Tufts & Harvard Pilgrim – Will They Really Merge, And What Happens If They Do?

As many of you now know, on August 14th, Harvard Pilgrim Health Care (Harvard Pilgrim) and Tufts Health Plan (Tufts) reached an agreement to combine into a single company that would serve nearly 2.4 million lives in New England. Since the announcement, our team as been working to collect as much information as possible on the pending merger. We did not want to rush to judgement the day of the announcement, and instead have done our due diligence, speaking to carriers and lawmakers alike to get a full picture of what this could mean for our clients and the industry at large. Here is what we’ve uncovered.

Tufts & Harvard Pilgrim merger

 

The Goal

First, what’s in it for the carriers? What are they trying to accomplish? Primarily, they are looking for increased market share and membership. Currently Blue Cross Blue Shield has over 40% of the commercial market in Massachusetts, with 2.8 million subscribers. Tufts and Harvard Pilgrim follow with 12.6% and 12.4% of the market, respectively. By joining forces, the two would still follow behind Blue Cross Blue Shield, but by a much smaller margin. Their new size could allow them greater influence over hospitals, doctors and drug companies.

By expanding its coverage network to five states (CT, MA, RI, NH, ME), Tufts and Harvard Pilgrim will also be in a better position to compete with national providers like Aetna and Humana. Further, Harvard Pilgrim has been experiencing decreased membership numbers over the past few years, and this is their latest attempt, following the proposed merger with Partners HealthCare in 2018, to boost their subscriber base.

The new group plans to offer employer-sponsored plans, Medicare and Medicaid. Tufts, already a big player in the Medicare market, can build upon its footprint in this area. The two carriers have also stated their plans to innovate and use new tools to improve population health quality.

The Patient Experience

CEO of Tufts Health Plan, Tom Croswell, who would lead the unnamed unified organization as CEO, noted four areas that health plan subscribers in New England are currently struggling with:

  1. Affordability
  2. Access
  3. Quality
  4. Continuity (or lackthereof)

Croswell stated that by combining resources, the two carriers will be able to tackle each of these issues.

Will it Pass?

This proposed merger is far from a done deal. While leaders from both Tufts and Harvard Pilgrim have spoken out about their intent to use this partnership to alleviate healthcare costs for consumers in New England, many worry it could have the opposite effect.

Harvard Business School research shows that insurance mergers typically lead to higher premiums, and we know that the Aetna and Prudential merger of 1999 did in fact just that. When it comes to Tufts and Harvard Pilgrim combining, there are major concerns that consumers would be negatively impacted both through costs and the choices offered, which could be lessened as a result of the merger.

Details of the merger must now go through review by the Massachusetts Attorney General, Maura Healey, the Massachusetts Division of Insurance, and federal regulators as well. The state departments will be assessing whether the merger will disrupt access to healthcare for consumers, among other things. Governor Charlie Baker has said that any healthcare merger should result in greater transparency, lower prices and better outcomes for patients, so we do expect regulators to be looking at the full patient experience when considering the deal. Financial terms of the agreement have not yet been released, but those will also be assessed.

I personally don’t see this as an easy approval process or a slam dunk, but if it does pass, here’s what you can expect.

Looking Ahead

I believe that more competition is better for the consumer and with a limited number of carriers that offer health insurance in Massachusetts already, I don’t see how having less options will offer more affordable health coverage for consumers and businesses in the Commonwealth of Massachusetts.  Consumers and businesses will have fewer overall choices of insurance plans and, more than likely, higher rates.  Further, this could result in lower reimbursements to insurance providers, which could reflect in higher costs passed on to the consumer. Also, with these consolidations, there is always a possibility of minor disruptions due to incompatible systems for claims payments and enrollments.

If Harvard Pilgrim and Tufts do go through with the merger, it will be following another major merger in the New England healthcare market – that of Beth Israel Deaconess Medical Center and Lahey Health – which closed in May. This trend toward centralization and rapid expansion is an indicator of healthcare at the national level, where smaller players are finding it nearly impossible to remain profitable. However, there is something to be said for having regional expertise, which Tufts and Harvard Pilgrim could still keep even if combined.

No matter which way things end up, you can be certain that the deal will take 18 to 24 months to be truly approved, finalized and implemented. You can also count on our team at Spring Insurance Group being there to help you every step of the way – deal or no deal – to ensure you still have the best coverage at the best rates available, with minimal interruptions to your business operations.

 

AleraHR

Spring is excited to announce we will be rolling out AleraHR as a value-added, no cost solution for our small to mid-sized clients.

