ACA Gobbles Up Self-Insurance Marketplace One Bite at a Time

This week’s announcement that the ACA’s employer-mandate provision has been postponed has understandably gotten a lot of attention.  It’s a big deal for sure, but while federal regulators punted on this high profile provision, they demonstrated no such caution with the release of two sets of final rules over the past week that will have the likely effect of eroding the self-insurance marketplace.

So while everyone is talking about the employer-mandate development, it’s important to interject some exclusive reporting and commentary regarding separate finalized ACA rules related to contraceptive coverage and student health plans to demonstrate how self-insurance options are being quietly restricted in certain market segments.

The rule-making process for contraceptive coverage has certainly attracted much attention over the past two years, but this blog is agnostic regarding the ongoing religious liberty debate that dominates the headlines.   We have, however, been very interested in how the final rules will affect self-insured religious organizations, of which there are many.

As some may recall, when the controversy originally erupted over the prospect of religious organizations being forced to provide coverage for contraceptive coverage, Obama’s political operatives quickly hatched a plan: insurance companies would be required to include this coverage at no cost to the religious organizations.

Notwithstanding the fact that this accommodation failed to satisfy religious liberty objections, the White House overlooked the fact that a large percentage of religious organizations operate self-insured group health plans, so the suggested insurance company fix would not apply to these plans.

Faced with this realization, regulators have floated various proposals during the rule-making process on how self-insured religious organizations can comply with the law.  Most of these proposals have been variations on the theme of forcing third party administrators to take responsibility for coordinating such coverage. 

For good measure, regulators offered a closing comment in the proposed rules essentially saying that such organizations can always convert to fully-insured arrangements if self-insurance is no longer viable.  You have to appreciate such bureaucratic thoughtfulness.

Based on the final rules released last week, it appears that the viability of self-insured plans will be significantly compromised.  At issue is that regulators are forcing TPAs to serve as plan fiduciaries solely for the purpose of arranging separate contraceptive coverage for plan participants.

Industry stakeholders have raised numerous concerns that such an approach is legally questionable and would expose TPAs to a variety of legal liability scenarios.  But the regulators flatly rejected these comments, asserting that “the Department of Labor’s view that is has the legal authority to require the third party administrator to become the plan administrator under ERISA section 3(16) for the sole purpose of providing payments for contraceptive services if the third party administrator agrees to enter into or remain in a contractual relationship with the eligible organization to provide administrative services for the plan.”  

Already acutely sensitive to potential fiduciary designations outside of the ACA context, it’s a reasonable conclusion that at least some TPAs will consider the new rules to be a tipping point, forcing them to part ways with their religious organization clients, which in turn will make it more difficult for such organizations to maintain their self-insured plans.

In separate news, CMS published the final rule last week clarifying exemptions to the individual mandate requirement in as provided for in the ACA.  As part of this, the rule also contained the final language on which "non-insurance” programs will be considered minimum essential coverage (MEC) for purposes of satisfying the mandate.

The earlier, proposed version of the rule had included self-funded student health plans in the list of allowable MECs.  Under the final version of the rule, however, self-funded student plans will only be considered MEC for plan years beginning before December 31, 2014.  After that date, such plans will have to apply to CMS to maintain the exemption.

Given the explicit goal of the Administration to steer as many young and healthy individuals into the exchanges as possible, this blog is highly skeptical that such exemptions will be forthcoming.  And of course, the real effect of this rule won’t be felt until after the 2014 elections. 

We’ll concede the fact that student health plans and religious organizations do not represent major segments of the overall self-insurance marketplace, but they are viable segments that are being quietly gobbled up by the bureaucracy.    So while everyone understandably is now talking about the employer-mandate delay, much of the real action continues to be in the details of the highly technical ACA implementation rules that cannot be easily distilled by the media nor understood by most health care reform observers.

 

 

 

Health Care Claims Tax to Live on in Michigan

Some fresh reporting from Michigan indicates that there is still quite a bit of certainty ahead for a health care tax scheme with big ERISA preemption considerations as it ropes in self-insured group health plans.  (See 11/23/12 blog post for prior reporting on this subject.)

While industry observers wait on a federal appeals court to rule on whether the state state’s Health Insurance Claims Act (HICA) violates federal law, there is one open question that appears to be settled, which is that the tax will not sunset at the end of the year as originally intended.

Governor Snyder is expected to sign legislation (SB 335) as early as this week that will extend the sunset provision for four years.  So this “temporary” tax sure has a permanent feel to it.

A proposal to hike the one percent tax was stripped from the legislation but that does not necessarily mean that it not going happen.  That’s because the Legislature has finalized the state’s 2013-2014 budget assuming $400 million in revenue coming from the HICA tax. 

The problem is that number likely overestimates revenue by at least $130 million based on the current year’s tax receipts.  Legislators hope to fill this revenue gap by tweaking the state’s no fault auto insurance system and related new vehicle fees, but if this is not done by October, they will be forced to pass what is known as a “negative supplemental appropriates bill” and the heat with again be on again to increase the HICA tax.

 And keep in mind that there is a two-to-one match from the federal government for all state revenue raise through the HICA tax, so a multiplier effect is in play, which further intensifies the pressure to maintain and increase the tax.  That said, It is sometimes easy to tune out when reading about predictable legislative maneuvering and lose focus on the real world implications, so let’s do that quickly now.

Last year, this blog spoke to a major multi-self-insured employer based on Michigan to gage how they have adapted to the HICA tax.   The response regarding the economic affect was largely expected – essentially that it raised the cost of doing business but that it has not prompted them to reconsider being self-insured.

 Their response regarding the compliance administrative burden was more telling.  While they have been able to figure how to comply with the law, if similar tax schemes pop up in other states the administrative burden will not grow incrementally, but rather exponentially and will force them to take another look at whether self-insurance is still the best option for them.  That’s compelling.

Absence intervention by a federal appeals court, it will be interesting to see whether this ERISA preemption assault can be quarantined with the Michigan state lines. 

