Continued Pressure from the IRS on Bad Fact Patterns – How to Avoid Trouble

The Courts recently made a decision regarding the Reserve case for the IRS. This is the second case of late that has been decided against a captive owner in an effort to crack down on captives the IRS perceives to have a poor fact pattern, and therefore cannot meet insurance tax treatment standards. For example, captives that have been set up to undertake sham transactions or undertaking transactions that do not meet the bona fide insurance company characteristics would fall into this category.

According to the Avarhami v. Commissioner (“Avrahami”) judgement, the court provided four criteria that result in an arrangement constituting insurance.  These four criteria were also addressed in the Reserve Mechanical Corp (“Reserve”) v. Commissioner case, and are as follows:

  • The arrangement must involve insurable risk
  • The arrangement must shift the risk of loss to the insurer
  • The insurer must distribute the risk among its policy holdersIRS captives
  • The arrangement is insurance in the commonly accepted sense

Reserve outlined these four non-exclusive criteria to establish a framework for determining the existence of insurance for federal income tax purposes.  The court’s opinion focused on the idea of risk distribution, which led to investigating PoolRe Insurance Corp. (“PoolRe”), the stop loss insurer for Reserve. The judgement discusses the transaction in detail and stated there was a circularity of funds that invalidated the pooling arrangement.

To determine if a captive insurer has met the risk distribution criteria as a standalone captive without stop-loss or reinsurance protection, the courts looked at the total number of insureds and the total number of independent risk exposures. It has long been believed that the “law of large numbers” allows an insurer to minimize its total risk and reduce the likelihood of a single claim exceeding the premium received. In the Avrahami and Rent-A-Center court cases, risk distribution passing and failing thresholds have been observed as follows:

  • Rent-A-Center ultimately showed distribution of its risk by insuring the risk for 14,000 employees (workers’ compensation), 7,100 vehicles (auto coverage), and 2,600 stores (general liability coverage) in 50 states
  • Avrahami didn’t show distribution of risk by insuring 3 jewelry stores, 2 key employees, and 35 total employees. Further, one of the stores had 5 low frequency coverages and the other 2 stores had 2 low frequency coverages

Reserve, an Anguilla-domiciled captive, wrote 11 to 13 policies over the three tax years in question and had direct policies for 3 insureds.  Peak Mechanical & Components, Inc. (“Peak”), an S Corp for Federal income tax purposes, was owned in equal 50% shares by two individuals and was the primary insured under all policies. The policies were also issued to two other subsidiaries, although the operations were not significant. Peak operated two facilities and had a max of 17 employees. Reserve did not meet risk distribution based on this exposure profile alone; its exposures were similar in scale to the Avrahami’s.  Reserve contended that it still met the risk distribution safe harbor requirements, by having 30% of its gross premium for each of the tax years for unrelated parties via the reinsurance agreement with PoolRe.  A similar argument was made in the Avrahami case with their reinsurance pool.

Before it is determined whether Reserve distributed risk through the agreement with PoolRe, they evaluated whether PoolRe was a bona fide insurance company. In the eyes of the court, a captive should be able to answer “yes” to each of these questions and provide adequate support to:

  1. Is there no circularity to the flow of funds?
  2. Are the policies developed in an arm’s length approach?
  3. Did the captive charge actuarially-determined premiums?
  4. Does the captive face actual exposures and insurance versus business risk?
  5. Is the captive subject to regulatory control, and did it meet minimum statutory requirements?
  6. Was the captive created for non-tax business reason?
  7. Was a comparable coverage in the market place more expensive, or even available?
  8. Was it adequately capitalized?
  9. Were claims paid from a separately maintained account?

The court’s conclusion in Reserve’s case provided details of the concerns with evidence in support of the first six questions listed above, and concluded that the PoolRe quota share arrangement provided the appearance of risk distribution without actual risk distribution.  The court summary also highlighted the following:

  • Circularity of funds was exhibited with PoolRe receiving and distributing the same amount of money to Reserve
  • There was no evidence that the premium payments to PoolRe by Reserve and the other participants were determined by actuaries
  • Contracts were not determined in a like manner, nor using objective criteria

One of the major concerns the IRS addresses with the Avrahami and Reserve cases is that a one-size-fits-all rate for all participants in the pool/reinsurance agreement isn’t valid.  The court also addressed an alternative ground for the case, which would have been to evaluate “Insurance in the Commonly Accepted Sense”. To determine if an insurance arrangement exists, the following factors come into play:

  • Was the insurance company organized, operated and regulated as an insurance company?
  • Was it was adequately capitalized?
  • Were the policies valid and binding?Captive Checklist
  • Were the premiums reasonable and a result of an arm’s-length transaction?

