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Phia Group Media


2nd Quarter Newsletter 2015

 The past few months have brought so much intrigue to our industry.  Everywhere you looked, something or someone was affecting health care and the insurance industry as a whole.  We saw the Supreme Court make a few monumental decisions that will affect how plans are written in the future and the viability of the ACA.  We saw interesting court cases placing more potential fiduciary risks upon brokers and administrators.  We watched and reacted as more states attempted to limit the ability for smaller employers to self fund their benefits through the use of stop loss coverage and last, but certainly not least, we have seen a monumental increase in the DOL audits to our clients and the industry at large.  If there ever was a time that The Phia Group’s services were needed, this is it!

There is no question that health claims costs continue to skyrocket and the use of so called wrap discounts on many of these claims isn’t helping to reduce the burden.  If you are looking for some innovative options to stand out from the pack, please contact me as there are so many great ways to truly make a powerful impact on behalf of your employer plans.  We can save you and your plans significant claim dollars, you just need to strategize and identify your major pain points.

The next quarter will continue to be eventful so while you enjoy your summer weather, please be sure to let us know if you need some assistance – we are here for you.  Happy reading

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Second Quarter Newsletter 2015 – Phia News
New Faces at Phia
James Newell Jr.
Hired April 20, 2015 into the Claim & Case Support department
Wayne Andrews 
Hired May 11, 2015 into the Claim & Case Support department
Mia Shabazz 
Hired June 1, 2015 into the Case Investigation department
Brigid Bowser
Hired 06/01/2015 into the Phia Group Consulting department

Movers & Shakers

Jason Kemp earned his paralegal certificate

Amanda Grogan is now a Claim Recovery Specialist IV, handling bodily injury cases

Jason Kemp and Kerri Sherman are now Senior Claim Recovery Specialists 

Tumi Gugushe moved from the Consulting department to the Case Identification department

Derrick Mish moved from the Claims Support department to the Claims Analysis department

Danielle Bates moved from the Case Investigation department to the Customer Service department

Additions to the “Phamily

Jillian McCallum’s baby, Owen, was born Friday, April 24, 2015.

Tara Trojano’s baby, Grace, was born Wednesday, July 1, 2015.

2015 Charity

The Komen Promise – To save lives and end breast cancer forever by empowering people, ensuring quality care, and energizing science to find the cures.
 
 
On September 25, 2015, The Phia Group’s Boston-area staff will be helping to set up for Komen’s Race for the Cure, which takes place on September 27th at Carson Beach in South Boston. The Phia Group thanks the Massachusetts affiliate of Susan Komen® for its service and the dedication that it shows.

For more information or to get involved, visit  www.komenmass.org.

Beating Medical Trend – Managed Care vs Reference Based Pricing
MyHealthGuide Source: Bill Rusteberg, 7/2015, RiskManagers.us White Paper <http://www.riskmanagers.us/>

The Problem

Medical inflation continues to rise. Facing rate increases year after year, plan sponsors, with their financial backs to the wall, have historically resorted to cost shifting. These continued failed attempts to control costs have driven some to seek alternate means to restore pricing sanity to health care. To many, the cost of health insurance can mean the difference between profit and loss.

Understanding the cost of health care is directly related to what we agree to pay; more and more employers are questioning managed care contracts upon which their health care costs are based. Many are discovering the truth for the first time. Secretive contracts between health care givers and third party intermediaries contain provisions that guarantee continuous and systematic cost increases. Shared savings side agreements and other schemes found in the health industry economic chain help fuel raging health insurance costs.

Known as medical trend, cost increases have proven to be consistent and predictable. The expected rise in the cost of medical services over time is expressed as an annual percentage increase and is an important element in underwriting future risk. Medical trend is a dominant cost driver in rate making. The annual compounding effect can double or triple health care costs over time.

“For managed care plans, the medical care inflation part of trend is a function of the changes in provider reimbursement rates that are negotiated. To the extent that such negotiations entail factors such as outliers and provider bonuses, the trend rate may be materially more than simply the weighted average increase in fees.” Kevin Gabriel, MBA, FSA, MAAA, Chief Actuary of Sierra Berkshire Associates, Inc.


The Solution
Moving away from managed care contracts, more and more employers are embracing a myriad of reference based pricing models. These models can vary in scope and reach; however all share certain common characteristics in conformance with prudent business practices. Price transparency and claim benchmarking are key elements.