Labor Department Pick Signals New Concern for Self-Insurance Industry

The announcement today that President Obama has nominated Tom Perez as the next Secretary of Labor arguably sets the stage for a strong federal push to restrict the ability of thousands of employers nationwide from sponsoring self-insured group health plans.

This provocative conclusion requires the connection of several dots, so we’ll lay them out for your consideration.

As this blog has reported previously, federal regulators have been asking lots of questions about self-insured group plans since the passage of the ACA.  More specifically, they are trying to determine whether smaller self-insured employers that purchase stop-loss insurance with “low” attachment points constitute a “loophole” to the health care law and that these employers are somehow “gaming” the system.

We’ve methodically discredited these assertions multiple times, but it’s important to set the stage as new developments are reported and additional context is provided.

Since insurance is largely regulated at the state level, the obvious question arises regarding how the feds can regulate stop-loss insurance should they wish to do so?  This can clearly be done through federal legislation or potentially through regulation. 

The regulatory route is more complicated as the ACA does not provide any explicit statutory authority for such action.  But regulators can be a creative bunch, especially under the current Administration.

The creative theory is that federal agencies with jurisdiction over the Public Health Services Act (PHSA) and the Employee Retirement Income Security Act (ERISA) may rely on the their general rule-making authority given to them under their respective laws to argue that the federal government may indeed need to regulate stop-loss insurance and re-characterize stop-loss policies with “low” attachment points as “health insurance” through regulations separate and apart from the new law. 

While this action would be controversial and subject to challenge by Congress and private citizens, it is possible that a rule-making process could be initiated to achieve this policy objective.

Based on discussion with key regulators as recently as last week, such a rule-making process is unlikely to occur this year.  This blog speculates that the primary consideration for inaction at this point is that regulators are simply overwhelmed with finalizing all of the rules and related guidance required for full ACA implementation at the end of this year.

Once these deadlines pass, however, the regulators will have more bandwidth to circle back on ancillary areas of interest.  Here’s where we connect the dot with Mr. Perez’ name on it.

While the career professional staffers within DOL (non-political appointees) are competent and at least reasonably objective in most cases, the new agency head is anything but.

Mr. Perez comes with baggage from his tenure within the Justin Department where evidence strongly suggests that at least some of his civil rights enforcement decisions were influenced by political considerations.   In short, he a “social justice” guy who fits nicely into the Administration’s template for policy-making.

His resume also includes a stint with HHS under the Clinton Administration and a senior staff position with the late Senator Ted Kennedy.  Rounding out his big government pedigree, he is a graduate of Harvard Law School and the George Washington Public School of Health.

All of this background suggests that Mr. Perez will be inclined to position DOL as a more activist agency with regard to health care reform issues, including stop-loss insurance regulation.   This motivation will likely be particularly acute if the SHOP exchanges run into early problems with lack of enrollment as many experts predict.

For the sake of discussion, let’s assume this analysis is correct.  In this case, then Secretary Perez could push for a rule-making process as described earlier, or perhaps lead an effort to close the self-insurance “loophole” through federal legislation.  Let’s connect another dot.

As a technical matter this would a “cleaner” approach and not subject to legal challenge.   Congress could simply enact legislation amending the definition of “health insurance” under the PHSA, ERISA and the Code to include, for example stop-loss policies with a “low” attachment point.

Given that Republicans control the House right now and are generally supportive of self-insurance, the politics do not support this potential strategy.   But if you believe recent public commentaries that the Administration’s grand political plan is focused on the objective of Democrats winning back control of the House in 2014, the legislative pathway becomes clearer. 

Und this scenario, it’s hard to imagine that a Secretary Perez would not push for a legislative “fix.”  After all, it’s not fair that some citizens are saved from the exchanges in favor of receiving quality health benefits from their employers, right?   Social justice, indeed. 

And the last dot is connected.

 

 

The Coming Crossroads for LRRA Legislation

It’s been a while since we’ve reported on efforts to modernize the Liability Risk Retention Act through federal legislation, but there may be some new developments this spring worth discussing.

A key congressional source confirmed today that draft legislation is currently being vetted in the House prior to potential introduction in the next month or two.  While previous versions of the bill included a federal arbitration provision to address situations where non-domiciliary regulators take actions against RRGs operating in their state that should be preempted by the LRRA, this provision will not be included in this year’s bill if it introduced.

This is largely a political consideration, as the chairman of the House Financial Services is extremely sensitive about any legislation that can be viewed as expanding the role of the federal government in the regulation of insurance.   This blog takes the contrary view in that such a provision actually strengthens the home state regulator, but the politics are what they are.

With the arbitration provision stripped out, the main focus of the bill will be to allow RRGs to write commercial property coverage.  In anticipation of this expected development, several captive insurance leaders were polled to take their temperature on the relative importance of such a change to the LRRA.

The feedback was mixed evidenced by the sampling of responses as follows:

On The One Hand….

“I think ART as an industry needs as many tools as possible in the toolbox and any victory we can get, however small, is a step in the right direction.”

“I would like to see this pass because people keep thinking this only expands to commercial property – not so – it would allow auto physical damage.”

On the Other Hand….

“I’m of the opinion that RRGs time as a viable ART risk funding mechanism is waning.  I say this because of the NAIC’s accelerating aggressiveness in its attempt to impose governance standards on RRG domiciliary states equal to or greater than those imposed on traditional insurance companies.”

“Even with reinsurance backing the level of property risk undertaken by an RRG is not likely to create the beneficial impact for RRG members compared to the liability segment.”

 

So for an industry that can be apathetic when it comes to federal legislative/regulatory developments, even when everyone is in agreement, it will be interesting to see if any meaningful support materializes if/when LRRA legislation version 2.0 is introduced given differing opinions on the relative importance.

Given that the probability of a 3.0 version anytime in the foreseeable future is close to zero, get ready for the crossroads.