The court summary pointed out several issues in Reserve’s support for answering the above questions, such as:

  • Reserve had no employees of its own performing services and the board members did not know how claims were made or handled.
  • There’s no evidence that activities were performed in its domicile.
  • Claims must have supporting documentation, yet there was no addendum for the program until after the policy date. An employee from the insured signed the checks as opposed to the insurer.
  • Binding and valid policies – policies must, at a minimum, identify the insured.
  • There were peak paid commercial market premiums of $95,828 in 2007 versus $412,089 to Reserve in 2008. This is a 330% increase in insurance premiums. In addition, Peaks premiums vary from year to year with no explanation.
    • Note, the Avrahamis similarly had significant increases in premium spend, with almost an 800% increase over a several year period.

These cases provide us and other captive professionals with guidance and clarity. As the industry grows, cases like these will form the cornerstones of how to properly operate and conduct business as a captive insurance company.

Key Takeaways

The IRS clearly has problems with some of the pooling structures used to qualify captives as meeting the risk distribution safe harbor tests. They are concerned that the premiums ceded to the pool and the transfer of risk into the insurance pool are not commensurate with one another, and that the pools are only being utilized to circle premiums to the captive participants, with each assuming no or minimal losses from the pool.

There should be clear documentation of premium determination by an actuary, illustrating why premiums are reasonable and that sufficient risk transfer exists.  Over time, if the total loss experience and premium ceded to the pool doesn’t produce a long-term average loss ratio consistent with the commercial marker, then the pool’s support in having arm’s-length contracts with each of the participants becomes weak and difficult to defend.  Long term average commercial market loss and loss adjustment expense (“LAE”) ratios for most lines of business generally fall in the range of 50% to 75%, hence the 70% loss and LAE ratio threshold in IRS Notice 2016-66 used to identify captive transactions of interest.

Finally, it is important to show sufficient support in a captive’s business plan, policies, and feasibility studies to address the questions above about an insurer/pool being a bona fide insurance company.

What You Need to Know About Insurance RFP’s

Employers today often find themselves undertaking a Request for Proposal (RFP). RFPs are an important tool that allow for greater insight into the market, and are used as a mechanism for employers to test the competitiveness of their insurance programs and collect intelligence regarding new offerings.

Pros: The bidding process aids accountability and provides information on emerging risk management techniques, regulatory changes and recent trends. A bidding exercise is often seen as an opportunity to hit reset on an existing plan and evaluate if the program continues to meet the everchanging needs of an organization. In a dynamic and evolving business environment, waiting for an opportunity to bid the program to reevaluate its effectiveness for the organization can result in irreparable loss. Businesses need to be able to constantly change to meet the needs of the market or they risk losing their competitive edge.

Cons: RFPs are a time-consuming and an arduous task that require input from multiple stakeholders, who often have competing priorities. An RFP can also be an expensive exercise, both in terms of tangible and intangible resources. In monetary terms, there are the fees for advisors/brokers/consultants. Your team will also need to devote time and effort, another factor to consider while evaluating the true cost of an RFP

Insurance RFPs

An integral part of most insurance arrangements is the broker. Broker arrangements can, at times, create a degree of obscurity. Since brokers are usually commissions-based, decreasing premiums or making changes may not necessarily be in the broker’s best interest. This has the potential to add another degree of complication and difficulty to the decision-making process. In a captive setting commissions paid to brokers are clearly visible. This clarity of fees generally leads to a clearly defined scope of work for the third party (broker/consultant/advisor), eliciting more value for employers from their service providers.

Many organizations feel the pressure to bid frequently, to continually create competitive pressures and achieve better rates.  Some are even required by corporate policy to bid every few years. This approach can create an abrasive relationship between the organization, the broker and the insurance carriers. Carriers are looking for long-term partners and may choose to not bid aggressively in cases where the organization in question has a reputation of constantly looking to bid — a fact that is disruptive for all parties involved.

 

Alternative: Captive insurance companies provide an alternate solution for employers who are looking to escape the rut of undertaking an RFP every few years. Captives provide greater transparency and control to employers over their insurance programs and eliminate the often costly and time-consuming need to bid programs to ensure competitiveness. Captives allow organizations to have a clear understanding of their experience and thereby eliminate the arbitrariness of rate hikes by the incumbent carriers.

Captives provide a clear line of sight to the working of the program, allowing for customization in an almost real-time basis. A captive framework leads to additional reports and information which further facilitate tweaks and adjustments that benefit an organization’s insurance program.

A captive insurance company allows acompany organization to gain true transparency and control of not only its loss exposure, but also of the expense structure required to support its programs. This transparency promotes a sense of partnership between the employer and the insurance carrier; viewing the carrier as a partner rather than as a market option can have long-term benefits.

Organizations that use captives can ascertain the need for adjustment in rates without input from the market. Captives rid insurance transactions of opaqueness, resulting  in an open and honest conversations among all stakeholders – insurance carriers, brokers and internal organizational stakeholders.

