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Self-Funding Comes in Many Forms - When Describing, Take Care to do so Accurately!

By: Chris Aguiar, Esq.

I read what I thought was a decent article this week on some of the advantages of self-funding but wanted to take an opportunity to comment/elaborate.  Always great to see self-funding be touted in the public eye via highly visible media sources.  It can certainly be difficult to give a very detailed explanation of this complex risk model in a capped word count article, but something jumped out at me that I thought relevant to note.  The author describes self-funding generally as “the employer pays for its own employees’ claims, or at least to a certain amount, while larger claims would be handled by insurance companies”.  Certainly that is a model we’ve all seen, but it is indeed only one model and the exact kind of description that drives the misconception that a self-funded plan that uses a traditional stop loss model is not fully self-funded and is therefore insured.

It's important to understand that many self-funded plans do not utilize the hybrid approach this description implies.  To the casual observer this description suggests that a $1,000.00 claim is paid by the self-funded plan while a $100,000.00 claim is paid by some other health insurance arrangement entered into by the employer; that’s simply not accurate, certainly not among The Phia Group’s clientele.  Rather, for many self-funded plans the plan is at all times responsible for the medical bills and, only after the paying, seeks reimbursement from another insurance company.  That company from which the plan seeks reimbursement is not a health insurance carrier, rather, it’s a financial insurance vehicle that protects and ensures the viability of the Plan to make sure benefits continue to be available for all employees/beneficiaries of the plan.

So, just like the $1,000.00 medical bill, the employer/self-funded plan receives the $100,000.00 claim and must evaluate whether it is eligible for coverage and provide said coverage.  Only then, does it submit a reimbursement request (assuming the $100,000.00 is above the applicable deductible).  It is often the case that for some reason or another, the plan allows for coverage but the request for reimbursement is denied under the terms of the stop loss insurance policy.  Certainly, that self-funded plan would tell you that they were unable to “transfer the risk” on that particular claim.

The description above alone is almost 350 words – so we certainly can’t expect an article of about 750 words intended to cover both self-funding and Direct Primary Care, one of the more innovative approaches being utilized by employers to provide more cost effective health plans to their employees, to describe it in depth.  Notably, the author did not quote Mr. Thaxter when making that description, so it’s impossible to know exactly how it was described to him.  As practitioner in the self-funded space, it’s incumbent on us to do everything we can to educate those who are self-funded, or looking to become self-funded on the benefits, the risks, and strategic and innovative steps that can be taken to minimize the risk and maximize the reward – more cost effective medical benefits!

Catch the article here - https://thebusinessjournal.com/self-funded-insurance-options-come/?fbclid=IwAR3D-CxhWa1vrUy1lkmNMKJTt3cAuucs6v5q7zT4mkQA7ytD9oBQsyl92Pc


Not all Illegal Act Exclusions are Created Equal

By: Kelly Dempsey, Esq.

The drug addiction crisis in many parts of the United States is a reoccurring news headline, so it’s no secret that the prevalence of medical claims related to driving while under the influence of drugs and/or alcohol also appears to be on the rise. Illegal acts and illegal drugs exclusions are prevalent in self-funded plan documents, but the million dollar question is does the wording in the plan document align with the plan’s intent?

There are many different versions of illegal acts exclusions – some include references to misdemeanors or felonies, while others refer to acts that are punishable by any period of incarceration. The first step to ensuring the plan language meets the needs of the employer is to determine what types of acts the employer intends to include in the illegal acts exclusion. This doesn’t mean the plan needs to specifically list examples of illegal acts but instead use broader descriptions. For example, a plan could exclude felonies and misdemeanors, but not civil infractions or minor traffic violations. Unfortunately illegal acts exclusions can be a bit more complex because of variations in state law so it’s important that employers keep this in mind. It’s of the utmost importance that the plan creates an exclusion that outlines the employer’s intentions and motivations for what should be considered excluded under their illegal acts exclusion.

The plan administrator of a self-funded plan will always retain discretionary authority to interpret the terms of the plan document. While self-funded plans have broad discretionary authority as a fiduciary, the plans must ensure this discretion is utilized in a uniform and consistent manner.  For example, a self-funded plan cannot be discriminatory with claim payment (i.e. deny claims for Sally who is in a DUI, but pay claims for Joe who was in a DUI). However, in order to avoid a breach of that fiduciary duty in use of their discretion, the plan administrator must not act in an arbitrary or capricious fashion.  As we’ve seen in the recent Macy’s court case, it’s important to align plan language with how the claims are administered – so the plan will also need to ensure that the third party claims administrator can process claims in a manner that aligns with the plan’s intent.

As with all exclusions, illegal acts exclusions must be reviewed on a case by case basis to determine their applicability. The key factors are generally a combination of the facts of the specific situation, how the exclusion is worded, and applicable state law and/or guidance. Ultimately, the plan will be using its discretionary authority when determining whether or not to exclude coverage.


Pay the Cost to be the Boss!
By: Ron Peck, Esq.

Between Friday and Saturday I was feeling under the weather.  By Easter Sunday, my chest was terribly congested, my nose running, breath wheezing, and more.  My assumption was that on this holiday, I wouldn’t be able to find a provider – and given my breathing issues – I might find myself in the ER.  I contacted my local Urgent Care anyway, and – lo and behold – they were open.  30 minutes later I was being tested for flu, and hooked up to a nebulizer to ease my breathing.  The quality care I received, on this holiday, aside… I want to address the global issue as I see it.  I knew which options were available to me, and made an effort to pursue the option that was best for me AND my employer (as well as our self-funded benefit plan), because we have made efforts to ALIGN THOSE INTERESTS.  I was educated, aware, and incentivized to check the urgent care option before rushing to an emergency room.

