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The Problem with Wraps
By Adam V. Russo, Esq.
(As published in Thompson Information Services’ Employer’s Guide to Self-Insuring Health Benefits)

If you are a long time reader of mine, I would first like to say thank you for being the only person other than my mother to read what I write.  It is extremely kind of you to do so!  As a loyal reader, you would also know that it doesn’t take a lot to get me going and in the self insured industry it seems like something new happens on a weekly basis that gets my water boiling.  For the past few years, amongst the threat of the exchanges and the state regulation of stop loss, nothing has bothered me as much as the wraps!  Wrap networks that is.  If PPO networks weren’t bad enough, in case you have a claim that doesn’t belong to a network, you can always pay the claim through the wrap network.   So if one network wasn’t enough, with a wrap you can even work with more.

What we have is an industry phenomenon.  TPAs and self funded plans complain about their networks all the time.  How the discounts are bad, how you don’t have the ability to audit the claims, how the networks really work on behalf of the hospitals and not the plans. Everyone seemed to complain about them yet need them to attract clients that aren’t willing to go the reference based pricing route.  You need a network to survive as I am told by every executive that has been in the industry longer than I have been alive.

Yet at the same time, these professionals long for the day when they see a large claim and have the ability to fight the facility about the excess charges, save their clients money, look like a hero to the broker, have the stop loss carrier thank them, and make the TPA some extra revenue from the savings they found.  The problem is they have this option right now and it’s called the out of network or wrap network claim.  Every day I see TPAs and self funded employee benefit plan throw good money down the proverbial toilet.

Wraps are everywhere yet I don’t see how they can actually help any self insured plan.  Before I start ranting about wrap networks too much, let me formulate a typical example for you and I will use our own self funded plan to illustrate.   The Phia Group’s self funded plan has primary access to the Blue Cross network in Massachusetts.  Over 98% of all of my plan’s claims are under $1000 and there is a network discount that applies to all in network facilities.  I cannot audit these claims, I cannot negotiate these claims but the reality is that I do not need to and I don’t want to.  The claims are small and the discounts off the charges are reasonable.  There is no need to make much of a fuss.  Now, the remaining 2% of claims are the issue and while my hands are pretty much tied on the large in network claims, luckily I am in Boston where there is a lot of competition for my dollar and the charges by the well respected hospitals in the city aren’t too much when compared to Medicare pricing.  So, you must be asking by now where is the problem.

The problem exists when there is a large claim outside of my network.  For example, let’s say I am on business in Montana and while on a trip, I decide to go skiing.  Let’s knock on some wood please as I keep the hypothetical going.  Let’s say I break my leg and need to be rushed to a rural hospital that is obviously not in my network.  This would be viewed as an out of network claim.  At this point I have two options, hire a negotiator to get the claim resolved or access a wrap network through my administrator that can offer immediate access to discounts without having to worry about picking up the phone and trying to work out a deal and ensure that there is no balance billing to me.  Even when the plan or administrator hires a firm to negotiate a claim, all that may be happening is that the negotiating firm is accessing the wrap discount rate and making a quick deal.  They aren’t negotiating anything but you think they are.  They are just accessing the same wrap network rate that anyone else (including you) can.  It’s stealing your money since not only are you paying way too much on the claim, you are paying the negotiation company a percentage of the so called savings for doing two minutes of work for you.

Wrap networks are a great option on a low dollar claim when the hassle of negotiating a deal isn’t worth the money but most out of network claims are large claims since they are typically emergency situations.  The greatest thing about wrap networks is that you do not have to use them!  This is what most of my clients do not understand.  There is a huge difference between a primary network and a wrap network. The biggest being that contractually you may be bound to pay the network rate on a primary PPO regardless of how outrageous the claims may be but in the wrap scenario, the use of the wrap is optional.  This is absolutely huge when it comes to finding some true savings.

I have spent almost two years convincing my TPA clients that there is a distinct difference between primary network and wrap claims yet so many administrators use the same claims process on both.  In this industry when someone says in-network they include wrap claims top that definition but they are just dead wrong.  Educating plan administrators on this is huge since if people do not know they have options then they will never choose an option.  As you know, the plan has a fiduciary duty to be prudent with plan assets.  Too many times they are being fooled by these so called cost containment firms that these claims are being negotiated when all that is happening is that the company is applying the agreed up wrap discount rate.  It’s embarrassing that we have snake oil salesmen in our industry but the reality is that we have plenty of them.

If you want to save some easy money for your plan, carve out these large out of network claims, place strong language into your plan document, and hire a true claims negotiation firm that will use innovative data and legal techniques to negotiate a fair deal and get signed off agreements on each claim.   A single claim can save your plan hundreds of thousands of dollars.  I see millions upon millions wasted every month by those in the dark.  Please do not continue to be one of them.

There is widespread confusion in the marketplace as the claim negotiation companies like to state that they negotiate your claims but the reality is that in many instances there is no actual negotiation as these vendors just access the wrap network so-called discounts and spend approximately 5 seconds on the actual claim.  Basically anyone on the street could actually get the same discounts that many of these wraps have just by picking up the phone and calling the facility.  You just tell them that you want 20% off the bill in exchange for sending the money within 30 days.  People do this with their credit card bills every day.  There is an entire industry built around credit card negotiations.  This is no different as you can do this yourself.  Think about it – these are out of network claims that otherwise would have balance billing to the member.  Do you really think that these facilities want to be chasing dollars from members by collecting ten dollars a week?  Of course not!  They want the money from the deep pockets of a health plan right away even if it’s 50 cents on the dollar.

Then there is the actual wrap contract that is no better in most cases than the typical primary network access contract.  The rate is set at the percentage of billed charges and with wraps the discounts are much smaller that the primary networks.  In addition, the plan is also specifically prohibited from using any sort of usual and customary or clinical editing logic.  Therefore, the one time you can actually audit the claim for excess charging, you agree not to!  The wrap agreement is also tethered to a participating provider agreement – and that, of course, is still confidential like in primary networks.

The bottom line is that wrap contracts are just as bad as primary contracts, except often worse, because the discounts are lower. A TPA is doing its groups a disservice if it accesses a wrap network instead of negotiating claims. That’s especially true when it comes to a complimentary or supplemental wrap when the payer is not obligated to use the wrap.  In these situations it would be insane not to negotiate the claims. A claim that can be out of network if the payer so chooses is always better off paid as out of network with the ability to negotiate than using a wrap network meager discount.

The best approach is to have well written plan document language that gives you the best possible weaponry to negotiate these claims.  You must leverage favorable plan language into settlements with providers that result in a plan payment of far less than it would have otherwise had to pay if a network rate was used.

There are hundreds of vendors that negotiate claims; most TPAs are either familiar with more than a few or perform their own negotiations. Either way, though some providers will negotiate robotically without regard to whether the plan is required to pay their bills, others – including the most egregiously charging ones, with expensive legal counsel to prevent exactly this – scrutinize the plan document language and are able to pick apart arguments to negotiate. Defining usual and customary as the prevailing charge in the area, grouping payment based on the provider rather than the claim, and not affording the plan administrator the proper discretion to determine payable amounts are examples of plan language that will make cost containment unduly difficult.

Here is what you should be stating in your plan document to ensure the most rights possible when it comes to negotiating large out of network claims.  The plan should state that claims must be reasonable meaning that services and fees are in compliance with generally accepted billing practices for unbundling or multiple procedures.  Usual and customary shall mean the lesser of fees that a provider most frequently accepts from the majority of patients for the service or supply, the cost to the provider for providing the services, the prevailing range of fees accepted in the same area by providers, and the Medicare reimbursement rates.   Usual and Customary charges may be determined and established by the Plan using normative data such as Medicare cost to charge ratios, average wholesale price for prescriptions and manufacturer’s retail pricing for supplies and devices.

At the end of the day, you want to give your plan as many options as possible to get the biggest savings possible on a claim.  Networks – especially large ones – are not known for their sensitivity to the plan’s problems. There are dozens of different scenarios that can arise within any given plan that will lead to a dispute with the network over payable amounts.  Having clear language that comports with network agreements and discussions with providers regarding carve outs are crucial aspects of effective cost containment programs when using networks. Some networks allow plans to engage in creative cost containment techniques such as carving out dialysis, specialty drugs, air ambulance claims, and carving out certain specific providers – but many others don’t.

