Developing the Operational Strategy of Managing Medical Stop Loss in Your Captive

Transcription

1 Developing the Operational Strategy of Managing Medical Stop Loss in Your Captive Jesse Crary, Lawyer, Primmer Piper Eggleston & Cramer PC; Stephen Hannabury, President, Educators Health Insurance Exchange of NE; John Cassell, Sr. Partner, Spring Consulting Group Tuesday, March 10, 8:30am

2 Introduction John Cassell, Senior Partner Spring Consulting Group

3 Background Growth in Employee Benefits Captives Funding Medical Stop Loss through a Captive Development of Group Medical Stop Loss Programs The Impact of the ACA

4 Group Medical Stop Loss Captive Structure Member Wellness Health Management TPA Member Group Stop Loss Captive Program Employee Assistant Program Provider Data Warehouse Pharmacy Benefit Manager Member Members can access a wider range of health plans at reduced rates Members can jointly purchase centralized services and more efficient benefit integration and health management

5 Aggregate Claims Managing Risk Reinsurer 125% of Expected Claims Member Self Insured Retention (SIR) Level Captive Individual Claims $250,000 5

6 The Benefits The participating group owns the program Members save money Member risk is controlled Costs are transparent Program design is tailored and controlled by the members

7 The Benefits (continued) Clean data is available to: Benchmark performance Focus Health management Manage Providers Administration and program management can be centralized efficiently

8 Critical Issues (do not try this at home) The Group: Education and commitment homogenous v heterogynous Stickiness The team, the structure, the domicile Managing the risk-the bad years Taking on new members Exit strategy What can go wrong

9 Efficient Legal Structures for Group Medical Stop Loss Captives Jesse Crary, Attorney Primmer, Piper, Eggleston & Cramer PC

10 To Rent or Own? Rental Captive vs. Group Owned Captive Advantages of Joining an Existing Rental Facility (Sponsored Captive) Reduces up-front capital required to establish program Can be used as incubator for groups that initially lack the size (number of covered lives) and/or surplus capital needed to establish an owned captive Some large sponsored captives owned/operated by brokers/carriers offer full suite of services for administering self-insured health plans and group medical stop loss reinsurance (attractive to those interested in streamlining entry).

11 To Rent or Own? Rental Captive vs. Group Owned Captive (continued) Disadvantages of Joining an Existing Rental Facility (Sponsored Captive) Rental fees and conservative funding requirements reduce opportunity for savings Oftentimes limited in choice of commercial stop loss carrier and service providers Reduced or non-existent control over governance and operations Less advantageous for nonprofit groups from tax perspective (until Vermont recently adopted law permitting cells to be formed as reciprocals)

12 To Rent or Own? Rental Captive vs. Group Owned Captive (continued) Advantages of Group Owned Captive Control over decision making regarding structure, governance and operations No rental fees Opportunity to select own team of service providers and to design program best suited to individual group s needs

13 To Rent or Own? Rental Captive vs. Group Owned Captive (continued) Disadvantages of Group Owned Captive Pulling together initial members to establish a group with sufficient size and funding Not for everyone requires commitment and cooperation of employers with common group-oriented philosophy and longterm view of how collective effort can control escalating costs of funding employee health

14 Common Captive Types and Legal Structures Available to Group Owned Captives Common Captive Types Association Captive not ordinarily used for medical stop loss captives as employers making up group are generally large enough to qualify for industrial insured status Industrial Insured favored over association captive as it generally features lower initial capital requirement and has less restrictions on investments; common for medical stop loss captives Sponsored Captive group could potentially form its own sponsored captive structure if it desired to segregate risks of captive by line of business or by employer type

15 Common Captive Types and Legal Structures Available to Group Owned Captives (continued) Common Legal Structures Association/Industrial Insured Captive can be formed as Stock Corporation Mutual/nonstock corporations LLC Reciprocal (advantageous structure for groups made up of not-for-profit employers)

16 Captive Domicile Considerations for Group Medical Stop Loss Captives Choosing the Right Domicile While important consideration for any captive crucially so for Group MSL Captive

