Peer Into the Future: Health Reform’s 2012 ‘To-do’ List for Plan Sponsors
Employer’s Guide to Self-Insuring Health Benefits January 2012 | Vol. 19, No. 4
Sponsors and administrators of employer-sponsored health plans will spend lots of 2012 in implementing the health reform law, because there’s still a lot of uncertainty that will decide the fate of self-funded health plans in particular. Plans will have to raise annual limits on essential benefits (as defined by reform rules) to $2 million starting next Sept. 23. Plans won’t have to pay new fees to fund comparative effectiveness research in 2012. But 2012 will be the year plans learn the payment frequency of and the method used to calculate the fees they will start paying in 2013. Similarly, plans won’t have to start issuing summaries of benefits and coverage (SBCs) to all participants, but they will be waiting and watching for rules about the SBC to develop, so they know how to satisfy that requirement. Peer Into the Future … Forecasting Health Benefits in 2012
By Adam V. Russo & Ron Peck
Adam V. Russo, Esq. is the cofounder and CEO of The Phia Group LLC, a cost containment adviser and health plan consulting firm. In addition, Russo is the founder and managing partner of The Law Offices of Russo & Minchoff, a full-service law firm with offices in Boston and Braintree, Mass. He is an advisor to the board of directors at the Texas Association of Benefit Administrators and was named to the National Association of Subrogation Professionals Legislative Task Force. Russo is the contributing editor to Thompson Publishing Group’s Employer’s Guide to Self-Insuring Health Benefits.
Ron Peck, Esq. is an attorney with The Phia Group, LLC, and has been a member of The Phia Group’s team since 2006. Ron is also currently of-counsel with The Law Offices of Russo & Minchoff. Ron has lectured at and participated in many industry gatherings and is frequently called upon to educate plan administrators and stop-loss insurers regarding changing laws and strategies.
Just when you thought the storm had passed and it was safe to emerge from your shelters… just when you thought that all of the requirements health care reform imposed upon you and your health benefit plans were finalized… you thought wrong!
This time last year, we were under the impression that 2011 would bring with it a clear, concise set of parameters to guide plan administrators as they restructure their plans in accordance with the new law. Unfortunately, as the year comes to a close, we realize that 2011 brought with it more questions than answers. While it is impossible for us to review all of the issues of 2011 and share everything we expect to see in 2012 in less than a thousand pages, we can certainly address some of the biggest issues we have seen develop over the year, and share with you our projections for the year to come. As always, as we learn new things over the next few months, we promise to share them with you.
The first important issue that needs to be addressed in this article is the epic Summary of Benefits Coverage (“SBC”) adventure. As we like to call it, the requirement that you draft a “mini-SPD” is supposed to go into effect in early 2012. Ladies and gentlemen, our own company is a self-funded plan, and we do not know how to draft an SBC. I guess that means we do not know how to draft a self-funded plan that is in compliance with the current rules. I doubt that fault lies with us, however, as these rules simply do not apply to the self-funded world! Yes… the guidelines were created with a fully insured policy in mind. Our phones keep ringing as self-funded client after self-funded client continues to reach out to us regarding these SBC mini-SPD documents. Calm down…
Here is what we do know. In a nutshell, benefit plans will be required to squeeze the most important portions of their benefit plan into a (what we thought at the time) 4-page “mini-SPD.” In fact, we drafted an article for this fine publication last September titled, “The 4 Page Mini-SPD – Coming to a Plan Near You,” in which we discussed the Patient Protection and Affordable Care Act’s (“PPACA”) section 2715, requiring benefit plans to develop the aforementioned SBC. In that article we had a good chuckle as the policy makers enlarged the page minimum from 4 pages to 8 pages, by allowing us to utilize the front and back of a single page, after they failed to create a template less than 6 pages in length. We knew then that the requirement to draft an SBC would not be so easily implemented. Now, with 2012 on the horizon, the SBC is again a major area of discussion.
As you might recall, the HHS was required to provide guidance and a template for compliance by March 23, 2011, with plan administrators required to provide these new SBCs to their participants beginning March 23, 2012. The aforementioned template was handed down a few months late on August 18, 2011. As mentioned, the template failed to meet the requirements originally written into the law (a 4 page limit) and we were advised that a front-and-back of the page approach would be allowed. At that time, the floor was also opened for comment. Based on the number of comments received, and the variety of issues they address, the policy makers recently notified the public that the deadline of March 23, 2012 is hereby postponed indefinitely, and that they will also provide sufficient time to comply once the final regulations are issued and a new deadline is set.
