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What Happens to a Health Plan during a Merger or Acquisition?

By: Kevin Brady. Esq.

While businesses who are considering a potential merger or acquisition have a lot on their plates, one thing that should always be addressed is the impact that the transaction will have on the benefit plans of both the buyer and the seller. While it probably does not represent the biggest concern, overlooking the potential impact on benefit plans can cause major headaches when it comes to potential mergers and acquisitions.

Because the impact on the benefit plans will often be determined by the nature of the transaction and the specific agreement between the buyer and seller, it is important that both parties are aligned when determining how employees affected by the merger or acquisition will be provided benefits after the transaction is complete.

For our limited purposes, there are typically three types of transactions when it comes to mergers and acquisitions; an asset sale, a stock sale, and a merger.

In an asset sale for example, the buyer will typically purchase selected assets from another business (i.e. a particular department, facility, or service line). The employees who are affected by the transaction are typically considered terminated and immediately rehired by the new employer. The buyer does not have a legal obligation to hire those employees but often will do so if it aligns with their business practices. Those employees (while they may not notice a significant change in their employment or benefits) are most likely going to be considered terminated and immediately transitioned to the new employer’s health plans. Generally speaking, buyers do not continue ERISA benefit plans in asset purchases. Some, if not most, continue to offer similar benefits either under an existing employer group health plan or a new plan established after the purchase of the assets. If the buyer intends to offer similar benefits under their existing plan, they must ensure that their plan allows coverage for these individuals.

On the other hand, in the event of a stock purchase, the buyer will typically “step into the shoes of the seller” in terms of its rights and responsibilities as it relates to ownership of the business (including ERISA plans). The employees of the seller are not considered terminated in the event of a stock purchase (although this does not guarantee future employment) and ERISA plans in effect at the time of the sale are typically continued after the stock purchase has taken place.

Finally, in a merger, two entities will combine to become one business entity. In this situation, similar to a stock purchase, the employees are not considered terminated at the time of the merger and if an ERISA plan was in effect at the time of the merger it will likely be continued. However, the impact on a particular entities benefit plan will often be determined based on the specific agreement between the parties.

As the nature of the transaction will have a major impact on benefit plans, it is always important to discuss the intent of both parties as it relates to their employees and those employees’ benefits. Often times, a potential merger or acquisition will include a thorough review of an entity’s compliance as well. Has the seller complied with the strict requirements to file form 5500s? Is the plan properly funded? Does the plan document itself allow for another employer to continue benefit under the plan? These are all questions, among many more, that should be asked and answered before moving forward with a potential merger or acquisition.

Finally, the buyer or the new entity (in the event of a merger), must ensure that they are compliance as it relates to their new employees and the benefits being offered to them. Buyers and sellers who could find themselves in a potential merger or acquisition should keep these things in mind as they move forward with those decisions. While a potential merger or acquisition can be a great thing for those involved, it would be a shame for unidentified issues with a benefit plan to hold things up or even prevent a potential transaction.


Robbing Peter to Pay Paul: The Trouble with Cross-Patient Offsetting

By: Jon Jablon, Esq.

Our consulting team (via PGCReferral@phiagroup.com) is often presented with the following scenario: Patient A visits Hospital, and the Plan pays certain benefits to Hospital which are later discovered to have actually been excluded by the terms of the plan document. This is a classic overpayment scenario, except that Hospital refuses to refund the overpayment to the plan (which it is well within its rights to do). In response, to try to avoid the loss, the Plan decides to activate the right it has given itself to offset future benefits payable against amounts due to the Plan. The right to offset future benefits is a common one, and there is nothing inherently unenforceable about offsetting benefits due to a patient, when that particular patient owes the plan money.

This health plan interprets its offset provision to apply across different patients. Since it is unknown whether or when Patient A will incur more covered claims, the plan instead decides to recoup its overpaid funds by withholding benefits due to Patient B (who had the misfortune of being the next patient to visit Hospital).

The question posed to our consulting team is whether this is an acceptable practice.

Our answer is no.

First, regarding overpayments in general: with some exceptions – such as payments by the Plan in excess of a contracted amount, or in excess of billed charges (for non-contracted claims) – providers do not have a legal obligation to refund money to a health plan. Instead, courts have indicated that the overpayment was technically made to the patient, since the plan paid money that would have been patient responsibility, had the plan correctly denied that amount.

