MA TPA Regulation
Sent via electronic mail to: Doidocket.Mailbox@state.ma.us
REFERENCE: Docket No. G2011-03
Proposed New Regulation 211 CMR 148.00 – Registration and Reporting Requirements for Third-Party Administrators
SUMMARY: The following document is divided into two parts. The first part consists of an overall business impact statement, summarizing the severe detriment this proposed regulation will cause for TPAs and employer groups in Massachusetts. The second part outlines a few of the many problems with the proposed regulation, in its current state.
Please accept this business impact statement and the outlined comments, provided to you in collaboration with businesses across the Commonwealth of Massachusetts.
Respectfully submitted, /s/ The Phia Group, LLCAbout The Phia Group, LLC
The Phia Group, LLC, headquartered in Braintree, Massachusetts, is an experienced provider of health care cost containment techniques offering comprehensive recovery, documentation and consulting services designed to control health care costs and protect plan assets. The Phia Group represents Third Party Administrators, Reinsurance Carriers, MGUs, and Self-Funded Benefit Plans offering health, dental, vision and prescription coverage to millions of members across the country and Massachusetts. The Phia Group’s overall mission is to reduce the cost of plans through its recovery strategies, innovative technologies, legal expertise, and focused, flexible customer service.
PART I. OVERALL BUSINESS IMPACT STATEMENT
Apparent Complete Lack of Understanding of the Self-Funded Industry
In its current state, the reporting requirements in Massachusetts are extremely cumbersome for Third Party Administrators (TPAs). To impose these additional regulations upon TPAs would be excessive and invasive.
As drafted, the proposed regulations neglect to capture the true function of TPAs and their relationships with their self-funded clients. One of the inherent benefits in self-funding is the ability to have a single employee benefit plan which the employer can offer to employees across state lines, without worry of state insurance regulation mandates. Instead of state regulation, self-funded plans are governed by federal law – ERISA. The regulation fails to grasp the intimate relationship between self-funded plans, their TPAs, and their exemption from state regulation.
This regulation treats TPAs as insurance companies, subject to state regulation. A TPA, however, is not and should not be construed as such. A TPA administers claims for its self-funded clients – there is no insurance. A self-funded plan is NOT insured, it is funded with employer and employee contributions.
Risk of Exposure
Further than the apparent lack of understanding of the role in which TPAs operate, is the impact of this regulation upon TPAs operating in Massachusetts. The self-funded business is very competitive for TPAs and this proposed regulation will force TPAs to expose the very elements which keep them in business to the public.
For example, by forcing a TPA to publish its client list and detailed reporting information, the TPA will become an open target for all brokers, reinsurance carriers, fully-insured carriers to scoop up the business.
Many TPAs hold dearly, and in confidence, their client lists. In fact, TPAs insist upon having their employees sign confidentiality agreements to ensure potentially disgruntled employees do not expose their client lists and/or proprietary business practices. This regulation will force both the client lists and business practices to be open for viewing by the general public.
With respect to the client lists, TPAs provide: “The only thing we have to sell would become public knowledge.”
Unavailability of Requested Information
Exposure is a huge problem for TPAs, beyond the fact that they will have to publicize this information is that they must have the information to expose. TPAs execute agreements with their self-funded employer groups with establish the obligations and responsibilities of each party. This regulation has the potential to force the TPA to provide (or be subject to a penalty), information outside the scope of what they have access to or a right to.
Discouraging Business in MA / Increasing the Cost of Health Care
As addressed above, client lists are very important to TPAs. Exposure has the potential to put the TPA out of business, leaving self-funded employer groups left scrambling and employees potentially left without health benefit coverage. The significance and value of such a list is clearly unappreciated.
Also, unappreciated is the impact upon the employer groups. Not only would statistics about their claims and company become public knowledge, but would like be stuck with the additional costs necessary to carry out the excessive reporting requirements. To comply with the regulations, TPAs would need to incur additional fees to employ staff and time to set up programming capabilities on their systems. These costs (administrative fees) will likely be passed to the employer groups, which will in turn increase the cost of insurance for the employees.
Further, to avoid potentially exposing business secrets, TPAs may be strongly encouraged to relocate OUTSIDE of Massachusetts to nearby Rhode Island.
Ease of Relocating / Nationwide PPO Networks
As mentioned above, one of the potential consequences of this regulation is forcing business out of Massachusetts. A TPA may opt to cross the state border to Rhode Island. A state move will have minimal disruptive consequences for the TPA and employer groups.
