EuroTrippin' 2012: How It Started

Summer 2011: My best friend Ida went to London to study so before she left, of course I said I'd be going to visit her but it was kind of half-jokingly. I knew I would eventually visit but I was thinking maybe in 3 or 4 years' time. Anyway, the more we talked about it the more excited we got and before I knew what had happened we were going to tour Europe as well. At that point I decided to see how my parents would react so one day when we were walking from the car park I was just like... "Oh yea btw, I'm going to visit Da in London." And they said No. LOLOLOL. Then they tried to compromise and said we'll all go together. And I said No.

Da and I eventually decided we'd go in May-June because we both end our exams then and she had to come back to SG for at least a month to spend time with her family before going back to London. So we got our dates sort of fixed. Every now and then I would just tell my parents "I'm going to London. Then we're going to Europe" and they'd be like OHMAIGADDDNUUU and freak out again. But I'd give a speech on how this is my life and I must make my own decisions and travel on my own to gain independence etc etc etc. My Dad was more supportive but his condition was that they had to come too (right until the week before I left he kept trying to tag along) and my mom was just saying no because it's too dangerous etc etc etc. Then my mom threatened me and said I can't go because they won't pay for me AND THEN I REALISED I had money because I worked after my A' Levels so I just told them that I'm going and they can't stop me and they said ok. HAHAHAHAHAHAHAHA. My parents are damn funny. I think in their hearts they trust me enough to know I will look after myself.

December 2011: Ida and I made more plans. I went to the Library and borrowed a couple of books on Europe. Talked to Raied about Europe because he's been there. My dad also talked to his friends to help me get info. Narrowed down to the couple of countries- Amsterdam, France, Spain, Italy. We were deciding one more from Switz, Germany and Greece. Greece was pretty out of the way and given all the instability we decided not to go there (which was a good decision because we found out later that the Eurail Pass stopped its services there). I FB-msged Marion who is my brother's godsis and a dear family friend. Thought if she was in Switz we'd def go there so I can visit her because I hadn't seen her in a couple of years. Turns out she was in Switz so we chose that as our final country.

I had a lot of research to do because my world map/general knowledge skills are pretty much zero and I didn't even know where Europe was and what country was in Europe (very good i know). My books helped alot and I wrote down what tourist attractions I wanted to visit, what we had to see, what the culture was like and what food to eat there (lolol).

In 2012:
We decided I would fly in on 14th May because I end exams on 6th which would give me time to pack and get whatever I needed for the trip. Ida also ended around that time so it was perfect. The plan was to chill out for 2 weeks in London and she could bring me around and I could help her pack and move out of her student accom. We also FINALLY decided on which order of countries we'd visit first. Had to plan with my other friends who were meeting us in Spain! I think we only finally agreed in April or something because there were alot of other things to consider.
So we agreed on London- Amsterdam- Switzerland- France- Spain- Italy. And I'd fly back from Milan on 28th while Ida flew back to London.

Up next was deciding which cities we wanted to visit in each country and how to allocate our days to which countries and how to get from country to country.

We decided to visit Amsterdam and Zurich. For France we were trying to go to at least two cities, think we narrowed it down to Nice and Paris. We had to check the Eurail route and map to see how long it'd take and if it was on the way or not. Then for Spain we decided Barc and Madrid, those two were pretty easy but deciding which one first was a pain in the ass. For Italy we wanted to go to Rome, Florence, Venice, Milan and maybe a day trip to Pisa.

We basically had a month for everything except London. So we roughly decided on 3 days in Ams, 4 in Switz, 5 in Paris, 3 Barc, 2 Madrid, 3 Rome, 3 Florence, 1 Venice, 2 Milan.

As for which mode of transport, we were deciding between plane and train. Many people who've travelled in Europe go by train through Eurail and Eurorail and Interrail. It was all very confusing but I found out Eurail and Eurorail is the same thing and Interrail is for EU citizens. So Ida had to get an Interrail Pass because she's of UK citizenship and I had to get a Eurail Pass but we could still travel together and everything. The Eurail pass was especially frustrating because we had to buy the pass in advance since it's delievered to your house and there are many different types of passes you can buy- based on the number of countries you're travelling and the travel days needed. Travel days were especially annoying because if you buy too many you're wasting your money and if you buy too few you're basically screwed cuz without the pass a ticket can cost 200 Euros. We also wanted some flexibility and it was damn difficult to see how long you'll take to train from one country to the next because different train timings have different routes, etc and it's hard to plan for something 2 months earlier.