Plan Administrators have certain fiduciary duties pursuant to ERISA and common law, including to act solely in the interest of plan participants, to act with the exclusive purpose of providing benefits and paying reasonable plan expenses, and to strictly abide by the terms of the Plan Document. The most apt interpretation of the practice of cross-patient offsetting is that the Plan has withheld benefits to Patient B in order to benefit the plan, such that Patient B is denied benefits to account for a prior error on the part of the plan. The plan’s attempt to make itself whole at Patient B’s expense – even though Patient B played no role in, nor benefitted in any way from, nor was even aware of, the overpayment – could be interpreted as a violation of an important fiduciary duty.

Cross-patient offsetting negates benefits due to patient B because of the Hospital’s refusal to refund money to the Plan. When we consider that it is not the provider that has technically been overpaid, but Patient A, it becomes more clear that Patient B cannot have benefits withheld to compensate for the overpayment made to Patient A. It’s an attempt to punish Hospital for not refunding money that is legally due from Patient A. Meanwhile, Patient B has paid her contributions in exchange for benefits from the plan; to withhold benefits due to Patient B because another, unrelated patient has not repaid the plan money allegedly owed is a practice we strongly recommend against.

Overpayments happen, and The Phia Group can assist in recouping them – but please, please do not offset a perceived overpayment against future claims incurred by other patients!


Don’t Get Bit: Avoid Falling Into the COBRA Snake Pit.

By: Kevin Brady, Esq.

Similar to a number of my millennial counterparts, my introduction to “COBRA” coverage did not occur during a college class or work project, but rather as a 26 year old kid who had to face the reality that relying on my parent’s health care coverage wasn’t going to last forever. Although a bit more expensive for me, COBRA was relatively simple from the qualified beneficiary’s perspective. Unfortunately, COBRA is lot less simple when looking at it through an employer’s eyes, especially when that employer self-funds its group health plan.

Even at a first glance, employer responsibilities under COBRA do not appear overly complicated. Put simply, if an applicable employer offers a group health plan to its employees, and an eligible employee experiences a qualifying event (such as termination, a reduction in hours, or a dependent losing coverage due to age or divorce) the employer must provide continuation coverage on the group health plan coverage for that individual, in the same manner that was available to them before the qualifying event.

Upon deeper inspection, COBRA administration is actually a lot more complicated. There are various responsibilities imposed on several of the participating parties when a qualifying event occurs.   Employers, qualified beneficiaries, and plan administrators all play important roles in ensuring COBRA is offered, and administered, correctly; but employers who self-fund their health plans bare the majority of the responsibilities as they are likely to be considered both the employer and the plan administrator in regards to COBRA’s regulations. It follows then, that employer sponsors bare the majority of the risk in the event of a failure to satisfy COBRA’s nuanced requirements.

One issue we see quite frequently involves the required “employer notice of a qualifying event.”  When an employee experiences certain qualifying events (termination or reduction in hours) the employer must provide notice to the plan administrator. Once the plan has notice of the qualifying event it must then offer continuation coverage to the qualified beneficiary within 14 days.

In the self-funded world, the notice responsibility can sometimes be a bit confusing as the employer sponsor is playing multiple roles in the COBRA process.  Employer sponsors should have processes in place to ensure that notices under COBRA and the resulting continuation coverage are properly administered or they risk inadvertently continuing coverage for individuals who are no longer eligible under the terms of the plan.

Employer sponsors risk both stop-loss reimbursement issues and fiduciary responsibility concerns if they continue to offer benefits to ineligible individuals. Employers risk direct liability for medical expenses incurred by an individual in the event the employer fails to provide notice to the plan administrator in a timely manner or not at all. On the other hand, as the plan administrator the sponsor could be liable for ERISA statutory penalties if the employer fails to offer coverage to a qualified beneficiary.

When employer sponsors offer group health plan coverage to their employees, they should be cognizant of the potential pitfalls that could arise when dealing with the various nuances that come with COBRA continuation coverage. A prudent employer sponsor will make sure it understands its role in the COBRA process as both an employer and a plan administrator.


