plan participants to deal with bills everyone agrees will not ultimately be their responsibility, and forces plans into a position where they may risk loss of discounted rates or access to other benefits that are only available if payment is made within a specific timeframe.  Health plans can seek to preserve enforcement of their terms through diligent investigation and coordination with – and education of – all parties and payors as soon as claims are incurred.

[1] Dakotas & W. Minn. Elec. Indus. Health & Welfare Fund v. First Agency, Inc., 865 F.3d 1098 (8th Cir. 2017); Cent. States, Se. & Sw. Areas Health & Welfare Fund v. Am. Int'l Grp., Inc., 840 F.3d 448 (7th Cir. 2016); Cent. States v. Student Servs., 797 F.3d 512, 60 EBC 1857 (8th Cir. 2015); Cent. States, Se. & Sw. Areas Health & Welfare Fund v. Gerber Life Ins. Co., 771 F.3d 150 (2d Cir. 2014); Cent. States, Se. & Sw. Areas Health & Welfare Fund v. First Agency, Inc., 756 F.3d 954 (6th Cir. 2014); Cent. States, Se. & Sw. Areas Health & Welfare Fund v. Health Special Risk, Inc., 756 F.3d 356 (5th Cir. 2014); Cent. States, Se. & Sw. Areas Health & Welfare Fund v. Bollinger, Inc., 573 F. App'x 197 (3d Cir. 2014).


The Practical Impact of Ariana M. v. Humana Health Plan of Tex., Inc. on ERISA Denials of Benefits

Patrick Ouellette, Esq.

The abuse of discretion standard has long been a proverbial ace in the hole for self-funded employee benefit plan administrators in making factual determinations that, while perhaps not popular with the participant, they believed were consistent with the terms of the plan document. While the recent Ariana M. v. Humana Health Plan of Tex., Inc. is noteworthy for many reasons, the most immediate effect will be on the Fifth Circuit’s allowance of plan administrator discretion in making factual determinations.

The Fifth Circuit finally joined the fraternity of all other circuit courts that has held decisions made by plan administrators under ERISA Section 1132(a)(1)(B), whether legal or factual, are to be reviewed using a default de novo standard. In addition to introducing consistency across the circuit courts regarding standard of review, the en banc holding in Ariana M. v. Humana Health Plan of Tex., Inc. greatly reduced the amount of inherent deference granted to plan administrators for factual determinations. Self-funded employee benefit plans should be aware of the repercussions of no longer having the abuse of discretion standard available in the Fifth Circuit if there is an appeal regarding its factual determinations relating to, for instance, a denial of benefits.

Prior to this decision, every other circuit court except the Fifth Circuit had applied a de novo review when an ERISA plan document does not expressly grant discretion to plan administrators. These courts based their rationale on the fact that the famed Firestone Tire & Rubber Co. v. Bruch case does not make a distinction between a trustee’s legal interpretations versus their factual decisions regarding the requirement for de novo review. Ariana M. v. Humana Health Plan of Tex., Inc. is legally significant because Fifth Circuit had long held that, under ERISA, a plan administrator was entitled to an abuse of discretion standard of review with respect to its factual determinations. In short, the court to this point had given plans the benefit of the doubt for factual determinations unless the plan had made an unreasonable decision. Now these administrators will be held to the de novo standard, without deference to its factual findings. This shift the court considering an issue for the first time without this deference will likely affect how and under what circumstances plan decisions are made. Thus, it is critical to also consider the practical impact that the holding will have on plan administrators that have relied for years upon Fifth Circuit providing them with this high degree of discretion in making factual determinations even when a plan has not expressly granted them that discretion.

Fifth Circuit Standard of Review Background

Employers, and the plan administrators, traditionally have broad discretion to determine how plan terms will be used, as well as to decide which entities will have the authority to make benefits determinations, factual determinations, appeals determinations, and language interpretations. The Supreme Court in Firestone held that only if a plan explicitly delegated authority to a plan administrator, the decision would be reviewed under a heightened “abuse of discretion” standard. The Court famously stated a “denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” If there was no express delegation, however, the Court held that courts would need to review a denial of benefits challenged under ERISA using a de novo standard. The holding did not directly clarify whether it was referring to both legal interpretations and factual determinations for the de novo standard.

In Ariana M. v. Humana Health Plan of Tex., Inc., the Humana Health Plan of Texas argued that it had a discretionary clause granting to Humana “full and exclusive discretionary authority to: [i]nterpret plan provisions; [m]ake decisions regarding eligibility for coverage and benefits; and [r]esolve factual questions relating to coverage and benefits.” Due to a Texas antidelegation statute making discretionary clauses unenforceable, Humana agreed not to use the argument that the plan document gave it direct authority. Notably, the court remained silent on whether ERISA preemption came into play because Humana did not raise the argument. Instead, Humana relied upon the Fifth Circuit’s holding in Pierre v. Conn. Gen. Life Ins. Co. to argue that for factual determinations under ERISA plans, the abuse of discretion standard of review is the appropriate standard and therefore it had not abused its discretion in making its determination. The Fifth Circuit granted en banc review to reconsider Pierre and determine the default standard of review that would apply in these situations.

The Fifth Circuit’s decision in Ariana v. Humana Health Plan of Texas essentially reversed its own interpretation of Firestone in Pierre. According to Pierre, without delegation of authority to a plan administrator, challenges to a legal interpretation of a plan should be considered under a de novo standard of review while factual determinations were to be under an abuse of discretion standard of review. The Pierre court based its reasoning on the concept that an administrator's factual determinations are inherently discretionary and the Restatement (Second) of Trusts supports giving deference to an ERISA plan administrator's resolution of factual disputes even when the plan does not grant discretion.

The Ariana court essentially held that Pierre’s interpretation is no longer good law, despite some strong dissenting opinions, including from Judge E. Grady Jolly, who authored Pierre. The dissent focused its dissatisfaction with the majority’s opinion on the discrepancy between legal analysis and credibility determinations and a lack of express authority in Firestone.

Factual Determinations That May Now Be Subject to De Novo Review

Now that Ariana held that Firestone's default de novo standard applies when the denial is based on a factual determination, it is worthwhile to see how this change would play out in the types of factual determinations that plan administrators make on a regular basis. This is not intended to be an exhaustive list of decisions that will be affected, but instead meant to illustrate the types of complications that Ariana could create for plan administrators if they are a party to case that reaches the Fifth Circuit.

First and foremost, Humana Health Plan of Texas in Ariana used its discretion to decline to allow partial hospitalization for Ariana beyond June 5th, claiming it was no longer medically necessary. Using Pierre’s precedent, the district court concluded only that "Humana did not abuse its discretion in finding that Ariana M.'s continued treatment at Avalon Hills was not medically necessary after June 4, 2013." Plan administrators are often making factual decisions as to whether treatment is “medically necessary” and therefore whether it should provide coverage according to the terms of the plan document. In the Fifth Circuit, these plans were granted broad deference regarding these determinations because of its decision in Pierre. Similar to the rest of the circuit courts, medical necessity determinations are now subject to de novo review. However, Ariana is merely the tip of the iceberg in that these types of factual determinations are not limited only to questions of medical necessity.

Another determination in which plan administrator discretion is paramount is the application of plan document exclusions, such as excluding coverage if the treatment or care was the result of illegal or hazardous activity. Each plan document has its own set of exclusions that it can choose whether or not to apply to a given set of facts, but the Fifth Circuit had traditionally separated itself from the rest of the circuit courts up until this point as to the standard by which these exclusion determinations would be judged. Anyone who works in the self-funded industry knows how controversial and fact-dependent the practice of excluding participant claims can be for a plan administrator. Without an abuse of discretion standard and de novo standard now in place, however, these administrators may potentially be more wary to automatically exclude a plan participant’s claims due to an illegal or hazardous activity exclusion if, for example, the facts are unclear.

Next, plan administrators often make plan eligibility decisions that will be affected by the Ariana decision in the Fifth Circuit. These determinations will include, for instance, whether spouses are eligible for coverage after they dropped their own plan based on the plan’s eligibility language. Previously free from the potential second-guessing involved in with the de novo standard of review, administrators now more than ever will need to be sure to document their coverage decisions based on the plan document language and be able to defend them in court if necessary.

Administrators also make factual determinations regarding administration of high-deductible health plans (HDHPs), health savings accounts (HSAs), flexible spending accounts (FSAs). Some prime examples of these administrative issues would be deciding which items covered under an HSA would be deemed “preventive” or whether the plan had avoided first-dollar coverage under an HDHP. Similar to the above, the Fifth Circuit will now view the process of how these factual decisions were made in a much different light.

Finally, now that these plan administrators are subject to the de novo standard of review instead of abuse of discretion review, they should remember the ERISA requirement that factual determinations must be made consistently in similar scenarios in the future. Though this is not necessarily a novel consideration for plan administrators, it is a worthwhile reminder that decisions made under this “new” standard of review will be used as precedent for its decisions made in the future as well, adding to the weight of these determinations.

Patrick Ouellette, Esq., is an attorney with The Phia Group, LLC.


Patrick joined the Phia Group in 2017. He earned his B.A. in journalism and writing from the University of Rhode Island and spent time as a sports writer and also as a healthcare technology journalist. He later graduated from the Suffolk University Law School evening program with a health and biomedical concentration with distinction. Patrick has legal experience with healthcare providers and in state government. He was also a published staff member of the Suffolk University Law School Journal of Health and Biomedical Law and later served as Chief Content Editor on the journal’s executive board.


Drowning in A Sea of Paper

By: Tim Callender, Esq.

The challenges of setting up and administering an employer-sponsored, self-funded health plan are many. One of the largest challenges a self-funded plan sponsor faces is reconciling the vast number of documents that make a self-funded health plan “go.”

When navigated correctly, these challenges yield immense results in terms of rich benefit delivery within a fiscally responsible health plan mechanism. Still, challenges remain and should be discussed openly so that we can continue to grow and strengthen our industry.


The task of reconciling governing documents is challenging for anyone, but it can be an especially daunting job for any plan sponsor, broker/consultant, or interested party mostly familiar with the fully insured platform. In that relatively simple world, everything “goes” with minimal paperwork – at least in the front of the house – but, this simplicity comes at a significant cost and with a significant lack of control and customization.

Clearly, for most employers that really look into the options, self-funding is the way to go. But, if you want to play in the self-insured world and reap the significant financial benefits of the self-funded model – get ready to read, re-read, audit, reconcile, and review more paperwork than a forensic accountant scouring financial records written in invisible ink.

In the interest of staging the optics for this brief piece, let me be incredibly clear that I am 10,000% a believer that self-funding is the best model to deliver rich and affordable health benefits, and the success of the self-funded industry is a personal goal and passion of mine. I am a firm believer that all stakeholders in the self-funded space are vital for the success of this model.

The comments made herein are not meant to demonize any one player, nor am I out to state that any particular stakeholder causes more complication than anyone else. Rather, I hope that through an honest, and a little self-critical conversation (laced with humor), we can identify some brutal truths regarding our great industry so that we can continue to work together for the betterment of self-funding, as a whole!

To approach this in an organized fashion, let’s make a list of some of the array of paperwork needed for a self-funded health plan to fully function (at least the top documents most commonly involved). From there, we can explore one or two examples that reflect “problem areas,” and/or bullet points that we should all think about when reflecting on these documents. Not all problems will be (or should be) explored in this article, but, hopefully, this conversation gets the wheels turning and points us toward improvements and solutions.

Governing Plan Document / Summary Plan Description – This is the cornerstone of every self-funded health plan. Without a governing plan document, you have.... Well... a nebulous concept of a health plan devoid of any defining rules or benefit structure, with all the details living in someone’s head and likely spread across a series of emails and meeting notes! Good luck with a government audit on that one!

Items that could be “problem areas” include:

  • Does the plan document contain benefit carve outs that fly in the face of a network contract?
  • Is the plan document written before the current plan year is even over?
  • Was the plan document compared to the relevant stop-loss policy to look for coverage / reimbursement gaps?

Summary of Benefits and Coverage (SBC) – Thank you Affordable Care Act! As we all know, health insurance is confusing and saturated with paperwork. Well, thankfully the ACA saw fit to “simplify” health coverage by requiring, yes, you guessed it, more paperwork! Better hope your SBC lines up with your SPD or you might be SOL with the DOL while listening to OPP in the LBC.

Items that could be “problem areas” include:

  • Do the benefit examples in the SBC actually match up with the intended benefits of the plan document (what if a plan member relies on the SBC for benefits and the plan document has not been fully written/issued yet...?)
  • Was the benefit structure of the Plan fully finalized before issuing pre-enrollment SBCs (in other words, how many people have pushed SBCs out, just to “get them done,” while recognizing that the benefit structure of the plan document is likely to change by the time it is finalized?).