My dad booked my plane ticket and I wld fly Thai Airways cuz he works there. Apparently Eurail pass doesn't have routes from Amsterdam to Switzerland (I don't know how come, I'm still convinced Ida checked incorrectly hahahahaha) so we decided to fly from London to Amsterdam (because Interrail doesn't allow you to train from your home country- in Ida's case) and Amsterdam to Switz. The plane tickets were quite cheap, we booked in Feb. About 30 Euros per flight. Which is about 50 SGD.

We decided to train the rest of the way since everyone trains and we wanted to get the 'real experience' hahahaha. From Spain to Italy the trip was pretty long, like 27 hours (because we have to pass through France again) and I wanted to fly but Ida didn't because her Interrail pass is unlimited so it didnt make sense to pay for the pass and for the air ticket which I understood, so we just decided to train. Finally bought my Pass sometime in April!- 4 countries, 8 travel days 315 Euros.

In the week before I left, I borrowed a backpack from Kiron. Not that I was going to backpack. Ida and I planned to drag luggages the whole time in Europe. We had experience in HK/China when we went in July 2011 and Ida's mom basically ran around the whole of China and HK so Ida and I had to chase after her dragging our suitcases EVERYYYWHERE. But my luggage was tiny. It was the same as what I use for my 4 day trips. And this was 45 days. So my plan was to use both luggage and towards the end if I wanted to buy stuff I could put it in my backpack.
The day before leaving, I did a final calendar outline of our trip, mainly for my dad. But it turned out to be sooooooooooooooo useful for us. Seriously if I didn't do that we definitely wouldn't know where to go and for how long. LOL. I don't know how come I didnt think about doing the calendar for myself. Luckily I printed two copies so I brought one along.

Just realised it's too small for you to see but basically it's a calendar of which country I'd be in and when I leave for the next country and what time I take the train and arrive. (You can get all this info on the Eurail website). When I came back I found out my parents had been crossing the days in anticipation of my return LOLLLLLLLLLLL so cute. Got my dad to photocopy my passport and Jiejie Lydia bought me a travel wallet (the kind you wear beneath your clothes) and I compiled a list of all the Singapore Embassies in the various countries (in case I lose my passport). So basically waz all set to go!

An Introduction.

Welcome to my travel blog!

I am Sarah and I'm turning 20 this year. In my recent travels I have found that when I return, many people ask me how the trip was and I can't really choose which aspect of the trip (culture, people, scenery) to talk about in the 5 minutes of conversing. So I just reply "good" and all my experiences can't be shared. So the main point of starting this blog is, hopefully, to take friends through my travels and show them the highlights of my trips.

Also, I think that blogging about it will help me take note of the places I go to and pay more attention when I travel. If you ask me about what I did in Taiwan in ...2010 (I can't even remember when I went), honestly speaking I only remember the night market, sitting in the bus and going to some amusement park. And having to pee ALL THE TIME cuz it was cold.

This will be an ongoing blog and I will post sporadically. I travel about once or twice a year but I hope to travel more now. It'll be lame if I only post here annually. Haha. Meanwhile, you can read about my daily life at http://sarahngwow.blogspot.com.

Love,
Sarah

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.

 

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.

California Previews NAIC�s End Game for Self-Insurance

In case you had any doubt about the end game the National Association of Insurance Commissioners (NAIC) has in mind for self-insurance nationally, you simply need to look at what is happening on the left coast.

Legislation is now moving through the California State Legislature that would impose new regulations on stop-loss insurance in such a way that would effectively eliminate the ability of companies in that state with 50 or fewer employees from self-insuring their group health plans.  It does this by prohibiting stop-loss carriers from providing coverage with specific attachment points below $95,000 and inserting other regulatory hurdles, including a provision stating that stop-loss insurance cannot discriminate in providing �coverage� to plan participants.

We had heard rumors that Insurance Commissioner Dave Jones was developing proposed legislation with a $40,000 minimum specific attachment point requirement.  That would have been bad enough, but a highly charitable interpretation of such development could conclude that Commissioner Jones� motive was simply to support common sense health care marketplace regulation.