What is AleraHR?

Advise, tools and training to keep companies compliant and help them grow. 

The AleraHR suite of solutions will provide the HR knowledge, risk and safety resources and compliance expertise to help our clients be more productive, easily comply with workplace regulations and avoid litigation. As the advisor, AleraHR will help you provide tools and resources that minimize our clients’ exposure to expenses for attorneys or HR consultants.

Workplace Pro is an integrated suite of HR knowledge, content and training solutions.

The Mobile App allows employers and HR professionals access to Workplace Pro from any place, at any time.

 

Learn Pro

More than 200 online training courses that ensure compliance, reduce risk and drive employee engagement. Plus, an intuitive admin dashboard with robust reporting.

Live

Certified HR experts answer questions, render advice and follow up with research to resolve issues. Accessible 8am-7pm Central each business day.

Comply

Comprehensive resource center with all the forms, checklists and tools needed to maintain compliance.

Insight

All the news and analysis HR professionals need to stay current and compliant with changing regulations.

Risk & Safety Resources

Content, tools and online training designed to mitigate risk and reduce costs.

 

Alera HR’s dynamic tools, checklists, builders and guides enable rapid deployment of HR best practices across the entire organization.

  • 50 -State Employee Handbook Builder
  • Q&A Database
  • HR Audit Checklist
  • Healthcare Reform Checklist
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  • Compliance Guidelines
  • Performance Review Tool
  • Employee Onboarding Checklist
  • Salary Benchmarking
  • Employee Termination Guidelines
  • White Paper and Webinar Library

 

AleraHR is a new, added value services we offer to all clients. Interested in getting started? Fill out the form below.

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6 Buzz Words from CICA 2018

The Spring team has been participating in the CICA organization and events for about a decade now, and we find that their annual international conference yields one of the strongest turnouts and value in the captive industry. This year was no exception. Not only was the event enriching from a professional standpoint, but I was also pleased to have missed yet another Nor’Easter here in Boston as I soaked in some warmth in this year’s conference locale, Scottsdale, Arizona.

While it might take some time for me to put pen to paper to document all my thoughts, during such a busy conference season. As a team we like to recollect key learnings and themes from each event we attend. It helps us ensure we are up-to-date on industry trends, and, we hope, it helps you stay in the loop too! Here are my initial thoughts recapping of the 2018 CICA International Conference.

 

  1. Change

Given that the theme for this year’s conference was “The Challenge of Change”, I was not surprised that the topic was prevalent. The captive industry is just one of many that is facing changes on many aspects. One that everyone’s been talking about are the implications of the new tax law. Luckily we had a few speakers there to help and advice.Captive Insurance Innovation

The other major topic of discussion regarding change was the growing use of captives to address cyber risks. I spoke regarding the benefits of using a captive for cyber risks along with a high level overview of a survey Spring undertook with the objective of understanding captive owner’s outlook to cyber insurance and their interest in placing captive risks in the captive.

 

  1. Going Global

CICA, being the only non-domicile specific conference, is one that addresses issues both domestic and international. A session that particularly interested me was one where (insert names of the speakers) two representatives from the European Captive Insurance and Reinsurance Owners’ Association (ECIROA) provided a big picture overview of the European captive space, including domiciles and trends. A later session outlined lessons learned from setting up large captives for multinational organizations, going over things like baseline data and requirements, internal marketing, optimum capital retention and diversification. Further, Nicholas Frost, Gabriel Hoschneider and Esperanza Mead led a discussion on Latin American captives and other emerging markets, highlighting opportunities for growth and expansion.

 

International Captive Trends

 

 

  1. Future-ThinkingThe Future of The Captive Industry

     

It’s not enough to be armed for the present, but in all professions, captive and otherwise, it’s critical to be prepared for what the future might bring, and try to shape it positively. That’s why a panel from Butler University spoke to the CICA audience about recruiting and training millennials, emphasizing the importance of captives to further their knowledge of the insurance industry. The group went through a case study in which students conducted a captive feasibility study and established a process for implementation. They also offered tips on how to attract and retain young talent. On a similar note, Temple University students, staff and colleagues presented “Fueling the Quality and Quantity of the Next Generation of Captive Leaders”, which underlining mentorship as critical and explaining best practices for creating a mentor program.

 

 

  1. Actuarial

Actuarial work is obviously at the heart of risk management, but sometimes it doesn’t get a lot of spotlight at conferences. At CICA 2018, that wasn’t the case.