 

Michigan Health Care Claims Tax Fight -- Additional Rounds Ahead

It’s been a tough fight thus far in opposition to the Michigan Health Insurance Claims Assessment Act, which imposes a one percent (1%) assessment on all health care payers, including self-insured employers and certain business partners, for medical services rendered to Michigan residents in the state of Michigan.

As this blog has previously reported, business groups in Michigan signed off on the legislation last year noting it was part of a larger budget deal that was not as bad as possible alternatives.   ERISA preemption concerns were outweighed by the belief that self-insured employers could absorb the new tax without much disruption. 

Then in August of this year, a federal district court in Michigan dismissed an ERISA preemption lawsuit, which contended that the administrative obligations imposed by the Act are unlawful.    

Game over?  Well, not exactly.

An appeal of the District’s court ruling has just by filed with the Sixth Circuit Court Appeals and incorporates some very strong arguments to justify a reversal.  And this time, the self-insurance industry will have an unlikely ally in this legal fight – organized labor. 

What has not been widely recognized is that the tax applies to self-insured Taft-Hartley plans and the ERISA preemption argument is even stronger as it relates to these plans.   So it is a positive development that at least two Taft-Hartley plans are expected file amicus briefs next week. 

But while more pressure is being applied in Federal Court, things are heating back up in the Michigan State Legislature to make the tax significantly more onerous.

The Act was structured based on the assumption that it would raise $400 in annual revenue from all payers.   Of course, government budgeting is often suspect and Michigan bureaucrats have lived up to this reputation.  Through the first half of 2012, the state collected only $109 million from the health claims tax, which means the annualized estimate is short nearly $200 million.

So it should not come as any surprise that the Michigan Legislature is now considering a proposal during a lame duck session to significantly hike the tax.  SB 1359, introduced earlier this month, would allow for an unlimited and variable rate on the claims tax so that it would float up and down to ensure that the tax generates $400 million annually.  The bill would also eliminate the proportional credit/refund provision should the tax collect more than the $400 million target amount.

Interestingly, state business groups who provided tacit approval to the tax last year have now launched an aggressive lobbying effort to defeat the proposed 2.0 version.   We’ll see if labor groups join the cause. 

While it’s certainly encouraging that there is strong push back against SB 1359, the opposition remains focused on the economic argument.    Yes, this is clearly important but arguably not as important as the ERISA preemption issue.

We’ll concede that the most self-insured employers in Michigan have figured out how to comply with this new tax obligation, but multi-state employers will also tell you that if other states implement a similar tax scheme this would greatly complicate compliance efforts.  In turn, this could make the self-insurance option much less attractive – a particularly troubling development in the post-ACA world where self-insurance offers a critical safe harbor.

Look around.  Most states have budget challenges, especially as it relates to health care obligations.  If the Michigan tax withstands legal and legislative challenges then we should not be surprised if other states attempt the same approach.

So the stakes are high in Michigan as it is now ground zero in the ERISA preemption fight.

Captives & Dodd-Frank -- Hitting the Right Target

The recent announcement of an industry coalition to push for federal legislation clarifying that the Nonadmitted and Reinsurance Reform Act (NRRA), included as part of the Dodd-Frank law, does not apply to captive insurance companies certainly sounds like a positive initiative.  But despite good intentions, this blog is skeptical that it will acheive the desired result.

We have actually been tracking this issue for some time and is aware of discussions that have taken place with key congressional sources regarding the viability of a possible legislative fix (two conversations as recent as yesterday).  The consensus is that it could be done technically, but DC politics dictate that such an effort would be a heavy lift.

The political reality is that neither Democrats nor Republicans have the appetite to open up the Dodd-Frank Law for any changes at this point. 

Truth be told, congressional Republicans don’t want to do anything to help the law actually work, as this was a highly partisan piece of legislation, much like the Patient Protection and Affordable Care Act.  The only way Republicans would be motivated to even consider amending the legislation is if such action would substantively lessen the administrative burdens on the banking industry and provide certainty to the business community, especially small business.

 Democrats, for their part, will be resistant to “technical amendment” legislation even if they support it in principle for fear that it would become a legislative vehicle where additional amendments would be grafted on with the intent of watering down the law.

And neither party wants to come back under fire from the powerful financial services industry lobby, which would surely happen if Dodd-Frank is opened back up – even for so-called technical fixes.   

But just for the sake of argument, let’s assume that legislation is introduced and some co-sponsors are lined up.  Does that mean success is any more likely?  Probably not.  To understand this assessment, we need to talk about the relative political power of interest groups in DC. 

While many of the larger lobbying organizations active in DC have the ability to block and/or shape legislation, there are far fewer who have enough political juice to get their own special interest legislation passed through Congress, no matter how limited. To be blunt, the captive insurance industry simply does not fit into this latter, more exclusive group.   

Finally, the country’s biggest captive domiciles simply do not have powerful congressional delegations with regard to insurance-related issues, which could potentially offset the deficiencies and complications described above.  That is not to say these members of Congress would not be forceful advocates, they simply are not positioned to move legislation envisioned by proponents of this approach.

So does all this mean that there will never be clarity relative to whether the NRRA applies to captives?  Well, it may not to come from Congress for the reasons we just explained, but it may come from federal regulators as part of the Dodd-Frank rule-making process. 

In fact, this avenue is now being actively explored by self-insurance industry lobbyists.   This strategy can best be described as a “surgical strike,” as opposed to an expensive and pro-longed “land war,” which the congressional route would surely become. 

We’ll see if the political operatives now engaged with the regulators can hit the target.  But at least an arguably clearer path has been identified.

 

 

 

 

 

 

Packaging Health Plan Fee Details for a Post-Election Launch

Self-insured employers have been waking up in recent weeks and months to the reality that they will soon be hit with new fees to finance a transitional reinsurance program provided for the in the Affordable Care Act (ACA).  But they are likely going to have to wait on the details until after the November elections.

As a quick refresher, the fees will be earmarked to capitalize reinsurance facilities in each state that serve as financial backstops for health insurance companies which offer individual coverage plans through public health insurance exchanges slated to come on-line in 2014.  Health insurance companies will also be subject to this fee.