Take Two Premiums and Call Me in the Morning...

By: Ron E. Peck, Esq.

A friend and ally in the health benefits industry recently asked me if I had an up to date listing of the most costly health care expenses paid by health plans in 2018.  I didn’t; so on a whim I brought up my handy dandy search engine and typed in: “the most costly health care expenses paid by health plans in 2018.”  You know what the top results were?  “Cost of Employer Health Coverage to Rise in 2019” … “Health Insurance: Premiums and Increases” … “How to Find Affordable Health Insurance in 2018” … and other, similar articles focused on what individuals will pay in premium (and in some instances, even dissecting co-pays, deductibles, and co-insurance).  The common thread?  They are all about participant out-of-pocket expenses.  I didn’t ask how much it costs to obtain insurance.  I asked how much it costs to obtain an appendectomy!

This is just a most recent example of an issue that sticks in my craw like no other, and reminds me of something I wrote years ago.  Check this article out: https://moneyinc.com/affordable-health-insurance-is-not-affordable-health-care/.

“… too many people are confusing the term ‘health care’ with ‘health insurance.’ … Health care – meaning the actual act of caring for someone’s health – is necessary for survival. Health insurance – meaning a method by which we pay for health care – is just that; merely a means to pay for health care. Yet, a few years ago (2009 to be precise), a report posted by the American Journal of Public Health indicated that nearly 45,000 deaths are annually associated with a ‘lack of health insurance’ and that uninsured, working-age Americans have a forty percent higher risk of death than those with private insurance.  The knee-jerk reaction to this news is likely (and likely was) to rush to provide health insurance to as many people as possible. Indeed, according to this report, health insurance saves lives. Furthermore, one could argue, if saving lives is health care, and health insurance saves lives, then health insurance is health care, and your author has proven himself wrong.… As stated before, however, health insurance is a method by which we pay for health care. It stands to reason, therefore, that it is not a lack of health insurance that kills people, but rather, it is a lack of means by which to pay for health care that kills people. This, then, leads us to a logical conclusion; the problem is not that we don’t have insurance … the problem is that we can’t pay for health care without insurance. This, then, leads to the next logical thought: why is health care so expensive?”

Go back and re-read the first paragraph of this blog post.  Sadly, I fear my words published two years ago apply as much today as ever.  Enjoy this blast from the past for Throwback Thursday, and let me know if you think we’ve advanced at all since then.


Patient Assistance Programs: Friend or Foe?

By: Brady Bizarro, Esq.

Prescription drugs are some of the most costly benefits for any health plan, especially for those plans that are self-funded. In 2017, total spending on prescription drugs in the U.S. reached $453 billion. Specialty drugs are particularly culpable, accounting for more than one third of all drug expenditures in 2016 despite making up less than one percent of all written prescriptions. In May, the Trump administration released a forty-four-page blueprint for executive action on prescription drug prices, entitled “American Patients First.” The document contained many strategies for combating rising drug costs; but it also focused in on the use of patient assistance programs (“PAPs”) and considered whether they might be driving up list prices by limiting the transparency of the true cost of drugs to patients.

Plan sponsors originally utilized the typical tools available to them to try to offset the cost of specialty drugs: higher copayments, coinsurance, and deductibles. In an effort to mitigate the impact on patients, several pharmaceutical manufacturers developed PAPs to help offset patients’ out-of-pocket drug costs. Some of these programs are very generous. For example, a PAP run by Enbrel offers up to $660 per month toward the cost of a specialty drug for members who would not otherwise qualify for financial assistance.

Assistance programs are marketed as a kind of altruism for patients, which has great public relations benefits. They can also increase the demand for specialty drugs, even when generic alternatives are available. This results in a huge cost to the patient’s health plan. Consider the following scenario: a specialty drug’s list price is $10,000. A generic alternative is available that has a list price of $2,000. The health plan imposes a $500 copay for specialty drugs when generics are available and a $100 copay for generics. In this case, however, the specialty drug manufacturer offers the patient a $450 copay card. For the patient, the out-of-pocket cost for the specialty drug is $50 cheaper than the copay for the generic alternative. The patient chooses the specialty drug, and the health plan pays $9,500. Had the patient selected the generic alternative, the plan would have only paid $1,900.