PBM Agreement – And then, let’s add drugs. No, I don’t mean “let’s add drugs” in the context of a 1970s Grateful Dead, San Francisco acid test – rather, and as if it’s not confusing enough, let’s take a completely separate entity, bring them to the party to assist with a plan’s Rx benefits, and then, in the frantic insanity that is a 60 hour work week, hope that we all read over the PBM agreement to see if it lines up with the intent of our health plan and that the language in the plan document echoes that same alignment – oh, and maybe stop-loss to?

Items that could be a “problem area” include:

  • Is there a clear alignment in the contracting (and the plan document!) regarding which entity might handle / administer claims and appeals for particular Rx benefits? – Has the language in the plan document, as required by the PBM, been reconciled with the Plan’s stop-loss policy, network agreement, and/or SBC?

Network Agreement – Where to start...?

Items that could be “problem areas” include:

  • How many parties are expected to be bound by a particular network agreement?
  • Are there inconsistencies in how particular benefits should be paid as laid out between the network agreement and a plan’s governing plan document?
  • Is the Plan administering a reference-based pricing program, and, if so, have network obligations been taken into account?
  • Have all vendor contracts, and their roles, as related to the administration of a plan, been reconciled against the roles and responsibilities of the plan, as laid out in the network contract?
  • Are there inconsistent medical management criteria as laid out between the plan document, the network contract, the PBM contract, and other documents?
  • Are the benefit payment timelines (and appeal timelines), as between the plan document and the Network Agreement, cogent so as to assure the Plan is not losing a network discount or risking a prompt-payment Network Agreement breach term?

Stop-Loss Policy / Agreement – Too often we see material variances in the wording of definitions and exclusions, as between plan documents and stop-loss policies. To state the obvious, this can create significant coverage gaps, manifesting in reimbursement denials that are not necessarily invalid. Common discrepancies include a disconnect in a “medical necessity” definition or an “experimental and investigational” definition.

Additionally, what about notice provisions? While not directly related to a misalignment between plan document and stop-loss terms, this concept can create havoc when a plan-sponsor does not pay especially close attention to the notice requirements present in a stop-loss contract. More specifically, does the contract require the sponsor to provide notice to the carrier any time the Plan modifies benefits? If so, and if the Plan fails to do so, a significant (and likely valid) coverage gap may exist.

Items that could be “problem areas” include:

  • Pretty much everything I’ve written above, plus this one, often forgotten gem: gaps that might exist between a plan document and an employer-sponsor’s employee handbook, related to leave of absence provisions, which may lead to eligibility issues and subsequent reimbursement denials at the stop-loss level.

Administrative Services Agreement (typically with a TPA or a carrier on its ASO platform) – This document can tend to be the “unifier” or the “great divider.” So many solutions and pieces that make up a self-funded plan all fall together in the ASA. This document is key. I’ll say it again, KEY.

Items that could be “problem areas” include:

  • Who is the named fiduciary outside of the Plan Sponsor (are there others – are there shared duties – are there fiduciary inconsistencies between the ASA, the plan document and the various vendor contracts involved?)
  • Are all vendors mentioned and/or properly referenced within the ASA?
  • Does the ASA properly outline a scope of duties and responsibilities in a way that mirrors the intent of the Plan and as reflected in all other governing plan documents?

Employee / Employer Handbooks – This one just splashed onto the scene in a pretty incredible way over the past year or so.

Items that could be “problem areas” include:

  • As discussed above, have the handbook, plan document, and stop-loss policy been “bounced together” to assure there are no issues that might result in valid reimbursement denials?
  • Leave of absence provisions and plan document eligibility provisions...

Plan Amendments – I had a dream once, about a Plan that had not had its plan document restated in 8 years, and, during that time, the Plan Sponsor had amended the plan 16 times. All amendments existed as separate documents, referencing one another from time to time, and, oftentimes, referencing various vendors that no longer worked for the Plan. Then, the Plan Sponsor came to me and hired me in November to restate the plan for a January 1 kick off. I woke up screaming. That kept me up at night.

Notifications (of material modification; open enrollment; HIPAA privacy notifications; etc.) – While many of these may not need to line up with a plan’s specific benefit grid, network alignment, or the definition of “maximum allowable,” you can easily see how a bit more paperwork, directly impacting the member’s understanding of a plan, can be cumbersome and can easily cause confusion if not handled carefully, especially when bundled into an envelope (or email) containing a plan document and an SBC!

Miscellaneous Vendor Contracts – Take everything discussed above and add in a few more. Time to turn up the volume! All the above is enough to strike fear into the heart of the most diligent and thorough paper pushing accountants, advisors, and attorneys. But, it is the price of admission and a piece of our business that we should be aware of and work through carefully. As a best practice, every Plan Sponsor should engage in expert gap reviews of all documents and should do so on a routine basis.

To conclude, and hopefully provide some closure and definition to my thoughts, I will leave you with this: our industry is complicated. There is no denying it. Let’s acknowledge it, be willing to criticize it, and even be willing to poke fun at it.

But, at the end of the day, let’s recognize that our industry – our platform – is the best. So, we owe it to each other, as stakeholders in this space, to work hard to accomplish the goal of aligning the documents that govern the administration of a self-funded health plan.

Should the first and foremost guardian of this alignment be the Plan Sponsor? Absolutely –and with expert guidance! We are all in this together and should strive to achieve harmony in a Plan’s governing documents, wherever possible, together. All boats rise.

The Stacks - 2nd Quarter 2018

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),

2Park, Katie & Rolfe, Rebecca (2013, September 23). How states approached health-care reform. The Washington Post. Retrieved from

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

5Butler, Stuart M., Ph.D. (2012, February 06). Don’t Blame Heritage for ObamaCare Mandate. The Heritage Foundation. Retrieved from

6See Congressional Budget Office, Repealing the Individual Health Insurance Mandate: An Updated Estimate (November 2017),

7Sanger-Katz, Margot (2017, December 21). Requiem for the Individual Mandate. The New York Times. Retrieved from

8See Congressional Budget Office, Repealing the Individual Health Insurance Mandate: An Updated Estimate (November 2017),

9Jost, Timothy (2017, December 20). The Tax Bill And The Individual Mandate: What Happened, And What Does It Mean? Health Affairs. Retrieved from

iBennett, Brian (2017, December 20). ‘We have essentially repealed Obamacare,’ Trump says after tax bill passes. Los Angeles Times. Retrieved from


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.

State Action

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.

The Phia Group's 3rd Quarter 2017 Newsletter
Phia Group Newsletter 2nd Quarter

Phone: 781-535-5600 |

The Book of Russo: From the Desk of the CEO

The heat is on here in Boston with absolutely beautiful weather over the past few weeks with the same expected in the near future. This can also be said for the self-insured industry as a whole as well as what we have seen here at The Phia Group. The summer has not meant a slow down; in fact business is up across the board and interest from brokers, advisors, and employers is at levels I have never seen. So while it’s great news that so many people want to get in on this innovative market, the risk is that employers and others will jump in too quickly without truly understanding the risks involved with self-funding their employee benefit plans. Sure you can lower your costs by self-funding but you also expose yourself to catastrophic claims issues, high priced drug costs that you cannot control and stop loss issues that you had no idea existed. That’s why we are here for the industry – to ensure you can have your cake and eat it too. I hope you enjoy our summer newsletter as we have lots of great info to share. Happy reading!

Service Focus of the Quarter: Independent Consultation & Evaluation (ICE)
New Services and Offerings
Phia Group Case Study: Flagship Plan Document
Phia Fit to Print
From the Blogosphere
The Phia Group’s 2017 Charity
The Stacks
Phia’s Speaking Events
Employee of the Quarter
Phia News

Service Focus of the Quarter: Independent Consultation & Evaluation (ICE)

You need legal consultation to address regulatory compliance concerns, claim processing queries, and to collaborate on difficult administrative tasks. Having an experienced team of attorneys, compliance specialists, and industry experts on call is a must have. With The Phia Group's Independent Consultation and Evaluation ("ICE") service, unlimited access to The Phia Group's acclaimed team of legal consultants is yours for an affordable pre-paid, per employee per month (“PEPM”) subscription fee. Gone are the days of budgeting on the fly and dealing with mysterious "legal bills." With an ICE subscription fee, clients can preemptively budget for and share the cost of this invaluable resource - allowing The Phia Group and their clients to focus on what is really important - results.

For more information regarding ICE and The Phia Group's many other services, please visit our website or contact The Phia Group's Vice President of Sales & Marketing, Tim Callender by email at or by phone at 781-535-5631.

New Services and Offerings:

Leave of Absence Review

Employers aren't paying attention to their health benefit plan documents. They alter their employee handbooks every year, or sometimes multiple times in a single year. They try to be generous, providing employees with the ability to take leaves of absence, and promising them extended health plan coverage when they take such leaves of absence. Little do they know that their plan documents expel participants from coverage after a fixed period of time if the employee isn't actively working. This means that - per the plan - that person exercising their right to a leave of absence has no health plan coverage. If the employer tries to provide coverage anyway, stop-loss isn't required to reimburse claims over the deductible.

We're seeing this conflict come up with startling frequency, and the time has come to end this problem once and for all. The Phia Group has added a Leave of Absence review to its already popular Gap-Free Analysis service. The Phia Group's team of plan document experts and attorneys will analyze the applicable plan document side-by-side with the employer's handbook and stop-loss policy, to ensure there are no gaps in coverage and that all are in compliance with applicable law.

Flagship Plan Document

Every self-funded plan deserves a "Best in Class" plan document, yet - delays in plan drafting cause many plans to administer old plans - or in some cases - no plan. Now there is no excuse for administering a self-funded program with an outdated plan document, or worse, no plan document at all.

The Phia Group has compiled decades of experience servicing various types of plans, and drafting various types of plan documents, to develop its Flagship Template. This plan document "checks all the boxes" when it comes to best practices, regarding everything from cost containment to compliance; offering robust yet effective coverage.

The Phia Group's Flagship Template is a condensed version of its industry acclaimed, fully customizable template. The Phia Group has taken its own plan document (complete with thousands of requisite customization queries), and created a nearly complete plan document - by pre-selecting what it deems to be the best provisions in every regard; applying best practices to create an almost-complete plan. All that remains is for the plan sponsor or its named administrator to fill in their biographical information, insert their selected schedule of benefits, eligibility criteria, and review the language already provided to request edits or revisions.

Our goal is to provide plans with plan documents that we think reflect best practices. The plan sponsor and its administrator no longer need to review countless options or fill in limitless blank spaces. The hard work has already been handled by The Phia Group. We don't want to see any more self-funded employers or plan administrators suffer penalties or face conflicts with their partners, due to an outdated or non-existent plan document. Now, with The Phia Group's Flagship Template, clients can enjoy speedy production of best-in-class plans, with minimal time or monetary investment.

For more information regarding any of The Phia Group’s services, please contact The Phia Group’s Vice President of Sales & Marketing, Tim Callender, by email at or by phone at 781-535-5631.

Phia Group Case Study: Flagship Plan Document

Not long after The Phia Group introduced its Flagship Template offering as part of its Phia Document Management (PDM) service, one of our long-time clients approached us with an issue they were having. They had a new client prospect – the largest prospect the TPA had ever had, and indeed far larger than the average self-funded group. This particular group was coming from the fully-insured market, so it had never structured its own Plan Document before. As part of the RFP process, the TPA had provided the Plan Sponsor with a checklist from the TPA’s standard template, customized for use with the Phia Document Management software.

The TPA contacted our consulting and plan drafting team and relayed that this formerly-fully insured group was a bit uneasy about the number of variables in the checklist. Although the Plan Sponsor had not yet awarded the TPA its business, the Plan Sponsor indicated that it had absolutely no idea how to choose, for instance, which “illegal acts” or “workers compensation” exclusions it wanted, of the myriad of options within the standard checklist.

The Phia Group’s plan drafting team informed the TPA of the newfound existence of our Flagship Template, which is designed specifically to cut down variables by 75%, instead applying our best-practices approach to definitions and exclusions. The remaining variables are designed to be high-level options, rather than the nitty gritty that plan sponsors may not have the experience or interest to answer.

The TPA showed the Plan Sponsor the Flagship Template checklist, and the Plan Sponsor was pleased with the more manageable number of variables, and subsequently awarded the TPA its considerable block of business.

Fiduciary Burden of the Quarter: Prudent Management of Plan Assets

ERISA specifies that all Plan Administrators must be prudent with assets. That means avoiding waste, and securing savings whenever possible. Protecting plan assets, identifying fraud, overpayments, undue costs, as well as taking action to protect the plan, recoup lost funds, and identify savings opportunities, are being treated less like “good ideas” and more like “fiduciary duties.” In the meantime, the Department of Labor has begun to crack down on fiduciary violations more than ever.