Such a motive is highly suspect of course, but the fact that he chose to push an attachment point requirement that is more than three times higher than that of any other state is clearly a brush back pitch to the self-insurance industry, to use a baseball analogy.

And Commissioner Jones did not throw this pitch without direction from the dugout.  The NAIC coaching staff likely sent him the signal to bring the heat in order to set the stage for other states to do likewise.  California makes for the perfect stalking horse due to its size and political composition of the Legislature which is generally hostile to the interests of the state�s business community.

We should also note that the word on the street is that Commissioner Jones is using his position as a stepping stone for higher public office and is looking for political fights to burnish his image as a serious player. 

While the weather is generally nice in California, a perfect storm of legislative and regulatory mischief is indeed brewing.   And such a storm could be coming to your state next.

So what�s behind all this focus on self-insurance?  There are two primary influences at play.

First, it cannot be overstated how much is riding politically for the Obama Administration and many others within Democratic Party establishment at both the federal and state level regarding the successful implementation of state health insurance exchanges as mandated by the Affordable Care Act.

As part of this obsession they are trying to stamp out any possible complication and have now latched on to the theory that the growth in the number of smaller self-insured group health plans will create adverse selection in the health care marketplace and therefor will threaten the viability of the exchanges when they come online in 2014, absent the law being overturned by the Supreme Court.

(This blog and other publications have previously addressed why this conclusion is a canard, so we won�t revisit the rebuttal analysis now.)

Armed with this concern, proponents of the ACA have positioned the NAIC to ramp up its efforts to clamp down on the ability of employers to self-insure. 

While industry observers have been fixated on the NAIC ERISA & ACA Work Group over the past year as it has been looking at updating its stop-loss model act - which presumably would bump up attachment point requirements - this blog is starting to think a little misdirection is at work here.

Sure, the NAIC could at some point come out with an updated model act that would not be favorable to the self-insurance industry but this is slow process.  Moreover, keep in mind that these are just suggested laws that each state would need to individually adopt.

It seems more clear that while this model act development process slowly plays out and keeps everyone�s attention, the NAIC, through individual insurance commissioner proxies, will simply �bum rush� the self-insurance industry with legislation like what has been introduced in California.

And just in case these insurance commissioners do not feel sufficiently motivated by NAIC orthodoxy, the health insurance industry is happy to provide the necessary nudge, which is the second factor in play on why self-insurance (via stop-loss insurance) is in the regulatory crosshairs.  It�s no secret that health insurers are concerned about losing market share in the small group market and they are enthusiastically parroting the adverse selection argument to justify new regulation. 

The fact that many insurance commissioners and/or the governors receive political support from the health insurance industry should also not be overlooked when making the circumstantial case that collusion is taking place among very powerful policy-makers and interest groups to restrict the ability of employers to self-insure.

Granted, California�s legislation is targeted at smaller employers, which a small segment of the overall self-insurance /alternative transfer marketplace.  But make no mistake, the end game of the NAIC is too strangle this marketplace in every way it can and limited encroachments left unchecked will likely lead to more existential threats.  Those involved with risk retention groups (RRGs) can certainly attest to this observation.

It�s important to understand this as the industry determines how it intends to position itself so it is not on the receiving end of any more brush-back pitches.

Self-Insurance Industry Can Learn By Example in the Political Influence Game

This blog has commented previously about how the self-insurance/alternative risk transfer industry needs to get its act together if it wants to exercise the same amount of political power in Washington, DC as many other industries of comparable size.

If you need to be convinced of this conclusion, you may want to take notice of legislative
developments related to whether broker commissions will be excluded from health insurer medical loss ratio calculations in accordance with the Affordable Care Act.

A few months ago, HHS determined that broker commissions would not be carved out of MLR calculations. This prompted the brokers to ramp up their political efforts in Congress to pass legislation to override the HHS final rule.

To put a finer point on this description, the brokers have been making more political
contributions and showing up in Washington, Dc to press their case with key members of Congress.

As of today, the political action committee sponsored by one of their trade groups is more than five times as large as the PAC supporting the self-insurance/ART industry. Another broker trade group expects to have nearly 1,000 members come to Washington, DC for a dedicated lobbying event.