Case Study

A global technology organization recently received a 25% rate increase on their employee benefit program. When threatened with the possibility of an RFP, the incumbent carrier revised their quote to reflect a 10% increase in premium. The organization was disillusioned with their carrier and decided to move forward with an RFP, resulting in an alternate carrier quoting a net decrease in premium

Captive Insurance

s of about 15%, along with a multi-year rate guarantee.

While a 15% rate reduction is a seemingly positive result, the process and effort required to get there was expensive, time-consuming and left the HR team feeling beholden to the wishes of the broker and insurance carriers. The employer requested for an independent review of the information presented to them by their broker and insurers. This analysis revealed that the organization had a much better loss experience than indicated in the rates provided.

The organization is currently considering its options for the upcoming year, including the potential utilization of a captive to underwrite their employee benefit risks, since the exercise above could have been avoided if the employer had been using a captive all along. At the time of the initial rate increase (of 10%) the employer, along with their broker, would have been able to quickly ascertain that the rate hike was unnecessary and could have been addressed swiftly with the insurance carrier. This would have saved the organization valuable time, effort and cost of disruption.

To conclude, companies that are financially sound and have a reasonably predictable insurance risk are ideal candidates to evaluate the possibility of using a captive. If you are an employer looking for a long-term solution for your insurance and benefits costs, you should consider a captive. Captives provide the benefits of an RFP without interrupting a company’s day-to-day activities. They also help bridge the gap of obscurity and trust between your company and your insurance carriers.

A captive feasibility study is the logical first step in determining if a captive is right for your company. The study identifies the organization’s goals and objectives, reviews the current state of programs, analyzes the data, and then estimates potential captive savings for each line of coverage. As a result, you are left with the most effective program design for the organization and potential advantages and disadvantages of this alternate funding mechanism.

What the Microsoft Settlement Means for the Captive Industry

Recent legislation around captives have kept us and many of our colleagues on our toes. Last year, we had the Avrahami case. This year we had the Reserve Mechanical case. Now, we’re looking at an interesting turn of events between Microsoft, its captive, and the state of Washington.

For some background, tech giant Microsoft is based in Redmond, Washington. Its pure captive, Cypress Insurance Company, was formed in 2008 and is domiciled in Arizona.

Microsoft captive settlement

In May of 2018, the Insurance Commissioner of Washington state issued a cease-and-desist to Microsoft. This order, number 18-0220, required that Cypress stop selling insurance to its parent company and asked for about $1.4M in unpaid premium taxes.

The insurance Commissioner contends that:

  1. Microsoft/Cypress did not pay 2% premium tax for the business being underwritten by the captive. Within the ten years between the captive’s establishment and the cease-and-desist, Microsoft paid over $91 million in written premiums to Cypress. Washington state law mandates insurance companies to pay a 2% tax based on their written premiums.
  2. Cypress did not hold a certificate of authority to sell insurance in the state of Washington.
  3. The coverage provided to Microsoft through Cypress was not placed through a surplus line broker licensed in Washington.

Surplus lines typically come into play for lines of coverage not usually covered by other, commercial insurers.

The Commissioner argued that, because of the above points, Cypress was violating the following sections of the Revised Code of Washington (RCW):

  • RCW 48.05.030(1) (certificate of authority required)
  • RCW 48.15.020(1) (solicitation by unauthorized insurer prohibited)
  • RCW 48.17.060(1) (license required)
  • RCW 48.14.020(1) (failing to remit two percent premium tax)
  • RCW 4S.14.060(l)-(2) (failing to timely remit two percent premium tax)

On July 1st, Microsoft announced that it had established new policies for Cypress through a surplus line broker, but that didn’t negate the issue. Further, they settled the case with the commissioner in mid-August. The settlement involved a $867,820 payment ($573,905 in unpaid premium taxes and $302,915 in interest and penalties) from Microsoft to the Washington State Insurance Commissioner. As a result, the cease-and-desist has been lifted, and Cypress can continue operations. The Insurance Commissioner of Washington did note that it has its eye on other Washington-based companies using captives.

The announcement of the settlement came around the same time that New Jersey made some of its own captive legislative moves on medical and consumer-goods conglomerate, Johnson & Johnson. The organization, headquartered in New Jersey, has long been utilizing an out-of-state captive and paying taxes on the premiums written to the captive for risks located in New Jersey. However recently, the state decided that, according to the Non-admitted and Reinsurance Reform Act (NRRA), Johnson & Johnson and like companies should be paying taxes on premiums written for all risks within the U.S. , not just those residing in the state. While the company tried to argue that the NRRA uses vague language that seems to only apply to surplus lines of business, they ultimately lost the battle, along with the $55 million refund they were looking for.

What can we learn from these instances?

