News

Essential StaffCARE, along with national brokerage firms, consulting firms and major insurance carriers, have observed health plan scenarios being presented to staffing companies that provide major medical benefits through a VEBA trust and/or a Captive insurance entity.

Serious questions have come forward from a number of staffing companies that are confused as to the type of plans they are being presented that are part of these VEBA/Captive arrangements.  Staffing companies are unclear if they are fully insured or self-funded.

It is critically important to understand the significant differences between self-funded major medical plans and fully insured major medical plans from both a contractual and regulatory perspective.

Self-Funded Major Medical

The Employer is ultimately responsible for claims liability incurred by plan members.  Not the stop-loss carrier. The employer can however purchase stop-loss coverage to limit their exposure to major medical claims that are now unlimited under ACA rules. A Self-Funded major medical stop-loss contract is between the stop-loss carrier and the employer, and does not extend to the employee. Stop-loss carriers offer casualty insurance not health insurance, and are not regulated by state insurance departments as health insurance.

Fully Insured Major Medical

The Health Insurance Company is responsible for claims liability incurred by plan members.  Not the employer.  Fully insured plans are contracts issued to the employer and enrolled employees.  Benefits and claims payments are guaranteed by rated health insurance companies that spread risk over many plans and many members. Major medical insurance companies and their contracts are highly regulated by both state and federal law to protect both the employer that offers the plan, and the employee that depends on the coverage they are purchasing. 

 The National Association of Insurance Commissioners (NAIC) has issued a white paper to inform the public of risks involved in self-funded major medical plans under ACA rules and mandates. These plans are increasingly being marketed without full disclosure of the financial construction of the plan or the risks involved. 

We have included a link to the NAIC white paper Stop Loss Insurance, Self-Funding and the ACA, along with other informative links that will assist staffing companies in understanding the risk they may be obligating themselves. 

Excerpts from the NAIC’s white paper include:

• “Most stop loss insurance policies contain explicit statements that the stop loss insurer is not the plan fiduciary, but the policy does not define what a plan fiduciary is…”
  
• “Before an employer can easily compare the cost of self-funding against the cost of private (fully insured) health insurance, he/she would have to have a clear and accurate picture of all the cost components of self-funding. There is no law requiring these costs to be made transparent to employers and no rate stabilization laws for stop loss insurance…”
  
• “Because stop loss insurance products are not generally required to conform to state or federal health insurance law, including the ACA, there may be exposure to additional risk in some stop-loss insurance products that is not immediately apparent…”
  
• “Many stop loss insurance policies state that premiums can increase at any time or even retroactively during the policy year when additional, unforeseen risk occurs, making financial planning very difficult…”
  
• “The concept of an “unforeseen risk” is problematic. The risk of plan participants developing medical problems during the year is precisely the risk the employer might reasonably believe it is insuring against when it buys a stop loss policy…”
  
• “Early termination or rescission of the stop loss insurance policies for the reasons stated above could result in financial disaster…”

Historically, self-funded major medical plans have worked well for larger standard ris (low turnover) companies able to analyze 3 to 5 years of fully insured major medical claims experience, and with 75%+ employee participation within their group. 

Contrast this to the staffing industry, where newly deemed full-time employees have little or no claims experience for a stop-loss underwriter to analyze, and low participation levels. ACA requirements allowing unlimited claims exposure makes estimating claims in this self-funded environment risky, even dangerous.

Captives Defined (Source: NAIC)

“In its simplest form, a captive is a wholly owned subsidiary created to provide insurance to its non-insurance parent company (or companies). Captives are established to meet the risk-management needs of the owners or members. They are essentially a form of self-insurance whereby theinsurer is owned wholly by the insured…”

The Federation Of Regulatory Counsel (FORC) is a national association of attorneys specialized in the arena of insurance regulatory law. FORC published the paper  VEBAS, ERISA, AND OTHER CLOAKING DEVICES, that describes the use of VEBAs and Captives and the potential regulatory issues that could develop.

FORC’s CONCLUSION

“A program will draw regulatory attention for review as unauthorized insurance by utilizing descriptions such as “VEBA,” “ERISA exempt,” and similar reference to federal nomenclature while avoiding licensure as an admitted insurer or MEWA or registration as an RRG, or causing the transfer of benefit risk to an entity unauthorized to accept such risk. A program which boasts low rates and minimal or no underwriting will invite heightened regulatory attention. An “exempt” program, which employs insurance agents to transact the program, will ensure regulatory attention, even when the agents are characterized as “labor consultants” or “business agents” to “enroll” or “negotiate” with potential association or union members. Legitimate ERISA plans, if properly established, may avert state insurance regulation. The funding of a benefit program through a VEBA will not, alone, evoke similar federal preemption or state exemption unless provided by state law…”.