As always, we urge TPAs and brokers to do their best to ensure that they, and their clients, are prudent with plan assets in every way possible! Please visit our website or contact The Phia Group's Vice President of Sales & Marketing, Tim Callender by email at or by phone at 781-535-5631 to discuss this growing concern and steps you can take to maximize benefits and minimize costs.

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Phia Fit to Print:

• Employers Costs Outpace Salaries – America's Benefit Specialist, Page 28

Money Inc. – “Affordable” Health Insurance Is Not “Affordable” Health Care

• Self-Insurers Publishing Corp. – Taking Health Care International - The Growing Trends of Importing Care and Exporting Patients

• Self-Insurers Publishing Corp. – Held Captive by Appeals

• Self-Insurers Publishing Corp. – Appealing to Reason

• Self-Insurers Publishing Corp. – Self-Funded Health Plan May Have a New Ally in the Fight against Specialty Drug Prices

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From the Blogosphere:

The Rules of the Game are Still Changing. What is an Executive Order?

Dear Stop-Loss: A Ballad. A blog that can be sung to the tune of “Gilligan’s Island.”

You Are Not Going to Sue us, Are You? Claims from providers are “getting high.”

Transparency – It’s Not Just for Ghosts. What about the costs of standard medical procedures?

To stay up to date on other industry news, please visit our blog.

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Consulting Headlines – The Hottest Topics in Benefit Plan Administration

On July 13, 2017, The Phia Group will present “Consulting Headlines – The Hottest Topics in Benefit Plan Administration,” where our legal team will discuss how laws are changing, regulations are shifting, and benefit plans are scrambling to keep up.

Click HERE to Register!

On June 22, 2017, The Phia Group presented “A Network by any Other Name,” where we discussed various payment methodologies, and what a health plan needs to do to ensure that the Plan Document supports that methodology.

On May 16, 2017, The Phia Group presented “Decisions, Decisions: Which Plan Types Work Best for Which Groups, and Why,” where we went over some basic types of plans that can be chosen and some benefits and pitfalls of each.

On April 27, 2017, The Phia Group presented “The Double-Edged Sword of Discretion: How Even Great Plan Document Language Can Cause Gaps in Coverage,” where our legal team discussed discretion within Plan Documents and stop-loss policies, and how the two interact.

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On June 22, 2017, The Phia Group presented “The Senate Unveils its Repeal & Replace Bill,” where Sr. Vice President and General Counsel Ron Peck and Attorney Brady Bizarro give their initial thoughts on the Better Care Reconciliation Act.

On June 19, 2017, The Phia Group presented “Plan Tales: The Good, Bad, and Really Bad,” where Adam Russo and Ron Peck interview two key members of The Phia Group’s consulting division – Vice President of Consulting, Attorney Jennifer McCormick, and Product Developer, Kristin Spath.

On June 5, 2017, The Phia Group presented “In the Land of the Blind,” where we discussed the assessment of the American Health Care Act (Version 2.0).

On May 22, 2017, The Phia Group presented “Healthcares? Alternative Provider Payment Programs,” where Adam Russo and Ron Peck discussed movements within the healthcare provider community.

On May 8, 2017, The Phia Group presented “The American Health Care Act,” where Adam Russo, Ron Peck, and Brady Bizarro discussed the American Health Care Act, which passed the House of Representatives on 05/04/2017.

On April 25, 2017, The Phia Group presented “An Employer Call to Action,” where our legal team discussed what employers can do to improve their health plan and plan performance.


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The Phia Group’s 2017 Charity

The Phia Group's 2017 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.

Phia's Wiffle Ball Game

On Saturday, June 24th, employees of the Phia Group participated in the 6th Annual John A. Waldron Wiffle Ball Tournament. The tournament honors the late John Waldron, a former member of the Brockton’s Planning Board and Democratic City Committee and a longtime booster for Brockton High School’s sports and clubs. Phia and the 36 teams competing helped raise over $16,000 for local charities, including the Boys and Girls Club of Brockton, TOPSoccer, Frederick Douglass Neighborhood Association, Brockton Hospital Cancer Walk, and more. For more information, visit the John Waldron Wiffleball Tournament website. 


Monthly Donations From Phia


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

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The Stacks

A Year Later . . . Montanile Remembered, Lessons Learned

By: Christopher M. Aguiar, Esq. – April 2017 – Self-Insurers Publishing Corp.

Things were going so well. In the game of subrogation cases being heard by the Supreme Court of the United States, self-funded benefit plans under the purview of ERISA were on a roll. First, it was Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006), then U.S. Airways v. McCutchen, 133 S. Ct. 1537 (2013). Some even considered Great West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002) to have been unfairly viewed as a loss for the subrogation industry because despite a decision against Great West Life, it provided the blue print followed by Mid Atlantic Medical Services, Inc. to elicit the favorable decision that led to the recovery in Sereboff. As is the case in most games, momentum can be lost in the blink an eye.

Click here to read the rest of this article

Don’t Let Your LOAs Leave You DOA

By: Kelly E. Dempsey, Esq. – May 2017 Self-Insurers Publishing Corp.

Imagine a scenario where an employer has a long-time reliable employee that suddenly has a stroke of bad luck and is diagnosed with stage four cancer after being relatively asymptomatic and having never been diagnosed with cancer previously. The employee works with a team of medical professionals to come up with a game plan for beating this terrible disease. The employee quickly begins what will hopefully be life-saving treatment as soon as a game plan is mapped out. The claims start rolling in and the treatment starts taking its toll. The employee starts missing an hour here and there for appointments – and then a few hours for appointments and sickness –and then full days of work during treatment. When the employee is at work, the employee struggles to perform normal job functions and the employee is now unable to work because the rigorous chemotherapy regiment.

Click here to read the rest of this article.


Air Ambulance: Heads in the Clouds

By: Jon A. Jablon, Esq. – June 2017 – Self-Insurers Publishing Corp.

Health plans, third-party administrators, brokers, consultants, and stop-loss carriers are a bit baffled by air ambulance fees. Many are outraged or appalled or disgusted as well – but it seems that the overwhelmingly common feeling is sheer confusion over how this type of billing is permissible.

Click here to read the rest of this article.

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Phia’s Q2 Speaking Events:

Adam Russo’s 2017 Speaking Engagements:

• 4/24/17 - Berkley Captive Symposium – Grand Cayman Islands
“The Best Gets Better – Getting the Most Out of Your Self-Funded Plan”

• 5/4/17 – Benefest – Westborough, MA
“Multiple Personalities – The Biggest Issues Impacting Plans & Employers, and Instances Where They are Their Own Worst Enemy”

• 5/22/17 – United Benefit Advisors (UBA) Spring Conference – Chicago, IL
“The Best Gets Better – Getting the Most Out of Your Self-Funded Plan”

• 6/27/17 – Leavitt Trustee Conference – Big Sky, MT
“The Best Gets Better – Getting the Most Out of Your Self-Funded Plan”

Ron Peck’s 2017 Speaking Engagements:

• 4/3/17 – Eastern Claims Conference (ECC) – Boston, MA
“The Good, The Bad, and The Ugly: Understanding Reference Based Pricing in the Special Risk Market”

Tim Callender’s 2017 Speaking Engagements:
• 5/4/17 – BevCap Best Practice Workshop – Orlando, FL
“PACE & ICE with a brief political update on repeal and replace”

• 5/22/17 – Group Underwriters Association of America Annual Conference – Denver, CO
“The Future of Health Plans”

Jen McCormick's Speaking Engagements:
• 5/20/17 – United Benefit Advisors (UBA) Spring Conference – Chicago, IL
“Self-funding and Compliance Issues”

Brady Bizarro's 2017 Speaking Engagements:
• 5/4/17 – BevCap Best Practice Workshop 2017 – Orlando, FL
“Phia's PACE and ICE Services”

Phia’s Upcoming Speaking Events

Adam Russo’s Upcoming Speaking Engagements in 2017:

• 7/12/17 – Montana Captive Conference – Whitefish, MT
“High Performing Self-Insured Health Plans – The Key to Successful Stop-loss Captive Programs”

• 8/9/17 – NAHU Region 1 Meeting – Stamford, CT
“The Best gets Better: Getting the Most out of Your Self-Funded Plans”

Ron Peck’s Upcoming Speaking Engagements in 2017:

• 9/19/17 – CIC-DC 2017 Annual Conference – Washington, D.C.
“Cost Containment Strategies”

Tim Callender’s Upcoming Speaking Egnagements in 2017:

• 7/17/17 – Health Care Administrator’s Association TPA Summit – St. Louis, MO
“Conference Emcee”

Brady Bizarro’s Upcoming Speaking Engagements in 2017:

• 7/18/17 – HCAA TPA Summit 2017 – St. Louis, MO

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Get to Know Our Employee of the Quarter:
Zachariah John

Congratulations to Zachariah John, the Phia Group’s Q2 2017 Employee of the Quarter!

“Zach constantly exhibits great customer service skills and work ethics, with quick responses and delivery on HelpDesk tickets, questions from other employees, and system enhancement builds. He is also incredibly friendly, and always has a great attitude. Even when something cannot be done as specifically desired by a user, Zach finds ways to meet their requirements through other available options and functionalities. He is a true subject matter expert, a great resource of knowledge, and a dedicated employee. There is no question; if Zach were not part of the Phia team, we would be nowhere near where we are now! His assistance and expertise is invaluable.”

Congratulations Zach and thank you for your many current and future contributions.

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Phia News


- Diaina Williams gave birth to Hannah on 4/19/2017

- Sabrina Centeio gave birth to Gia on 5/5/2017.

- Shannon Olson gave birth to Shelby Marie on 5/8/2017

- Lisamarie DeCristoforo gave birth to Kyrie on 6/20/2017

- Boris Senic’s wife gave birth to Matthew Ryan on 6/27/2017


- Casey Balchunas was promoted from Claim Investigator to Claim Recovery Specialist III

- Lyneka Hubbert was promoted from Claim Recovery Specialist III to Case Analyst

New Hires

- Maria Sostre was hired as a Case Investigator

- Dante Tylerbest was hired as a Customer Service Representative

- Cori DeCristoforo was hired as a Customer Service Representative

- Elizabeth Pels was hired as a legal assistant

- Shaiti Alavala was hired as an IT Intern

- Robert Balchunas was hired as a PGC Intern

- Abigail Gatanti was hired as a PGC Intern

- Sandra Przychodzki was hired as a PGC Consultant

- Jess Watsky was hired as a PGC Consultant

- Francesca Russo was hired as a Legal Assistant

- Thadeous Washington was hired as a Plan Document Specialist

- Krishna Malyala was hired as an IT Data Architect

- Hannah Sedman was Hired as a Marketing Intern

- Nubian Gamble was hired as a Case Investigator

- Lennon Johnson III was hired as a Case Investigator

- Colin Patzer was hired as a Legal Assistant

- Jiyra Martinez was hired as a Case Analyst


Fun at Phia:

Phia’s Easter Egg Hunt

Phia's Backyard Barbeque

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The Stacks - 3rd Quarter 2017
A Year Later . . . Montanile Remembered, Lessons Learned
By:  Christopher M. Aguiar, Esq.

Things were going so well.  In the game of subrogation cases being heard by the Supreme Court of the United States, self-funded benefit plans under the purview of ERISA were on a roll.  First, it was Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006), then U.S. Airways v. McCutchen, 133 S. Ct. 1537 (2013). Some even considered Great West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002) to have been unfairly viewed as a loss for the subrogation industry because despite a decision against Great West Life, it provided the blue print followed by Mid Atlantic Medical Services, Inc. to elicit the favorable decision that led to the recovery in Sereboff.  As is the case in most games, momentum can be lost in the blink an eye.

Often times, when the momentum is heavily in one’s favor, the successors eventually let their guard down.  Enter Montanile v. Board of Trustees of Nat. Elevator Industry Health Benefit Plan, 136 S. Ct. 651 (2016). Montanile was the victim of an accident with a third party who was driving under the influence of alcohol.  Montanile’s benefit plan paid approximately $120,000 in medical claims arising from the accident.  Following the accident, he sued the driver of the vehicle and obtained a settlement in the amount of $500,000.  Settlement negotiations between Montanile and the Plan broke down and his attorney warned the Plan that he intended to disburse the funds to Montanile.  The Plan did not respond until almost seven months later when it filed a lawsuit in which the Plan argued that even though Mr. Montanile had spent some or all of the settlement funds, the Plan still had a right to the funds.  The Supreme Court disagreed, stating that the Plan would have had an equitable right if it had “immediately sued to enforce the lien against the settlement fund then in Montanile’s possession” and that suing Montanile to attempt to attach his general assets was a legal remedy not available to the Plan under ERISA 502(a)(3).  Id. at 658.