As the scenario above reveals, PAPs can incentivize patients to choose specialty drugs even when cheaper, generic alternatives are available. For most patients, the only price they are aware of is the amount they pay at the register. The cost to their health plan remains hidden to them, although they eventually feel the effects downstream. In other words, PAPs can save patients money on the front end while driving up the cost to patients on the back end through increased premiums and cost-sharing. With PAPs now in the crosshairs of both plan sponsors and the Trump administration, we should expect new regulations on their use in the coming months.


An Addiction to Health Insurance

By Ron E. Peck

From June 4th to June 6th we hosted The Phia Group’s Most Valuable Partners at our annual MVP Forum.  This year, it took place at Gillette Stadium, located at Patriot Place in Foxboro, Massachusetts – home of the New England Patriots.  I personally love the Pats, and have been a huge fan since I was a pre-teen growing up in a suburb of New York; (ask me to explain it someday, and I will do so happily).  Likewise, company co-owner and CFO, Mike Branco, is a huge fan.  The other co-owner and CEO, Adam Russo, however, is not a fan – and by that, I mean he hates the team.  Yet, we can all agree the venue, people, and event were exceptional.  Above all else, however, I think the guests are what made the event such a success.  Speaking of guests, one guest in particular volunteered to act as a presenter; (in fact, he was the only non-Phia Group speaker).  That gentleman is Jeffrey S. Gold, MD, of Gold Direct Care; a direct primary care provider located in Marblehead, MA (http://golddirectcare.com/).  Amongst the many interesting things Doctor Gold presented, one thing he mentioned that really struck home for me is that we – as a nation – have an addiction to health insurance.  Wow. 

I took this to heart, and recently asked a newly hired employee of The Phia Group the following series of questions:  “Do you own a car?  Yes.  Do you get oil changes, and fill the gas tank?  Yes.  Are you going to have a car accident?  Uh… I don’t know.  I hope not.  Maybe?  Do you have auto insurance?  Yes.  Will auto insurance pay for the oil changes?  The gas?  No.  Will they pay for the accident?  Yes – that’s what it’s for.  Ok.  Do you get a flu shot every year?  Yes.  A physical; a regular check up?  Yes.  Do you routinely purchase a prescription drug?  Yeah… Are you going to be diagnosed with cancer?  Oh man.  I hope not!  Me too!  But… answer the question.  I don’t know.  Ok; are you going to break a leg?  Maybe?  I don’t know.  What does health insurance pay for?  Uh… all of it.  If auto insurance only pays for unforeseen, but admittedly costly risk, and lets you pay for the routine, foreseeable stuff… why does health insurance pay for everything?  I don’t know.  Wow.  Good question.  Uh huh.  And if the gas station charged $50 a gallon, would you still fill your tank, or go to the competition?  I’d go elsewhere.  That’s nuts.  Ok… So why do you pay $50 for a tissue box when you go to a hospital?  Uh… I don’t.  Health insurance does.” 

This exchange encapsulates one of the issues driving the cost of healthcare through the roof.  Health insurance isn’t insurance.  It’s a community funded piggy bank that we use to pay for everyone’s healthcare – foreseeable and not.  Because some people’s care is more costly than others, but they can’t afford to pay their pro-rated share, everyone needs to chip in something extra to pay for those people.  Frankly, I morally don’t have an issue with that.  I understand the value of everyone pitching in to lift up society in general.  Furthermore, that person in need could be you, or someone you love, with the snap of a finger.  So I see the need.  My issue is that the concept – collecting funds from everyone to care for a society’s need – is by definition, a tax.  The fact that we’re forcing that square peg through the round hole of private insurance is foolish.  Insurance was invented to shift unforeseen (and unlikely) but extremely costly risk onto an entity willing to gamble that the loss won’t occur, but who can afford the hit in the unlikely scenario that it happens.  Forcing a private entity to pay for foreseeable, absolutely certain events – without adequately funding them – is just passing the buck in its worst form.