Firstly, a group of consultants, actuaries, regulators and captive managers offered a comprehensive view of actuarial reports – what should be included, how to pull it together, how it should be utilized and items often overlooked throughout the process. A later session, including legal and compliance professionals, provided a thorough review of risk distribution and how it can be achieved and measured.

Captives and Tax Reform

  1. Taxes

As I mentioned earlier, tax reform and its implications for captives were a major discussion items at the conference.

One group specifically addressed tax reform and how its code will affect captives and their entities, including tips on revisiting your strategy for sound tax efficiencies with your captive. A group of tax lawyers later closed out the conference with a presentation on the consequences of the Avrahami case, IRC modification due to tax reform, and tax provisions to consider state-by-state.

 

  1. Utilization

Due in part to emerging risks and markets, every captive needs a thorough review every now and then to ensure it’s having the maximum effect. This is what Spring’s Managing Partner, Karin Landry, presented on, along with Steve McElhinney and Brian Johnson. The group emphasized the need for regular captive refeasibility studies and highlighted new areas of opportunity for captives. Spring has led many projects involving captive optimization and refeasibility, and we have an effective, recommended process to help companies undergo such initiatives. From a needs assessment to new and emerging coverages, to restructuring your captive to allow for modifications, we are experts in finding a solution that’s right for you. You can learn more about our captive optimization practices and suggestions here.

Further, during “Expanding Your Captive Utilization”, a panel further expanded on the subject, pointing out the importance of regulatory changes, particularly when it comes to hospital-owned captives, in discovering and reassessing lines of coverage. Lastly, CICA attendees learned how to “spice up their captives” by exploring new benefits and advanced captive program placements that may now be an option due to changing tax and insurance landscapes. This session covered federal and state regulations, ERISA implications and more.

 

I hope you enjoyed my overview, whether or not you were able to make it to the CICA International Conference this year. I found it a valuable experience and particularly enjoyed meeting new people and visiting with existing clients and colleagues. As you can see, I wasn’t just in it for the Arizona craft beer tour that kicked off the three-day event. I was paying attention too!

Captive Optimization

Evaluate and Optimize Your Captive With the Industry-Leading Spring CARE system.

Often, as a captive matures, companies need to reexamine their captive to determine if changes need to be made for positive or negative experience, surplus release or additions and opportunities to add new lines of coverage like benefits or cyber risk. It is also a good idea to re-evaluate a captive when the regulatory environment has changed dramatically, new risks have emerged (or become stronger than anticipated) or the business expands. To address all these potential changes, our Spring CARE (Captive Analytical Risk Evaluation) Team recommends a captive evaluate its risk appetite and risk exposure at least every 5 years.

captive optimization

The Captive Optimization Cycle

Captive optimization starts with a captive refeasibility study. Every refeasibility study is different to varied degrees. The scope and resources required to conduct the study are dependent on the captive’s current structure, the events that triggered the study and the goals of the company. That said, through our Spring CARE system, there is a carefully-constructed evaluation structure in place that we use as our team works through the process of evaluating your captive.

A typical Spring refeasibility study, through the Spring CARE system, is conducted using the following structured processes:

Captive Optimization Process

Goals Stage:

  • Confirm the goals and objectives – new and old
  • Collect data
  • Interviews with senior management and other stakeholders

Impact Stage:

  • Conduct analysis of risk financing optimization
  • Review current reinsurance levels and optimize the use of reinsurance
  • Stress testing of the captive

Strategies Stage:

  • Analysis of additional lines of coverage that could be insured by the captive
  • Surplus management

Structure Stage:

  • Identify investment management best practices
  • Determine optimal collateral structure

Measurement Stage:

  • Analyze captive performance metrics against industry benchmarks
  • Develop implementation plans for recommended actions
  • Establish benchmarks for future performance

And at the conclusion of our captive evaluation period, the Spring CARE team will produce a refeasibility report for your company. In this report, we will review our findings and report our optimization recommendations.

You can find out more about captive optimization and/or discuss a refeasibility study for your captive by contacting our Spring CARE team by filling out and submitting the form below:

Related Case Study: Captive Refeasibility Study for Fortune 500 Organization

ADA & ADAAA Consulting

ADA and ADAAA require employers to make reasonable accommodations where possible to enable an employee to perform the essential functions of their job.

Conscientious, employee-centric employers highly value their talent and understand that supporting an employees’ need for a modification to the workplace, schedule or adaptation to a workstation is good for the employee as well as for the company.