What has caused some confusion is that the statute and a pre-curser rule finalized earlier this year references that third party administratorson behalf of self-insured plans will be responsible for paying the fee.   In private meetings over the summer, regulators clarified that it was not the intent that TPAs be financially liable for these fee, but rather they will be expected to assist in the collection of these fees from their clients.  Those details, along with the specific fee amounts, are still under wraps.

This blog has learned that an increasing number of large self-insured employers have been complaining directly to senior White House officials that the fee is fundamentally unfair because it helps to support the profitability health insurance companies, with no direct benefit for employers.  Responses have ranged from “we hear you but there is nothing we can do” to “there should be no complaining now because you (the employer community) signed off on this ACA provision during the legislative process.”

The former response is expected, but the latter response deserves some fact checking.

According to a source directly involved with drafting this section of the ACA, there is an interesting back story that is not widely known.  When legislative language was being developed, Democratic drafters did not understand the difference between independent TPAs with insurance company owned ASOs and did not understand that ASOs are typically separate business entities from their insurance company parents.

The reason why this is important is because ACA legislative drafters recognized that it did not make sense to impose fees on self-insured plans to subsidize insurance companies but they figured by referencing TPAs they would exclusively tap the fully-insured marketplace on the assumption that all TPAs were owned by insurance companies.

Only later in the legislative drafting process did they come to understand that many self-insured employers had no insurance company connection.  But by that time there was no turning back and there was no alternative to collecting the necessary revenue – all self-insured employers were going to have to pay.  No wonder that that the regulators have been slow with details on how this is all going to work.

So this brings back to the timing of when these details will be published.  Clearly if the Administration thought that employer community was going to be happy with the new rules, they would be released prior to Election Day.  But the best intel suggests that the proposed are done and are sitting right now at the Office of Management & Budget (OMB) awaiting a green light for release, likely shortly after election day.

The one positive detail is that the rules will be coming out in proposed form, so there will be an opportunity for formal stakeholder input -- just another thing to look forward to as we enter the holiday season.

Michigan Health Care Claims Tax May Just Be The Opening Bid

This blog has previously reported about the one percent health care claims tax that the state of Michigan has imposed on all payers, including self-insured group health plans.  We have also commented on the refusal of most within the employer community to support a legal challenge to the law, which should be preempted by the Employee Retirement Income Security Act (ERISA).

While one prominent Michigan employer has privately been a big financial supporter of this self-insurance legal defense initiative, the state’s largest employer organizations, as well as at least one major national association focused on ERISA preemption issues have been on the sidelines.

Now, it’s probably unrealistic to expect that the average self-insured employer will take the time to think about the longer term implications of ERISA preemption erosions.  Significant as these implications are, those employers are more concerned about the immediate financial implications.

 Fair enough.  Let’s talk about this shorter term perspective. 

 We have just learned from a very reliable source that the revenue collected so far this from health claims tax is much lower than projected -- so much lower, in fact, that the state Legislature will likely consider a proposal to raise it early next year.

 For employers who ran the numbers and determined that they could absorb a one percent tax, they should get ready to do a new set of calculations, perhaps on a yearly basis going forward, should a federal appeals court not strike down the law.  At some point it would seem that this health care tax could become an important factor as employers consider whether self-insurance is as cost effective as it otherwise would be,

 And in case you think this issue is contained to Michigan, think again.  Other cash-strapped states are watching how things play out in Michigan and at least some are likely to follow-suit if they believe such action will go unchallenged.

 When a camel gets its nose under the tent the occupants should not be surprised that the damage often cannot be contained.  For self-insured employers with workers in Michigan, they may soon learn this important lesson.

 

 

 

 

 

Stop-Loss Regulation and the Coming Zombie Apocalypse

Key regulatory officials made some interesting comments about their interest in self-insured health plans utilizing stop-loss insurance at an American Bar Association event last week in Washington, DC

 Phyllis Borzi, assistant secretary at the U.S. Department of Labor, said her agency is working on two ACA-required studies, one on wellness that is due in 2014 and an annual report to Congress on self-insured plans.

 “To try and help get information on self-insured plans, a couple of things have happened. Probably most recently what we asked for was we put out a tri-agency request for information (RFI),” Borzi said.

 George Bostick, benefits tax counsel at the U.S Treasury Department, said the RFI “produced a number of paranoid responses,” but Borzi then assured the audience that there were no ulterior motives to the RFI.

 “It is what it is. We don't have enough information, we think.. It's not like we have some hidden agenda, pro- or anti-stop-loss; we just want to find out what's going on out there,” Borzi said.

 Another panelist, Amy Turner, senior adviser and special projects manager in EBSA's Office of Health Plan Standards and Compliance Assistance, echoed Ms. Borzi's comments about the departments needing more information on stop-loss insurance and wanted feedback from a “broad group of stakeholders.”

 The departments are sifting through the comment letters responding to the RFI, but Turner said not to expect any stop-loss guidance in the near future.

 “To the extent that some people maybe saw the RFI and thought, ‘Oh my goodness! Is something like the zombie apocalypse going to happen?' I think we're just working on the comment letters. I wouldn't expect any major guidance from the departments very quickly on this,” Turner said.

 This blog will give Ms. Turner the benefit of the doubt that a zombie apocalypse is probably not in the offing regardless of any further regulatory action that may be taken.

 That said, the regulators will have to forgive the “paranoia” expressed by self-insurance industry stakeholders.  After all, the current administration has proven to be very adept at sidestepping normal legislative procedures and inclined to give the green light to regulatory agencies to test the bounds of statutory authority when political needs arise.

 Speaking of political needs, it’s worth reminding everyone of how the regulators explained the reason for the RFI.  The following is an excerpt from the RFI introduction:

 It has been suggested that some small employers with healthier employees may self-insure and purchase stop-loss insurance with relatively low attachment points to avoid being subject to certain consumer protection requirements while exposing themselves to little risk.  This practice, if widespread, could worsen the risk pool and increase premiums in the fully-insured small group market, including the in the Small Business Health Options Program (SHOP) exchanges that begin in the 2014.