Too many employers, that wisely choose to self-fund their health plan, assume that once they pick a claims processor and broker, they are off the hook and some third party will take over.  This dereliction of fiduciary duty saddens me.  Being self-funded means more than funding claims directly.  It means taking ownership over your staff… your team… your second-family (for, indeed, I consider my co-workers to be a second family; who else besides family occupies so much or our time?), and ensuring they understand the options available to them.  Making sure they understand how different choices impact the company, the plan, and their own financial bottom lines needs to be a priority for the employer.

Ask the average American employee if their health plan is self-funded.  They don’t know.  There is a greater than 60% chance they are self-funded, but they will instead quote the name of their network.  Ask how much a visit to the ER costs, compared to their primary care or urgent care, and they will quote the co-pay.

Employers!  Self-funders!  This is a call to action.  Stop passing the buck.  Start explaining how your plan is funded, and take proactive measures to align employee and employer interests.  Information is power.  Furthermore, don’t resort to a high deductible plan – again passing the buck – (this time onto the employee).  How is any employee supposed to “shop around” if they have no access to the cost of care?  As an aside, I think it’s hilarious how we gripe over the ACA, and how “Obama” focused too much on “who” is paying, and not enough on “how much” is being paid… that shifting the burden onto insurance doesn’t solve the issue of cost… and then we turn around and increase deductibles; ignoring the cost and instead shifting the burden.  When we simply pass the buck instead of addressing the cost head-on, we are just as bad as the politicians we complained about!

To that end, transparency is king; regardless of whether the plan is paying dollar number one and incentivizing employee behavior, or the employee is paying the first few thousand dollars via a high deductible.  That’s why I’m excited by organizations like The Free Market Medical Association, and the recent surge in subscription based direct primary care.  By investigating trends like these, educating employees about their plan’s funding mechanism, and actually incentivizing them to behave in a way that benefits them and the plan, we will begin to see real change – just like I did this past Sunday.

U.S. Airways v. McCutchen – Where Are they Now?
By: Chris Aguiar, Esq.

The health benefits industry can feel like a whirlwind, especially for self-funded plans.  We always seem to be running around trying to figure out how to comply with the law, only to have it change and start the cycle all over again.  We are experiencing this as we speak with the Affordable Care Act (a.k.a. Obamacare) and its possible successor, the American Health Care Act.  As a result, we tend to move on from issues more quickly once they seem to be resolved even though perhaps they linger.

Remember McCutchen?  In the subrogation world, U.S. Airways v. McCutchen was a big deal.  It finally answered the question that every benefit plan, TPA, and recovery vendor was fighting over since the beginning of time on their subrogation cases; can a court override the terms of a private, self-funded benefit plan under the purview of ERISA?  U.S. Airways lost the case, but the decision that now clarified and established the law was clear; specific unambiguous plan language rules the day.  Of course, the Montanile decision threw a bit of a curveball into our world, but that’s a blog post for another day. Fast forward almost four years (that’s right, the Supreme Court decision in McCutchen came down in 2013 – can you believe it was already that long ago?); does anyone know what happened to U.S. Airways?  

In addition to what turned out to be the main issue in the McCutchen case, that the plan terms were not good enough for the Third Circuit, there were many more issues to consider when the case was remanded (i.e. sent back) to the lower courts for additional findings.  As it turned out, U.S. Airways utilized BOTH a Summary Plan Description (SPD) and a Plan Document (PD).  That alone was not the kiss of death, but the SPD explicitly provided that the terms in the PD controlled if there was a conflict. Unfortunately for them, there was!  The SPD provided for recovery from McCutchen’s underinsured motorist coverage (UIM), but the PD did not.  Since the PD was the controlling document in that case, U.S. Airways was not entitled to a recovery against the UIM.

So what was the ultimate outcome?  U.S. Airways was entitled to assert its $64,000.00 lien against $10,000.00 in liability coverage rather than against $100,000.00 in UIM coverage.  It is important to know all of the facts and understand all of the factors that might impact your case.  As we saw in U.S. Airways v. McCutchen – language in the SPD and/or PD was deficient and contradictory – and that led to U.S. Airways losing out on recoveries as well as the costs of bringing those actions.  Every case is different, and every entity has its own motivations as to why they engage in litigation, but it is important to make sure you have all your ducks in a row and that you have the tools needed to actually win the fight, or you might get stuck holding the bag.  The McCutchen case helps us in the subrogation world every single day because of what the Supreme Court ultimately held, but the law can change on any given day.  Make sure you are prepared for the whirlwind!


The Tangled Web of Contracts
The self-funded industry is made up of a complex system of contracts, and navigation across them is anything but simple. Network contracts supersede plan documents; Administrative Services Agreements “add” plan provisions, stop-loss policies embrace carve-outs but networks prohibit them, employee handbooks promise benefits not provided by the SPD…and those are just a few examples of areas of confusion.

Thank you for joining The Phia Group on May 12th, 2016 as its legal team gave a crash course in contracts. Cost-containment can be impacted by the contracts you sign, and there are often exceptions and restrictions buried deep down, or potential issues not considered beforehand. In this webinar, The Phia Group explained some of the contracting pitfalls experienced on a daily basis within the self-funded industry.

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September 2012 Newsletter


Fall is in the air here in New England but the conference schedule is heating up earlier than ever for me. I’m doing the nationwide tour and the focus from audience questions is on two areas – health care reform and self funding. The same people who ask me about reform then follow up with whether self funding is a good move to lower their costs. The interest in self funding is the highest I have seen in my life time so we here at The Phia Group will continue to preach the virtues of this option and how to make it work right.

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