Here is my bottom line – if you have a large claim (define large based on your risk level) and have the ability to negotiate the claim, do it.  Prepare yourself for the opportunity by having the best possible language in your plan document, ensuring that your administrator doesn’t automatically send these claims to a wrap network that you don’t need to use, and ensure that you work with a claims negotiator that not only has the ability to work a claim but has access to the best claims data, legal minds, and plan language to ensure maximum savings.  Besides it’s your fiduciary duty to do it so stop breaching your obligation to be prudent with plan assets.  The employee benefit plan bank account will thank you for it.

The Road to Recovery: Subrogation Gets Its Day In Court

By Christopher M. Aguiar, Esq.

(As published within The Self-Insurer)

 In a country with a seemingly infinite amount of regulation and concerns regarding benefit plan compliance following the passage of the Affordable Care Act in 2010, one would expect much attention from courts in the employee-sponsored health benefits arena.  Most might be surprised when they realize the amount of attention that subrogation has received in The Supreme Court of the United States, the highest court in the land, over the last 25 years.  Subrogation, a concept few truly understand and even fewer recognize, has been reviewed by The Supreme Court several times since 1990.  Even legal practitioners unfamiliar with the world of insurance law might struggle to provide a satisfactory explanation of it.  Many an industry practitioner can tell tales of their encounters with even subrogation professionals with questionable understanding of the concept.

In the 226 years of The Supreme Court’s existence, It has reviewed approximately 1,742 cases, or eight cases per year.  Most courts in America review more than that per day.  With such limited volume, it is surprising that the issue of subrogation has been directly dealt with four times since 1993 (i.e. 4 of the last 469 cases). While two applications for review have been denied, a fifth case, Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, case # 14-723, is now slated to be heard by The Supreme Court in 2015.

To be clear, it is somewhat disingenuous to say that subrogation, specifically, has merited so much attention. To understand why subrogation has been reviewed so often, one must understand the legal framework that is actually being implicated.  The issues The Court is really tackling are the circumstances under which a plan can enforce a right to be reimbursed from the injury settlement of plan participants, and if so, to what extent. The Employee Retirement Income Security Act of 1974, better known as ERISA, allows a plan to seek “appropriate equitable relief” and The Court is being asked to define the framework to be applied.  Stated more simply, whose definition of equity, or fairness, is more appropriate – the states, or the benefit plans providing benefits to employees of companies in America?

Therein lies the crux of the problem – words and phrases like “fair” or “appropriate equitable relief” – as utilized in ERISA – lack any definite meaning.  Certainly, definitions for them exist, but they are relative terms, the actual meaning of which reasonable people can (and will) disagree upon.  They are the kind of terms that allow lawyers to make a living, those that lend themselves to disagreement, advocacy and, ultimately, the opinions of an appointed arbiter.  So what exactly is the issue?  In layman’s terms, The Court is trying to answer a simple question; when is it fair for a benefit plan that provides health benefits, with the explicit understanding that if those benefits arise due to the acts of a third party, and the beneficiary receives a settlement from a third party to the health benefits arrangement, to expect those funds to be returned to the health plan?  Most reasonable minds will agree that, theoretically, it is fair for a benefit plan to recoup those funds because a person who causes damages should be held responsible for them.  As a practical matter, however, the persons who cause these injuries rarely have the means to atone for them financially, and those who suffer the injuries are often the ones left feeling undercompensated for their losses.  For that reason, The Court has stepped in repeatedly to try to resolve this issue

The Court has, for the most part, sided with the employee benefit plans.  As set forth in Great West Life & Annuity Insurance Co. Et Al. v. Knudson, 534 U.S. 204 (2002), and then reaffirmed in Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S 356 (2006), a benefit plan that establishes an equitable right of reimbursement can enforce that right in equity as long as the fund is 1) identifiable, 2) traceable, and 3) in the possession of the party against whom the claim is made.  Indeed, the benefit plan in Great West Life lost its case because the plan brought action against the plan participant, Knudson, but the funds were being held in a trust on her behalf.  Since the Plan failed to bring suit against the party in possession of the funds, i.e. the trust, The Court held the Plan had not protected its rights and could not enforce its action in equity.  What followed were misinterpretations and overstatements, leading to substantial unrest in the world of subrogation and a concern that a benefit plan could not enforce its equitable rights on the whole.

In 2006, The Court clarified much of the confusion that arose from Its decision in Great West Life when it reviewed Sereboff.  Essentially, The Court ruled in Sereboff that when a benefit plan follows the blueprint laid out in Great West Life, it can enforce an equitable remedy against the plan participant.  Unfortunately, The Court left one issue unresolved and to the interpretation of lower courts: when a plan seeks to enforce an equitable remedy, will that remedy be limited by traditional rules of equity, i.e. the Common Fund and Made Whole Doctrine? While most jurisdictions were in support of the enforcement of clear language in favor of preemption of equitable limitations, a few still sought to avoid application of the plan terms.  Such was the status of the law until 2013 when The Court once again granted review of a subrogation case, U.S. Airways, Inc. v. McCutchen, 133 S. Ct. 1537.

In McCutchen, The Court finally resolved this very prevalent issue.  Most reasonable people can agree that a plan should be able to recover funds from a party who causes injuries to a plan participant – it is when the available funds are lacking that disagreements arise. Naturally, nearly everyone believes the injured person deserves to be compensated.  Thanks to The Supreme Court and Its decision in McCutchen, however, a benefit plan can craft its provisions such that the plan is reimbursed first, in full, regardless of the impact that reimbursement has on the patient’s situation.  Many a plaintiff’s attorney will argue incredulously that an outcome wherein the participant is not made whole, or the plan benefits from the efforts of the injured person and their attorney to secure a recovery without having to pay for that benefit, is not fair.  The Supreme Court, as ultimate arbiter establishing the supreme law of the land, has decided that it is fair for a benefit plan to provide for and enforce reimbursement without equitable limitations.

With all the attention in the last 25 years, one might think that The Supreme Court has had Its fill of subrogation and resolved the disputes around the law … enter Montanile.  In Montanile, The Court will tackle yet another pivotal issue – when exactly does a benefit plan’s right attach to recovered funds?  Stated even more simply, can a benefit plan’s right be defeated if the plan participant spends all the money?  In Montanile, the plan participant was involved in an accident with a drunk driver and incurred over $121,000.00 in medical claims that were paid by the plan.  As a result of that accident, the plan participant brought a lawsuit against the driver and received a settlement of $500,000.00, which he claims he then spent on everyday living expenses.  Since he spent the money, he argued, the plan could no longer enforce its reimbursement right.  Both the trial court and the Eleventh Circuit ruled that the plan can still enforce its right.  Eight federal jurisdictions have now ruled on this issue, six of them agree that simply spending the money does not defeat a plan’s interest.  This split in authority has laid the groundwork for The Supreme Court’s review of Montanile.

If The Court rules in favor of Montanile, plaintiff’s lawyers will unquestionably threaten to spend settlement proceeds unless the plan takes action to protect the recovery.  Benefit plans can take some solace in the overwhelming nature in which the Court has previously ruled in favor of the plan.  In Sereboff, for example, the Court ruled unanimously their favor.   In McCutchen, five justices ruled against the plan, however, in that case the benefit plan lacked the necessary language to avoid equitable limitations, but the opinion made clear that the terms of the language create a valid contract and therefore should govern the rights of the parties.  If those cases are any indication, and The Court continues with its theme of strict enforcement of established plan terms, we should see another favorable decision.

Regardless of the outcome of this case, though, benefit plans should always look to follow established best practices.  A plan can put itself in the best position to succeed by ensuring it has clear language that establishes automatic attachment of its lien.  Great language is not always enough, though.  Early intervention and follow through on the status of the case provides the plan with the opportunity to monitor the case and, if necessary, intervene to protect its interest.  By taking these relatively simple actions, the plan can maximize its chance of recovery – and maybe, plans will get a little bit of help from The Supreme Court in Montanile.  Oh, and for all you subrogation enthusiasts out there, do not fret – there are a few more issues that could use some clarification from The High Court, I am guessing It gets Its hands dirty on some subrogation cases a few more times in the next few years.