If the template and final rules had been released in March of 2012, benefit plans were supposed to be given about a year to implement the program. Looking into our crystal ball, the template alone was 5 months late. Add 5 months to the original deadline, and that puts us in or about August of 2012. That, of course, would be the new deadline if the template had been air-tight and there were no other issues to address. That is not the case, however, and we have to believe it will take the HHS at least another 5 to 6 months to straighten things out, before setting a final deadline. Thus, if the final rule is issued in early 2013, we wouldn’t expect to see a deadline until late 2013, at the earliest. As such, while 2012 will be a year for watching the SBC develop, it won’t be a year to actually develop an SBC yourself.
Another reform-based change we anticipate dealing with in 2012 includes changes to annual limits on essential health benefits (“EHBs”). Benefit plans with a plan starting on or after September 23, 2011 but before September 23, 2012 will see an annual limit on essential health benefits of $1,250,000. As for plan years starting on or after September 23, 2012 but before January 1, 2014, the annual limit on essential health benefits will be $2,000,000.
Although these are changes for 2012, there are a number of other, current regulations that the self-funded community needs to monitor when it comes to EHBs. This primarily relates to the definition of an EHB. While it is true that self-funded plans are not currently required to offer coverage for EHBs, they are prohibited from having annual and lifetime limits on any that they do offer. Moreover, they may be required to cover all EHBs in the future, via an expansion of the definition of “Minimum Essential Coverage” to include all EHBs.
Another hot topic being tossed around for 2012 deals with so-called “Accountable Care Organizations” or “ACOs,” and Medicare. ACOs will allow providers to form organizations and voluntarily meet quality thresholds, help eliminate unnecessary tests and medical procedures, and encourage greater focus on preventive care. In exchange, they will receive a share in the cost savings they achieve for the Medicare program. Depending upon how well this experiment works, ACOs may spill into the private carrier relationship as well.
Speaking of Medicare, the year 2012 will bring with it a lot of other developments for Medicare, such as reduced rebates paid to Medicare Advantage plans, bonus payments being issued to “high-quality” plans, the creation of an “Independence at Home Demonstration” program to provide high-need Medicare beneficiaries with primary care services in their home, as well as fraud and prevention initiatives to establish procedures for screening, oversight, and reporting for providers and suppliers that participate in Medicare, Medicaid and CHIP; requiring additional entities to register under Medicare, increase penalties and impose new compliance and disclosure obligations on health care providers.
There will also be new annual fees on the pharmaceutical manufacturing sector, enhanced collection and reporting data from federally conducted or supported health care and public health program surveys based on race, ethnicity, sex, primary language, disability status and for underserved rural and frontier populations.
In 2012 the Affordable Health Care Act will reduce disparities by making improvements in coordination of care by providing funds for home visits for expectant mothers and newborns to reduce infant mortality, cultural competency by requiring health plans to use language services and community outreach in underserved communities, and ending insurance discrimination by not allowing plans to charge individuals who have been sick and ensuring women pay the same premium as men.
Another topic we have been following (yes, there’s more), relates to the “Patient-Centered Outcomes Research Trust Fund Fees.” This involves a fee that insurance plans and sponsors of self-funded plans must pay on a per-policyholder basis to fund the Patient-Centered Outcomes Research Trust Fund. The Fund supports comparative clinical effectiveness research activities. For policy and plan years ending during fiscal year 2013, the fee will be equal to $1 per individual covered under the policy or plan. For the remaining fiscal years, the fee increases to $2 for each covered individual or enrollee.
What still needs to be decided in 2012 is how plans will calculate the average number of lives they include. A reasonable method to determine the average number of lives covered needs to be decided upon, and universally adopted. In addition, it is still unclear as to whether a plan should pay fees annually or quarterly and if reporting should occur on the same day for all plans regardless of the timing of their policy year.