This activity has produced initial success. The Access to Professional Health Insurance Advisors (H.R. 1206), originally introduced in the House last March, now has nearly 180 co-sponsors. A companion bill (S. 2068) has now been introduced in the Senate and has attracted bipartisan
support.

While it still remains a heavy lift to pass significant legislation in an election year, the brokers have made solid progress by any objective standard. The self-insurance/ART industry could learn by example.

Self-insurers and captive insurance companies have good stories to tell for sure, but that is not enough to have real political influence in Washington, DC.

This blog estimates that about five percent of those individuals active in the self-insurance/ART industry directly support political advocacy efforts that would directly benefit their business
interests. Such political participation rate is certainly much higher among the brokers -- and we have illustrated their return on investment.

Clearly, expectations would be different if the self-insurance/ART industry did not have the necessary financial and human resources to leverage significant political influence.

But it does.

The NAIC's Identity Crisis

So just who is the National Association of Insurance Commissioners (NAIC)? Apparently the answer depends on particular circumstances. This has actually been the case for some time,
but more people seem to be paying attention now because of the organization�s �mission creep� at both the state and federal level.

Case in point is a February 28, 2012 letter from Rep. Ed Royce (R-CA) to NAIC president Kevin McCarty and CEO Therese Vaughan requesting clarification of exactly how this collection of insurance regulators is defining themselves.

Rep. Royce�s interest was sparked by recent press reports that the NAIC is re-branding itself
as a �standard �setting� organization rather than a private non-profit organization, as it has previously cited its 501 ( c) (3) status to distance itself from exercising any regulatory authority, thereby enabling the NAIC to sidestep open meeting and Sunshine law requirements.

While there have been grumblings about NAIC�s organizational structure and status for some time, it is now getting more attention largely because of the establishment of the Federal Insurance Office and health care reform implementation requirements, which have more
clearly exposed the NAIC�s activist nature.

So let�s explore the NAIC�s identify crisis a bit.

It is on record stating that �when individual insurance commissioners gather as members
gather as members of the NAIC, they are not considered a governmental or public body, but rather are a private group. As an organization, the NAIC does not have any regulatory
authority.�

Well, I guess the validity of this statement depends on how you define the term authority.
While technically true that the NAIC cannot mandate state compliance with any
�standards� it develops, such authority is effectively exercised indirectly through the organization�s accreditation program.

Another interesting observation is that 501 ( c ) (3) organizations are generally restricted
from engaging in political or lobbying activities. But apparently the NAIC does not feel
confined by the U.S. tax code as it regularly dispatches lobbyists to the U.S. Capitol to influence members of Congress on insurance-related legislation.

They certainly have been engaged in an ongoing effort to kill or neuter legislation designed
to modernize the Liability Risk Retention Act. Their most recent objections include
giving the Federal Insurance Office any oversight responsibility with regard to RRG regulation and the establishment of federal corporate governance standard for RRGs.

In related news, the NAIC represented itself as a �standard setter� on insurance issues in a
recent friend of the course brief to the Maine Supreme Court involving premiums charged for health insurance. As part of its brief, the NAIC said it had the right to participate because �through the NAIC, state insurance regulators establish standards and best practices, conduct peer review and coordinate their regulatory oversight.�

Rep. Royce concludes his letter by asking NAIC officials to respond to three specific questions:

1. What is NAIC�s status? Is it a trade association? Is it a formal part of �the national system
of state-based insurance regulation in the U.S..�? If so, why did it (a) testify to Congress,
when asked specifically about its status, that it does not �hold ourselves out as some kind of �national regulatory system�; and (b) insist to NCOIL that is not considered a public body� and �does not have any regulatory authority�?

2. Does NAIC agree that as a self-described �private group,� it may not �regulate in the field
of interstate commerce�?

3. As a 501( c ) ( 3) non-profit corporation, does the NAIC not file a Form 990, a routine financial statement for non-profits, with the Internal Revenue Service (IRS)? If the NAIC has been formally exempted by the IRS from filing this information, please provide written documentation of this exemption, and explain why the NAIC feels it necessary to keep this disclosure from public scrutiny.