Size Doesn’t Matter- But the Regulators Do

By Adam V. Russo, Esq.

(As published in Thompson Information Services’ Employer’s Guide to Self-Insuring Health Benefits)

What is the perfect size for a self-funded plan?  This is one of my favorite questions and I love to ask it at any conference at which I happen to have the pleasure of attending and speaking.

The answers I receive are pretty funny and actually typical, ranging anywhere from 200 lives to 1,000,000.  Yes, somebody actually stated that the perfect self-funded plan size is 1,000,000 lives.  I almost passed out when he said this as I realized right away that this gentleman is a broker and has clients who place their trust in him.  I started praying for those clients right after that session!  The right answer is surprising to most as it potentially can be just one person.  A self-employed person who happens to have a lot of money and is in great health could easily be self-insured.  It really isn’t the size that matters at all; it is the behavior of the employee population.  That one person can walk into any medical facility and negotiate his or her own bills.  We all know that cash is king!

Think this through…which is the better plan to self-fund?  (This is just a hypothetical, so please do not get upset at this example – I have plenty of friends and family who drive trucks for a living!)  The first plan is the 5,000 employee plan of truck drivers where the average employee is 75-lbs overweight.  The employee population has a major drug addiction issue, loves to drink, smoke, and do some very dangerous activities outside the workplace.  Or would you believe that the plan with 30 yoga instructors who don’t drink, don’t smoke, don’t do drugs, are in better shape than anyone could possibly be in and just overall make everyone else in the country look out of shape?  Who do you think is the better risk for self-funding their benefit plan?  If you are the stop-loss carrier, who would you rather insure?  Exactly.  The size of the employer doesn’t always matter.  The plan demographics, the plan language, the claims data, and potentially the wellness programs are what matter the most.

Making it Happen in Massachusetts

When I look at the self-funded industry as a whole and I attempt to make predictions as to what will occur in the near future, in my opinion, you have to look to Massachusetts as the bellwether state.  What happened in Massachusetts will probably happen everywhere else.  Why do I say it so confidently?  It is because my home state is the first to have a state wide exchange and has had one in existence since 2006.

So as we all know, people were freaked out when the ACA was coming to fruition, yet as I tried to explain to anyone that would listen, I believed it would be a great thing for the self-insured industry.  Look at what has happened to my state since we were the first to the exchange platform.  Overall, 73.8% of workers in Massachusetts were in self-insured plans in 2011, the highest rate in the nation.  Again, this is five years after the exchange was put in place.  Since 2006, when Massachusetts passed its healthcare reform law, the percentage of workers statewide in self-insured plans has increased tremendously.  In firms with 50-99 employees, the percentage that is in self-funded plans went from 54.4% in 2006 to 67.2% in 2011.  In firms with 100-999 employees, it increased from 16.6% to 29.2% and lastly, in firms with 1,000 or more employees, the rate went from 74.1% to 86.4%.  [1]

This is not some insignificant statistical anomaly.  We are talking about an increase of 15 to 25% depending on the size of the employer.  These are employers who had the alternative of not worrying about purchasing healthcare coverage and just allowing their employees to join the state exchange plan.  Why would this be any different for the rest of the country?  In my opinion, it will not be, and based on the proactive approach taken by the regulators to limit self-funding options, they are petrified that I am correct in this assessment.

Stop Loss Concerns

Speaking of the regulators, they are very concerned about the growing trend of self insurance since it potentially means less healthy lives in the exchanges.  The states and the federal government need healthy lives in the exchanges in order to keep the costs from blowing up.  In other words, they need the yoga instructors to leave self-funding opportunities and enter the exchanges.  The easiest way to make this happen is by limiting the availability of stop-loss, since if you reduce the ability to purchase stop-loss coverage; you reduce the ability for an employer to self-fund.  Period.  Plain and simple.

According to federal statistics, self-funded plans cover over 60% of the private sector workforce, totaling almost 90,000,000 workers and dependents. According to a 2012 Kaiser Family Foundation survey, those numbers include 15% of small companies with fewer than 200 workers and 52% of mid-sized companies (200 to 999 workers).[2]

One study finds that without further regulation of stop-loss policies, over 60% of small businesses will self-fund, leaving mainly older, more costly employees in the exchanges and the fully-funded small group market. This could increase premiums in the exchanges and small group market by up to 25%. A review of stop-loss policies marketed to small firms also indicates this potential shift.[3]

This trend was driven primarily by an increase in the number of self-funded large employers. In 2012, 93% of businesses with 5,000 or more employees were self-funded, and of the next largest employers, those with 1,000 employees to 4,999 employees, nearly 80% self-funded.  Based on the new Affordable Care Act requirements, the number of small employers that self-insure will continue to rise, especially if these employers are able to find ways to minimize their risk, such as the ability to purchase stop loss coverage.[4]

Department of Labor’s (DOL’s) Report to Congress

Section 1254 of the Affordable Care Act required the Department of Health and Human Services (HHS) and the DOL to provide an annual report to Congress that compares fully-insured and self-funded plans.  The main focus is on determining the extent to which the new market reforms are likely to encourage small and midsize employers to self-insure.

The sad news is that past reports have portrayed stop-loss as regular health insurance, except with a higher deductible. I have never seen a stop-loss policy insure individuals.  They do not cover employees or their dependants and do not pay claims on behalf of patients.   Seems like a rather big distinction to me.  Who are these people and from where do they get their facts?  They have never read a single column of mine, attended one of my webinars, or called me to ask any questions.  They just do not understand how the self-insured market works.

Past reports have also stated that in a typical stop-loss arrangement, the reinsurer agrees to pay a proportion of medical expenses.  Again, I have reviewed many stop-loss policies – almost all of them that are in existence today – and I have never come across this.  These statements indicate a fundamental misunderstanding of the nature of stop-loss and self-funding in general, which is especially unfortunate given that these are the very entities that are tasked with enforcement and regulation of our industry.  How can you be the police for the industry and not know the rules in place?

Self-funding 101 would tell you that stop-loss is not health insurance as stop-loss pays claims to the plan sponsor and not medical providers. Stop-loss reimburses the self-funded plan for claims that the sponsor has already paid to providers. The risk of loss and the responsibility for paying medical providers remain solely with the self-funded plan.  The actual plan member (the employee and dependants) are unaware of who the stop-loss carrier is or what they do.  I guarantee you if I polled all 150 employees at The Phia Group regarding who the stop-loss carrier is for our benefits plan, less than 5% of them would know.

The fact that the DOL and HHS believe that stop-loss is a form of health insurance, and that it pays all claims beyond the specific deductible is dangerous. That being said, efforts by associations such as the Self Insurance Institute of America (SIIA), have rallied against these misinterpretations, and courts have begun to acknowledge the true nature of stop-loss and the plan sponsor’s risk. However, the battle has just begun and we have a long way to go.

It’s Up to You, New York

In early May, SIIA met with New York legislators and staff and urged them to pass A.1154/S.2366, legislation that would allow companies with 51-100 employees, including those who participate in multiple employer plans, to continue to have access to stop- loss insurance after January 1, 2016.  If SIIA is unsuccessful, then many employers that have between 51 to 100 employees will not have access to stop-loss coverage in New York and basically have no chance to be self-insured.  This would be exactly what state regulators across the country want in order for them to have the control of what these employers can do when it comes to healthcare coverage.  Trust me, every state is watching New York closely as it can set a dangerous precedent in the nation and drastically halt the growth of self-insurance.  Many companies will have no choice other than being fully-insured or joining the exchange.  In either case, they will be under the control of the state insurance commissioner.  Not good.

The Profits Stay with the Plan and so Does the Tailoring

In an era where people are finally paying close attention to their healthcare spending, another major benefit of self-funding is that employees save money by not paying for the major insurance carrier’s CEO’s Ferrari.  A percentage of all insurance premiums in the fully-insured carrier world are allocated to pure profit but with self-funding, employees pay a nominal amount for health benefits coverage and in general, plan sponsors do not make a profit on self-funding.  Funds stay in the benefit plan to pay for future claims.