In 2007 — 2008 we approached several of our clients to suggest something different to control costs. The concept was simple. Eschew managed care contracts in lieu of claim benchmarking off multiple data points such as Medicare reimbursement rates. Removing managed care contracts, i.e, PPO, and paying providers quickly, fairly and directly had an immediate impact on claim costs.

After 15 months we performed a study by running 100% of claims back through the prior PPO network reimbursement rates. This exercise proved a net savings of 43% above and beyond the PPO discounts we would have otherwise experienced. Instead of doing the same thing year after year, our client did something different and it worked.

It has been seven years since our first client exited the managed care world. Subsequently more clients have embarked on the same journey, most with equally good results. None have returned to the world of managed care.

The Evidence

Skeptics may ask “How have your clients fared over time? Have they won the battle against medical trend?” The answer may be found by reviewing the experience of four of our clients who have been on a reference based pricing model for five years or more.

Our study is based on actual paid, mature medical claims through succeeding plan years starting in the first year on reference based pricing benchmarked off the prior year under a managed care plan. All claims above stop loss levels have been excluded.

This abbreviated analysis does not recognize changing demographics and plan changes. For example the leveraging effect of higher deductibles will increase trend factors. Of particular importance it should be noted that plan changes occurred in each case through improved benefits supported by prior year claim savings. This study includes medical claims only.

One must understand that medical trend is just one of the factors used to calculate renewal rates for health plans and stop loss insurance. Each year carriers set their own trend level based on various factors, including the current health care inflation rate, analysts’ forecasts and their own experiences. However, our clients are self-funded and thus bear most risk with actual trend directly affecting costs without the benefit of pooling to any significant degree.

“Over the past several years, trend rates have consistently run 8-10% nationally, though certain regions have seen significantly higher or lower figures. Prescription drug trends (which are a component of this) have been more volatile. In the early 2000’s these trends were above 15%. They then fell back to single digit levels. But they have now returned to the teens,”  said Gabriel.

In comparing our client’s experience with average medical trend, we relied upon Heffernan Benefit Advisory Services — 2013 Trend Report; Historical Trend Factors. Based on this report, we are using 9.615% as average annual medical only trend factor.

Political Subdivision — 400 Employee Lives
This case has been on RBP for 7 years. They experienced poor claim years in 2010 and 2012. In 2012, for example, there were 14 large claims that approached or exceeded $125,000. Medical PEPM for 2014 and 2015 (to date) is less than 2008. Benefits have been improved; no deductible or co-insurance features with all benefits subject to co-pays only. Funding increase over seven years has been 15.6% or 2.23% per year.

[Political Subdivisoin]
Public School District — 900 Employee Lives
This case has demonstrated a consistent downward claim trend. Current PEPM (2015) is less than 2008-2009. No benefit reductions. Some benefit improvements. Plan funding has remained essentially static for the past five years.

[Public School District]
Medical Industry — 280 Employee Lives
Plan year 2012-2013 experienced an outlier year with several large claims and 34 pregnancies. Current medical PEPM is 16% higher than under managed care plan in 2008-2009, representing a 2.66% increase per year (sans outliers). This illustrates that higher utilization and outlier claims will result in increasing cost which would occur under either managed care or RBP model. However, RBP trend factor continues below industry benchmarks.

[Medical Industry]
Retail Business — 818 Employee Lives
This case has consistently been well below medical trend. Current medical PEPM is significantly lower than plan year 2008-2009. This case has not raised plan contributions in seven years.

[Retail Business]
Conclusion
Managed care has failed. Medical costs continue to soar. Providers are charging more and we continue to agree to blindly pay up through secretive contracts negotiated by vested interests. Medical trend has, and continues to be, consistently at double digits or close to it.

Cost plus insurance / reference based pricing is a proven method to maintain and even improve comprehensive coverage while at the same time keeping costs reasonable, predictable and consistent. Industry sources estimate reference based pricing plans represent 10% market share and rising. An east coast hedge fund, seeking opportunities in reference based pricing models, predicts reference based pricing will gain 60% market share within the next five years.

“What moves things is innovation. But it’s not easy to innovate in stagnant, hyper-regulated, captured sectors” – Max Borders ( www.fee.org<https://t.e2ma.net/click/hcsgk/l7ixcb/lf924f> ) Cost shifting under the Affordable Care Act will continue to fail to control costs.

Reference Based Pricing represents the last frontier in innovation to control health care costs in a tightly regulated and controlled market.

Plan sponsors can reasonably expect to reduce their health care costs below medical trend without benefit reductions or cost shifting of any kind.

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.