We look forward to seeing the NAIC�s response and will report on it accordingly. In the
meantime, this blog can report that there is no record of the NAIC filing 990 reports.

Kathleen's Pregnant Pause

�I�m not sure that is going to work,� commented House Energy and Commerce Committee Chairman Fred Upton.

Fellow committee member Rep. Phil Gingrey chuckled later as he asked out loud �So, what is she talking about? Here�s the bill, pay it � that�s what they do.�

These pointed comments were prompted in response to testimony delivered by HHS Secretary Kathleen Sebelius during a March 1 committee hearing on the Administration�s evolving policy on health plan contraceptive coverage requirements for religious institutions.

Ms. Sebelius began her testimony by explaining that organizations affiliated with religious institutions would not have to cover contraceptives if they objected on grounds of conscience.
Instead, insurers would be required to offer birth control free of charge to the employees of those organizations.

So what about self-insured religious organizations (of which there are many)?

After pausing to consider the question, Secretary Sebelius replied that the organizations� third party administrators might be enlisted to provide contraceptive coverage.

Of course, TPAs are not insurance entities and therefore by definition cannot provide �coverage� for anything. Same issue for ASO providers event though they are connected to insurance entities. These are inconvenient facts to be sure.

But not to worry, as Secretary Sebelius reassured everyone that the department would reach out and �have dialogue with folks�before proposing a rule in the near future.

Perhaps there should have been some �folks� in the room when this health care reform plan was hatched in the first place.

Separating Self-Insurance Facts From Fiction

Note: The following commentary appears in the February 20, 2012 edition of Business Insurance Magazine as part of its special spotlight report on self-insurance for the middle market.

Small and midsize companies are looking at self-insurance as a cost-effective health care benefits solution as Patient Protection and Affordable Care Act deadlines approach. Michael W. Ferguson serves as chief operating officer for the Self-Insurance Institute of America Inc., looks at facts and myths surrounding the decision to self-insure.

As more smaller and midsize companies look to self-insurance solutions to control escalating group health care costs in the wake of passage of the Patient Protection and Affordable Care Act, this proactive risk management approach has attracted increased negative attention from traditional health insurance industry and state regulators who warn of various calamities.

Of course, this criticism is largely predictable, as health insurance carriers are worried about market-share erosion, and state regulators don�t like the fact they cannot directly regulate self-insured group health plans because of Employee Retirement Income Security Act (ERISA) pre-emption. Nonetheless, it�s worth pointing out some of the more frequently repeated canards in order to help clear up any confusion this may cause for employers considering self-insurance.

But first the disclaimer: Self-insurance is not the best option for every employer, regardless of size. In fact, it could be a very bad option based on a variety of considerations. In this regard, it is highly recommended that employers engage in the same type of thorough due diligence they would rely on for any other major financial decision.

That said, let�s jump in and separate some important myths from realities.

Perhaps the most unfortunate allegation is that a primary motive for many employers to self-insure is that they can escape regulation, raising consumer protection concerns. While it is true that self-insured plans are not subject to state benefit mandates, there is no evidence to suggest that self-insured employers scrimp on covered benefits. In fact, it is widely acknowledged that self-insured plans incorporate more robust coverage terms for key health services because they have the ability to customize their plans to meet the specific needs of their employees.

And for employers switching to self-insurance since the passage of PPACA, they don�t evade any new substantive federal regulations�except those specifically geared for commercial health insurance carriers�because, by definition, they would establish �non-grandfathered� plans.

The reality is that self-insured employers actually subject themselves to more regulatory requirements because they are governed by ERISA, which prescribes strict federal rules for plan fiduciaries, among other requirements designed to protect the interests of plan participants.

Some critics also claim that self-insured health plans are more cost-effective because they deny claims at a higher rate than fully insured plans. But in a report issued by the U.S. Department of Health & Human Services last year, HHS-contracted researchers from RAND Corp. concluded that there is no evidence of such disparity.

Then there�s the belief that self-insured plan participants pay higher premiums than their fully insured counterparts. The available data does not support this conclusion, either.

As part of a U.S. Department of Labor report on self-insured health plans released last year, Deloitte Financial Advisory Services L.L.P. and Advanced Analytical Consulting Group, Inc. found that from 2009 to 2010 for employers with more than 200 covered lives, the average per employee premium contribution to be covered by fully-insured plans increased by $808 compared to average increase of $248 for self-insured premiums.