For example, if a TPA decides to relocate to Rhode Island, but has employer groups in Massachusetts, the transition in relation to health benefit and provider coverage will be potentially simple. As a way to decrease the cost of health care for employees, employer groups execute agreements with PPO networks. In exchange for encouraging employees to visit certain providers, the provider offers a provider discount. The provider wins because they are guaranteed X patients (business) and the plan wins because they are guaranteed lower rates, thus saving on health care costs.
Since the PPO networks are nationwide, no disruption in care will result – as the location of the TPA is irrelevant to providing care to the employees at the relative providers.
Summary
Not only will this have expensive and extensive consequences for TPAs and businesses in MA, but will discourage business in MA. Upon finalization of this proposed regulation, many TPAs will consider leaving the state.
Self-funding is an important aspect of providing health care coverage in a cost-effective manner. Prior to considering adoption of this regulation, the legislature should consider the following indisputable facts:
• Pursuant to PricewaterhouseCoopers: Self-funding has jumped by 20% between 2008 and 2010
• Fully insured carriers will increase costs by 30% to 50% over the next 4 years, while self-funded plans will increase costs by 5% to 10% during the same length of time
• Self-funded employers get the job done cheaper with tailored plan design, lower administrative costs, and access to claims data that gives incentive for wellness program
• Unlike insurance carriers, who are forced to take on the sickest of the sick, self-funded benefit plans control costs by customizing coverage, and limit risk only to their own pool of plan members
• Costs inherent in bureaucratic red-tape cutting are eliminated as self-funded plans limit exposure to personalized plan documents and utilize specialized TPAs
• The combo of ERISA preemption and the ability to create cost savings makes self-funding likely to survive the “storm of reform”
• Self-funded plans:
1. Have the ability to customize the plan;
2. Have incentive for a wellness program;
3. Can more accurately predict future costs as they see how the funds are being spent; and
4. Can select individual vendors and service providers to maximize savings.
PART II. Brief Review of 211 CMR 148.00: Registration and Reporting Requirements for Third-Party Administrators
148.01 Purpose, Scope and Authority
• 211 CMR 148.00 was promulgated to govern the registration and reporting requirements applicable to Third Party Administrators (“TPA”) (including PBMs and other entities with claims data, eligibility data, provider files and other information relating to health care provided to residents of MA)
ISSUE(S):
1. While the purpose provides it is to govern the registration and reporting requirements, the regulation attempts to establish jurisdiction over entities that do not bear risk. The purpose of a regulatory body is to regulate carriers that bear risk. TPAs process claims and perform other ministerial functions but certainly do not bear risk like a traditional insurance carrier.
Reviewing the definition of ‘Third-Party Administrator’ it is defined as a person on behalf of a Health Insurer or purchaser of health benefits, receives or collects charges, contributions or premiums for, or adjusts or settles claims on or for residents of the Commonwealth… TPAs do not perform those activities and do not do those activities on behalf of health insurers or those who ‘purchase’ health insurance. As said above, a TPA’s client does NOT ‘purchase’ insurance – instead a TPA’s client BEARS the risk. As the TPA is not bear risk and is NOT an insurance company, there is no reason it should be regulated by the Department of Insurance. This is the first of many fundamental misunderstandings as to the basic concept of self-insurance in relation to the TPA world.
Further, the definition provides that …”except that Third-Party Administrator shall not include an entity that administrators only claims data, eligibility data, provider files and other information for its own employees and dependents” – does that exception provide that a self-funded self-administered plan would be exempt?
2. What about TPAs, PBMs, etc headquartered in MA, but with groups in other states?
3. Will the regulations only apply to the groups within MA – or all the TPAs groups?
148.02 Definitions
• Many of these definitions relate specifically to the fully insured market and have no applicability to self-funded plans (i.e. Earned Premium, Health Insurer, Medical Loss Ratio, etc).
ISSUE(S):
1. The proposed regulations use terms which strictly relate to fully-insured plans and appear to be making them applicable to self-funded plans. This could be problematic as the terms are not easily transferable between fully-insured and self-funded plans. For example, a TPA is not a licensed insurer. TPAs do not sell or transact health insurance – they administer claims under the direction of a group’s plan sponsor. TPAs do not deal with premiums.
2. As discussed above, the proposed regulations provide an inaccurate definition of Third-Party Administrator – which is extremely problematic as this regulation is meant to regulate TPAs.