Another major draw for employers and probably the most significant benefit of self-funding is the ability to customize the plan to suit the employee base or the employer’s own preferences. If the employer has a certain sympathy for individuals in need of weight loss surgery, the employer can tailor its plan to cover that surgery.  If the employer has a very young, healthy employee base, the employer can offer a plan for a low cost to its employees that have a high deductible. In other words, the employer has the ability to structure its plan any way it wants.  The fact remains that the yoga instructors’ health benefit plan should not be the same as the truckers’ plan, yet in the fully-insured world, they are.

The Risks are Worth the Reward

The bottom line is that sponsoring a self-funded plan has its risks, but it also has its rewards.  While self-funding may not be the right fit for every employer, for those employers that want to be able to get creative with their employees’benefits, self-funding is an option that can be very beneficial. While the group may incur unexpectedly catastrophic claims amounts, stop-loss is designed to mitigate those claims.

Our industry is growing, innovation is on the rise and at the end of the day, employee benefit plans sponsored by self-funded employers are offering more benefits with fewer costs.  Let’s hope that the government entities don’t punish our employers for finding better ways to deal with our health insurance crisis.  It’s what America was built on – integrity and innovation.

Texas Prompt Pay Law Not Preempted; Enforceable Against Self-Insured Health Plan TPAs
EBIA Weekly
A federal district court has ruled that ERISA does not preempt the Texas Prompt Payment Act as it applies to TPAs of self-insured benefit plans. The state law generally requires “insurers” to pay benefit claims within 30 or 45 days (depending on the claim’s format), or face penalties. The TPA in this case received a demand letter from two health care providers alleging that the TPA owed them more than ten million dollars each in late-payment penalties. In response, the TPA filed suit seeking a declaratory judgment that the law does not apply to self-insured plans, or, if it does apply, that the law is preempted by ERISA. The court considered only the preemption issue, deferring to an earlier state court determination that the law applies to the TPA with respect to claims administered for self-insured plans.


As background, ERISA generally preempts state laws that “relate to” ERISA plans; certain state insurance laws are not preempted, but those laws generally do not directly apply to self-insured plans. The court focused its analysis on the “relates to” standard and explained that a law relates to an ERISA plan if it (1) addresses an area of exclusive federal concern, such as the right to receive plan benefits; and (2) directly affects the relationship among traditional ERISA entities—the employer, the plan and its fiduciaries, and the participants and beneficiaries. The TPA argued that the Texas law addresses an area of exclusive federal concern because it undermines ERISA’s goal of achieving uniform regulation of ERISA plans. The court disagreed, finding that the imposition of late-payment penalties on a TPA does not affect the underlying plans. The court also rejected the TPA’s argument that the law affects the relationship among traditional ERISA entities, finding that the health care providers are not ERISA entities, nor are they “standing in the shoes” of plan beneficiaries. The court noted that the providers’ demands arose because of their contractual relationship with the TPA and emphasized that ERISA does not prohibit parties on the “periphery” of an ERISA plan from contracting with one another.

EBIA Comment: The court’s decision contrasts with a recent Eleventh Circuit ruling that ERISA preempts a similar prompt payment law in Georgia (see our article). The TPA in this case has filed an appeal with the Fifth Circuit, creating the possibility of a split between the federal appeals courts and eventual review by the U.S. Supreme Court. Self-insured plan sponsors and their TPAs and advisors should continue to monitor ERISA preemption developments as these and other cases make their way through the courts. For more information, see EBIA’s ERISA Compliance manual at Sections XXXIX.C (“State Laws That ‘Relate to’ ERISA Plans Are Generally Preempted”) and XXXIX.H (“Preemption Analysis Applied to Specific State Laws”); see also EBIA’s Self-Insured Health Plans manual at Section V.E (“ERISA Preemption and the Application of State Mandates”)

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"Survival of the Fittest" - Best Practices to Perfect a Modern TPA

Join The Phia Group on April 23, from 1 to 2 PM EST, as they discuss best practices and new methodologies TPAs are considering, in their quest to remain relevant in a modern healthcare arena. Covered topics will include innovative services, products, and processes being used today, and developed for tomorrow. The Phia Group will identify both the issues and solutions that seem to be spreading, and how proactive administrators are addressing both.

Join The Phia Group’s legal team as they discuss the best practices for TPA’s and how this can help you!

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The Phia Group, LLC – 1st Quarter Newsletter – 2015
The Book of Russo 

It’s finally baseball season and here in Boston that means the snow is finally gone (fingers crossed) and we can start seeing our dirty yards again.  The idea of 50 degree weather makes me want to jump into my shorts as soon as possible.  The long, harsh winter we had sure made it tough to get to work each day but as long as the industry is getting bigger and busier, we just find a way to get the work done.  Speaking of work, the first quarter has been full of it!  From subrogation issues to exclusion problems to state insurance commissioners messing around with stop loss carriers (hello New Mexico), the first three months of 2015 have been quite eventful.  We are excited about the rest of this year as we expand our service offerings and enhance those we already have in place.  I spend much time talking to leaders in our industry to ensure that we here at The Phia Group stay on top of the ever growing issues facing the country.  There’s so much more to do but we all should be proud of what we have accomplished thus far.  Happy reading! 

Letter from the Editor 

Spring has finally sprung, and with a record-breaking winter of over 100 inches of snow in Boston, it couldn’t come a moment too soon.  It was unquestionably a cold few months, but make no mistake about it, we are always turning up the heat.  A lot happened this past quarter and we are excited to bring you the latest news and notes about how The Phia Group is focusing on being trailblazers for innovation in the Self-funded industry.  This installment of the newsletter is packed with announcements of new offerings, the latest from the Supreme Court of the United States relating to ERISA preemption, and of course, registration information for our April webinar.  This is a newsletter you aren’t going to want to miss. Stay tuned for some changes coming in the editorial lineup of The Phia Group Newsletter.  Thank you for continuing to Learn With Us, Plan With Us, and Save With Us!!!

Stop the Presses

The Phia Group Announces the Release of a Preventive Care Template available in the Phia Document Management® Software 

As the cost of healthcare rises, employers are looking for inexpensive ways to keep their employees covered and satisfy new federal requirements. Preventive Care Only plans are the perfect solution. With today’s ever changing rules and regulations, Preventive Care Only plan documents provide employees with basic affordable coverage. Offered in conjunction with other offerings, a Preventative Care Only plan can result in huge savings for the employer, while offering complete coverage to employees and avoiding any ACA tax penalties!

The growing demand for Preventive Care plans is providing a substantial influx of opportunities in the self-funded world, and Phia Document Management® has streamlined the process of setting up these innovative plan strictures while still following federal compliance regulations. Creating compliant, efficient and consistent Preventive Care plan documents has never been easier than with Phia Document Management®! Preventive Care materials are available now.

For more information regarding Preventive Care templates, Phia Document Management®, and The Phia Group’s other innovative offerings, please contact Toussaint Anderson III, PDM Project Manager, by email at tanderson@phiagroup.comor by phone at 781-535-5662.

 

Free Monthly Webinar

Register Now – Spots Are Limited! 

“Survival of the Fittest” – Best Practices to Perfect a Modern TPA 

Thursday, April 23, 2015

1:00 PM EST to 2:00 PM EST 

Join The Phia Group on April 23, from 1 to 2 PM EST, as they discuss best practices and new methodologies TPAs are considering, in their quest to remain relevant in a modern healthcare arena.  Covered topics will include innovative services, products, and processes being used today, and developed for tomorrow.  The Phia Group will identify both the issues and solutions that seem to be spreading, and how proactive administrators are addressing both.

Join The Phia Group’s legal team as they discuss the best practices for TPA’s and how this can help you!