Immediately following the period when the Court announced that it would be granting certiorari and hearing arguments in Montanile, subrogation experts rationalized what they had hoped would be the outcome; mainly, that the highest court in the land would not put forth a decision that effectively allowed plan participants to take the money and run – but we all knew better, and the Court affirmed our fears; that the Plan’s equitable remedy may be extinguished when funds are disbursed.

In the almost fourteen months since Montanile, there has not been much movement.  The case has been cited in several briefs and other cases, but there is nothing of a significant nature to report. That said, in the interest of keeping the issue fresh in everyone’s mind and not allowing the importance of a benefit plan’s third party recovery rights take a back seat, let us take the opportunity to recall the keys to a successful recovery program and some best practices – many of which have received favorable treatment in the few cases that have addressed the problem created by Montanile.

Plan Language

Perhaps the most important thing to remember is that Montanile did not actually change the law.  Plan language continues to be the most important consideration in determining whether a plan has a right to 100% reimbursement.  Regardless of whether the funds have been disbursed to the participant and/or whether they have been spent on non-traceable assets, if a plan’s language is inadequate, the plan will not be able to enforce its right to a full reimbursement.  Montanile did not change the decision in McCutchen, which clearly stated, “In a §502(a)(3) action based on an equitable lien by agreement—like this one—the ERISA plan’s terms govern. Neither general un-just enrichment principles nor specific doctrines reflecting those principles—such as the double-recovery or common-fund rules invoked by McCutchen—can override the applicable contract.” 133 S. Ct. at 1540.  Ensuring your plan’s language is as strong as possible remains imperative to maximizing recoveries.

Investigation is the Key

The Supreme Court in Montanile disagreed with the Plan’s assertion that its equitable remedy should be enforceable regardless of the whereabouts of the settlement fund and did not appear to have any pity for the burden on the Plan to protect its right.  The Court stated:
… The Board protests that tracking and participating in legal proceedings is hard and costly, and that settlements are often shrouded in secrecy.  The facts of this case undercut that argument.  The Board had sufficient notice of Montanile’s settlement to have taken various steps to preserve those funds.  Most notably, when negotiations broke down and Montanile’s lawyer expressed his intent to disburse the remaining settlement funds …unless the Plan objected …. The Board could have – but did not - object.  Moreover, the Board could have filed suit immediately, rather than waiting half a year.

Montanile at 662.

The Court’s statements here seem to indicate a pretty clear burden on plans to engage in their own investigations and take any and all steps necessary to protect their interests though it does seem to leave the door open for some flexibility in its decision in a situation where perhaps the facts are different.  For example, would the Court have ruled differently if the Plan did not “have sufficient notice” of Montanile’s settlement?  This appears to have been the case in AirTran Airways, Inc. v. Elem, 767 F. 3d 1192 (2014).   In Elem, the attorney ultimately obtained a settlement of over $500,000 against the responsible driver but told Air Tran that the settlement had been for the insurance policy limit of $25,000.  He then inadvertently sent a copy of the $475,000 check of which he had neglected to advise Air Tran. In this case, there appears to have been overt acts to deceive the Plan with regard to the settlement.  Would the Court have ruled the same way if faced with these facts?  

Regardless, to avoid situations like this, the Plan MUST HAVE an effective investigation unit.  All too often investigations are halted based on an insufficient self-report.  Everyone can agree that a participant that falls down the stairs at home does not present a recovery opportunity; but what if that person’s “home” is a rental apartment and the “fall down the stairs” resulted from a broken stair and faulty railing in the main hallway?  If the investigation unit is ill-equipped to ask the right questions or identify when someone is masterfully crafting answers to avoid the question without lying, a plan will miss recovery opportunities.

And the Key to Investigation is Data

A high quality investigation unit is a pivotal part of any recovery process, but access to a plan’s data is where it all begins.  The Court’s decision in Montanile effectively put a ticking clock on a plan’s recovery rights.  The earlier a plan is involved, the better chance it will have to be aware of potential recovery opportunities and on top of the availability and whereabouts of the potential recovery funds.  The most effective way to do that is to both be able to access claims data and also be able to expertly analyze and identify opportunities in the data.  When paired with the most cutting edge technology and resources, data can be utilized to find out about recovery opportunities quickly and put a plan in the best position to succeed.

Funds Disbursed? … All May Not Be Lost …

Certainly, Montanile threw subrogation professionals a bit of a curveball, but most of us knew this curveball was in the arsenal.  Ensuring that you can trace the funds is always the best option; but since Montanile, some courts have reminded us that even if the funds are disbursed, a plan may still have some options.  First, the Supreme Court in Montanile held that a plaintiff can “enforce an equitable lien only against specifically identified funds that remain in the defendant’s possession or against traceable items that the defendant purchased with the funds.... A defendant’s expenditure of the entire identifiable fund on non-traceable items ... destroys an equitable lien.” Montanile, at 658.  For the Plan to lose its right of recovery, the participant must spend the money on items that cannot be traced.  So, if the participant purchases a car, property, or asset of some sort, the plan may still be able to enforce its right.

Further, even if the funds are disbursed, the Plan may have a claim for accounting or disgorgement of profits.  In Homampour v. Blue Shield of California Life and Health Insurance Company, the Northern District of California stated the following:

Montanile does not entirely foreclose plaintiffs' claim. Plaintiffs have not alleged how or from what funds plaintiffs seek to recover disgorgement of profits. It is possible that plaintiffs will present evidence demonstrating that the profits they seek to disgorge are specifically identifiable and within defendants' possession.

Slip Copy, 2016 WL 4539480 at 8

Finally, even in a circumstance where a plan’s equitable remedy is completely lost, the plan may still have a legal remedy under a breach of contract theory.  In Unitedhealth Grp. Inc. v. MacElree Harvey, Ltd.., the U.S. District Court for the Eastern District of Pennsylvania noted that “assuming Ms. Neff had at that point already dissipated the settlement recoveries, then, pursuant to Montanile, the Plan could seek legal redress against Ms. Neff for breach of contract.” Slip Copy, 2016 WL 4440358 at 7,


Subrogation, like many cost containment options, is complicated.  Understanding the legal framework, the differences between the remedies that may be available, the advantages and drawbacks to the different options and utilization of different remedies, and having all the resources to recover effectively can be incredibly burdensome.  It requires experience, technical aptitude with data, and access to legal resources necessary to protect the plan’s rights.   Montanile served as a painful reminder, but all is not lost.  A plan can take steps to protect itself, maximize its recovery dollars, and ensure compliance with its fiduciary duty to enforce the terms of the plan and ensure its viability.

Don’t Let Your LOAs Leave You DOA
By: Kelly E. Dempsey, Esq.

Imagine a scenario where an employer has a long-time reliable employee that suddenly has a stroke of bad luck and is diagnosed with stage four cancer after being relatively asymptomatic and having never been diagnosed with cancer previously. The employee works with a team of medical professionals to come up with a game plan for beating this terrible disease. The employee quickly begins what will hopefully be life-saving treatment as soon as a game plan is mapped out. The claims start rolling in and the treatment starts taking its toll. The employee starts missing an hour here and there for appointments – and then a few hours for appointments and sickness –and then full days of work during treatment. When the employee is at work, the employee struggles to perform normal job functions and the employee is now unable to work because the rigorous chemotherapy regiment.

The employee decides it’s time to take a leave of absence to focus on treatment. To the dismay of the employee, though, the employee doesn’t have any additional leave available under The Family and Medical Leave Act (FMLA), since the full allotment of FMLA leave was recently exhausted while the employee and the employee’s spouse were finally bringing home their new adopted baby that they had waited so long for. Is this pulling at your heart strings yet?

The employer recalls that sometime in 2016, the U.S. Equal Employment Opportunity Commission issued guidance on a leave associated with The Americans with Disabilities Act (ADA)1 . Ah ha! The employer tells the employee they have just the solution – take a leave under ADA and the employment and leave situation can be re-evaluated in a few months. The employer tells the employee not to worry about anything except becoming cancer-free; the health plan coverage will continue as long as the employee needs it, even though the last of the employee’s paid time off is exhausted and no additional FMLA is available. In other words, the employer, via its health plan, is taking care of its employee, as so many employers try so hard to do. The employee is then signed up for the short-term disability policy which will help replace some income during the leave, and the employee is all set – there is continuing health plan coverage and some income replacement to boot. All is well.

Fast forward in time. Three months have passed, and the employee is making miraculous recovery. The employee is not ready to come back to work yet, but things are looking up and the employee is respected to return to work at some point in the near future. With the end of the health plan year approaching, the employer is attempting to get its ducks in a row for renewal season, which includes a stop-loss policy renewal. The cancer treatment claims are continuing to roll in and, as expected, the dollars keep adding up – but unfortunately, as anticipated, stop-loss is going to become a factor before renewal (ugh).

Claims are filed with the stop-loss carrier and all the typical supporting documents are provided. During the stop-loss carrier’s review, the carrier starts scratching its head. This individual has been on a non-FMLA leave of absence for over three months. The health plan document discusses FMLA and COBRA, but no other types of leave. Why was this employee still on the plan? Why was COBRA not offered when plan coverage seems to have terminated? The stop-loss carrier questions the employer and requests additional documentation to support eligibility; the carrier even generously says the employee handbook is acceptable. As everyone knows, the stop-loss policy is underwritten based on the plan document alone; anything contained within the employee handbook is entirely separate from the plan document and the stop-loss underwriting generally won’t take into account anything within the employee handbook. The employer thinks “boy, am I lucky!” *queue the suspenseful music*

The employer pulls out the employee handbook and skips to page 42 – Employer Leave Policies. The employer starts reading, “In addition to FMLA, employees that have exhausted paid time off and FMLA may be eligible for an additional extended leave of absence; referred to as non-FMLA leave. This non-FMLA leave is created to comply with the ADA’s requirement to provide a leave of absence as a reasonable accommodation and will be offered in addition to FMLA. Thus the non-FMLA leave will not run concurrently with FMLA. Additional information regarding how to request this leave and the additional requirements associated with this leave is further detailed herein:”

The employer’s wheels start turning: okay, this ADA leave doesn’t run concurrently with FMLA – great, that helps, but where’s the part about continuing health plan coverage? That must be in this handbook somewhere. The employer starts frantically turning pages looking for those magical words “employees are entitled the health plan benefits during a non-FM LA leave of absence.” But alas, no such wording is contained within the 163-page employee handbook.  The employer’s internal dialogue starts racing. “How can this be? We never meant for our employees to be out sick and not have health coverage. Doesn’t the ADA say we have to provide coverage to employees while they’re out on leave?” So you ask, “What now?” The bottom line is that there is no stop-loss reimbursement for the cancer claims, and quotes for renewal just added a few extra zeros.       

No need to review the gory details in depth – but one can imagine what happened during the plan and stop-loss renewal. The employer’s bank account is looking bleak, as are the proposed stop-loss renewal rates. The employer starts shopping other options despite having been with the same stop-loss carrier for years.  All the while, the employer just thinks “How did I end up here? All I wanted was to take care of my employees and give them the best benefits possible. Where did I go wrong?”  

It’s intuitive to think that a leave of absence from employment is coupled with a continuation of health plan coverage, especially if the leave is illness related; to the dismay of many, however, a continuation of coverage (other than COBRA) isn’t always coupled with a leave of absence. As shown in the scenario above, many employers struggle to align their health plan documents with their employee handbooks (and other internal policies) which subsequently increases the potential for a gap to arise between all the relevant documents. While most federal and state laws do not require a continuation of coverage, employers can choose to provide the benefit of continued coverage – but if the employer wants to ensure stop-loss reimbursement, the terms of continuation of coverage need to be clearly spelled out not only in the employee handbook, but also in the health plan document. The health plan document is key to showing proof of continued coverage, especially in a situation where stop-loss is relevant.

Many employers don’t even realize they have gaps between their policies and the health plan documents until it’s too late. All it takes is one large medical event - a cancer claim, an ESRD diagnosis, premature twins, a transplant – to discover that the documents the employers has aren’t airtight, and may not even align with the employer’s intent.

In summary, most employers need to do some homework. Go back to the office and take a look at the health plan document and the employee handbook. Do the two documents reference the same types of leave? Do the documents clearly indicate when coverage under the health plan is maintained during a leave? Do the terms of these documents meet the intent of the employer? What does the stop-loss policy say about eligibility determinations? Can the handbook be used to document eligibility in the health plan? What (if any) changes need to be made to minimize or eliminate gaps, to the extent possible?

Don’t let large unexpected claims leave you dead on arrival. Do the leg work now, and figure out what needs to be done to avoid being caught by surprise.