 If, in fact, the regulars reach these same conclusions, is it reasonable to believe they will simply sit on their hands?  We’ll be sure to keep an eye out for zombies as these developments continue to play out just in case.

The Summer of Stop-Loss

While this blog took the summer off, we have been keeping a close eye on the numerous developments related to stop-loss attachment point regulation.  Now that most of these developments have slowed down, at least for now, some exclusive reporting and commentary should be useful as those in the self-insurance industry (including those involved with employee benefit captives) take a collective breath.

 Pushed and prodded by a collection of health care reform advocates, federal regulators invited interested parties to submit written comments regarding the smaller insured group health plans facilitated by stop-loss insurance with “low” attachment points.

 About 150 comment letters have been submitted to date and the talking points are largely predictable. 

For the critics of self-insurance, the usual canards are widely repeated.  This request for information (RFI) process signaled a clear focus on self-insurance unlike anything that has been seen in recent years.  But the path forward remains unclear.

 That’s because the Affordable Care Act does not provide any explicit statutory authority for regulators to promulgate new rules relating to stop-loss insurance arrangements…yet that may not preclude action that could achieve the same objective.

 The HHS, DOL and/or Treasury Department (tri-agencies) could potentially rely on their general rule-making authority under ERISA or the Public Health Services Act, to play with definitions or to engage in other revisionist rule-making mischief.   The most likely scenario is that a new definition of a self-insured group health plan is crafted based on risk retention/risk transfer arrangements – thereby allowing the feds to indirectly regulate stop-loss insurance.

 So how serious is this potential threat?   The answer is complicated.

 In a private meeting with self-insurance industry representatives over the summer, a senior DOL official downplayed the prospects that any action is imminent or even likely, explaining that they felt the RFI was necessary for the agencies to get a better understanding of how the self-insurance marketplace operates in the real world.

 But conspicuously absent from the meeting, despite previously confirming their attendance, were senior HHS officials involved with the stop-loss RFI process.  This was notable because it is believed that HHS has the most aggressive regulatory agenda when it comes to self-insurance.  The Treasury Department was represented at the meeting but that agency has remained guarded about its interest and intent. 

 Any of the three agencies could initiate a rule-making process, but it is less likely if there is not a consensus among the three.

 So with that in mind, industry lobbyists have been making the rounds to congressional oversight committees to encourage that they become engaged on this issue and request that the agencies stand down now that the RFI process has been concluded and there is no “smoking gun” which would justify new regulatory action.

The most substantive meeting took place just a few weeks ago with the senior policy advisors for the Senate Finance Committee.  Given that the committee is chaired by Democratic Senator Max Baucus, who has been supportive of self-insurance in the past, it is best positioned to intervene.

The biggest push back by committee staffers was centered on the fact that the ACA does not require that self-insured employers cover essential health benefits (EHBs).   They argued that because of this “loophole” there is incentive for smaller employers to self-insurer, facilitated by stop-loss insurance with low attachment points, in order to be able to offer skimpy health care coverage as a way to save money.

Industry experts at the meeting, including executives from two leading TPAs, explained why this fear is unfounded for practical reasons.  It was then pointed out that while self-insured employers are not required to cover EHBs, they will be subject to “minimum value” requirements, which essentially accomplish the same public policy objective.

 But a final argument seemed to box in the Senate staffers.  Even if you concede the EHB “loophole” (which this blog does not), the fact is that the law was drafted in a very deliberate way to distinguish self-insured group health plans from health insurance carriers.  In this regard, any proposed changes should come back to Congress in the form of legislation as opposed to letting unelected regulators arbitrate substantive policy issues.

 The discussion was concluded with a formal request that Chairman Baucus consider exercising the committee’s oversight authority and communicate to the Treasury Department accordingly.   We understand that the request is still under consideration, so be sure to check back with this blog for updates.

Of course, the focus on self-insured plans with stop-loss insurance extends beyond Washington, DC. 

Many of our friends at the National Association of Insurance Commissioners (NAIC), have been led by the nose over the past year by health care reform advocates to take action on making it more difficult for smaller employers to self-insurer through tighter stop-loss attachment point regulation.

 At the NAIC summer meeting held a few weeks ago in Atlanta, the ERISA (B) Working Group considered a proposal to endorse “guideline amendments” to the current stop-loss insurance model act related to attachment point requirements. 

 Clearly aware of the blowback that would be directed at the NAIC if it took aggressive action that was seen to be disruptive to the health care marketplace, Working Group Chair Christina Goe of Montana tried to diffuse concerns by explaining the proposal is only advisory in nature and that the NAIC does not intend to formally amend the model act for a variety of procedural reasons.  And for good measure, committee members made it clear that they did not overstep their charge and attempt to redefine stop-loss insurance as health insurance.

 Well, it is certainly nice to hear this self-awareness of the limitations to their “charge,” but multiple federal court rulings have already confirmed that stop-loss insurance cannot be defined as health insurance, so no real favor here.

 And as far as considering a guideline amendment versus an amended model act, it’s a distinction without a meaningful difference.

 Of the 26 states that currently regulate stop-loss attachment points, only a few have adopted the model act without variation.  So it is unlikely that an amended model act would take root across the country any time soon.   No matter, as a simple NAIC recommendation on how states should regulate stop-loss attachment points could accomplish the same objective (restricting the ability of smaller employers to self-insure) much quicker.

That is because individual insurance commissioners who are already inclined to push stop-loss legislation in their states will use the NAIC recommendation as justification for action.  Given the technical nature of this issue, it’s easy to understand how this would be enough to persuade most state legislators to go along without asking too many questions.

 The NAIC working group deferred action on the proposal until its winter meeting, which in hindsight was predictable because insurance commissioners, like all political creatures, normally put off major policy decisions when Election Day looms.  Let the dust settle after November 6 and get ready for more action.

This brings us to California.