3. Additionally, and importantly, the regulations provide an inaccurate definition of ‘Self-Insured Customer’ and inappropriately describes the relationship between the TPA and the Self-Insured Customer.
148.03 Initial Registration and Annual Renewal of Registration
• “No Third-Party Administrator shall do business in the Commonwealth prior to registering with the Division.”
ISSUE(S):
1. What about the TPAs already doing business in MA? Is this regulation to apply retroactively?
2. One of the benefits inherent to having a self-funded plan is the freedom from state regulation – these proposed regulations gives back the power to the state to impose regulations on self-funded plans.
3. What is the current process for TPAs in MA – are they required to provide / perform any other filings (i.e. business, corporation, etc filings)? If so, will TPAs now be required to perform multiple filings with multiple entities? Are / will there be any exceptions for the filings (i.e. a TPA required to perform filing in another state)?
• “All Third-Party Administrators shall register … in a form and method prescribed by the Commissioner…”
ISSUE:
1. Again, this proposed regulation is putting state regulation requirements … “in a form and method prescribed by the Commissioner” for an entity which otherwise would not be subject to state regulation.
• The regulations set forth certain information of which the registration forms “shall include, but may not be limited to…” making the listing of requirements open ended. In brief, a few of the requirements for the registration form are as follows:
• Narrative description of the TPA & its activities
• Basic organizational documents (i.e. articles of incorporation, partnership agreements, trust agreements, shareholder agreements)
• Bylaws, rules, etc relating to the internal affairs of the TPA
• Listing of services
ISSUE:
1. This regulation in essence is asking for a summary of what the TPA does – some of this information however may be proprietary and private. The required disclosure of this information may also inadvertently require disclosure of private company information or salary information – i.e. partnership agreements, etc. Typically this information is private and not available for public viewing. The requested documents could provide trade secrets, or other information which if released would be disadvantageous to the TPA and its employees.
• A TPA shall report any “material change(s) to the information” contained in the initial registration, within 30 days of the change.
ISSUE:
1. This will likely be burdensome for the TPA as the registration asks for a demanding list of information. This will entail much more bookkeeping and recording keeping – the potential for more employees. In addition, what does “any material change(s)” mean? The Division requires material changes to be reported, but fails to define what change would be material.
148.04 Annual Reporting Requirements
• In addition to registering, TPAs must also submit a report with a long list of requirements:
• # of self-insured customers
• Aggregate # of subscriber members enrolled in benefit plans
• Aggregate # of subscriber and dependent lives covered
• Aggregate value of Direct Premiums Earned for all the TPAs self-funded groups
• Aggregate value of Direct Claims Incurred for all the TPAs self-funded groups
• Aggregate Medical Loss Ratio for all the TPAs self-funded groups
• Net income
• Accumulated Surplus
• Accumulated reserves
• % of the TPAs self-funded customers that include each of the benefits mandated for health benefit plans under MA law
• Aggregated administrative services fees paid by each of the TPAs self-funded groups to the TPA
• Any other information deemed necessary by the Commissioner
ISSUE(S)
1. The above section of the proposed regulations presents MANY issues and problems for both the TPA and the self-funded plans.
2. As mentioned above, there are terms used within this proposed regulation which are specific to fully-insured business and NOT applicable to self-funded plans. A self-funded plan is structured completely different than a fully insured plan. Instead of paying premiums, a self-funded plan has an established trust for the benefit of the plan members. With a self-funded plan there are NO premiums – the contributions are placed in trust for the future benefit of the plan. Unlike fully-insured plans there are no premiums which are gone / used, without regard to risk. With a self-funded plan, the risk is on the plan – if members incur expenses the trust pays the expenses and if members do not incur expenses the trust keeps the money for a future date. The above “report” requires the TPA to disclose information which is not only NOT available – but not relevant to self-funded plans (i.e. direct premiums earned).
3. The regulations also attempt to impose requirements on the plans via the TPA. The TPA has no control over the claims incurred or members enrolled and/or covered – yet it is the TPA who must report this information. If the TPA does not report this information – they are subject to a fine. The MA Commissioner is putting requirements upon the TPA when they are actually attempting to get information from the self-funded groups – some of which who may not even be subject to MA regulations. For example, this regulation would require a TPA’s group in Nevada to not only keep record of this information but to report this information to the TPA so the TPA can report this information to the MA Commissioner. Further, the TPAs agreement with the self-funded group in Nevada may not even allow for the TPA to access this information. TPAs have varying agreements with their groups, and this “report” may very well request information far outside the scope of the agreement … especially since the report may include “Any other information deemed necessary by the Commissioner.”