Kelly E. Dempsey is an attorney with The Phia Group. She is one of The Phia Group’s consulting attorneys, specializing in plan document drafting and review, as well as a myriad of compliance matters, notably including those related to the Affordable Care Act. Kelly is admitted to the Bar of the State of Ohio and the United States District Court, Northern District of Ohio.


Air Ambulance: Heads in the Clouds
By: Jon A. Jablon, Esq.

Health plans, third-party administrators, brokers, consultants, and stop-loss carriers are a bit baffled by air ambulance fees. Many are outraged or appalled or disgusted as well – but it seems that the overwhelmingly common feeling is sheer confusion over how this type of billing is permissible.

In all other markets – construction, textiles, grocery, you name it – the ordinary legal doctrine is that if there is no agreed-upon price for the goods or services, the seller may only charge the reasonable, fair market value of the delivered service or item. Admittedly, in most markets, prices are agreed upon beforehand – but in the long history of business, there have been enough instances of services rendered without agreed-upon pricing that courts have seen fit to devise controls for just those occasions.

And yet…air ambulance charges are frequently between 600 and 800 percent of Medicare rates for the same flight – and sometimes far, far more. In fact, one recently crossed my desk billed at over 2,600% of Medicare rates. That’s right – a whopping twenty-six times what Medicare would have paid for the same flight.

The disclaimer is that Medicare rates are not directly relevant to these flights, but instead used as a benchmark to inform what might be the fair market value, since unfortunately there isn’t much else to go on. Unlike many other medical providers, though, there seems to be a trend in the air ambulance billing industry where balance-billing is the norm, and many air ambulance providers have the devil-may-care willingness to bill patients which triggers the outrage and disgust that so often has health plans paying upwards of 90% of egregious balances to protect their patients.

Add to the egregious billing the notion that many flights are not medically necessary or otherwise appropriate to begin with, and it becomes clear that we have a problem on our hands.

At Northshore International Insurance Services, Inc.’s 26th Annual Medical Excess Claims Conference regarding Air Ambulance Claim Cost Containment Strategies, Jeff Frazier – a partner at Sentinel Air Medical Alliance, a firm specializing in curbing air ambulance costs – answered quite a few questions, including the following2 :

Question: Why is air ambulance ordered for someone who does not really need the service?

Answer: About 20% of the patients using air ambulance services really need the service. In a lot of cases, patients are not transported to the nearest hospital due to overflight or relationships between the facility and the air ambulance provider.

Question: How do you determine medical necessity?

Answer: Review of transport notes or ambulance run reports primarily to determine medical necessity. Sometimes notes from the hospital are also reviewed.

Question: Why do payors cave?

Answer: Fear of the provider balance due billing the patient.

Balance-billing is a major concern of all benefit plans that pay benefits at an amount not tethered to billed charges, which is an increasing trend. If not for balance-billing, it seems likely that all plans would pay objectively reasonable rates rather than percentages of billed charges.

“Taking Patients for a Ride” Article

A recent (April 6, 2017) Consumer Reports article penned by Donna Rosato – entitled “Air Ambulances: Taking Patients for a Ride3 ” – highlights some real-life scenarios in which air ambulance billing practices have proven to be, in a word, abusive. Aside from citing two separate sources quoting the average air ambulance flight at about $7,000 and about $10,000, the article notes that:

Rick Sherlock, president and CEO of the Association of Air Medical Services, a trade group, says that many air-ambulance patients are on Medicare or Medicaid, and that those programs pay $200 to $6,000 per transport. So, Sherlock says, air-ambulance operators must collect more from people with private insurance to make up the difference.

It should be questioned how equitable or ethical it is to jack up prices for one consumer because the provider has chosen to accept less money for another consumer. An air ambulance provider can always refuse to contract with CMS and choose to not accept Medicare or Medicaid – so to complain about not being paid enough seems a bit petulant.

Airline Deregulation Act

Further challenges are presented by the Airline Deregulation Act of 1978. Through this federal law, states are prohibited from regulating non-hospital affiliated air ambulance providers. That is, this law does not apply to the University of Whatever Health System’s own proprietary air ambulance services, since those are considered to be an “extension” of emergency services as opposed to a separate air ambulance provider – but the law does apply to FlyingAirTaxiMedicalAmbulance Co., Inc., since it is independent of an emergency room and is its own “carrier.”

Through the years there have been proposed changes to the federal Act to account for the disastrous effects it has on air ambulance consumers and health plans, but we’re not quite there yet.

Interestingly, many air ambulance carriers have resorted to quoting the Act when attempting to justify their billing – or at least when attempting to refute reasonable settlement requests. It seems that the most prevalent argument is against any notion of fair market value; the fact that state law is preempted with respect to air ambulance billing practices is cited as the reason that fair market value is not relevant to the carrier’s billing. But, although rooted in state contract law, is it reasonable to suggest that an implied contract for services is “state law,” sufficient to be preempted or overridden by the federal Airline Deregulation Act?

In other words, while the federal Act may supersede state laws aimed at regulating air ambulance providers (and others), the concept of fair market value is implicit in the non-contracted nature of air ambulance services. The issue is not one of some state law attempting to regulate air ambulances; fair market value has to do with the open market and general principles of contract rather than some particular state law.

The Airline Deregulation Act does not set a price or indicate what might be appropriate value. Instead, it dictates that individual states cannot pass laws to regulate the price of these flights. Fair market value is a general principal of contracting rather than some statutory price control, though; air ambulances are free to provide quotes up-front, but in most cases that is either not feasible or just not done. It seems that the general and basic principal of fair market value would still apply when no price is quoted or agreed-upon. The Airline Deregulation Act, after all, was passed to promote a free market economy rather than restrict it. It hardly serves to promote a free market when medical providers can gouge payors without warning.

One could even contend, somewhat ironically, that demanding surprise payment at an amount far in excess of the fair market value frustrates the very purpose of the same Airline Deregulation Act that these providers rely on to defend their charges.

Contract? What Contract?

Here’s where things get even more interesting. Independent air ambulance providers tend to be universally out-of-network. There are a couple of exceptions, but in general, it is near impossible to find an air ambulance provider (unrelated to a hospital) that has contracted with a PPO network to accept discounted fees – primarily due to the belief that the Act guarantees them their full billed charges no matter what, and that there’s no reason to join a network and accept discounted charges.

Regardless of that belief, another question worthy of consideration is whether the out-of-network flights can truly be considered non-contracted. Contracts are a funny thing and they come in many forms; while there is no contract to pay a certain specified rate or percentage of billed charges – indeed, a claim that would generally be considered a “contracted claim” – consider that the patient (if conscious and competent) almost always signs the provider’s “assignment of benefits” form. On that form, the patient says “if my insurance doesn’t pay you, in full, 100% of your bill, then I, the patient, agree to be responsible for the remainder.”

For some bizarre reason, courts in this country have indicated that the patient’s agreement to pay some unspecified amount supersedes any ordinary market properties. If the patient weren’t a patient but a homeowner, and a painter said “you will pay me what I bill you for this job” and the homeowner agreed, courts have always opined that while the consumer is of course responsible to compensate the painter for its service, the painter is responsible for billing only that which is reasonable – measured as the fair market value of the services. In the medical industry, though, there are very few (and largely ineffectual) statutory or common law pricing controls. Even the simplistic concept of fair market value, which is perhaps the most basic of all pricing principles, does not apply in ordinary cases. It goes without saying that this needs to be fixed.

What Can You Do?

Whoever you are – whether a health plan sponsor, third-party administrator, broker, MGU, reinsurer, or anyone else working in the self-funded industry – air ambulance charges are worrisome. If they don’t concern you…they should.

Negotiating claims can be an option, as is the case with other out-of-network medical claims, and there are also other, more novel solutions out there in the marketplace.

Just as programs have developed to assist payors in reducing dialysis billed charges, so are there companies and services that are specifically geared toward controlling air ambulance charges. Specialists in this field can provide assistance from a regulatory and financial standpoint – and ensuring proper utilization is also crucial to ensuring that payors are not gouged.

We urge payors to discuss options with a broker or consultant and ask about some of the solutions out there that have helped save health plans countless dollars of unreasonable and unnecessary air ambulance exposure.

About the Author

Attorney Jon Jablon joined The Phia Group’s legal team in 2013. Since then, he has distinguished himself as an expert in various topics, including stop-loss and PPO networks, focusing on dispute resolution and best practices. In 2016, Jon assumed the role of Director of The Phia Group’s Provider Relations department, which focuses on all things having to do with medical providers – including balance-billing, claims negotiation, PPO and provider disputes, general consulting, and more.



The Phia Group's 2nd Quarter 2017 Newsletter
Phia Group Newsletter 2nd Quarter

Phone: 781-535-5600 |

The Book of Russo:
From the Desk of the CEO

Happy spring to all of you. This is my favorite time of the year as baseball begins, the kids can run outside here in Boston, and I get some sanity by enjoying the weather. At The Phia Group, it's no different. This is the time of year when it's truly heating up from a cost containment and consulting level. Brokers, employers, stop loss carriers and administrators are starting to see outrageous claim charges from the first quarter and reaching out to us for assistance. The bottom line is that we are here to empower you and your plans. I urge you to check out the case study from our unwrapped service, as well as the amazing initiative we have put together from a social media aspect. We decided this year to not only offer industry leading webinars, but also to expand our voice though shorter podcasts and intuitive blog posts.

We are here to make this industry better for everyone, by doing what we can to lower the overall cost of care. I love this fight, and we here at The Phia Group are passionate about this goal and our overall mission. Thank you for believing in us and reaching out. Happy reading.

Phia Group Case Study: Handbook, Schmandbook
Service Highlight of the Quarter: Phia Unwrapped
Fiduciary Burden of the Quarter: Strictly Abiding by the Terms of the Plan Document
New Services Announcement: The Phia Group: Catering to More of Your Needs
From the Blogosphere
The Phia Group’s 2017 Charity
The Stacks
Phia’s Speaking Events
Employee of the Quarter
Phia News

Phia Group Case Study: Handbook, Schmandbook

A client of The Phia Group faced a situation in which the group’s Plan Document referenced an extension of coverage for up to 24 months for participants unable to actively work due to disability. To contrast, the employer’s Employee Handbook referenced an extension of coverage for up to 36 months, or longer if deemed appropriate by the employer. The group’s stop-loss policy provided coverage only for the length of time dictated by the plan document (24 months).

The health plan’s broker referred the Plan Document and stop-loss policy to The Phia Group’s consulting team to perform a Gap-Free Analysis. As part of this analysis, it was discovered that the Plan Document’s leave provisions did not align with those in the stop-loss policy. The Phia Group’s team also included a note to ensure that if the Plan Document was changed, the Employee Handbook may need to be changed to align as well. Upon receiving the Gap-Free Analysis, the group’s broker asked The Phia Group to review the Employee Handbook and make whatever changes were necessary for the documents to align; upon review, the additional discrepancy was discovered and remedied.

Three months later, after the Plan Document and Employee Handbook were amended to alleviate the gaps in coverage, a member requested 18 months of leave from the employer. The employer was free to grant the leave based on other terms in the Employee Handbook, but the employee was informed that after twelve months, coverage under the Plan would terminate. As luck would have it, during the fifteenth month of the employee’s leave, she incurred significant medical claims that, if paid by the Plan pursuant to its former language, would have been denied by stop-loss. By addressing gaps in coverage, the Plan successfully avoided a large stop-loss denial.

Service Highlight of the Quarter: Phia Unwrapped

In the past, wrap networks provided a great amount of value to health plans. They effectively enlarged the plan’s primary network, somewhat like being able to utilize T-Mobile’s cell phone towers when out of AT&T range. The old theory, however, no longer holds true. Just as primary networks add less and less value as the magnitude of medical bills increase dramatically and arbitrarily, so to have wrap networks become more cumbersome than they are valuable.

Phia Unwrapped is designed as a replacement for non-contracted claims – whether they would normally be subject to a wrap network or treated as out-of-network. Phia Unwrapped is a way of keeping the plan’s primary network as always, but ensuring that all other claims are repriced accurately and responsibly, that patients have an advocate to help them through any potential balance-billing, and that the plan has experienced legal and negotiation support on the back end to secure the best possible outcomes.

In the Plan year 2014-2015, an 1,100 life Employer Group had 32% combined “savings” from their out-of-area wrap PPO program and out-of-network claim “solutions.”  Dissatisfied with these so called solutions and hearing about the strategic merits of reference based pricing (RBP) the employer switched to Phia Unwrapped. This switch allowed the group to pay a reasonable amount on claims while also providing support for members to make sure they were not caught in the crossfire with a provider attempting to collect abusive charges.