Most recently, influential academics and public policymakers predicted that such self-insured plans would contribute to adverse selection when insurance market reforms are fully implemented, suggesting that employers would switch back and forth between self-insured and exchange-offered plans based on their claims experience on a yearly basis.

That�s a nice conspiracy theory for sure, but it does not match up with marketplace realities. The fact is that due to ongoing administrative and compliance requirements, employers cannot simply switch their self-insured plans on and off.

Moreover, once an employer transitions to a fully insured health plan, it loses possession of claims data, which makes it more difficult to re-establish a self-insured plan in the future regardless of other considerations.

Claims data is arguably the most important health plan asset, as it can help employers control future health plan costs and can be used to customized plan design details. Giving up this asset over one bad claim year is not a decision to be taken lightly by plan sponsors.

The health care marketplace is certainly evolving, creating shifting roles for self-insurers, commercial health insurance companies and public sector payers. All three industry segments contribute in different ways to ensure that coverage is as available and affordable for the widest population possible.

Those who disseminate misleading information about any of these segments do a disservice to the ongoing public dialogue on how to improve the country�s health care system.

Michigan Health Plan Tax Lawsuit Tests Business Community Priorities

A lawsuit filed last week in Federal Court seeking a declaration that Michigan�s Health Insurance Claims Assessment Act is preempted by the Employee Retirement Income Security Act (ERISA) will certainly test existing legal precedent, but perhaps the more interesting test will be how the business community responds.

This blog previously reported that officials from one prominent business organization in the state had no intention of pushing back against the legislation at the time citing both internal and external political concerns. That said, they suggested that there would likely be �private� support of a legal challenge from within their organization if in fact the law was challenged.

It will be interesting to see how this �leading from behind� approach plays out. In a conversation with my source shortly before the lawsuit was filed, it was noted that Michigan self-insured employers are now starting to pay more attention to the law and what it means to them.

More specifically, this blog has learned that one prominent multi-state self-insured employer based in Michigan calculated its yearly projected expenses to comply with new law to be more than $250,000. Of course, the administrative headaches are just a bonus.

But even with such a direct adverse impact on their company, senior company executives remain guarded about expressing opposition to the new law.

Now that the legal flaws of new law have been laid bare in the detailed complaint filed against the state and word is starting to get out about its practical impact, we�ll see if any heads pop up out of the foxholes.

And while the this legal challenge is important to self-insured employers in Michigan and to other entities that pay healthclaims for Michigan residents for services received within the state, its significance extends more broadly.

Michigan is not the only state that is strapped for cash and looking for new revenue streams. If its new health plan tax law goes unchallenged, this will likely embolden other states to consider this same approach and the cornerstone of ERISA preemption will be greatly compromised, and with it, the viability of self-insured health plans.

I suspect that if Michigan self-insured employers in large numbers estimated the financial impact to their balance sheets if they were forced to switch to fully-insured health plans and publicly communicated this to policy-makers and business association leaders early on this train would have been pulled off the track before arriving at the courthouse door.

The state has declined to comment on the lawsuit thus far but is required to file a formal legal response in the next 30 days so it will soon become clear how they intend to fight this challenge.

Perhaps the business community may yet demonstrate some clarity with regard to where it stands.

A Tale of Two Domiciles...Revisted

We suggested a narrative earlier this year that two southern captive insurance domiciles would be worth watching to compare and contrast based on insurance commissioner appointments in each state. Let�s review.

The captive industry in South Carolina fell on hard times during the regime of Insurance Commissioner Scott Richardson who left office at the end of 2010. When newly-elected Governor Nikki Haley named David Black as his replacement in February, this blog reflected the puzzlement expressed by many industry and political insiders.

Mr. Black was a largely unknown quantity aside from being the CEO of an inconsequential life insurance company.

But the sparse resume and lack of ART industry credentials didn�t deter Governor Haley from appointing Mr. Black and pronouncing him as a savior. Consider her comments when naming him to the position where she said �Understanding the importance of your industry, I chose David Black to lead the Department of Insurance. He has the energy and capability to revitalize the captive industry for our state.�

As it turned out, he had neither

Earlier this week, Mr. Black abruptly announced his resignation to his staff via e-mail giving no specific reason for his decision.