17 Choosing the Right Domicile (continued) What to Look for In a Domicile Experience Not the time to give a new domicile or regulatory team a try Knowledge Regulatory team that understands added legal and regulatory complexity of these programs if the regulator is not asking questions they probably do not understand relevant issues! Support of MSL Ensure domicile has history of supporting successful group MSL programs Respected, knowledgeable regulator can be a powerful ally if program comes under scrutiny by DOL or foreign state

18 Regulatory Concerns Employee Retirement Income Security Act (ERISA) Federal law governing self-insured employee benefits plans Generally MSL Captives are not regulated under ERISA as stop loss coverage is not an employee benefit However, following precautions should be taken as greater scrutiny of self-funded structures is occurring Stop loss insurance must attach at high enough level that it cannot be argued it is taking a portion of the primary risk that should be covered by health insurance Stop loss premium must be paid from employer funds and not those contributed by employees to self-insured plan Stop loss insurance proceeds must be payable only to employer listed as named insured Employer must have all rights of ownership under policy Neither the self-insured plan nor any participant in the plan can have any preferential claim against or beneficial interest in the policy

19 Regulatory Concerns (continued) Avoiding MEWA status MEWA = Multiple Employer Welfare Arrangement (regulated by ERISA and state insurance laws) Each individual employer must separately contract with stop loss carrier and pay all stop loss premiums from its own funds. Employer MUST NOT use contributions made by employees towards the cost of their health insurance to pay for stop loss coverage Captive must be segregated from arm of program responsible for administering self-insured plans in order to ensure clear distinction between flow of self-insured plan funds and separate employer monies used to fund riskbearing entity

20 Regulatory Concerns (Continued) Avoiding MEWA status (continued) Each employer must enter into direct contracts with thirdparties providing services to its self-insured plan. Program must not be party to employer s contracts in order to avoid being treated as plan fiduciary under ERISA Those establishing new group medical stop loss captives should hire an ERISA attorney to review the program structure and provide an opinion clarifying captive does not constitute MEWA or fall under ERISA regulation

21 Regulatory Concerns (Continued) Call for Heightened Stop-Loss Regulation Great deal of attention by Federal and State Government Concern that viability of public health exchanges is threatened if small employers with younger, healthier employees opt to self-fund in large numbers (resulting in adverse selection where exchanges are overpopulated with unhealthy, high-cost lives) Calls for more stringent regulation of stop loss to prevent/discourage small employers from self-insuring November 2014 DOL Technical Release Opining that ERISA does not preempt states from adopting laws prohibiting insurers from issuing stop-loss contracts with attachment points below certain levels December 2014 NAIC White Paper Encourages state regulators to take active role in regulating terms of stop loss insurance policies and to adopt minimum attachment points to ensure employers retain enough risk that they remain truly self-insured

22 Regulatory Concerns (Continued) Legislative/Regulatory Update New York stop loss ban for groups of 50 or fewer to be extended to groups of up to 100 when the definition of small group changes in 2016 (preventative legislation introduced Jan. 2015) DC passed law requiring minimum specific attachment point of $40,000 CA passed law requiring minimum specific attachment point of $35,000 for groups under 100 employees) ($40,000 as of Jan. 1, 2016) 8-10 states have adopted more modest laws generally consistent with NAIC model regulation ($20,000 specific, 120% of expected claims aggregate)(co and RI among the most recent) In order to fund public exchanges, some states are considering stop loss insurance assessments and other measures that could impact self-insured employers

23 Management and Governance Common Traits Among Successful Group MSL Captives Shared culture and values among participants Helpful if participants already have a history of working together (trust) Long-term view towards effecting control over costs of employee health Management and Governance Structure should Promote These Traits Board members/officers consisting primarily of participant representatives Use of committees to permit involvement by participant representatives from different areas of expertise (finance, HR) High level of communication promoted by regular board and committee meetings (in person at least once annually) and hiring hands on service providers that understand captive concept and that actively educate and engage participants Shared wellness initiative/targets to enhance trust by ensuring all participants are working equally towards lowering claims and improving health

24 Running an Efficient Group Medical Stop Loss Captive EdHealth, year 1 Stephen Hannabury, Chairman & President Educators Health Insurance Exchange of New England

25 Why Was EdHealth Started?

26 Why Was EdHealth Started?

27 Why Was EdHealth Started? In late 2006, The Boston Consortium for Higher Education (TBC) Board and the Chief HR Officers of the members began discussing ways to slow the rise of medical insurance costs. They developed a two-pronged approach In early 2007, work began on a Health Management and Disease Management Initiative a program to help lower the level of claims. Healthy You was launched in early 2011.