The results? In the Plan year 2015-2016, the employer had 74% savings paying 140% of Medicare, totaling an additional $2.8 Million in savings compared to traditional solutions.  Though the employer was initially concerned about “noise” from the members (who to this point only had out of pocket differentials for going out of network), Phia's industry leading balance billing support managed by Attorneys ensured that there was minimal member disruption (2%). 

What does “disruption” look like?

The group had an out-of-network emergency trauma claim, which was billed at $241,000.  Upon receipt of the out-of-network claim, the pre-setup EDI feed sent the claim to Payer Compass for re-pricing, pursuant to the Phia Unwrapped program. The third-party administrator subsequently received pricing back from Payer Compass; the Plan’s language – which specified payment at 140% of Medicare – allowed a little over $81,000. In accordance with the Phia Unwrapped service, the claims administrator paid the claim at the allowed amount.

Three months later the hospital balance billed the patient, at which point the patient spoke to Payer Compass and The Phia Group, clearly concerned about the balance billing. After a few rounds of back-and-forth with the hospital, the bill was escalated to The Phia Group’s Provider Relations department, which had been authorized to negotiate on the Plan's behalf. After a series of lengthy negotiations, which included email and phone correspondence with the hospital CFO, The Phia Group and the hospital reached an agreement to settle the claims for a total payment of 175% of Medicare, yielding significant savings from billed charges. These savings proved to be much higher than the 20% discount that the Plan would have realized if it still used the wrap network.

In the next billing cycle, The Phia Group reimbursed the difference between what it had originally billed as its fee and what it now billed for the final savings:

Plan Exposure:                                             
Final Payment:                                             
Phia Intervention Saved:   

Whatever your out-of-network volume, Phia Unwrapped is the solution you have been waiting for.

Fiduciary Burden of the Quarter: Strictly Abiding by the Terms of the Plan Document

ERISA is very clear that the Plan Administrator is required to administer benefits strictly in accordance with the terms of the applicable plan document. Plan Administrators, though, are often faced with difficult situations – situations where paying a claim that might otherwise be excluded under the plan document would avoid considerable headache, appease a member of the C-suite, or more accurately reflect what the drafter of the plan document intended, even if the language does not provide for that outcome.

We at The Phia Group have been presented with many situations in which the plan document says one thing, but the Plan Administrator wants to do another. Our advice is always the same – be careful and mind your fiduciary duties – but at the end of the day, the Plan Administrator is the decision-maker and should do what it feels is appropriate, being mindful that stop-loss will likely not be quite so sympathetic to the Plan Administrator’s deviation from the terms of the plan document.

One such example came in the form of a particular plan working to administer an exclusion for illegal acts. A twelve-year-old plan participant committed an illegal act, according to the plan document, when the child inadvertently drove an ATV on a public road in a jurisdiction that considers it a crime to ride an ATV on that road. In the next county over, this would not have been a crime – and the child reportedly was not aware that he had entered a jurisdiction where his actions were a crime. There was an ATV crash, and claims were incurred. Upon being presented with claims related to the accident, the plan’s TPA read the language of the plan document, analyzed the facts of the case, and came to the conclusion that the claims should be denied. Since these were not claims that were doubtful or disputed, the TPA rendered the determination without the need for any discretion.

Upon discovering the denial, the group was not happy. According to the group, it never intended for its “illegal acts” exclusion to apply to a twelve-year-old on an ATV; this, according to the Plan Administrator, was a simple mistake on the part of the child, who was not aware what he was doing was illegal. The Plan Administrator was eager to overturn the denial to effect what it considered its real intent – which was to punish acts committed by adults, with knowledge of the illegality of their actions.

Is it appropriate to read such an exception into the terms of the plan document? If the plan document says “illegal acts” but the Plan Administrator wants to apply the exclusion to some illegal acts but not others depending on the circumstances, it creates a potential problem in that the Plan Administrator has failed to strictly abide by the terms of the plan document. This means the plan document has been administered inconsistently.

Practically speaking, do people usually complain about claims being paid? Of course not. But legally speaking, is the Plan Administrator permitted to create exceptions to unambiguous language on a case-by-case basis? Not according to ERISA. Violating fiduciary duties is a problem – especially in light of the Department of Labor getting stricter about audits whenever there is even a hint of impropriety. It is not likely that anyone would report this fiduciary violation – but that does not mean it is a good idea to violate the fiduciary duty to begin with. The Phia Group’s attorneys will attest to the notion that a low likelihood of punishment for a fiduciary violation is neither an excuse nor a good reason to commit the violation.

As mentioned above, the stop-loss carrier would likely not be pleased about the Plan Administrator’s determination either. If the Plan Administrator wants the language changed, the Plan Sponsor should effect an amendment – but as far as stop-loss is concerned, the plan document has been underwritten as-is and a claim, such as this one, should be denied by the Plan. As we have all seen first-hand, when a stop-loss carrier receives a claim for reimbursement that should not have been paid by the
Plan in the first place…well…let’s just say it’s not an ideal situation.

New Services Announcement: The Phia Group: Catering to More of Your Needs

Leave of Absence ReviewWith The Phia Group’s Leave of Absence Review, employee handbooks, health benefit plan documents, and stop-loss policies align, all while remaining compliant with applicable law. Click here to learn more!

Flagship Plan DocumentWith The Phia Group’s Flagship Plan Document, clients can enjoy speedy & efficient production of best-in-class plan documents, with minimal time or monetary investment. Click here to learn more!

If you would like to speak with one of our specialists regarding the new services we offer, please feel free to contact us at so we can schedule a call.

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From the Blogosphere

ACA to AHCA… A Look Back on the Past 7 Years. Seven years in the making.

Health Insurance is NOT Health Care. Sit back, relax and enjoy Ron Peck’s metaphors.

U.S. Airways v. McCutchen – Where Are They Now? It seems like it was just yesterday.

The Guilty Shall Remain Nameless - Yet I Shall Shame Them… Again. Quote: “Yes… Is there someone else here I can talk to?”

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The Double-Edged Sword of Discretion: How Even Great Plan Document Language Can Cause Gaps in Coverage

On April 27, 2017, The Phia Group will present “The Double-Edged Sword of Discretion: How Even Great Plan Document Language Can Cause Gaps in Coverage.”

Click HERE to Register!

On March 23, 2017, The Phia Group presented “Medical Bill Blues: Pre-Payment Contracting and Negotiation, Pricing Alternatives, and Post-Payment Recovery of Overpayments,” where we analyzed the various ups and downs we associate with "provider relations.”

On February 15, 2017, The Phia Group presented “Top Miscues Employers Make When It Comes To Their Health Plans ... And What We All Can Do To Become Health Plan Heroes.”

On January 19, 2017, The Phia Group presented “Back to The Self-Funding Future – Which Echoes of 2016 Will Continue to Impact Self-Funding in 2017,” where our legal team talks about how the past decade has ushered in both outrage and opportunity for self-funded plans.

On January 4, 2017, The Phia Group presented a brief webinar to describe some changes recently made to our reporting portal.

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On April 4, 2017, The Phia Group presented “The AHCA Failed: Where To Next,” where our legal team discusses the recent, stunning failure of the GOP’s American Health Care Act.

On March 13, 2017, The Phia Group presented “Attack of the Killer Savings,” where we identify facilities that provide the best outcomes for the least cost.

On February 28, 2017, The Phia Group presented “The Journey Continues,” where Adam Russo & Ron Peck discuss what makes our health benefit plan unique.

On February 13, 2017, The Phia Group presented “The Next Episode,” where we talked about what makes our health plan a source of savings.

On January 30, 2017, The Phia Group presented our very first podcast, “The Maiden Voyage.”

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The Phia Group’s 2017 Charity

The Phia Group's 2017 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.

Monthly Donations From Phia

For more information or to get involved, visit

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The Stacks

Self-Funded Health Plans May Have a New Ally in the Fight Against Specialty Drug Prices
By: Brady Bizarro, Esq.

Throughout the bitter and seemingly endless presidential election cycle, Donald Trump and Hillary Clinton vehemently disagreed on almost every issue, especially those involving health policy. Yet, there was at least one health policy issue on which both candidates agreed: prescription drugs are too expensive. For self-funded health plans, this is old news. The industry continues to face increasing costs overall, and prescription drugs make up a significant portion of those costs. Specialty drugs are particularly culpable. Specialty drugs accounted for 32 percent of all drug expenditures in 2014 despite making up less than one percent of all written prescriptions, according to research conducted by Express Scripts.

Click here to read the rest of this article.

Appealing to Reason
By: Jon A. Jablon, Esq.

The language is exceedingly common within benefit plans. We’ve all seen it; in order to appeal a denial, a medical provider must be specifically appointed by the patient as the patient’s “authorized representative.” Only members may appeal their own claims, unless they appoint someone to do so. Some third-party administrators and plan administrators even have a form that a member must fill out. These are long-held maxims by many – but are they truly compliant?

Click here to read the rest of this article.

Held Captive by Appeals
By: Tim Callender, Esq.

Prior to the passage of the Affordable Care Act, self-funding was already healthy and growing. Since the passage of the Affordable Care Act (and predominantly due to the ironic increase in healthcare insurance costs through the fully-insured, carrier model) we have seen self-funding grow even more. Although this growth has been significant, there are some employer groups – primarily small and mid-sized groups – that have struggled to find a sustainable path into self-funding nonetheless.

Click here to read the rest of this article.

As Employer-Sponsored Plans Multiply, Self-Funding Remains an Attractive Option
By: Brady Bizarro

As the new year begins, we can reflect on annual reports and surveys recently released by federal agencies and non-profit organizations which measure public and private healthcare spending and reveal trends in national health policy. One of the most prominent reports is the National Health Expenditure Accounts report, which was released in December by the Centers for Medicare and Medicaid Services. Some of CMS's findings forecast tough times ahead for employer-sponsored health insurance. Now, more than ever, employers will need to develop innovative approaches to continue offering affordable coverage to their employees.

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 Speaking Events

Adam Russo’s 2017 Speaking Engagements:
• 2/22/17 – TABA Spring Conference – Austin, TX
“The Good, The Bad, and the Naughty – Ethics: Simple Mistakes vs. Breach”
• 3/16/17 - IMA National Independent Agency Consortium – Bonita Springs, FL
“Not Your Grandmother’s Self-Funding: Best Practices for a Changing Industry”
• 3/21/17 – Advantage Benefits RBP Seminar – Grand Rapids, MI
“The Best Gets Better - Getting the Most Out of Your Self-Funded Plan”

Adam Russo’s Upcoming Speaking Engagements in 2017:
• 4/24/17 - Berkley Captive Symposium – Grand Cayman Islands
“The Best Gets Better - Getting the Most Out of Your Self-Funded Plan”
• 5/4/17 – Benefest – Westborough, MA
"Multiple Personalities - The Biggest Issues Impacting Plans & Employers, and Instances Where They are Their Own Worst Enemy"

Ron Peck’s 2017 Speaking Engagements:
• 4/3/2017 – Eastern Claims Conference (ECC) – Boston, MA
“The Good, The Bad, and The Ugly: Understanding Reference Based Pricing in the Special Risk Market”

Tim Callender’s 2017 Speaking Engagements:
• 2/2/17 – Alaska Association of Health Underwriters – Anchorage, AK
“Innovation and Cost-Containment In the Self-Funded Space”
• 2/27/17 – LBG Advisors: Benefits Symposium – Anaheim, CA
“Innovation and Cost-Containment In the Self-Funded Space”

Tim Callender’s Upcoming Speaking Engagements in 2017
• 5/22/17 - Group Underwriters Association of America Annual Conference - Denver, CO
“The Future of Health Plans”
• 7/17/17 - Health Care Administrator’s Association TPA Summit - St. Louis, MO
“Conference Emcee”

Jen McCormick’s 2017 Speaking Engagements:
• 3/29/17 – SIIA Executive Forum – Tucson, AZ
“Department of Labor Audits”

Brady Bizarro’s 2017 Speaking Engagements:
• 1/22/17 – Texas Association of Benefit Administrators (TABA) – Austin, TX
“Healthcare Policy under the Trump Administration”

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Get to Know Our Employee of the Quarter:
Erik Graber

Congratulations to Erik Graber, the Phia Group’s Q1 2017 Employee of the Quarter!

“Erik embodies everything Phia is about from our mission statement to our vision to our culture.  Throughout Q1, Erik has been tenacious in his pursuit of teaching and training new team members; giving them the tools essential to succeed in their roles.  The life of an IT Director is not a glamorous one and Erik works assiduously, oftentimes nights and weekends – sacrificing precious family time – to meeting and exceeding his goals and deadlines to ensure our company runs seamlessly.  If there is an issue you can rest assured Erik will promptly handle the matter – possibly with a bit of sass and sarcasm!  Erik is truly an asset to The Phia Group, and we’re fortunate to have him!”

