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.

 

Improved Workplace Awareness Helps Traffic Fatalities Trend Downward

Employers and employees need to address the issues associated with automobile accidents as part of their daily management routine. A heightened awareness of automobile safety in the workplace has resulted in greatly improved fatality results. In 2010, 32,788 people lost their lives in vehicle accidents - down nearly 10,000 in the last decade. Fourteen percent of workplace fatalities result from automobile accidents. That is also down from 22 percent just 10 years ago. While this trend is moving in the right direction, the automobile exposure to a business offers one of the most serious liability exposures that can be faced.


Performance Management consultants recommend compliance with the 4-A’s of driving:

Anticipate what could possibly go wrong and focus on driving to avoid mishaps
Adjust to changing circumstances such as traffic congestion or changing weather
Assume nothing - don’t automatically assume that traffic will stay moving or a car won’t change lanes into your path
Allow no distractions - drivers must avoid anything that takes their focus off of driving

Not only can the strict adherence to an automobile safety program help relieve a business from a serious claim, maintaining drivers with good records reflect positively on the business’ auto insurance premiums.

Performance Management predicts that if employers would institute just two actions, implement standards of practice for driving and educate employees about good driving principles and management’s expectations, accidents would be reduced by more than 50 percent.

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.

Dog Law in Ohio to Change

A recent article in The News-Herald does a wonderful job summing up the changes to the Ohio dog law.  The article was written by Jean Bonchak and was posted on April 29th, 2012.  Read below:

"Whether you own a poodle, Pomeranian or any pooch at all, be aware that new laws regarding your canine responsibilities soon will take effect.

Matt Granito, president of the Ohio Dog Warden's Association who also serves as the Geauga County dog warden, presented preliminary information regarding the state laws, which begin May 22, to Geauga County Commissioners at a recent meeting.

Granito said the association initiated the legal action because something more had to be done to protect the public from dogs who bite.

The laws passed by the Ohio General Assembly state if an unprovoked dog bites someone then the dog's owner or person responsible for the dog at the time of the incident can be subject to criminal prosecution. It would range from a fourth-degree misdemeanor to a fifth-degree felony with the possibility of facing time in jail.

"Without provocation," as defined in the legal document, means that a dog "was not teased, tormented or abused by a person, or that the dog was not coming to the aid or the defense of a person who was not engaged in illegal or criminal activity and who was not using the dog as a means of carrying out such activity."

Dogs displaying aggression may be classified as "dangerous" or "vicious."
A "dangerous" label means that without provocation it has caused injury, other than killing or serious injury to any person, or has killed another dog. Dogs classified as "vicious" have killed or caused serious injury to any person.
Owners of dogs deemed dangerous will be required to pay an annual fee of $50, have the animal spayed or neutered, provide up-to-date rabies shots, secure microchipping, purchase a special tag to be worn by the dog warning it is dangerous and have appropriate signs posted on their property. Chain-link fences also will be required."