Furthermore, by removing the consumer of healthcare from the exchange, the person picking the care has no incentive whatsoever to consider price when assessing providers of the good or service.  It’s unnatural not to balance cost against benefit.  When a young male lion wants to mate with a female, but first he needs to defeat the alpha male of the pride, he has to weigh the cost against the benefit.  If that lion had insurance akin to our health insurance, he’d be chasing every female he sees – after all, his insurance will fight the alpha male for him, right?  Isn’t that what insurance is for? 

For too long insurance has been treated as a shield, blinding people from the cost of their care.  I don’t begrudge providers of healthcare their profits; as someone with my own medical needs, and whose family has had its share of health issues, I value our nation’s providers above all others.  I think, however, that the system – as currently constituted – does no one any favors.  Providers who achieve maximum effectiveness and quality of care should are able to charge less for their services, while those who are routinely wasteful or fixing their mistakes, need to charge more for the same services.  As with the competing gas stations, so too here, we need to reward the provider that can do more for less, and the first step in doing that is to shake our addiction to insurance.  Until people see how the cost of care ultimately trickles down to their own pocket, they won’t care enough to pick the better options.


The Fax Machine and a Lesson in Incentives

By: Brady Bizarro, Esq.

Let’s face it: fax machines are horrible and outdated. From busy signals to unreadable printouts to incorrect destinations, it is no wonder most industries abandoned them last century. In our industry, which deals extensively with providers, it’s the primary way to communicate. Understanding why can give you a glimpse into the broader problems with healthcare policy in this country today; a misalignment of economic incentives.

Almost all providers have digitized their own patient records. This was done largely thanks to the Obama administration. In 2009, as part of the stimulus bill, the government passed the Health Information Technology for Economic and Clinical Health Act (the “HITECH Act”), which included nearly $30 billion to encourage providers to switch to electronic records. Statistics reveal that the number of hospital systems using electronic records went from nine percent in 2008 to eighty-three percent in 2015. So far so good. So, what went wrong? Why is the fax machine still the primary way doctor’s offices communicate?

The issue is not digitizing records: the issue is sharing them. When doctors want to retrieve patient records from another doctor’s office, they turn to the fax machine. They print out records, fax them over to the other provider, and that office scans them into their digital system. Needless to say, this is inefficient, and a misreading of economic incentives is to blame.

The government, at the time, assumed that providers would volunteer to share patient data amongst themselves. This data, however, is considered proprietary and an important business asset to most providers. If other hospital systems could easily access and share your medical record, you could more easily switch providers. Switching providers may be a good thing for a patient who is shopping for better value care, but most providers perceive this ability as a threat to steerage. After all, hospital systems compete with one another for steerage.

As in the case of other healthcare policy problems, chief among them out-of-control spending, doctors, nurses, patients, lawmakers, everyone is frustrated; yet, a solution has thus far been out of reach. The proposed solutions divide policymakers among ideological lines as is often the case with healthcare spending: some feel that more government regulation is needed; others feel that fewer regulations are needed. The Trump administration has so far proposed deregulation in this area and giving patients more control over their own medical records. This is one of the four priorities recently accounted by the Department of Health and Human Services (“HHS”). Time will tell if this approach will finally lead to the demise of one of the most despised pieces of technology in medicine.


Massachusetts on Track to Pass a Significant Cost Containment Bill
By: Brady Bizarro, Esq.

Massachusetts, like Phia, is a cost-containment leader and on the front lines of the battle to contain health care costs. Last month, Massachusetts State Senators proposed a comprehensive reform bill focused on health care cost containment, specifically focusing on prescription drug prices and hospital costs. They, along with the Millbank Memorial Fund, spent the past year looking at what other states have done to try and curb health care costs. This bill was addressed last at the state’s Massachusetts Association of Health Plans (“MAHP”) conference by Senate President Stanley Rosenberg (which I attended). The report’s recommendations reveal that the Commonwealth is moving toward adopting many of the cost-containment strategies we already recommend to our clients, including: increasing the use of alternative payment methodologies, encouraging value-based choice, increasing consumer awareness, and mitigating provider price variation.