 As this blog has previously reported, the state’s insurance commissioner, Dave Jones, is a political creature who is interested in beefing up his credentials within the Democratic Party.  So it should not be surprising that he has come out as a major proponent of health care reform, and more specifically the establishment of California’s health insurance exchange, which is expected to come online in 2014.

 Self-insurance therefore became a target for political reasons every bit as much as for misinformed policy reasons in order for Commissioner Jones and his allies in the Legislature to claim credit for protecting the viability of the state’s health insurance marketplace as the exchange begins to be implemented.   A nice populist message for sure.

 One health care broker in California perhaps summed it up best when he referred to SB 1431 as the “California Health Insurance Exchange Protection Act of 2012.”

 Now that it has been confirmed that SB 1431 has been shelved, at least until a special session this December, we can look at the past as prologue.

The same stale arguments are certain to be dredged back up when some version of SB 1431 is brought back for consideration after the November elections, and the political posturing will be predictably crass.

 Equally unfortunate is that many stakeholders who will oppose SB 1431 “2.0” will likely concede the central principle once again of whether stop-loss attachment points should be regulated at all and immediately begin negotiating the numbers and formula.   Yes, political realities often dictate short term lobbying strategies based on compromise, but the longer view should not be ignored in this case.

It’s been a long hot summer for stop-loss insurance indeed, which has ended without much certainty for the future of the self-insurance marketplace.    We will see whether the coming autumn chill cools off the debate or if partisan health care reform advocates continue to overplay their hand.

The Feds Stop-Loss Insurance Fishing Expedition

While the push to restrict the ability of smaller employers to obtain  stop-loss insurance continues to play out in California (see two previous blog posts), the feds are taking a closer look at how the availability of stop-loss insurance facilitates the growth of the self-insurance marketplace, and what that means for health care reform implementation.

This focus was confirmed last month when the HHS/DOL/Treasury Department, known collectively as the “Tri-Agencies,” issued a formal Request for Information (RFI) about stop-loss insurance.  The specific questions are largely objective but the preamble clearly states that the RFI has been prompted by concerns that employers may dodge health care reform requirements by self-insuring and obtaining stop-loss insurance with low attachment points.  They also cite the ubiquitous adverse selection criticism.

Nothing new here in terms of the policy debate, but it’s probably useful to put this RFI into some sort of meaningful context and preview potential outcomes.

Flashing back to 2009 as health care reform legislation was being developed in Congress, early drafts included restrictions on the ability of employers to self-insure based on size.   There were enough moderate Democrats, principally in the Senate, however, to block such proposals from being incorporated into the final bill.  But the self-insurance story does not end there.

Congressional critics of self-insurance, presumably prompted by traditional health insurance industry lobbyists, were able to slip in provisions at the eleventh hour requiring federal studies on self-insurance.  This effectively allowed for a second bite at the apple on restricting the self-insurance marketplace through federal action in some form in response to perceived abuses and/or adverse effects on broader health care reform objectives.

Powerful interest groups, vocal consumer protection advocates and influential policy-makers are now pushing regulators to take that second bite for reasons that are largely fictional, but resonate nonetheless.

It’s not yet clear if the current Tri-Agencies’ fishing expedition is simply being done to satisfy health care proponents’ demands that the self-insurance industry be more closely investigated and that the regulators are conducting good faith due diligence without a pre-determined outcome.

The alternative theory is that the Tri-Agencies already have some regulatory action in mind and are using the RFI process to justify new federal rules.   This of course begs the question of what specific action could this be?

 

Let’s explore this.

The ACA clearly distinguishes stop-loss insurance from health insurance.  Moreover, it does not provide federal regulators with explicit statutory authority to impose additional requirement and/or restrictions on self-insured group health plans. 

The conventional understanding of separation of powers dictates that should the regulators conclude that the self-insurance marketplace needs to be regulated differently than what is provided for in the ACA, they should make such recommendation to Congress so that this can addressed through the legislative process.   But that’s not going to happen according to well-placed congressional sources.

The more likely scenario is that the federal agencies with jurisdiction over the Public Health Services Act (PHSA), the Employee Retirement Income Security Act (ERISA) and ACA will rely on their general rulemaking authority given to them under these respective laws to justify creative rulemaking that would restrict the availability of stop-loss insurance and/or make other changes to federal law that adversely affect the self-insurance marketplace.

In fact, the Treasury Department breached its statutory authority just six months ago when the IRS proposed a rule that would let people get subsidies to buy health insurance through a federal exchange although the legislative language specified that that the subsidies could only be used for state exchanges.   This happened to be a drafting error, but Treasury decided to take the liberty of asserting congressional intent.

Senator Orrin Hatch (R-UT), ranking member of the Senate Finance Committee cried foul.  In a letter to to Treasury Secretary Tim Geithner and IRS Commissioner Doug Shulman wrote “I am concerned that if finalized these rules would exceed your regulatory authority, violating the Constitution’s separation of powers.”

The rules were promptly finalized.  Sadly, this illustrates the power of the federal bureaucracy even in the face of potential blowback from Congress.

When asked pointedly this week about his view regarding limits to statutory authority as it relates to self-insurance/stop-loss insurance, a key Democratic Senate staffer responded that he believes the regulators have “general authority to prevent abuses.”  He added that such issues are “better addressed in the regulatory process.”

Should the Tri-Agencies correctly conclude that the self-insurance marketplace effectively regulates itself already and therefore no further federal intervention is needed, then perhaps this congressional source had it right. 

Of course in the meantime, the U.S. Supreme Court will have its own say on the separation of powers, which could silence both the bureaucrats and the legislators on health care reform…at least for now.

 

Stop-Loss Insurance Regulatory Developments Spill Over into the Captive World

The regulation of medical stop-loss insurance has long been on the radar screen of those involved with self-insured group health plans, but more recent developments should rattle the cages of many captive insurance industry service providers as well.

This convergence of interest relates to employee benefit group captives structured for health care risks, which arguably is the fastest growing segment of the alternative risk transfer marketplace.  The reason for this growth, of course, is that small and mid-sized employers are clamoring for solutions to better control the cost of providing quality health benefits for the their workers. 