4. The regulations also utilize many terms as outlined by the NAIC – an inherent problem with this is the fact that the TPA’s self-funded groups are not subject to insurance regulations. This reporting requirement would require BOTH the TPA and self-funded plans to re-structure their internal processes – a timely and expensive endeavor.
5. A huge problem with this regulation is that the report requires the aggregate Medical Loss Ratio for all the TPA’s self-funded groups. A self-funded group is not required to comply with the Medical Loss Ratio – this regulation attempts to override and is in direct conflict with federal regulation.
6. Net income is required to be disclosed in this report. This requirement seems irrelevant and exceeds the scope of the purpose of this agreement. As a business, the TPA is required to file its taxes – why is this information necessary for the annual report as well?
7. As mentioned above, this regulation requests information specific to a fully insured plan – not a self-funded plan. As the TPA is a not a health insurer – the TPA does not have an accumulated surplus and /or accumulated reserves. It appears this information is requested in ignorance of what services a TPA truly performs.
8. Overall, the report requires the TPA to provide information which it must in turn rely upon other entities to provide to it. In addition, some of the information may not even be available to the TPA in order to provide within this report. Other aspects of the reporting requirements seem completely unnecessary. For example, the report must include the new income and administrative fees of the TPA – how is this relevant? Further, other requirements for the report are impossible to provide. For example, the report requests information which seems specific to a fully-insured plan – NOT a self-funded plan. To comply with the reporting requirements the TPA would have to force it plans to set up mechanisms and processes to immediately – an expensive and timely endeavor.
• “All information submitted to the Division in the annual report shall be public record.”
ISSUE:
1. As mentioned above, it not only seems like the relevance of some of the reporting requirements are questionable, but also that public disclosure of certain items will be detrimental to the TPA and its employees. The purpose of the regulation should not be to impose hardship on the TPA and it seems as though making the administrative fees, partnership agreements, and net income of the TPAs public record would be detrimental.
• If a TPA contracts with another TPA to provide services on behalf of a self-funded group, the TPA that contracts the self-funded group shall include the self-funded group’s information in its annual report.
ISSUE:
1. The intent of this provision is unclear – does it mean that if a TPA in MA contracts with a TPA in IN to perform for a self-funded group in IN, the IN TPA must issue a report about the self-funded group in IN’s information?
• The Commissioner has discretionary authority to require the TPA to make underlying data used in its calculations available to the Commissioner. Also, if an audit is requested, the TPA must bear the cost.
ISSUE(S):
1. It seems this provision groups two important issues together in one bullet. First, the Commissioner grants for himself the authority to review private data used in the TPAs calculations. As mentioned above, it is possible the TPA does not have access to this information. It could very well be the private information of the group which the TPA had to request from the group. The TPA cannot provide the underlying data which it does not have access to. Moreover, it seems the Commissioner is unconcerned of any disclosure of private health information to the public in that the TPA has to reveal all the underlying data – some of which may be protected health information.
2. The TPA has to bear the cost of an audit. It seems counterintuitive that the Commissioner can use their discretion to require an audit and then – without a ceiling – put the cost on the TPA.
• Any TPA which fails to submit the annual report may be subject to a $100 / day late penalty.
ISSUSE:
1. As mentioned above, the Commissioner is making the TPA responsible (and subject to a penalty) for providing information it may not have access or a right to. Further, the Commissioner will be potentially fining the TPA for not providing information that it is not otherwise required to provide (i.e. Medical Loss Ratio information).
OVERALL
It seems clear that this is an overly expansive regulation which far exceeds the scope and power of the Commonwealth’s Commissioner. It would be an administrative and cost burden on TPAs and their self-funded plans to impose additional and extensive reporting requirements. Prior to enactment of this regulation, the Commissioner needs to have a better understanding of actually what services a TPA performs. In review of this proposed drafted regulation it appears the Commissioner does not have an accurate understanding of the roles a TPA performs with respect to a self-funded plan.
Moreover, with enactment of this regulation the Commonwealth would be expanding its regulation to self-funded ERISA plans which have been traditionally, and should remain exclusively, governed by federal law. Due to the expansiveness of this proposed regulation, it should be noted this far exceeds the allowable power of the Commonwealth.
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