Unsurprisingly to our industry, the state identified pharmaceutical drug costs as a significant driver of rising health care costs. The bill empowers state agencies to conduct additional oversight of drug manufacturers and pharmacy benefit managers (“PBMs”). Notably, pharmacists would be required to inform consumers if a prescription’s retail price is less than they would pay through insurance, and to charge them the lower price. Drug manufacturers and PBMs are required to report drug pricing information to the state’s Health Policy Commission (HPC).

With regard to reigning in hospital spending, the bill aims to reduce unwarranted price variation among hospitals, out-of-network billing, and hospital readmissions. The state’s idea is to set the benchmark for readmissions at 20% for 2017-2020 and to disincentive out-of-network billing by establishing an upper limit for the non-contracted commercial rate for both emergency and non-emergency out-of-network services.

The Senate is expected to vote on this bill before the holiday recess begins on November 15th. If the bill passes the upper chamber, the debate would move to the Massachusetts House of Representatives, which could make significant changes. We will be monitoring the progress of this legislation.


Natural Disasters (Hurricanes Harvey and Irma) - Don’t Let Them Wreak Havoc on Your Health Plan

By: Kelly Dempsey, Esq.

The last few weeks have been difficult for several states and U.S. territories.  Hurricanes Harvey and Irma have caused significant flooding and damage.  In addition to the loss of power, many people are homeless and corporations/employers are without a place to conduct business.  Depending on the level of damage, it may take a long time for different areas of the country to rebound and rebuild.  Chances are that employee benefits, specifically the health plan, are the last thing on employers’ and employees’ minds, but there are some very important considerations.  So what do Hurricanes Harvey and Irma mean for employers, employer sponsored health plans, TPAs, and employees?  

Self-funded health plans are required to comply with various federal laws that carry different responsibilities including, but not limited to, ERISA, COBRA, FMLA, HIPAA, and the ACA.  These federal laws come with a wide array of notice requirements and time frames for processing claims and appeals and other requests for documents or information.  As such, the Department of Labor and the Department of Health and Human Services (collectively referred to as “the Departments”) have issued press releases and bulletins that provide general guidance and limit exposure to penalties.  These press releases were specifically issued after Hurricane Harvey; however, it’s likely that additional releases will be issued to address Hurricane Irma.  Below are links to important press releases; however, the following is one of the key summary statements:

The guiding principle for plans must be to act reasonably, prudently and in the interest of the workers and their families who rely on their health plans for their physical and economic well-being. Plan fiduciaries should make reasonable accommodations to prevent the loss of benefits in such cases and should take steps to minimize the possibility of individuals losing benefits because of a failure to comply with pre-established time-frames.

Health plans and their supporting vendors will likely need to review situations on a case by case basis to determine what is reasonable for each plan and employer.

If you’ve listened to any recent Phia Group webinars, presentations or podcasts, or read our blog or published articles, you already know we’ve been focusing on leaves of absence and gaps between handbooks and plan documents.  You’re probably thinking, “Yes, I know, so what’s your point?”  With all the damage to homes and job sites, it is possible employees may seek leaves of absence and/or employees will ask questions about existing leaves of absence and how the leave is impacted if an employer ceases operations.  While FMLA is generally not available for employees to use as time off to attend to personal matters such as cleaning up debris, flood damage, home repair, etc., FMLA may come into play if an employee or their family member suffers a serious health condition as a result of the hurricane.  For those employees that were already out on FMLA, if an employer ceases operations, the time operations are stopped would not count towards FMLA leave.  As always, FMLA and other leave situations should also be reviewed on a case by case basis.   

In summary, the Departments have issued guidance specifically related to Hurricane Harvey; however, we anticipate additional guidance associated with Irma as well.  The bottom line is that employers, health plans, and applicable vendors will need to act reasonably when administering the health plans (i.e., processing claims and appeals, issuing notices such as COBRA notices, etc.) and take into consideration the locations and entities that were impacted and allow grace periods or other relief as applicable.

Important Press Releases and Relevant Guidance:
- U.S. Department of Labor Issues Compliance Guidance For Employee Benefit Plans Impacted by Hurricane Harvey
- Secretary Acosta Joins Vice President Pence in Texas
- FAQs for Participants and Beneficiaries Following Hurricane Harvey
- Hurricane Harvey & HIPAA Bulletin: Limited Waiver of HIPAA Sanctions and Penalties During a Declared Emergency


A House Divided
By: Ron E. Peck, Esq.