And taking a longer view, the potential premium volume associated with health care risks could easily eclipse premium volume connected with P&C-related liability if the captive insurance marketplace figures out how to effectively respond to market demands.

But unless smaller and mid-sized employers are able to operate self-insured group health plans, captive insurance solutions are moot.  That’s because individual self-insured employers are the essential “building blocks” for the viable variations of group captive structures.  For these structures, individual employers must obtain separate stop-loss insurance policies, either from a stop-loss carrier or direct from the captive.  If employers cannot access stop-loss policies with appropriate terms, the employee benefit group captive model explodes.

That threat is at our doorstep so it is important that captive insurance industry leaders fully understand what is happening and why.

This blog has been reporting for some time about how stop-loss insurance with lower attachment points has attracted negative attention from state and federal regulators.  Most recently, we commented how developments in California (see previous blog post) portend a new round of attempts to restrict access to stop-loss insurance across the country by smaller employers…again, the key components for group benefit captives.

It is important to note that while SB 1431 in California only applies to stop-loss policies sold to employers with 50 or fewer employers (small group market definition), the Affordable Care Act provides that states may apply to redefine the definition of small group market up to 100 employees in 2014, which California and many other states will most certainly do. 

In addition to regulatory encroachments at the state level, federal regulators are now taking a closer look at stop-loss insurance, which could result in additional restrictions.  This blog will be commenting on these federal developments in more detail soon, so be sure to check back to understand what is happening in Washington, DC.

As an aside, there seems to be confusion about what health care reform (and its potential repeal) means for the captive insurance in a general way so we’ll try to quickly cut through the fog.   The ACA does not directly create nor suppress any captive insurance opportunities but there are some indirect connections.  

Health care reform has had the effect of driving up health insurance premiums, thus prompting more interest in self-insurance and potentially group captives as we have discussed.  There may also be opportunities for captives to provide financial backstops for Accountable Care Organizations (ACOs) as provided for by the ACA.

The potential for increased stop-loss insurance regulation is another indirect effect of the ACA, but it is the most important development to watch.  Most everything else is really just “white noise” with regard to the captive insurance marketplace.

And by the way, the regulatory focus on stop-loss insurance is likely to continue even if the U.S. Supreme Court overturns the entire health care law this June, so this industry concern has shelf life regardless of the judicial outcome.

So what to do?   In short, pay close attention to these developments and be receptive to opportunities to advocate for the ability of smaller employers to purchase stop-loss insurance without artificial attachment point restrictions and/or other inappropriate regulatory hurdles.

Those opportunities are almost certain to come.

California Previews NAIC’s End Game for Self-Insurance

In case you had any doubt about the end game the National Association of Insurance Commissioners (NAIC) has in mind for self-insurance nationally, you simply need to look at what is happening on the left coast.

Legislation is now moving through the California State Legislature that would impose new regulations on stop-loss insurance in such a way that would effectively eliminate the ability of companies in that state with 50 or fewer employees from self-insuring their group health plans.  It does this by prohibiting stop-loss carriers from providing coverage with specific attachment points below $95,000 and inserting other regulatory hurdles, including a provision stating that stop-loss insurance cannot discriminate in providing “coverage” to plan participants.

We had heard rumors that Insurance Commissioner Dave Jones was developing proposed legislation with a $40,000 minimum specific attachment point requirement.  That would have been bad enough, but a highly charitable interpretation of such development could conclude that Commissioner Jones’ motive was simply to support common sense health care marketplace regulation.

Such a motive is highly suspect of course, but the fact that he chose to push an attachment point requirement that is more than three times higher than that of any other state is clearly a brush back pitch to the self-insurance industry, to use a baseball analogy.

And Commissioner Jones did not throw this pitch without direction from the dugout.  The NAIC coaching staff likely sent him the signal to bring the heat in order to set the stage for other states to do likewise.  California makes for the perfect stalking horse due to its size and political composition of the Legislature which is generally hostile to the interests of the state’s business community.

We should also note that the word on the street is that Commissioner Jones is using his position as a stepping stone for higher public office and is looking for political fights to burnish his image as a serious player. 

While the weather is generally nice in California, a perfect storm of legislative and regulatory mischief is indeed brewing.   And such a storm could be coming to your state next.

So what’s behind all this focus on self-insurance?  There are two primary influences at play.

First, it cannot be overstated how much is riding politically for the Obama Administration and many others within Democratic Party establishment at both the federal and state level regarding the successful implementation of state health insurance exchanges as mandated by the Affordable Care Act.

As part of this obsession they are trying to stamp out any possible complication and have now latched on to the theory that the growth in the number of smaller self-insured group health plans will create adverse selection in the health care marketplace and therefor will threaten the viability of the exchanges when they come online in 2014, absent the law being overturned by the Supreme Court.

(This blog and other publications have previously addressed why this conclusion is a canard, so we won’t revisit the rebuttal analysis now.)

Armed with this concern, proponents of the ACA have positioned the NAIC to ramp up its efforts to clamp down on the ability of employers to self-insure. 

While industry observers have been fixated on the NAIC ERISA & ACA Work Group over the past year as it has been looking at updating its stop-loss model act - which presumably would bump up attachment point requirements - this blog is starting to think a little misdirection is at work here.

Sure, the NAIC could at some point come out with an updated model act that would not be favorable to the self-insurance industry but this is slow process.  Moreover, keep in mind that these are just suggested laws that each state would need to individually adopt.

It seems more clear that while this model act development process slowly plays out and keeps everyone’s attention, the NAIC, through individual insurance commissioner proxies, will simply “bum rush” the self-insurance industry with legislation like what has been introduced in California.

And just in case these insurance commissioners do not feel sufficiently motivated by NAIC orthodoxy, the health insurance industry is happy to provide the necessary nudge, which is the second factor in play on why self-insurance (via stop-loss insurance) is in the regulatory crosshairs.  It’s no secret that health insurers are concerned about losing market share in the small group market and they are enthusiastically parroting the adverse selection argument to justify new regulation. 