ATTENTION:  If you do not receive a confirmation email shortly after registration with webinar log-in details, check your spam filter for emails from customercare@gotowebinar.com

Reporting Portal Unleashed:  The Phia Group Responds to Clients’ Needs

With 2015 in full swing, we wanted take a moment to tell you about some exciting news! At the start of the year we went live with our new and highly anticipated Online Reporting Portal!  It was designed so that our clients could access their reports anytime!  All reports can be generated within the portal and exported into excel format and manipulated.  This is a feature our clients asked for, and as is our custom, The Phia Group delivered!

New Reports:

Aging Report

This report provides a look at the average duration from case activation to resolution, by Case Type. Viewable results include total cases, total recovery cases, and average days(duration). In addition, the report displays comparisons to the aging, of case types, across all of Phia’s clients allowing you to compare results globally.

Historical Overview Report

This report will serve as a running overview of recovered cases and their corresponding values/recovery amounts per quarter and year. For overviews “to-the-day”” and statistics prior to 2008, requests should still be made through the appropriate Client Account Manager.

Report Enhancements:

Email the Claim Recovery Specialist (CRS) – You will now have the ability to directly email the Claim Recovery Specialist handling the case you’re inquiring about. Please click on the name of the “CRS” located at the end of case in the column titled “Current CRS (click to email)” where you will be able to email them directly (see below screen shot).

As always, we truly value our client’s feedback and used it to create a user-friendly portal.  If you have any thoughts or suggests about the portal, we are always looking to improve our products – and the most valuable information we have is all of you!

If u have any questions about the reporting portal, please contact Jennifer Marsh at 781-535-5634.

 

Fighting For Your Right …. The Phia Group Takes It to Wisconsin Auto Insurer

Note from the Editor:  Over the past several weeks, a few members of The Phia Group’s legal team, spearheaded primarily by Pamala Parette with the direction of Christopher M. Aguiar, Esq., battled the legal department of a well-known auto insurer in the state of Wisconsin and won! Basically, the auto insurer was refusing to issue payment from the medical payment coverage policies of plan participants relying on the position that the law not only didn’t require them to reimburse our clients, but in fact, it was our clients who owed them money!?

About 2 months ago, select members of the legal team conferred, analyzed applicable case law, and devised a plot to fight back.  Simply, they picked one case that was worth a fight and effort, but more importantly, didn’t put our clients at risk of owing money to the auto insurer, and subrogated against the insurer.  We are happy to report that as a result of these efforts, The Phia Group was able to obtain a 100% reimbursement of claims paid by the Plan on this case from the auto insurer’s medical payment coverage, as well as an admission that the auto insurer’s policy was flawed and would be remedied.

Pamala’s experience in the auto insurance arena was pivotal in this effort.  What many of our clients may not know is before Pamala made her transition to the world of TPAs & self-funded plans, she spent several years as a claim adjuster for several auto insurance companies.  Her experience there provided her with intimate knowledge of appropriate policies and procedures in claims handling.  Pairing that experience with the prospect of our filing a complaint with the Wisconsin Department of Insurance provided to be a formidable strategy that will lead to more savings for our clients! A great team effort worth mention!!!

 

SCOTUS to Weigh in on OP Recovery as an Equitable Remedy 

Can You Identify A Fund? … By: Catherine Dowie

This past week, the Supreme Court granted certiorari in yet another ERISA subrogation case.  This time it was an appeal from an 11th Circuit decision, and the question presented to the court was:

Whether, under the Employee Retirement and Income Security Act of 1974 (ERISA), a lawsuit by an ERISA fiduciary against a participant to recover an alleged overpayment by the plan seeks “equitable relief” within the meaning of ERISA Section 502(a)(3), 29 U.S.C. § 1132(a)(3), if the fiduciary has not identified a particular fund that is in the participant’s possession and control at the time the fiduciary asserts its claim.

There is currently a 6-2 circuit split (in favor of plans overpayment recovery), but the Solicitor General has sided with the 2 opposing circuits in a previous case.

The plan participant is claiming that the Plan did not assert its lien until after settlement, and while the funds were held in trust for several months while his attorney attempted to negotiate with the Plan, an impasse resulted in the attorney requesting that the Plan either accept the final offer or file suit; if he did not receive a response in 14 days, he would release the funds.  The Plan failed to respond and by the time suit was filed, the plan participant was no longer in possession of the full amount of the Plan’s interest.  The full settlement was $500,000.00 and the Plan’s interest was $121,044.02, attorney’s fees and costs were $263,788.48.

Arguments haven’t been scheduled yet …. Stay tuned!!!

 

Check This Out!!! 

Pricing Healthcare is becoming a national hub for direct-pay healthcare.  The company helps quality healthcare facilities across the U.S. put together and publicize affordable, direct-pay pricing for their procedures.  They then work with self-funded employers to realize savings by steering their employees to these facilities.  Prices are typically 35% to 65% below average insured rates, and are available to anyone paying cash upfront (or 30 days same as cash for employers and other benefit groups).  Price lists are free for anyone to access, and almost all posted rates include the facility, physician, and anesthesiologist fees bundled into a single global price.  Facilities currently listed on https://pricingHealthcare.com include hospitals, surgery centers, and imaging centers.  The company is rapidly expanding its list of participating facilities by partnering with facility management companies, third party administrators, and employers in all 50 states.

On the Road Again … 2015 Upcoming Presentations in the 1st Quarter

 

4/8: IOA Re Management Meeting – Blue Bell, PA
4/13: NFP Conference – Washington, DC
4/15: BevCap Best Practice Workshop – Orlando, FL
4/28: Berkley Captive Symposium – Cayman Islands
5/5: RCI Forum – Scottsbluff, NE
5/13: Optum Clinical/Claims Roundtable – Mohegan Sun, CT
6/7- Leavitt Trustee Conference – Big Sky Montana
6/15 – SOA Meeting – Atlanta, GA
 

From the Blogosphere

 

http://passionforsubro.com/ppaca-survives-another-scotus-challenge/
 

Source:  http://www.benefitspro.com/2015/01/13/ppaca-survives-another-scotus-challenge?eNL=54b5562e160ba0a4078cf212&utm_source=BenefitsProNewsAlert&utm_medium=eNL&utm_campaign=BenefitsPro_eNLs&_LID=169432474
 

http://passionforsubro.com/partners-completes-takeover-of-doctors-group/
 

Source: http://www.bostonglobe.com/business/2015/03/11/partners-takeover-doctors-group-will-add-millions-health-costs-state-panel-says/l6bngLSgVDcxNn7FEi0XmN/story.html
 

 http://passionforsubro.com/hips-dont-lie-replacements-on-the-rise-as-busy-boomers-age/
 

Source:  http://www.nbcnews.com/news/us-news/hips-dont-lie-replacements-rise-busy-boomers-age-n307126
 

http://passionforsubro.com/four-reasons-why-reference-based-pricing-could-become-the-norm-for-self-insured-employer-groups/
 

Source:  http://www.amwins.com/Pages/Client%20Advisories/reference-pricing-1.15.aspx?spMailingID=10515356&spUserID=MjU1NDQ0NjE3MwS2&spJobID=462527109&spReportId=NDYyNTI3MTA5S0
 

The Stacks

 

To Be, Or Not To Be … A Fiduciary

        by Andrew Silverio, Esq.

The Employee Retirement Income Security Act (“ERISA”) provides the federal regulatory framework for private sector employee benefit plans.  As one of the primary goals of ERISA is to establish a uniform statutory framework for employee benefit plans, a major feature is the preemption of most state regulation which touches on employee benefit plans falling within its scope.  It is because of this that a self funded employee benefit plan under ERISA is essentially immune to most forms of state regulation, and must look primarily to ERISA (and of course, the Affordable Care Act in the case of health and welfare plans) for regulatory guidance.

Plan fiduciaries are those exercising discretionary authority over plan assets, plan management, or both.  ERISA holds these plan fiduciaries to a high standard; such fiduciaries have significant duties toward their respective benefit plans and their participants, and must carry out these duties prudently, faithfully adhere to the applicable plan document, and act in the best interests of the plan and its participants.  A significant aspect of this fiduciary status, and the reason it is so important to know whether one is acting as a fiduciary, is the personal liability imposed on fiduciaries for breaches of their duties.  In the context of a health plan, a breach of fiduciary duty can result in enormous damage to the plan, damages which can then be claimed from the responsible fiduciary’s personal assets.