While attorneys agree that a VEBA Trust structure is legal, any company being presented a product concept that includes a VEBA Trust or Insurance Captive arrangement should require the promoter to provide the following in writing:  

• Is this plan fully insured or self-funded?
•  If fully insured, why do I need stop-loss insurance?
•  Who is the originator of the VEBA? (Require an exact copy of the Trust Document and proof of its filing date and home situs)
•  Who are the current VEBA members (employers, not vendors)?
•  Who is on the VEBA’s Operating Committee, Board of Directors and/or Board of Trustees?
•  What actuarial firm developed the rates and claims projections?
•  How many groups were used in the analysis? 
•  What was the average participation rate in the groups? How many insured employees vs. total eligible employees were analyzed?
•  How many years of claims data were analyzed?
• If there is a captive entity involved, where is the captive located and to what level is it capitalized?  (This is important with unlimited claims liability under ACA rules).

Because these elements are unbundled and not regulated by states as a health insurance company, a staffing company should ask for copies of all contracts between the VEBA Trust and the Fiduciary, its TPA, its Stop-loss carrier, any Captive entity, and any other wellness, underwriter or operations vendor, including coverage limits.  

ESC advises staffing companies to conduct thorough due diligence when presented an ACA solution that is not fully insured by a rated domestic health insurance company.

Self-funded major medical insurance exposes employers to regulatory and financial risk not associated with fully insured plans — exposure which can be significant under the unlimited benefits rule of the ACA.

When Inc. Magazine announced its prestigious Inc. 5000 Fastest-Growing Private Companies list recently, one brand that repeated on the list in 2015 earned an increasingly uncommon added distinction. 

With growth enhanced by interest in its new ACA technologies and administration applications, Insurance Applications Group (IAG) — whose award-winning Essential StaffCARE product makes it the largest provider of ACA-compliant health plans and supplemental employee benefits to the staffing industry — was named to the 2015 Inc. 5000 list of America’s Fastest-Growing Private Companies for the fifth consecutive year. In doing so, IAG earned a place on Inc.’s Honor Roll — a distinction fewer than 18% of honorees achieve. It also marked IAG’s appearance on the list for the sixth time in seven years.

“We are thrilled to be recognized again as one of America’s fastest growing companies,” stated J. Marshall Dye, IAG’s CEO. “As one of very few firms nationally to make the Inc. 5000 Honor Roll, we dedicate this recognition to the commitment and hard work of our IAG team, and to the successful partnerships that we have created with our staffing industry clients and insurance industry colleagues.”

The Inc. 5000 list measures revenue growth from 2011 through 2014. To qualify, companies must be U.S. based and privately held, while meeting strict financial reporting requirements.

The magazine surveys private America’s independent businesses to take a comprehensive snapshot of that critical part of the economy. Participating companies vary widely in their focus, ranging from digital media companies, retailers and food and beverage companies to advanced manufacturers, telecommunications and technology businesses.

“We attribute IAG’s growth and success to our ongoing development of advanced technology solutions and ACA-compliant insurance products,” said Dye. “Our focus is on leading edge processes that are grounded in the fundamentals which make the insurance industry great. Our mission is to help our customers manage and mitigate their exposure to the increasing costs associated with the Affordable Care Act, and to meet their corporate responsibility to provide quality benefits to employees and their families.”

Nearly 30 million businesses are registered in the United States and thus eligible for consideration; past honorees have included Under Armour, Visa, Intuit, Timberland, Publix, Patagonia and Zappos.com.

 And — of course — IAG.

Employers subject to the employer shared responsibility provision under section 4980H of the Affordable Care Act are required to provide full time employees and the IRS with year-end reports regarding Employer-Provided Health Insurance Offer and Coverage for 2015.  As with many aspects of the ACA, the rules regarding this reporting are complex and can be confusing.

To assist you, ESC and our third-party administrator PAI have prepared a helpful bulletin summarizing requirements and providing you with other helpful links.  Click here to review that bulletin. 

PAI will begin providing the year-end information that you need to file your IRS 1094 and 1095 reports in December 2015 and early 2016.  This information will be delivered via the secure FTP folder directory provided to you, and an email notice will also be sent alerting you when the information has been posted.

We also understand that many software providers to the industry are enhancing system capabilities to assist in preparing these reports.  Several ESC strategic partners are developing processes enabling you to upload information into their system to automate reporting and generate the required IRS forms 1094 and 1095.  You can check with your software provider to learn what measures they are taking in this regard.

For much more detail on Forms 1094 and 1095, the IRS also provides this helpful link.  Be sure to check it out if you have additional information requirements.

Please let us know if you have questions, and as always thank you for your business.

ESC Tip of the Month

Making the strategic decision to change your firm’s payroll vendor is never easy.  But once you do select a new provider, one simple email or phone call can save you weeks or even months of headaches and re-work.

To quote Ben Franklin, “An ounce of prevention is worth a pound of cure.”  Because ESC’s health and benefit plan administration is intricately tied to your firm’s payroll information, be sure to alert your ESC representative in advance of the new vendor’s full implementation of the system. 

By doing so, ESC can make sure that the systems are integrated and mapped appropriately for reporting and withholding purposes from the outset — rather than going back after the fact and incurring weeks of re-work and often significant cost in “curing” two systems that are not interfacing properly.

One call is all that it takes to avoid the problem!