The fact that many insurance commissioners and/or the governors receive political support from the health insurance industry should also not be overlooked when making the circumstantial case that collusion is taking place among very powerful policy-makers and interest groups to restrict the ability of employers to self-insure.

Granted, California’s legislation is targeted at smaller employers, which a small segment of the overall self-insurance /alternative transfer marketplace.  But make no mistake, the end game of the NAIC is too strangle this marketplace in every way it can and limited encroachments left unchecked will likely lead to more existential threats.  Those involved with risk retention groups (RRGs) can certainly attest to this observation.

It’s important to understand this as the industry determines how it intends to position itself so it is not on the receiving end of any more brush-back pitches.

Self-Insurance Industry Can Learn By Example in the Political Influence Game

This blog has commented previously about how the self-insurance/alternative risk transfer industry needs to get its act together if it wants to exercise the same amount of political power in Washington, DC as many other industries of comparable size.

If you need to be convinced of this conclusion, you may want to take notice of legislative
developments related to whether broker commissions will be excluded from health insurer medical loss ratio calculations in accordance with the Affordable Care Act.

A few months ago, HHS determined that broker commissions would not be carved out of MLR calculations. This prompted the brokers to ramp up their political efforts in Congress to pass legislation to override the HHS final rule.

To put a finer point on this description, the brokers have been making more political
contributions and showing up in Washington, Dc to press their case with key members of Congress.

As of today, the political action committee sponsored by one of their trade groups is more than five times as large as the PAC supporting the self-insurance/ART industry. Another broker trade group expects to have nearly 1,000 members come to Washington, DC for a dedicated lobbying event.

This activity has produced initial success. The Access to Professional Health Insurance Advisors (H.R. 1206), originally introduced in the House last March, now has nearly 180 co-sponsors. A companion bill (S. 2068) has now been introduced in the Senate and has attracted bipartisan
support.

While it still remains a heavy lift to pass significant legislation in an election year, the brokers have made solid progress by any objective standard. The self-insurance/ART industry could learn by example.

Self-insurers and captive insurance companies have good stories to tell for sure, but that is not enough to have real political influence in Washington, DC.

This blog estimates that about five percent of those individuals active in the self-insurance/ART industry directly support political advocacy efforts that would directly benefit their business
interests. Such political participation rate is certainly much higher among the brokers -- and we have illustrated their return on investment.

Clearly, expectations would be different if the self-insurance/ART industry did not have the necessary financial and human resources to leverage significant political influence.

But it does.

The NAIC's Identity Crisis

So just who is the National Association of Insurance Commissioners (NAIC)? Apparently the answer depends on particular circumstances. This has actually been the case for some time,
but more people seem to be paying attention now because of the organization’s “mission creep” at both the state and federal level.

Case in point is a February 28, 2012 letter from Rep. Ed Royce (R-CA) to NAIC president Kevin McCarty and CEO Therese Vaughan requesting clarification of exactly how this collection of insurance regulators is defining themselves.

Rep. Royce’s interest was sparked by recent press reports that the NAIC is re-branding itself
as a “standard –setting” organization rather than a private non-profit organization, as it has previously cited its 501 ( c) (3) status to distance itself from exercising any regulatory authority, thereby enabling the NAIC to sidestep open meeting and Sunshine law requirements.

While there have been grumblings about NAIC’s organizational structure and status for some time, it is now getting more attention largely because of the establishment of the Federal Insurance Office and health care reform implementation requirements, which have more
clearly exposed the NAIC’s activist nature.

So let’s explore the NAIC’s identify crisis a bit.

It is on record stating that “when individual insurance commissioners gather as members
gather as members of the NAIC, they are not considered a governmental or public body, but rather are a private group. As an organization, the NAIC does not have any regulatory
authority.”

Well, I guess the validity of this statement depends on how you define the term authority.
While technically true that the NAIC cannot mandate state compliance with any
“standards” it develops, such authority is effectively exercised indirectly through the organization’s accreditation program.

Another interesting observation is that 501 ( c ) (3) organizations are generally restricted
from engaging in political or lobbying activities. But apparently the NAIC does not feel
confined by the U.S. tax code as it regularly dispatches lobbyists to the U.S. Capitol to influence members of Congress on insurance-related legislation.

They certainly have been engaged in an ongoing effort to kill or neuter legislation designed
to modernize the Liability Risk Retention Act. Their most recent objections include
giving the Federal Insurance Office any oversight responsibility with regard to RRG regulation and the establishment of federal corporate governance standard for RRGs.

In related news, the NAIC represented itself as a “standard setter” on insurance issues in a
recent friend of the course brief to the Maine Supreme Court involving premiums charged for health insurance. As part of its brief, the NAIC said it had the right to participate because ‘through the NAIC, state insurance regulators establish standards and best practices, conduct peer review and coordinate their regulatory oversight.”

Rep. Royce concludes his letter by asking NAIC officials to respond to three specific questions:

1. What is NAIC’s status? Is it a trade association? Is it a formal part of “the national system
of state-based insurance regulation in the U.S..”? If so, why did it (a) testify to Congress,
when asked specifically about its status, that it does not “hold ourselves out as some kind of …national regulatory system”; and (b) insist to NCOIL that is not considered a public body” and “does not have any regulatory authority”?

2. Does NAIC agree that as a self-described “private group,” it may not “regulate in the field
of interstate commerce”?

3. As a 501( c ) ( 3) non-profit corporation, does the NAIC not file a Form 990, a routine financial statement for non-profits, with the Internal Revenue Service (IRS)? If the NAIC has been formally exempted by the IRS from filing this information, please provide written documentation of this exemption, and explain why the NAIC feels it necessary to keep this disclosure from public scrutiny.

We look forward to seeing the NAIC’s response and will report on it accordingly. In the
meantime, this blog can report that there is no record of the NAIC filing 990 reports.