Most agreements in the industry contain numerous disclaimers and indemnifications, purporting to evade any fiduciary liability and adamantly denying fiduciary status. However, many plans, TPAs and vendors focus far too much on contractual disclaimers and indemnifications, and too little on the nature of their actual activities. While it is required that an ERISA plan have at least one “named” fiduciary pursuant to its plan document, this is by no means the only way to attain fiduciary status.  “An entity’s status as a fiduciary hinges not solely on whether it is named as such in a benefit plan, but also on whether it ‘exercises discretionary control over the plan’s management, administration, or assets.’” Hartsfield, Titus & Donnelly v. Loomis Co., 2010 WL 596466, 2 (Dist. N.J. 2010), citing Mertens v. Hewitt Assocs., 508 U.S. 248, 252 (1993).

In addition to precluding any attempt to disclaim fiduciary status, ERISA also does not allow one to disclaim fiduciary liability.  See 29 U.S. Code § 1110(a), “Any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty under this part shall be void as against public policy.” Although this liability cannot be “extinguished”, it can be allocated, by one who understands the nature of the fiduciary status and its corresponding duties and liabilities. Pursuant to 29 U.S. Code § 1105(c), the “instrument under which a plan is maintained” may expressly provide for an allocation of fiduciary responsibilities (other than those of a trustee) among named fiduciaries.  Additionally, the instrument may allow such named fiduciaries to designate persons or entities other than named fiduciaries to carry out fiduciary responsibilities. More importantly, if a fiduciary allocates such a responsibility to another person, “…then such named fiduciary shall not be liable for an act or omission of such person in carrying out such responsibility…” 29 U.S. Code § 1105(c)(2).  In other words, once a named fiduciary properly delegates away a fiduciary duty, they are released from liability to the extent of the scope of the duty delegated.

They are not released from all liability, however.  The original fiduciary still has fiduciary duties in prudently selecting a party to appoint as a fiduciary, as well as following the proper plan procedure for doing so, and reasonably monitoring the actions of the appointed fiduciary.  Once a fiduciary duty is properly allocated, the original fiduciary can be held liable for a breach of that duty only through ERISA’s rules on liability between co-fiduciaries (or through his own breach in imprudently selecting or failing to monitor the designated fiduciary). Under these rules, one is liable for the actions of a co-fiduciary only if he knowingly participates in or conceals the co-fiduciary’s breach, enables the co-fiduciary’s breach through his own breach of fiduciary duties of prudence and diligence, or has knowledge of the co-fiduciary’s breach and makes no effort to cure the breach. 29 U.S. Code § 1105(a).

Once an examination of an entity’s activities in relation to the plan is complete, the next question is of course what to do about this liability.  An option is to identify activities which subject your company to fiduciary liability and manage this liability by delegating them out to another party as discussed above, making sure to follow proper plan procedure in doing so.  Another option is to acknowledge this responsibility and ensure adequate protections are in place, via various forms of insurance policies. It is important to note that the “fidelity bond” required by ERISA will not protect a fiduciary from personal liability.  This bond, required for any person who handles plan funds, is in place to protect the plan in the event of dishonest conduct which damages the plan.  It will not help the responsible party in the event of a breach.

No matter which course of action is undertaken, a thorough understanding of one’s responsibilities and liabilities in any given situation gives crucial insight into the true value of the services being provided.  There is a good reason agreements which openly assume fiduciary status and liability come with higher fees than those which disclaim such status.  If the activities to be performed under an agreement will subject one to fiduciary liability regardless of contract language, why not assume that liability in the agreement?  If assuming additional liability in the agreement, this risk and its potential costs should be taken into account in calculating the TPA’s fee.  Additionally, an entity armed with this knowledge is better equipped to assess the extent of the liability it truly wishes to take on.

 

Never More Important …

By:  Ron E. Peck, Esq.

Sr. VP & General Counsel

The Phia Group, LLC

 

As employers begin to seriously consider self-funding for providing health benefits to their employees, figuring out how to contain costs is a balancing act we must all master.

Before the Patient Protection and Affordable Care Act (PPACA) was implemented, carriers and employers knew there would be costs involved.  In the wake of these new expenses, many employers’ knee jerk reaction was to analyze the “Pay or Play” mandate, and realize that the penalties for not offering coverage was less than the cost they’d incur maintaining their policies.  Many savvy employers and brokers, however, learned about the benefits of self-funding.  No wonder that we saw growth in self-funding in Massachusetts following the passage of “RomneyCare,” and similar self-funded growth nationwide following the passage of “ObamaCare.”

As employers with healthy, low risk lives, chose to self-fund; so too did employers with high risk lives take advantage of the health insurance exchanges.  Paying a relatively small penalty to send costly employees to the exchange is an enticing option.  As this influx of costly lives flooded the exchanges, the hope had been that healthy lives would join them, balancing the risk.  Sadly for supporters of PPACA, the healthy lives remained (or became) self-funded.  Seeing this disaster as a risk to PPACA, many have joined forces with state insurance commissioners and the NAIC to make self-funding less attractive for otherwise healthy employee groups.  Due to the federal preemption created by the Employee Retirement Income Security Act of 1974 (“ERISA”), they have been unable to attack self-funded plans directly.  Instead, they have restricted the ability of stop-loss insurance carriers to offer protection to self-funded plans.  Without being able to secure stop-loss with a reasonable deductible, many employers who were interested in self-funding cannot accept the kind of increased risk they are now being asked to bear.  Only if the costs can be contained, can the risks inherent in a “higher deductible” stop-loss policy be deemed acceptable.

Some believed that by giving “everyone” insurance, the amount charged for medical care would decrease.  Once the number of patients with deep pockets increased, however, so too did prices.  Changing “who” pays had no effect upon “how much” is paid.

Six years following the passage of RomneyCare in Massachusetts, a so-called “cost control” or “Health Reform 2.0” law was passed; (the legal name is Chapter 224 of the Acts of 2012).  The bill sets annual spending targets, encourages the formation of accountable care organizations, and establishes a commission to oversee provider performance.

We can hope that we see such change at a federal level, but in the meantime, it falls upon us to identify ways to contain costs, and keep self-funding viable.  Health plans must renew their focus on such “classic” cost containment measures as:

– Subrogation & Recoupment of Funds from Liable Third Parties

– Overpayment Identification and Recovery

– Eligibility Audits & Fraud Detection

 

In addition, now is the time to consider “new” cost containment methods, such as:

– Revisiting How Out of Network Claims are Priced

– Revisiting How The Plan’s Network is Structured, and Negotiating Better Deals in Exchange for Steerage

– Carving Out High Cost Procedures, and Negotiating for Their Payment on a Case-by-Case Basis

– Focusing on Preventative Care, Wellness, and Other Low Cost / High Reward Benefits

By focusing on cost-containment, employers can take steps to reduce the risk they face, making the attack against stop-loss and self-funding less impactful upon our ability to self-fund.

 

UPDATE:  SCOTUS Denies CERT in the 2nd Circuit … Now What?

            By Christopher M. Aguiar, Esq.

A few months ago, the 2nd Circuit took it upon itself in the case of Wurtz v. Rawlings to throw a bit of a wrench in the ability of a benefit plan to remove a law suit brought to enforce anti-subrogation laws to federal court.  Industry pundits advocated for the Supreme Court of the United States to once again step in and resolve a pre-emption dispute relating to subrogation for an almost unprecedented 4th time in 15 years.

Unfortunately, this time it was not to be.  Just last week the Supreme Court denied an application to hear the case and now leaves a bit of a dispute in the law; essentially, the standard for removal to federal court is different in the 2nd Circuit than in almost any other federal jurisdiction in the country.  Self funded benefit plans can take solace in the fact that it seems the 2nd Circuit case does not apply to them, but plaintiff lawyers in the pertinent states are doing a great job at ignoring the part of the case that excepts those plans from this rule, so those handling subrogation claims in the 2nd Circuit must be prepared for a bit of a war to ensure their ability to preempt state law anti-subrogation laws continues unfettered.