28 Why Was EdHealth Started? In mid-2009, work began to develop a program to more efficiently and cost effectively provide medical insurance to participating institutions. Components included: Create savings for participants through a more efficient financial structure and group purchasing power. Multi-institution participation to take advantage of large numbers of employees to minimize risk volatility and costs, while allowing for renegotiation of administrative, network and other external charges. Making the Healthy You program available to EdHealth members to encourage employees to be more involved in their own wellness and disease management.

29 Launch July 1, 2013 EdHealth launched operations with six initial members. January 1, 2014 Three additional members joined. Approx. 7,000 employee lives covered and $100 mil. of annual premiums January 1, 2015 Two additional members joined. approx. 8,500 employee lives covered and $135 mil. of annual premiums. Many other schools are targeting January 1, 2016.

30 What are the Benefits to Members? Lower cost than a fully insured plan Negotiated lower fees with TPAs No hidden broker payments Larger group = better pricing, less volatility Not paying profits on base level of claims

31 What are the Benefits to Members? (continued) Early indications of savings and success The average 2015 increase in rates for EdHealth members is 0.5% One member realized 20% savings in first year vs. fully insured One member has had two years of flat rates for employees and was also able to skip one month of contributions to selfinsured account One CHRO received a standing ovation from faculty/staff when introducing the 2015 rates and plans. Subsequently, 25% of the employees enrolled in the high-deductible plan.

32 What are the Benefits to Members? (continued) Pooled experience The concept of insurance is predicated on the law of large numbers a larger group means the claims are more predictable or credible for rate pricing purposes. Claims are transparent in setting rates, so clear information available for plan design and incentives program decision-making, at an affordable scale.

33 What are the Benefits to Members? (continued) Captive Non-profit insurance company a clear mission! Direct access to reinsurers transparency, lower costs Group manages services, control, and sets reserves Potential for future dividends

34 How Does EdHealth Work? Collaborative Educational Ventures of New England, LLC (CEVoNE) was created as the sponsoring organization. CEVoNE was launched in March 2011 to bring together institutions from around New England to develop new programs. The first initiative was to sponsor the creation of EdHealth. CEVoNE members provided nearly $1.5 million to fund the initial development of EdHealth. EdHealth is now financially independent of CEVoNE.

35 How Does EdHealth Work? (continued) Massachusetts LLC, formed on July 12, 2012 Purpose: To implement an integrated program to design and coordinate the management of each participating institution s self-funded health care plan. EdHealth LLC is the parent company that oversees the overall program, consisting of: A group of self-insured plans with individually set selfinsured retention attachment points, A pooled stop-loss insurance program administered by a licensed Vermont Reciprocal Captive.

36 How Does EdHealth Work? (continued)

37 How Does EdHealth Work? (continued)

38 How Does EdHealth Work? (continued) A common set of plan designs evolvable Two Third Party Administrators so far Self-insured Plan and Captive administrators Actuarial and underwriting consultant Stop loss insurer Volunteer Board working board Searching for first employee Executive Director

39 How Does EdHealth Work? (continued) Most risk is maintained by individual members in the self-insured layer. Each member is individually underwritten. Some sharing of risk at the captive layer Allocation of surplus/loss to members based on how well each member did and how well the captive did

40 How Does EdHealth Work? (continued) Communications Open dialog between Board and members Formal quarterly reports to each member Newsletters, website, special topic messages, etc. Assistance to members with ACA and other legal requirements Plan Design Committee Representatives from all members Annual member meeting

41 Leveraging the Captive John Cassell, Senior Partner Spring Consulting Group

42 Financial Efficiency Volume Spread of risk Control of overheads Carve outs

43 Population Health Management Plan design Focused health management Direct contracting- risk sharing

44 Centralized services Benefits administration Data analysis Legislative tracking

45 Adding additional risks Life and Disability Voluntary benefits Retiree Medical and Pensions Benefit integration

46 QUESTIONS?