In 2012, States will be required to establish a temporary reinsurance program. The intent of the program is to help stabilize premiums for coverage in the individual market in that State during the first 3 years of operation of the notorious exchanges. Health insurance carriers and TPAs of self-funded health plans will be required to make payments to the program for each of its years in operation. Many questions remain regarding the method of payment and whether the payments should be made to the Federal government or through the States, and whether payments should be made monthly or annually.
One of the more interesting questions relates to what role a TPA will play in this situation as well. While we have been told that TPAs will not be financially responsible for these fees, it is not set in statutory-stone. We would hope that TPAs will be responsible for collecting the fee from the benefit plans they work with; not payment of the fee itself.
A bigger question relates to the identification of self-funded benefit plans. Our guess is that this is another role for TPAs, and is perhaps another area where the TPA can create a new revenue stream. We should expect to begin seeing some answers on this before the summer of 2012.
We would recommend that fees be collected on an annual basis, not on a per-month basis. Doing so on a per-month basis would be an extreme administrative burden and in many cases, very difficult to do accurately. Payment of the fee on an annual basis, using the average of the per-month totals, would ensure less administrative hardships and the ability for the plan to submit more accurate figures. TPAs should be allowed to act on behalf of the plan, but it should be recognized that they serve in purely an administrative role with no control over plan assets. Therefore, the TPA is not a fiduciary. We have already seen what problems this can bring.
Moving on to yet another topic, the Employee Retirement Income Security Act of 1974’s (“ERISA”) regulatory exemption for self-funded plans is a persistent thorn in the side of State insurance regulators, and the fact is that a number of stop-loss carriers have been focusing on the small-group market further drives the thorn deeper into their flesh. In this current economic environment, it can be expected that employers of all sizes faced with spiraling health care costs will continue to examine the self-funded option as a way to provide more cost-efficient health benefits to employees and their families. According to the Kaiser Family Foundation, the recent trend of small employers (3-199 workers) moving to self-insurance started in the early 1990s and accelerated slightly in the decade, rising from 13% in 1999 to 15% in 2009. The late 2000s has seen a jump in self-funding, and we anticipate 2012 to be a banner year for this industry.
According to a Kaiser Family Foundation survey, approximately 60% of benefits are provided by self-funded group health plans. This percentage increased from 49% in the year 2000, The Kaiser Family Foundation and Health Research & Educational Trust Employer Health Benefits 2011 Annual Survey, http://ehbs.kff.org/pdf/2011/8225.pdf.
The U.S. Department of Health and Human Services and the U.S. Department of Labor published in their reports that 82.1% of large employer groups offer at least one self-funded health benefit plan, U.S. Department of Health and Human Services In Collaboration with the U.S. Department of Labor, A Report to Congress on a Study of the Large Group Market (March 31, 2011), aspe.hhs.gov/health/reports/2011/LGHPstudy/index.shtml.
This increase is fueled primarily by escalating costs and the search for a more cost-effective alternative to commercial health insurance. We have seen more and more brokers across the health insurance industry begin to look at self-funding. There are good and bad things that can be said about this. On a positive note, having more interest in self-funding means greater growth in our industry. Negatively, however, having brokers begin to place their clients in self-funded plans could lead to a misuse of self-funding, stop-loss, and misleading products that abuse the self-funded structure. All it takes is a few plans or participants to complain to their insurance commissioners about these “sham” self-funded products and you’ll see the arguments against self-funding grow. This is another forecast to watch out for in 2012.
Due to this vast amount of growth, one of the trends we have noticed in 2011, that we expect to see continuing into 2012, are attempts by those with a vested interest in the health care exchange seeking ways to attack the financial viability of self-funding. As employers come to realize that the cost of purchasing private insurance from fully funded insurance carriers will continue to skyrocket, they will naturally consider alternatives (as previously discussed).
Those that support the exchange – a government monitored exchange of private health policies, which meet (or beat) minimum standards (mandates) set by policy makers – realize that in order to have an exchange that works, and be able to offer generous coverage for premiums that are capped by law, the policies must enjoy a large risk pool comprised of healthy lives. Indeed, if only the sickest of the sick join the exchange, the carriers will not be able to provide the mandated benefits while staying under the mandated cap on cost. There is thus a major concern amongst pro-exchange regulators that the growth of the small-employer self-funded marketplace will contribute to adverse selection in the group health care marketplace when the exchanges begin in 2014. Do not be surprised if these regulators continue to attempt to restrict self-funding by attacking stop-loss in various ways, (such as by prohibiting the sale to smaller groups or by restricting terms, such as making attachment points higher). The key to success, they will agree, comes in two parts: (1) require all Americans to purchase coverage [expanding the risk pool and ensuring healthy “low cost” lives join the pool], and (2) eliminate other options available to healthy lives.