 

Phia Group Case Study

 

Claim Negotiation & Sign-off

The Phia Group received a large claim from a hospital in the southeast. The claim in at $155,000, and included two surgical implants; after a preliminary discussion with the hospital’s billing office, The Phia Group’s request for settlement was escalated to the hospital’s management. By referencing the hospital’s cost and reimbursement data, The Phia Group was able to show the hospital’s management that the charges were simply not reasonable, and that the charges were not payable under the Plan Document. In turn, however, the hospital challenged the relevance of Phia’s review by suggesting that there was a PPO network in play, so the “reasonableness” of their charges was irrelevant. The Phia Group’s legal department reviewed the matter, and was able to identify a chink in the PPO contract’s armor – and The Phia Group was able to successfully argue that the PPO contract did permit the payer to reduce the payable amount based on what is reasonable under the Plan Document. Additionally, The Phia Group leveraged its data to discuss the hospital’s actual costs of procuring the implants, which the hospital did not counter. The Phia Group’s legal team sent the hospital’s management a memorandum describing its position, as well as a settlement proposal – and the hospital’s management signed the agreement without further argument. The network discount would have required a net payment of $109,000 – but The Phia Group secured a settlement for $52,000, resulting in $57,000 in additional savings for the payer.

Billed:$155,000
Network Rate: $109,000
Paid: $52,000
Additional Savings: $57,000

The Phia Group, LLC – 1st Quarter 2015 – The Stacks
The Stacks

To Be, Or Not To Be … A Fiduciary
by Andrew Silverio, Esq.

The Employee Retirement Income Security Act (“ERISA”) provides the federal regulatory framework for private sector employee benefit plans.  As one of the primary goals of ERISA is to establish a uniform statutory framework for employee benefit plans, a major feature is the preemption of most state regulation which touches on employee benefit plans falling within its scope.  It is because of this that a self funded employee benefit plan under ERISA is essentially immune to most forms of state regulation, and must look primarily to ERISA (and of course, the Affordable Care Act in the case of health and welfare plans) for regulatory guidance.

Plan fiduciaries are those exercising discretionary authority over plan assets, plan management, or both.  ERISA holds these plan fiduciaries to a high standard; such fiduciaries have significant duties toward their respective benefit plans and their participants, and must carry out these duties prudently, faithfully adhere to the applicable plan document, and act in the best interests of the plan and its participants.  A significant aspect of this fiduciary status, and the reason it is so important to know whether one is acting as a fiduciary, is the personal liability imposed on fiduciaries for breaches of their duties.  In the context of a health plan, a breach of fiduciary duty can result in enormous damage to the plan, damages which can then be claimed from the responsible fiduciary’s personal assets.

Most agreements in the industry contain numerous disclaimers and indemnifications, purporting to evade any fiduciary liability and adamantly denying fiduciary status. However, many plans, TPAs and vendors focus far too much on contractual disclaimers and indemnifications, and too little on the nature of their actual activities. While it is required that an ERISA plan have at least one “named” fiduciary pursuant to its plan document, this is by no means the only way to attain fiduciary status.  “An entity’s status as a fiduciary hinges not solely on whether it is named as such in a benefit plan, but also on whether it ‘exercises discretionary control over the plan’s management, administration, or assets.’” Hartsfield, Titus & Donnelly v. Loomis Co., 2010 WL 596466, 2 (Dist. N.J. 2010), citing Mertens v. Hewitt Assocs., 508 U.S. 248, 252 (1993).

In addition to precluding any attempt to disclaim fiduciary status, ERISA also does not allow one to disclaim fiduciary liability.  See 29 U.S. Code § 1110(a), “Any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty under this part shall be void as against public policy.” Although this liability cannot be “extinguished”, it can be allocated, by one who understands the nature of the fiduciary status and its corresponding duties and liabilities. Pursuant to 29 U.S. Code § 1105(c), the “instrument under which a plan is maintained” may expressly provide for an allocation of fiduciary responsibilities (other than those of a trustee) among named fiduciaries.  Additionally, the instrument may allow such named fiduciaries to designate persons or entities other than named fiduciaries to carry out fiduciary responsibilities. More importantly, if a fiduciary allocates such a responsibility to another person, “…then such named fiduciary shall not be liable for an act or omission of such person in carrying out such responsibility…” 29 U.S. Code § 1105(c)(2).  In other words, once a named fiduciary properly delegates away a fiduciary duty, they are released from liability to the extent of the scope of the duty delegated.

They are not released from all liability, however.  The original fiduciary still has fiduciary duties in prudently selecting a party to appoint as a fiduciary, as well as following the proper plan procedure for doing so, and reasonably monitoring the actions of the appointed fiduciary.  Once a fiduciary duty is properly allocated, the original fiduciary can be held liable for a breach of that duty only through ERISA’s rules on liability between co-fiduciaries (or through his own breach in imprudently selecting or failing to monitor the designated fiduciary). Under these rules, one is liable for the actions of a co-fiduciary only if he knowingly participates in or conceals the co-fiduciary’s breach, enables the co-fiduciary’s breach through his own breach of fiduciary duties of prudence and diligence, or has knowledge of the co-fiduciary’s breach and makes no effort to cure the breach. 29 U.S. Code § 1105(a).

Once an examination of an entity’s activities in relation to the plan is complete, the next question is of course what to do about this liability.  An option is to identify activities which subject your company to fiduciary liability and manage this liability by delegating them out to another party as discussed above, making sure to follow proper plan procedure in doing so.  Another option is to acknowledge this responsibility and ensure adequate protections are in place, via various forms of insurance policies. It is important to note that the “fidelity bond” required by ERISA will not protect a fiduciary from personal liability.  This bond, required for any person who handles plan funds, is in place to protect the plan in the event of dishonest conduct which damages the plan.  It will not help the responsible party in the event of a breach.

No matter which course of action is undertaken, a thorough understanding of one’s responsibilities and liabilities in any given situation gives crucial insight into the true value of the services being provided.  There is a good reason agreements which openly assume fiduciary status and liability come with higher fees than those which disclaim such status.  If the activities to be performed under an agreement will subject one to fiduciary liability regardless of contract language, why not assume that liability in the agreement?  If assuming additional liability in the agreement, this risk and its potential costs should be taken into account in calculating the TPA’s fee.  Additionally, an entity armed with this knowledge is better equipped to assess the extent of the liability it truly wishes to take on.

 

Never More Important …

By:  Ron E. Peck, Esq.

Sr. VP & General Counsel

The Phia Group, LLC

As employers begin to seriously consider self-funding for providing health benefits to their employees, figuring out how to contain costs is a balancing act we must all master.

Before the Patient Protection and Affordable Care Act (PPACA) was implemented, carriers and employers knew there would be costs involved.  In the wake of these new expenses, many employers’ knee jerk reaction was to analyze the “Pay or Play” mandate, and realize that the penalties for not offering coverage was less than the cost they’d incur maintaining their policies.  Many savvy employers and brokers, however, learned about the benefits of self-funding.  No wonder that we saw growth in self-funding in Massachusetts following the passage of “RomneyCare,” and similar self-funded growth nationwide following the passage of “ObamaCare.”

As employers with healthy, low risk lives, chose to self-fund; so too did employers with high risk lives take advantage of the health insurance exchanges.  Paying a relatively small penalty to send costly employees to the exchange is an enticing option.  As this influx of costly lives flooded the exchanges, the hope had been that healthy lives would join them, balancing the risk.  Sadly for supporters of PPACA, the healthy lives remained (or became) self-funded.  Seeing this disaster as a risk to PPACA, many have joined forces with state insurance commissioners and the NAIC to make self-funding less attractive for otherwise healthy employee groups.  Due to the federal preemption created by the Employee Retirement Income Security Act of 1974 (“ERISA”), they have been unable to attack self-funded plans directly.  Instead, they have restricted the ability of stop-loss insurance carriers to offer protection to self-funded plans.  Without being able to secure stop-loss with a reasonable deductible, many employers who were interested in self-funding cannot accept the kind of increased risk they are now being asked to bear.  Only if the costs can be contained, can the risks inherent in a “higher deductible” stop-loss policy be deemed acceptable.