Congratulations Erik and thank you for your many current and future contributions.

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Phia News

Promotions at Phia:
• Keith McMahon was promoted from CI to CRS III
• Lauren Vermette was promoted from legal assistant role to CI
• Cara Carll was promoted to Team Leader of the MedPay & Work Comp. Tier
• Kerri Sherman was promoted to Team Leader of BI Tier & Case Investigation
• James Newell was promoted to Team Leader of Claim & Case Support
• Angela Grande was promoted to CRS III
• Katie Delaney was promoted to Team Leader of the Quality Analysts.
• Jude McNeil was promoted to Team Leader of the Call Center in Customer Service
• Lisamarie DeCristoforo was promoted to Team Leader of Case Evaluation in Customer Service

New Hires This Quarter:
The Phia Group has added 5 new employees to its staff this quarter. They include:
• Matthew Painten was hired into our Marketing department
• Jeff Hanna was hired into our Accounting department
• Randal Moody was hired into our IT department
• Krista Maschinot was hired into our Phia Group Consulting department
• Victoria Pace was hired into our Phia Group Consulting department

Open Positions at Phia
• Case investigator
• Attorney I
• ETL Specialist
• Data Architect
• IT Technologist
• Product Analyst

Click here for more information or to apply today!

Additions to the Phamily:
• Tara Trojano gave birth to a baby girl, Emily Rose, on 02/09/17
• Liz Welcome gave birth to a baby boy, Quinton Jay Robert Pereira, on 02/01/17

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The Stacks – 2nd Quarter 2017
Self-Funded Health Plans May Have a New Ally in the Fight Against Specialty Drug Prices
By Brady Bizarro, Esq.

Throughout the bitter and seemingly endless presidential election cycle, Donald Trump and Hillary Clinton vehemently disagreed on almost every issue, especially those involving health policy. Yet, there was at least one health policy issue on which both candidates agreed: prescription drugs are too expensive. For self-funded health plans, this is old news. The industry continues to face increasing costs overall, and prescription drugs make up a significant portion of those costs. Specialty drugs are particularly culpable. Specialty drugs accounted for 32 percent of all drug expenditures in 2014 despite making up less than one percent of all written prescriptions, according to research conducted by Express Scripts.

Self-funded health plans employ a variety of cost-containment strategies in an effort to ameliorate the fiscal burden of prescription drugs. These include increased cost-sharing (through copayments, coinsurance, and deductibles) and utilizing manufacturer copay cards and tiered benefit programs. Now, the self-funded industry may be given new tools by the President-elect to fight the pharmaceutical companies.

Chief among President-elect Trump’s health policy priorities is his campaign promise to “repeal and replace” the Affordable Care Act. In addition, he has announced at least two priorities which depart from conventional conservative thinking and have important implications for the future of self-funding: requiring price transparency from all healthcare providers and permitting consumers to import drugs from overseas.

As part of Trump’s plan for “Healthcare Reform to Make America Great Again,” the President-elect proposed that Congress must:

Remove barriers to entry into free markets for drug providers that offer safe, reliable and cheaper products. Congress will need the courage to step away from the special interests and do what is right for America. Though the pharmaceutical industry is in the private sector, drug companies provide a public service. Allowing consumers access to imported, safe and dependable drugs from overseas will bring more options to consumers.

It is hard to overestimate the savings a self-funded health plan can realize if permitted to import drugs from overseas. One of the main reasons why prices for brand-name drugs are typically lower in most developed countries than in the U.S. is because of increased negotiating power. In the U.S., the government has forfeited its negotiating power. Medicare, the largest single purchaser of prescription drugs in the U.S., is prohibited by law from negotiating prices with pharmaceutical companies. By contrast, in the United Kingdom, brand-name drug prices are generally much lower because the government and the industry negotiate agreements which contain set spending caps and require drug companies to reimburse the government any amount which exceeds the cap. While some of these agreements do contain opt-out provisions for the reimbursement requirement, most pharmaceutical companies agree to these contracts as-is in order to gain access to a much larger market.

Also consider the case of Canada, which is often touted as a prime example of a source of low-cost prescription drugs. The Canadian government negotiates with pharmaceutical companies on behalf of the public. As a result, brand-name and even generic drugs are less expensive in Canada than they are in the United States. In 2004, the median prescription drug prices in Canada were nearly 79 percent lower than those in the U.S., according to the Patent Medicine Prices Review Board Annual Report. The 2013 report revealed that Canadian consumers still paid less than half of what U.S. consumers paid for patented-drug products. If the President-elect succeeds in pushing through legislation which ends the ban on foreign drug imports, U.S. consumers could realize similar savings.

This would not be the first time that a politician has attempted to lift the ban on importing foreign drugs. The Safe and Affordable Drugs from Canada Act of 2015 was sponsored by Senator John McCain (R-AZ) and had bi-partisan support, including from Senator Bernie Sanders (D-VT). The bill remains stalled in the Senate Committee on Health, Education, Labor, and Pensions. There was also an attempt to permit importation in 2009 while the Affordable Care Act was being pushed by Democrats, but that effort also failed. Despite past failed attempts, there are many reasons to think that the importation of prescription drugs from overseas may actually become legal (at least in some form) under a Trump Administration.

First, public support for change and increased price transparency is at an all-time high, especially in light of recent, high-profile price-gouging controversies. In August 2015, Turing Pharmaceuticals acquired the exclusive rights to distribute Daraprim, a drug used to treat AIDS-related symptoms. A month later, the company raised the price of Daraprim from $13.50 per pill to $750 per pill overnight, an increase of over 5,500 percent (before 2010, the drug cost $1 per pill). A joint study by the Infectious Disease Society of America and the HIV Medicine Association found that the increase in price would result in an average bill of $634,500 per year for most patients. In response to the public outcry, the CEO of Turing Pharmaceuticals defended his company’s actions, citing the need to modernize the drug and create new alternatives with fewer side effects. A year later, the price of the drug is $375 in the U.S., and between $1 and $2 per pill internationally.

Turing Pharmaceuticals is not the only company to drastically increase the price of its brand-name drugs and face near-universal criticism. Mylan, a global generic and specialty pharmaceuticals company, faced an even bigger political firestorm in the summer of 2016 when it raised the price of a two-pack supply of its popular EpiPen to $608 (the same two-pack EpiPen is available in the United Kingdom for $69). The EpiPen, which sold for $100 as recently as 2009, is an epinephrine auto injector device used to control allergic reactions to food and environmental allergens. What made this case more contentious was a media report revealing that over the past eight years, while the price of EpiPens increased 461 percent, the salary of Mylan’s CEO rose 671 percent, up to $18.9 million a year.

Although many experts agree that these examples are egregious, it is important to note that there are enormous costs associated with pharmaceutical research and development. Furthermore, there is a very real need to encourage drug development as a matter of good public health and public policy. This is why the U.S. government provides regulatory protections to assist pharmaceutical firms in the development of life-saving drugs. Nonetheless, recent polling confirms that Americans are fed up with the price of brand-name drugs. Nearly eight in ten Americans agree that drugs are too expensive, and almost 86 percent agree that pharmaceutical companies should be required to reveal how drug prices are set, according to a survey released by the Kaiser Family Foundation in September 2016.

In addition to the public outcry over specific pricing controversies, the Food and Drug Administration (FDA) has sent mixed signals regarding the agency’s willingness to enforce the ban on foreign drug imports. The FDA’s website explains that the agency has a policy “that it typically does not object to personal imports of drugs that FDA has not approved under certain circumstances . . .” Those circumstances include when less than a three-month supply is imported, and when the consumer importing the drug verifies in writing that it is for her own use and provides contact information for the doctor providing her treatment.

Perhaps most importantly, President-elect Trump will enjoy the benefits of a Republican-controlled House and Senate. While in recent weeks he has shown signs of scaling back some of his campaign promises, this particular health policy initiative enjoys bi-partisan support. As such, there may be no better opportunity to push through legislation lifting the ban on safe, dependable imported drugs.

Appealing to Reason
By Jon A. Jablon, Esq.

The language is exceedingly common within benefit plans. We’ve all seen it; in order to appeal a denial, a medical provider must be specifically appointed by the patient as the patient’s “authorized representative.” Only members may appeal their own claims, unless they appoint someone to do so. Some third-party administrators and plan administrators even have a form that a member must fill out. These are long-held maxims by many – but are they truly compliant?

In what it has deemed a frequently asked question, the Department of Labor, in its Benefit Claims Procedure Regulation FAQs , has asked itself “Does an assignment of benefits by a claimant to a health care provider constitute the designation of an authorized representative?” The Department of Labor simply, and helpfully, led its answer with the word “no.” To elaborate on this “no,” the DOL wrote that “Typically, assignments are not a grant of authority to act on a claimant's behalf in pursuing and appealing a benefit determination under a plan.”

But how much does that truly clarify? Without some context, it is fairly unhelpful – and in context, it is revealed that this guidance from the DOL is somewhat inaccurate.

An authorized representative is one who is authorized to act as the representative of another – a description that could scarcely be any clearer. In our sense, an authorized representative is generally used in the context of the right to appeal. To illustrate the utility of this concept, consider three scenarios; in all three, a plan member has received services from a non-contracted medical provider, and in all three the Plan’s available benefits are not quite enough to cover the provider’s full billed charges. Appeals will occur – but the difference in the scenarios hinges on exactly who is appealing, and on whose behalf.

In scenario number one, the health plan systemically prohibits all assignments of benefits, and pays benefits directly to the member. The member endorses the Plan’s payment to the provider to compensate the provider for its services – but the provider is dissatisfied with the payment amount. In this scenario number one, the provider may not appeal to the health plan unless the provider appeals on the patient’s behalf, since the provider itself was due benefits from the patient, rather than from the health plan, since there was no assignment of benefits – and in such case the provider would need to be appointed by the member as the member’s authorized representative, since the provider has no independent right to benefits from the health plan in this scenario. In other words, the provider would need to appeal on the member’s behalf, and would therefore need to be the member’s authorized representative to do so.

In scenario number two, there is again no assignment of benefits, but the provider decides to balance-bill the member instead of getting involved in the appeals process. The member, rather than the provider, appeals directly to the Plan. Members, of course, are always claimants and are always entitled to appeal to the health plan if the member feels that a greater amount of benefits should be paid. In this scenario two, there is no need for the member to appoint the provider as the member’s authorized representative, since the member needs no representative if she appeals on her own behalf.

Now, consider scenario number three, where there is a valid assignment of benefits from the member to the provider (as is almost universally the case in self-funded health care). Through the assignment of benefits, the provider is invited to submit its claims directly to the health plan, and receives only partial payment of its billed charges in return. In this scenario three, the provider desires to appeal the denial. The provider submits an appeal to the health plan – in accordance with all of the plan’s written and established procedures – and the third-party administrator answers the provider with a letter stating that only members may appeal, unless the member fills out a specific form to authorize the provider to appeal on the member’s behalf. How compliant is that, though? Might the health plan be at risk of noncompliance if it denies providers the right to appeal their own claims?

An authorized representative, as described above, is one who is authorized to be the representative of another. In a case such as this, a medical provider might be authorized to act as the representative of the member, therefore becoming the member’s personal representative. Consider, however, federal regulations that afford all claimants the right to appeal; claimant is a term of art that explicitly includes participants and beneficiaries . A beneficiary is defined as “a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder.”

Forget the legalese; the important thing is to note that medical providers, if benefits are assigned to them, are beneficiaries, as that term is defined by the regulations – and beneficiaries become claimants when they submit claims to the health plan. If you remember, all claimants are empowered to submit claims to the health plan, appeal a denial of those claims, and even ultimately sue for redress under ERISA. (As one court put it, “there is now a broad consensus that when a patient assigns payment of insurance benefits to a healthcare provider, that provider gains standing to sue for that payment under ERISA § 502(a). ”)

The same regulation that defines “claimant” also provides that:

Every employee benefit plan shall establish and maintain a procedure by which a claimant shall have a reasonable opportunity to appeal an adverse benefit determination to an appropriate named fiduciary of the plan, and under which there will be a full and fair review of the claim and the adverse benefit determination.

According to these regulations, not only are claimants afforded the right to file claims, but they are also guaranteed the right to appeal, by imposing this responsibility upon the health plan to afford claimants the right to appeal. The relevant regulations unambiguously explain that a claimant may appeal an adverse benefit determination. Moreover, the text of ERISA itself provides that “A civil action may be brought…by a participant or beneficiary…to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan. ” To simplify, again, claimants can sue for benefits. Since medical providers are claimants if they are assigned plan benefits, then providers can appeal and ultimately sue if necessary.