Our Health & Productivity consultants talk to employers daily and we hear their accommodation questions and witness the confusion. We simplify answers to questions asked by employers such as:

• What is the interactive process?
• What is a reasonable accommodation?
• What is undue hardship?

and provide tactics for implementing a compliant and effective accommodation program.

For many employers, developing policies, protocols and process for accommodating a disabled individual in compliance with ADA and ADAAA can seem overwhelming and confusing. In addition to having to master a new vocabulary and fully understand the statutes, an employer may not feel that they have adequate skilled staff or technology to determine, implement, document and evaluate appropriate reasonable accommodations.

However, as a practical matter, most employees with impairments often know what accommodations are needed to allow them to perform essential job functions and most accommodations are without cost or inexpensive. Thus, by appropriately establishing an accommodation program, policies and processes, an employer can both comply with the requirements of the ADA and ADAAA and demonstrate commitment to providing a productive and accessible workplace.

Our Health & Productivity Team is made up of a number of highly trained disability management professionals. We help employers wade through the murky waters of ADA and ADAAA accommodation and help them ensure that they are compliant and their workplace is a happy and productive one.

Contact us today to discuss how our award-winning team can help your business develop an efficient and productive accommodation program for your employees.

Workers’ Compensation

No matter how hard you strive to make your workplace safe, accidents happen. Accidents are a part of life and a part of business and as much as you try to protect your employees, you need to be sure your business is protected as well.

Spring offers workers’ compensation program design, funding solutions and strategy consultation. We work with employers to identify the best workers’ compensation offering to suit their business needs. We explore the various methods of funding workers’ compensation (fully-insured, self-funding, etc.) and create a funding plan that works best for you.

In concert with program design and funding, our consulting team will help you craft an effective implementation process. Our health and productivity team views workers’ compensation as a key component of a fully integrated disability management and/or total absence management program. Our goals in bringing all forms of workplace absence together in an integrated manner are to reduce cost, increase employee satisfaction, improve employee productivity and reduce absence.

Contact us today to discuss how our award-winning team can help your business select and implement the right Workers’ Compensation product for your employees.

Small Insurance Companies — 831(b) Captives and Life Companies

Captive insurance companies are not just risk funding vehicles for large corporations. They may be the right solution for individuals and small businesses as well.

If the captive is structured and managed correctly, the captive may also qualify to elect 831(b) captive status, which states that the underwriting profit of the captive is tax free if the premiums paid to the captive are below $2.2 million. The only tax applies to investment return less non-claim expenses. Here is a typical structure that allows for risk transfer and risk distribution.

In thinking about creating an 831(b) captive, here are a few things you should consider:

  • Any captive could make the 831(b) election provided it has less than $2.2 million of premiums, but it is not right for all captives
  • Critical Issues to consider:
    • The extent that the family members own the entities for spread of risk
    • Long-tail versus short-tail nature of risk
    • Frequency and severity of losses
    • Loss history and expected future results
  • Typically the ideal coverage for an 831(b) captive is
    • Low frequency and high severity coverage types
    • Not available in the commercial market or very expensive
  • 831(b) is a tax election available to insurance companies only. If the captive does not meet the requirements to be an insurance company the election cannot be made, or must be reversed
  • A real business purpose must exist for the establishment of the captive, with a true insurance risk
  • Expenses are deductible up to the investment income received in tax year

Spring’s award-winning captive team is well versed in 831(b) captive regulation and has years of experience in establishing these types of captives. We can assist you through the entire process from feasibility study through approval and then management and review. Contact us for more information about our 831(b) solutions.

Group Captives

Many business leaders are now asking themselves if this is the right time to own a captive insurance company.  They have heard how successful captives have been in lowering premium costs, increasing coverage, accessing new insurers and controlling escalating health insurance costs.

Yet, owning and funding a captive still seems too costly for some businesses on an individual basis or they are part of an association that likes the captive approach…enter group captives.

See also our webinar on group captives

In a number of industries, employers have found that banding together to collectively fund selected risk in a group captive is an excellent way to control cost and increase plan control. Whether they exist to cover liability risks and/or benefit risks, group captives generally offer a number of advantages including:

  • Cost savings through pooled purchasing power on the risk and administration side
  • Reduction in need for captive to purchase reinsurance protection
  • Joint fixed cost savings
  • Joint management of first dollar claims

Additionally, group captive members can also enjoy the following benefits:

Group Captive Benefits

Spring has years of experience extending our industry-leading innovative captive solutions to groups seeking to finance their risk in captives. Please contact us to find out more about the services we offer to groups and to discuss a feasibility study to determine if a captive is right for you.