Thus, when the HHS and DOL were independently instructed to release reports on self-funding, we anticipated a smear campaign meant to shrink support for self-funding as an option for health plan sponsorship. Instead, what we ended up seeing was a glowing review that enforced what we have been saying all along – self-funding gets the job done, often for less. One of the major issues we spotted, however, amidst the otherwise positive feedback related to stop-loss, are how smaller self-funded benefit plans that would ordinarily not be able to afford the risk of self-funding (the threat of a catastrophic claim) are able to self-fund thanks to the presence of stop-loss protection for a low specific deductible attachment point. The implication was that a benefit plan with a low specific deductible is no different than a fully insured employer with a higher-than-average deductible.
This issue came to a head when the National Association of Insurance Commissioners (“NAIC”) considered a recommendation that the NAIC amend its stop-loss model act to prohibit the sale of stop-loss insurance to small groups, or as an alternative, raise the minimum allowable specific attachment point to $40,000. Self-funded plans that purchase stop-loss policies under what the NAIC classified as “low attachment points” were accused of actually being commercial health insurance products, and not self-funded plans. Since then we, in partnership with SIIA, have drafted white papers in response to this theory, explaining that stop-loss reimburses benefit plans, not health care providers, and that unlike a fully insured employer, whose employee’s claims are paid by the carrier, a self-funded plan – regardless of their stop-loss deductible – is responsible for medical expenses.
It is only after the claims are paid that the self-funded plan submits a claim for reimbursement, and hopefully receives the funds. Whether their claim is accepted or denied, however, does not affect their obligation to pay their plan participant’s medical bill. Thus, even with a low attachment point, the key differentiator between a self-funded plan and fully insured policy is risk retention. Self-funded plans continue to be at risk for payment of claims. We anticipate that this dispute will gain momentum as we enter 2012.
It is clear that with the current action by the NAIC and state insurance commissioners, self-funded plans and TPAs will need to be careful with their stop-loss choices and carriers will need to be diligent with their offerings. Self-funded plans and TPAs need to educate their State insurance commissioners on the benefits of self-funding to ensure its viability as well.
A big issue that we addressed in 2011, and we are watching as 2012 approaches, relates to the role preferred provider organization (“PPO”) networks play in today’s benefits landscape, what benefits they truly provide to benefit plans, and alternatives that either exist or may develop over the next year. We have written many articles about the benefits and potential risks of PPO network arrangements. Two of the biggest issues we’ve seen, and expect to see more often in 2012, relate to the discount and payor status.
First, regarding the discount, as networks have expanded, exclusivity of in-network status has diminished. As the value of being an in-network provider has lost its value, the incentive for providers to offer real savings has lessened. This expansion of networks and reduction of the value of in-network status has resulted in discounts that do not measure up to the inflation we’ve seen on prices industry-wide. In other words, a 10% discount on a charge which is inflated by 700% is no great deal at all! Unfortunately, benefit plans that enter into network agreements contractually obligate themselves to pay whatever the in-network provider charges, sacrificing their ability to audit the claims and dispute charges they believe to be excessive.
The second issue we expect to see relates to payor status. PPOs and providers are deeming TPAs to be payors, and thus responsible for payment of claims, when the plans said TPAs service fail to provide payment within the deadline set by the PPO contract. As a result, we are seeing – and anticipate seeing – providers performing audits, identifying late payments, and pursuing TPAs for payment rather than the plan sponsors. As the benefits of PPO participation dwindle, and the risks faced when entering into a PPO arrangement increase, we believe we will see many more benefit plans seeking to utilize PPO alternatives – such as pricing based on Medicare, MSRP, and other pricing parameters.