In the world of self-funding, everyone plays a role.  The broker advises, the employer customizes their plan and funds it, the claims administrator (TPA, ASO, etc.) processes claims, and stop-loss provides financial insurance.  When the lines get blurred or we start asking people to do the jobs of others, we either create new opportunities or destroy the foundation.  It all depends upon whom we’re asking, what we’re asking them to do, and whether they are stepping on any other toes when so doing it.

Consider, for instance, when a benefit plan asks its stop-loss carrier whether they should or shouldn’t pay a claim.  Stop-loss is not health insurance.  It is a form of financial reinsurance.  Health insurance receives medical bills, processes the claims, and pays medical service providers for care rendered to insured individual patients.  Stop-loss allows others to handle the “health insuring,” and instead provides protection to such health benefit plans against debts – incurred by those benefit plans – when payable claims exceed a deductible.  They despise it when a plan asks them whether the plan should pay or deny a claim.  They don’t want to be the fiduciary, or deemed responsible for wrong payment decisions.  They aren’t paid to make such decisions, or incur such exposure.  As such, most stop-loss carriers have traditionally told the plan that they (the carrier) cannot make the call, and that the plan will have to comply to the best of their ability with the plan document.  That, when the claim is submitted for reimbursement to the carrier, only then will they judge the payability.

The problem?  Some carriers want to have their cake and eat it too.  They won’t tell the plan what to pay and what to deny, but they will happily criticize the plan’s decisions after the fact.  Again – let me stress that I’m talking about a minority of carriers.  These very few can ruin the reputation of an entire industry, however, and that is why it is so important to address this growing problem.

With increasing frequency – a lack of communication or presence of conflicting interpretation is resulting in stop-loss and benefit plans disagreeing regarding what is payable, how much is payable, and thus – what is covered by stop-loss.  Even more tragically, the growing number of disputes between plans and stop-loss carriers is leading to an increased number of claims paid by benefit plan sponsors that are not reimbursed by stop-loss, resulting in employers enduring negative experiences with self-funding, financial ruin, and legislative scrutiny.

For instance, a plan document may define the maximum payable rate as “usual and customary,” and define that as being a number calculated by reviewing what most payers pay.  The plan takes that to mean “private payers,” while stop-loss includes Medicare as a “payer” when calculating the payable rate.  Or, perhaps the plan applies usual and customary only to out of network claims – choosing to pay per a PPO network contract whenever possible, but stop-loss interprets the term “maximum payable” to apply to all claims – in and out of network; arguing further that the plan document controls the plan, and stop-loss only insures the plan.

The number of claims I’ve seen independently audited by the carrier, resulting in the carrier chopping away at the amount paid by the plan – in an effort to define what they feel is the “payable” amount – and the resultant conflicts will not benefit the industry.  When a self-funded employer who sponsors a self-funded plan, also uses a PPO (to avoid balance billing of their members), and that plan pays $100,000 in “discounted claims” … they expect stop-loss to pay everything paid beyond the $60,000 deductible; a refund of $40,000.  It is, after all, why they pay for stop-loss, and is something they depend upon to self-fund.  Imagine, then, when the carrier “reprices” the $100,000 using Medicare,  and decides no more than $10,000 should have been paid… well short of the $60,000 deductible.  They may even go so far as to “advise” the plan to ask the provider to refund $90,000 to the plan.

This employer will point a finger at their broker, their TPA, and stop-loss.  Taking the carrier’s advice to heart, and challenging the outrageous provider bills and/or PPO terms is the last thing they are going to do.  The sooner we realize this form of “tough love” doesn’t work, and ultimately only provides fuel for politician’s anti-self-funding rhetoric, the better.

To address this issue, it behooves both the plan (and its TPA) and stop-loss to examine the plan in its entirety during the underwriting process.  What do I mean by “entirety?”  The plan document is not enough.  A plan is more than an “SPD.”  It is also the network contracts, employee handbooks, and any other document or obligation that dictates how the plan will actually be administered.  Only by laying all of those cards on the table ahead of time and agreeing collectively how the plan will be administered in all such circumstances can disputes like the ones I described be addressed before real money is at stake.