Some believed that by giving “everyone” insurance, the amount charged for medical care would decrease.  Once the number of patients with deep pockets increased, however, so too did prices.  Changing “who” pays had no effect upon “how much” is paid.

Six years following the passage of RomneyCare in Massachusetts, a so-called “cost control” or “Health Reform 2.0” law was passed; (the legal name is Chapter 224 of the Acts of 2012).  The bill sets annual spending targets, encourages the formation of accountable care organizations, and establishes a commission to oversee provider performance.

We can hope that we see such change at a federal level, but in the meantime, it falls upon us to identify ways to contain costs, and keep self-funding viable.  Health plans must renew their focus on such “classic” cost containment measures as:

– Subrogation & Recoupment of Funds from Liable Third Parties

– Overpayment Identification and Recovery

– Eligibility Audits & Fraud Detection

 

In addition, now is the time to consider “new” cost containment methods, such as:

– Revisiting How Out of Network Claims are Priced

– Revisiting How The Plan’s Network is Structured, and Negotiating Better Deals in Exchange for Steerage

– Carving Out High Cost Procedures, and Negotiating for Their Payment on a Case-by-Case Basis

– Focusing on Preventative Care, Wellness, and Other Low Cost / High Reward Benefits

 

By focusing on cost-containment, employers can take steps to reduce the risk they face, making the attack against stop-loss and self-funding less impactful upon our ability to self-fund.

 

UPDATE:  SCOTUS Denies CERT in the 2nd Circuit … Now What?

            By Christopher M. Aguiar, Esq.

A few months ago, the 2nd Circuit took it upon itself in the case of Wurtz v. Rawlings to throw a bit of a wrench in the ability of a benefit plan to remove a law suit brought to enforce anti-subrogation laws to federal court.  Industry pundits advocated for the Supreme Court of the United States to once again step in and resolve a pre-emption dispute relating to subrogation for an almost unprecedented 4th time in 15 years.

Unfortunately, this time it was not to be.  Just last week the Supreme Court denied an application to hear the case and now leaves a bit of a dispute in the law; essentially, the standard for removal to federal court is different in the 2nd Circuit than in almost any other federal jurisdiction in the country.  Self funded benefit plans can take solace in the fact that it seems the 2nd Circuit case does not apply to them, but plaintiff lawyers in the pertinent states are doing a great job at ignoring the part of the case that excepts those plans from this rule, so those handling subrogation claims in the 2nd Circuit must be prepared for a bit of a war to ensure their ability to preempt state law anti-subrogation laws continues unfettered.

"To Be Or Not To Be"... A Fiduciary - Do You Even Have A Choice?

Being a fiduciary is serious business. Determining whether you are one can also be very complicated. Case law increasingly establishes that being a fiduciary has more to do with the action one takes, than the contract one signs. Entities working on behalf of self-funded benefit plans may be unknowingly taking on fiduciary status. Are you a fiduciary? What are the advantages and disadvantages of taking on that burden? What can you do to protect yourself?

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SIIA State Legislative/Regulatory Update Report
March 16, 2015 — This is your weekly update of state legislative/regulatory developments affecting companies involved in the self-insurance/alternative risk transfer marketplace. Should you have any questions on information provided in these reports and/or would like to alert SIIA to new state legislative/regulatory activity (health care, workers’ compensation and/or captive insurance matters) we may have missed, please contact Adam Brackemyre, Director of State Government Relations directly at 202/595-0641, or via e-mail at abrackemyre@siia.org.

Maryland- Stop Loss Bill Amendments Proposed

In the face of stiff opposition by SIIA and allied stakeholders, the principal backers of HB 552/SB 703 proposed significant changes to the legislation, including lower attachment points and a study of several issues.

The drafted amendments would decrease the proposed minimum individual attachment point to $22,500 and minimum aggregate attachment point to 120 percent. In addition, Maryland would establish a study committee to review various issues relating to the stop loss and the Affordable Care Act (ACA) including how many businesses would be affected by the ACA’s “small group” definition change and how other states regulate stop loss insurance. The study would require two reports, one due in 2015 and a second due in 2016.

SIIA and its allies have received the proposed amendments and are discussing a unified response.

Contact SIIA’s Director of State Government Relations, Adam Brackemyre at abrackemyre@siia.org if you have additional questions.

New Mexico- Stop Loss Bulletin Rescinded
Last Tuesday, the New Mexico Department of Insurance rescinded Bulletin 2015-005 by issuing Bulletin 2015-010. As previously reported, Bulletin 2015-005 required all new and renewing stop loss contracts to meet the ACA health insurance standards and, according to SIIA members, had frozen the stop loss market and created chaos in the insurance market.

Sources in Santa Fe report that the department of insurance heard opposition from numerous angles, both public and private. Legislators heard significant opposition from constituents and expressed concern to the department. One influential insurance committee legislator had multiple conversations with the superintendent, as did a former insurance superintendent. Major employers, including a major public university that has a self-insured health plan with stop loss, also faced the loss of their current insurance plan and expressed opposition.

The newest insurance bulletin will establish a study committee for the issue and SIIA will watch for its formation and any opportunity to engage.

New York State- Albany Day on the Hill
Last week, SIIA hosted a successful lobby day, which included participation by about 20 representatives of association members and other allied stakeholders.

Individuals representing the following companies participated:
Aetna
AIG
Cigna
CoreSource
Diversified Group
ELMC Group
Guardian
H.H.C. Group
Leading Edge Administrators
UltraBenefits, Inc.
UnitedHealth/Optum
WellNet

At breakfast, Senator James Seward, the sponsor of S.2366 said that the legislation will be heard in his committee very soon. In reviewing the Senate Insurance Committee’s schedule, S.2366 is on the calendar for today.

Assembly Insurance Chair Kevin Cahill’s breakfast comments were more vague and nuanced, reflecting the reality that the chairman must consult with many Assembly stakeholders to advance legislation in that body. SIIA already knew this and scheduled 21 targeted meetings, primarily with Assembly Democrats, to garner support for Chairman Cahill’s legislation, A.1154.

Departing to the capitol, SIIA members split into three teams to cover meetings with nearly all Assembly Democrats on the Insurance Committee, Assembly and Senate leadership and the New York State exchange. In general, meetings went very well. Most Assembly Members were supportive and some even promised to co-sponsor the legislation. SIIA’s lobbyist will be following up with co-sponsorship requests and with offices where SIIA members met with staff members.

From all indications, this was a very productive day and we took necessary steps to advance the legislation in the New York State Assembly. SIIA will carefully assess the next steps we need to take, which may include another round of meetings in Albany. At this time, the need for another large Lobby Day is unlikely.

To SIIA’s knowledge, only one regional insurance carrier has expressed opposition to A.1154/S.2366 and it was apparent in meetings with Assembly Insurance Committee members that SIIA was the only group to have brought A.1154 and the stop loss ban to the legislator’s or staff’s attention.

Again, a big “thank you” to everyone who attended the day in Albany and to the many others who either facilitated a colleague’s attendance or whose schedule changed at the last minute and precluded his or her attendance.

Florida- Stop-Loss Legislation Update
Legislation moving through a House committee has some odd language that may preclude lasering.

SIIA has been monitoring the progress of House Bill 731, which at first appeared to codify Florida regulation requiring a $20,000 minimum individual attachment point and other elements of the NAIC Model Stop Loss Act. However, the substitute bill added this language “A stop-loss insurance policy authorized under this section must cover 100 percent of all claims equal to or above the attachment point…”

SIIA does not believe the intent of the bill sponsor is to preclude lasering and will work with members and allies to address this.

Utah- Technical Corrections Legislation Affecting Stop Loss Advances
Utah House Bill (HB) 24 is swiftly moving toward passage.

As previously reported, HB 24 contains Department of Insurance (DOI)-supported language, developed in part by conversation that DOI staff had with SIIA members, deleting a mandatory stop loss universal application and clarifying stop loss carrier liability if a plan sponsor terminates.

SIIA expects this legislation will be sent to the Governor’s office soon