This issue connects closely with a major lawsuit that may be heard by the Texas Supreme Court titled GPA Holding, Inc. v. Baylor Health Care System, Dallas County, Texas Trial Court Cause No. 06-00120. We recently filed a brief on behalf of SIIA in support of Group and Pension Administrators Holding, Inc. (“GPA”), and in opposition to Baylor Health Care System (“Baylor”). We urged the Court to reverse the judgment of the Fifth District Court of Appeals as the financial integrity of all TPAs is placed in jeopardy by the prior ruling. This case presents the issue of whether a TPA, such as GPA, can be held financially responsible for expenses incurred by participants of self-funded benefit plans. The lower court has obligated GPA to be a guarantor of payment. By doing so, it has eliminated the core element that differentiates a self-funded plan from an insurance carrier. Consider the fact that 79% of employers use TPAs and about 55% of employees are members of plans utilizing a TPA, Everything You Wanted to Know About TPAs But Were Afraid to Ask, Frederick D. Hunt, Jr., Soc’y of Prof. Benefit Admin., hppt://www.spbatpa.org/node/1600.
If the Court does not reverse the appellate court decision, then a TPA will be held to be a fiduciary payor, deeming the TPA to be no different than an insurance carrier, potentially eliminating self-funding and negatively impacting millions of self-funded plan participants nationwide. We argued that only a fiduciary may be deemed responsible for payment and have asked the court to reverse the lower courts’ determination that deems GPA to be a guarantor of payment.
Based on this case and others like it that deem the TPA to be a payor and/or a fiduciary, one of the biggest decisions that TPAs and plans will have to make in 2012 is whether the fiduciary shift takes place. Who will take on the fiduciary responsibilities and what exactly falls within the “fiduciary realm?” Will TPAs begin to take on more of a fiduciary role since more and more Courts are declaring that they are fiduciaries regardless of what the administrative services agreement states?
Finally, in what will be the biggest issue to watch in 2012, get ready for the primetime courtroom drama regarding PPACA’s constitutionality?
As attorneys, we frequently review contracts on behalf of our clients. One constant is the “severability clause.” Most contracts include this clause, which in essence states that if any portion of the agreement is deemed to be illegal or unenforceable, the illegal provision is cut from the contract, and the remainder of the terms shall stay in effect.
Looking at PPACA, an integral part of the law (which is necessary, in our opinion to sustain the law’s financial viability), states that all citizens of these United States of America must carry some form of health insurance. The challenge has been made, however, that such a law (requiring us to purchase a private product) is unconstitutional. Further, it was argued, that if one part of the law is unconstitutional, the whole law is invalid. This argument was made because the aforementioned severability clause does not appear in the law. That shouldn’t come as much of a surprise to anyone, since many Congressmen and Congresswomen would likely not have voted in support of the law if it had lacked this provision. In other words, many legislators likely supported this law in its entirety, as an “all or nothing” document.
Multiple courts held that the provision is constitutional; including the Thomas Moore Law Center v. Barack Obama case back in October of 2010, which was a 6th Circuit Court of Appeals decision. This was followed by the 4th Circuit Court of Appeals decision in Virginia v. Kathleen Sebelius on December 12, 2010 stating that States do not have the authority to challenge the law.
However, in the action brought by 26 states titled Florida et al v. United States Department of Health and Human Services, the Court declared that the law was unconstitutional, on the grounds that the individual mandate to purchase insurance exceeds the authority of Congress to regulate interstate commerce. Further, the Court held that because the clause was not severable, it had the effect of striking down the entire law. On August 12, 2011, however, a divided three-judge panel of the 11th Circuit Court of Appeals affirmed the lower court’s decision… but only in part. The court agreed that the mandate was unconstitutional, but held that it could be severed, allowing the rest of PPACA to remain intact. Now, the case has been appealed to the United States Supreme Court, and the high court has declared its intent to make the final decision. While we both agree that it will be a 5-4 decision, we just aren’t sure which way the Court will go.
The Supreme Court expects up to five and a half hours of arguments to take place in March of 2012. This is an exceptionally substantial amount of time being afforded by the Court, indicating that they understand this is an issue that is clearly important to the future of this country. The issues that will be the focus of the arguments include whether the mandate is based on the impermissible use of the commerce clause as well as whether the PPACA can stand without the mandate. We cannot wait to write the article regarding this decision!
While 2011 had much to offer, 2012 looks like an endless roller coaster ride. We just hope that we do not get too sick by the end of it!
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