So now Governor Haley has a chance for a second bite of the apple to get it right. This means naming someone to the position who is willing and capable to shake up the bureaucracy within the department and establish a firewall between the regulation of traditional insurance companies and alternative risk transfer programs, as originally envisioned by former commissioner Ernie Csiszar more than a decade ago.

A tall order for sure and we�ll be watching.

A very different story continues to play out in nearby Tennessee where Governor Bill Haslam tapped Julie Mix McPeak to head up the insurance department in that state.

This blog noted that Ms. McPeak had both the credentials and reputation to turn heads within the ART marketplace when word of her appointment surfaced. But her future success was not assured.

The first order of business as it related to the ART industry was to shepherd a bill through the Legislature that made comprehensive updates to the state�s captive statute. This effort proved more difficult than expected but Ms. McPeak was up to the task and that legislation, which she helped draft, was signed into law.

Since that development, she has been working methodically to assemble a top notch regulatory team and now most of the key positions have been filled and she introduced these individuals at an industry event earlier this month.

So armed with a progressive captive stature and a regulatory team inspired to transform Tennessee into a premiere captive insurance domicile, the stage has now been set for her to make it happen.

But let�s not get ahead of ourselves as there are certain to be pitfalls ahead as the domicile finds its footing under Ms. McPeak�s leadership in 2012. That said, the fact that leadership is on display is certainly refreshing for those vested in the growth of the ART marketplace.

This tale of two domiciles will continue.

NAIC Provides Forum for Ivory Tower Attack on Self-Insurance

The National Association of Insurance Commissioners (NAIC) has never been known as an organization where the self-insurance/alternative risk transfer industry is treated fairly, but its penchant for bias became even more visible this past week. Worse yet, this bias is now being fomented by an �ivory tower� expert.

Professor Timothy Stoltzfus Jost is the designated �consumer representative� on the NAIC�s ERISA (B) Subgroup , which is tasked with developing various policy recommendations related to how states should adapt their insurance regulations to better coordinate with PPACA implementation. The esteemed professor is not shy in sharing his opinion that smaller self-insured group health plans, facilitated by stop-loss insurance, should be made extinct.

During the Workgroup�s last conference call, Professor Jost presented a formal statement entitled The Affordable Care Act and Stop-Loss Insurance. This scholarly work was quite the hit piece on self-insurance disguised with big words, extensive footnoting and misleading legal references.

His central thesis is that smaller employers should not be allowed to self-insure because they do so primarily to escape state regulation, and going forward to sidestep new PPACA regulation. He also pushes the dubious argument that self-insured plans contribute to adverse selection (see my earlier blog post on this subject).

Virtually all of Professor Jost�s points can and will be rebutted privately and publicly as this NAIC policy development process moves forward, but first let�s take some time to consider the source.

He is currently a law professor at the Washington and Lee University of Law, with multiple other academic appointments dating back to 1979. Along the way, he has written several books and academic papers on the subject of health care with titles such as The Threats Facing our Public Health Care Programs and a Rights-Based Response; and Health Care at Risk: a Critique of the Consumer-Driven Movement.

And by the way, he is a graduate of the University of California at Santa Cruz. In case you are not familiar with this school, it makes U.C. Berkley look like a bastion of conservatism.

So what about private sector experience over his 35 year career? You guessed it, zero. How about past experience as a regulator who at least could interact with the private sector? No again. What we have here is the classic liberal elite academic who looks at the world through prisms of theory and ideology.

Professor Jost holds himself out to be a patient�s rights advocate and clearly views the NAIC as a forum to present his �ivory tower� perspective. OK fine, there�s certainly room for a diversity of qualified opinions as part of the policy development process.

The problem is that while Professor Jost may well have valid perspectives to contribute on true consumer (patient) protection issues, he�s out of his league in commenting on how health care delivery should be financed.

Moreover, if he was truly concerned about the ability of individuals to receive quality, affordable health care, Professor Jost should actually be a proponent of self-insured health plans (regardless of size) because these plans generally do a better job on both counts as compared to the fully-insured marketplace.

It appears the professor is in need of some timely continuing education.