As another court wrote, somewhat more bluntly, “the assignment is only as good as payment if the provider can enforce it. ” This is a matter of public policy, and seems fairly intuitive; if a provider has the right to submit a claim, and the health plan has the right to tender a denial of that claim, practically speaking, why should the provider not also have the right to appeal the denial of its claim? According to courts and the regulations, the provider does in fact have this right.

We now know that medical providers who have been assigned benefits can submit claims, appeal denials of those claims, and sue for redress pursuant to ERIA. It should be noted, however, that although the law on the topic may be established, not everyone is on the same page, as is so often the case in our industry.

The DOL’s answer to its own question (“Does an assignment of benefits by a claimant to a health care provider constitute the designation of an authorized representative?”) continues by specifying that “An assignment of benefits by a claimant is generally limited to assignment of the claimant's right to receive a benefit payment under the terms of the plan.”

But how can that be the case? Claimants have the right to appeal, and claimants include anyone “designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder.” The regulations say one thing, but the DOL’s FAQ seems to say the opposite.

The DOL’s answer to its own question yields an absurd conclusion: that a provider that has accepted an assignment of benefits and submitted claims to a health plan is not a claimant. According to applicable law, however, either the provider accepts assignment of benefits and submits claims, and therefore earns the right to appeal and sue – or the provider does none of those things. These rights are not discrete; they are a package deal, inseparable from one another. Each right – the right to submit claims, the right to appeal a denial, and the right to sue under ERISA – has “not for individual sale” marked on its label.

The confusion doesn’t stop there, though. Coming back to the Department of Labor’s answer to its own frequently asked question, the Department has stated that “[t]ypically, assignments are not a grant of authority to act on a claimant's behalf in pursuing and appealing a benefit determination under a plan.” This is a correct statement, although very misleading in context. It is true that an assignment of benefits does not grant a provider authority to act on a claimant’s behalf – because a provider who has received an assignment of benefits is a claimant unto itself, and is not acting on anyone else’s behalf. The provider therefore needs no authority to act on anyone’s behalf.

Where do we go from here? There is conflicting guidance; FAQs are suggestive rather than binding, but most take them as gospel nonetheless, since they are explicitly designed to be written in plain English rather than the legalese of the regulations.

The rules surrounding who has what rights and under what circumstances are undoubtedly confusing at times; guidance provided by our regulators is sometimes confusing, vague, and – at times – even contradictory. This is one of those times, and affording all relevant rights to medical providers is an important topic now more than ever in the face of incoming bouts of regulatory scrutiny of the self-funded industry and the fiduciaries who act within this space.

As health plans struggle to contain costs, health plan administrators, third-party administrators, and brokers should be careful not to handicap themselves by employing the same thinking as prior decades simply because that’s what has always been done. Performing an in-depth review of claims and appeal processes – and the rest of the health plan to boot – is the best way of staying ahead of the curve and ensuring compliance and viability.

Held Captive by Appeals
By: Tim Callender, Esq.

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

Although this growth has been significant, there are some employer groups – primarily small and mid-sized groups – that have struggled to find a sustainable path into self-funding nonetheless.  For purposes of this article I will refer to these employers as “Small-Mids.”  Obviously, opinions differ as to what a “small” or “mid-sized” employer group is, but for today’s discussion, we are looking at employer groups ranging from 50 employees up to approximately 200 employees.  

One of the primary barriers to entry for Small-Mids is the financial risk inherent to the self-funded model.  Even with a stop-loss policy in place (assuming the employer is domiciled in a state that has not regulated stop-loss to the point of making it prohibitive to gain a policy for a small to mid-sized employer), many Small-Mids do not have the cash reserves necessary to make it through a high health spend year before stop-loss reimbursement might kick in. There are programs in the market such as “level-funding” whereby an employer’s risk is effectively capped at a certain figure in exchange for a set monthly expense, but such programs are still in their infancy and not very widely-used.

 In the traditional market, however, figure in a handful of dialysis claims, one or two air ambulance claims, and one plan member on a growth hormone prescription, and the Small-Mid is running for the hills.  Lest we forget that Small-Mids are often terrified of financial ruin on many fronts to begin with, let alone bearing the risk of high claims exposure.  For them, it is unquestionably easier to sign up for that prototypical fully-insured option and trade financial risk for predictable premiums. The problem, though, is that predictable premiums are generally high premiums.

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

(1)    A claim for health benefits is submitted to the plan-sponsor’s third-party administrator by the Claimant (the Claimant might be the plan member, a plan beneficiary, or a medical provider);
(2)    The claim is adjudicated, by the TPA, pursuant to the terms of the governing plan document, as created and adopted by the plan-sponsor;
(3)    The claim is denied pursuant to the terms of the plan document;
(4)    The Claimant files a first-level appeal.
(5)    The first-level appeal is handled by the TPA.  Sometimes input from the plan-sponsor is solicited, sometimes not.  Every TPA / plan-sponsor relationship is different.
(6)    The denial of benefits is upheld by the TPA / plan-sponsor at the conclusion of the first-level appeal process.
(7)    The Claimant files a second-level appeal.  
(8)    The TPA will handle the second-level appeal in one of two ways: (i) it will review the second-level appeal, provide a recommendation to the plan-sponsor regarding the determination, and ask the plan-sponsor to make a final determination based on the TPA’s recommendation; or (ii) the TPA will submit the second-level appeal to the plan-sponsor, in its entirety, for the plan-sponsor to review and determine, on its own, whether the denial should be upheld or overturned.
It is step (8) where the wheels typically come off for an existing self-funded plan and it is step (8) that is a significant barrier for Small-Mids to get past when they analyze and consider self-funding.  Imagine a Small-Mid that is privately held and made up of hard-working, blue-collar employees and blue-collar leaders who have risen to positions such as Vice President of H.R., or Chief Operations Officer.  Suddenly, it is these leaders who are faced with a second-level appeal based on the medical necessity of cortisone injections for the treatment of migraines; suddenly it is these leaders who are faced with a second-level appeal based on the interpretation of a complex plan exclusion, such as the “hazardous activities exclusion” or the “illegal acts exclusion.”  We have all heard these stories and we are all familiar with the fallout that might occur when a Small-Mid is faced with this daunting task.  

Additionally, how many stories exist of the closely held Small-Mid’s leadership team suddenly faced with a second-level appeal that directly concerns their highest performing sales person?  Or, more generally, consider the heartache involved for any Small-Mid’s leadership team when they must decide an appeal on a health claim for a well-known and well-loved employee, regardless of his or her title! Many Small-Mids have close-knit employee populations, many of whom have been coworkers and friends for years.
 How many times have we heard, “we make motorcycle clutches and just wanted to provide our employees with good health benefits!  We never signed up to make these types of decisions!”  Another group leaves self-funding and then the horror stories trickle downstream, preventing other Small-Mids from moving toward self-funding.  Or, if the Small-Mid stays in the self-funded space, there is a very real chance that they unknowingly breach their fiduciary duty as a plan-sponsor, time and again, when they throw their hands in the air and pay claims that should not be paid pursuant to the governing plan document, simply because of the emotion, heartache, and the difficulty of handling complex appeals.

Solutions to the problems discussed above do exist, and these solutions are exploding across the industry and across the country.  The captive model is one such solution, primarily focused as a remedy to the Small-Mid’s concern over self-funding and financial devastation.  Captive risk-sharing is not a new idea – yet it is not as common in the self-funded health space as we all might think.  Time and again, my colleagues and I are surprised as we travel and speak on self-funding topics, all around the country, to learn that many employers, not to mention their brokers, have either never heard of captive risk sharing or have simply never invested the time to learn much beyond the basics.  

The proof is in the pudding. The numbers show that properly-run captive programs, filled with Small-Mids, are breaking down doors and bringing Small-Mids into self-funding through the assurance of responsible, managed risk-sharing.  Whether heterogeneous (made up of groups spanning multiple industries) or homogeneous (groups within the same industry) in makeup, a captive provides a common goal amongst its members to keep costs down and prop one another up through the safety net of a pool of funds that many might view as a “rainy day fund.”  

Regarding the second barrier to entry for Small-Mids, directly handling health claim appeals, there are solutions covering that problem as well.  Third-party, second-level appeals outsourcing is becoming more prominent in the self-funded industry.  Historically, the only option that might exist for a plan sponsor was to hope it landed with a TPA that might be willing to handle second-level appeals, usually for a fee.  But, most TPAs steer away from this administrative add-on for two reasons.  (1) it drastically blurs the line between who is acting as a fiduciary for the plan and (2) it can create a potential conflict of interest and call objectivity into question when the same entity has adjudicated the initial claim, handled the first appeal, and then went on to handle the second appeal.  

Figure in a solution that can handle the appeals concerns discussed above and we are looking at the pinnacle method to eliminate the two most prominent barriers to self-funding faced by Small-Mids: financial concerns over claims exposure, and managing appeals.  

As Employer-Sponsored Plans Multiply, Self-Funding Remains an Attractive Option
By Brady Bizarro, Esq.

As the new year begins, we can reflect on annual reports and surveys recently released by federal agencies and non-profit organizations which measure public and private healthcare spending and reveal trends in national health policy. One of the most prominent reports is the National Health Expenditure Accounts report, which was released in December by the Centers for Medicare and Medicaid Services. Some of CMS's findings forecast tough times ahead for employer-sponsored health insurance. Now, more than ever, employers will need to develop innovative approaches to continue offering affordable coverage to their employees.

Healthcare expenditures grew more than two percent faster than the overall economy in 2015. Spending was up overall by nearly six percent in 2015, up to $3.2 trillion, or $9,990 a person. Private health insurance spending increased by seven percent, with annual premiums for employer-sponsored family plans already topping $18,000 this year (up three percent from last year). Prescription drug spending, high-cost patients, and an increased use of services were cited as the primary cost drivers.

To the surprise of many health policy experts, many of whom had warned of a mass exodus from employer-sponsored plans to the exchanges, the CMS data also shows that enrollment in employer-sponsored plans rose slightly in 2015. As a result, an increasing number of small and mid-sized employers in particular will face the burden of soaring healthcare costs in 2017.

Self-funding an employee health plan remains one of the most effective cost-containment strategies for employers with a relatively healthy workforce and a willingness to customize a plan. From 2013 to 2015, the number of mid-sized firms that "self-insure" jumped nearly 20 percent, according to the Employee Benefit Research Institute. Among small companies, that share is now up seven percent. As the cost of maintaining fully-funded plans continues to rise, in large part spurred by the Affordable Care Act's coverage mandates, we can expect these numbers to rise.

Self-funding provides employers with flexibility and the opportunity for employee engagement when designing their health plans. Employers can avoid many state-based coverage mandates and administrative costs because of federal preemption of state health insurance regulations. They can work with third-party vendors to analyze claims data and implement unique risk controls such as wellness programs, smoking cessation initiatives, and tiered prescription drug benefits.

A more recent development in the self-funded industry has been the increased use of employer incentive programs. These programs reward employees with cash and other incentives if they create savings for the health plan by voluntarily obtaining care from lower-cost healthcare providers. Many resources exist that enable employees to determine what various providers of different medical services commonly charge for certain services, and what to expect in terms of the quality of their outcomes. For example, third-party organizations routinely provide objective analyses of medical billing by claim type and by facility, while others measure how many mistakes are made by providers. These resources provide quality metrics, a comparison of prices, and even letter grades based on factors such as quality outcomes and lack of provider error. In its Review of State Reports (2008-2015), Freedman Healthcare confirms that "high prices do not directly correlate with high quality of care -- in other words, the highest paid providers do not necessarily provide the highest quality of care." For some procedures, the price discrepancy can be substantial. For example, one employer reported a price difference of $18,000 for a gastric sleeve procedure between two facilities in Louisiana.

While these programs can help alleviate the financial burden, cost will not be the only concern for employer-sponsored care this year. Under a new administration, employers will also face legislative and regulatory uncertainty. President-elect Trump has vowed not only to repeal and replace the Affordable Care Act, but to reduce regulations overall at the federal level. This would be a welcome development for employers, but it remains to be seen which provisions of the Affordable Care Act will be left in place. For example, if the Trump Administration moves to repeal the employer mandate, employers would no longer be required to offer health insurance to their full-time employees. Also, employers would no longer need to report coverage to the IRS or determine the value and affordability of their plans.

Despite the uncertainty, Trump has promised to keep in place two of the most popular ACA provisions; the ban on denying coverage to individuals with pre-existing conditions and the extension of dependent coverage up until age 26. Health policy experts have warned that these two components of the ACA are only viable if accompanied by coverage mandates, which would diversify insurance risk pools. Whether or not the employer mandate is preserved, employers seeking affordable coverage options for their employees will continue to benefit from the flexibility of self-insuring.

The Phia Group's 1st Quarter 2017 Newsletter

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