Captive owners should review their structure based on recent developments and business changes. In light of the changes in the tax code, regulatory changes and the recent case laws, regardless of the state of domicile, it would be prudent to review your captive based on its unique situation and circumstances. Doing so on a regular basis is an advisable business practice.

These recent cases are a step towards a maturing industry and should give captive and insurance professionals the motivation to be as diligent and cautious as they should always have been.

5 Ways VCIA is Future-Focused

The Vermont Captive Insurance Association (VCIA), founded in 1985, is the largest trade association for captive insurance in the world. As such, it’s no surprise that their annual conference yields both an impressive turnout and range of educational sessions. A long-time sponsor and member of VCIA, Spring anticipates the August event each year.

The VCIA 2018 Annual Conference, themed “Where the Captive World Comes to Meet”, was just as high-caliber as past years, but each event tends to build its own unique motif. This year, as about 1,100 insurance professionals gathered in Burlington, Vermont, and 40 presentations were made, the three-day conference seemed to emphasize “the future” most notably. The sessions below, along with general conversations I had with a range of people at the conference, are what led me to identify this theme.

  1. Future-Proofing Your Captive

    This presentation, including Spring’s Managing Partner, Karin Landry, urged audience members to consider emerging risks like climate, and highlighted ways in which one captive has and continues to prepare for the future. Then, Andrew Braille of AES Corporation outlined the organization’s plans for the future, including a 50% reduction in carbon intensity.

  2. Succession Planning: Bridging the Next Generation of LeadersEmerging Risks

    An experienced panel led this discussion on how to nurture and attract captive talent to ensure a bright future for the insurance industry, one that is aging and failing to appeal to millennials. Tips like developing mentoring relationships and utilizing updated technology were given.

  1. Blockchain & Distributed Ledger Technology

    VCIA attendees, myself included, learned a lot about blockchain during this Wednesday morning session. The presenters defined blockchain and explained how it will impact captives and the insurance industry at large in the years to come. Good news – experts expect blockchain to reduce costs, lower risks, increase trust, and save time for insurance professionals as it continues to evolve.

  1. Integrated Solutions: The Future of Risk Management

    Todd Cunningham and Carol Murphy highlighted the efficiencies to be gained by moving from a traditional insurance structure to an integrated model, where 1st excess coverage across lines all operates within the same system. They explained that this is the direction they see the industry will and should go.

  2. The Cognitive Captive: Artificial Intelligence for Smarter Insurance

    Tracy Hassett of edHEALTH, and two others informed attendees about how A.I. will affect insurance risks and the labor market, and explained the role that predictive analytics and “The Future of Mobility” will have.  A special focus was made on driverless cars and their impact on insurance.

To be clear, these are only a handful of informative and strong presentations (you can read about the others here), but the underlying theme is gear up for what’s to come.

I hope you enjoyed the summary, whether you were at VCIA or not. As you can see, I did manage to learn quite a bit despite the bike rides and cocktail receptions!

5 Times Inclusivity Took the Stage at DMEC

As a national sponsor of the Disability Management Employer Coalition (DMEC), Spring has been involved in the organization and its events for over a decade. Each year the team

DMEC

looks forward to the Annual Conference, among other DMEC events and initiatives. This year it took place in the fun city of Austin, and we made sure to do some sightseeing while we were there.

This was my first DMEC conference and I was amazed at the wealth of knowledge present. There was an obvious eagerness to learn that hung in the air, and learn we did. Over 700 professionals specializing in areas like occupational health, disability management, FMLA/ADA, claims management, HR and more gathered to share best practices and experiences. The resulting 40+ educational presentations and workshops did not disappoint.

Spring attends and sponsors a range of events throughout any given year. After each one, we take the time to reflect on key takeaways and then share them with our peers (like you!).

The name of the game in Austin this year was inclusivity. Here are five featured topics that explain why.

  1. “Impactful Diversity and Inclusion Strategies for the Workplace”

    This session highlighted the importance of workplace diversity and the trend towards it as a corporate goal. The presenter walked the audience through the different types of diversity, including the more obvious such as race, sexual orientation and gender, as well as the areas of diversity often over-looked: veteran status, education, tenure, full-time vs. part-time status, etc. We learned that these different demographics may have varying degrees of stress, pain, or health issues based on that one facet alone. Generational differences in things like returning to work and communications tendencies and preferences were also discussed.

  1. “Neurodiversity: Driving Innovation from Unexpected Places”

    A small team from EY led this discussion around neurodiversity, which is not a term you hear every day. The session focused on the importance of including autistic employees and understanding their specific needs from an employer. A shockingly low 32% of autistic adults are engaged in some form of paid work, a statistic which needs upward improvement.

  1. “Tools, Techniques, and Technologies for Creative Inclusive Workplaces”employee disability

    Anne Hirsh and Deb Dagit started out this presentation by opening the audience’s eyes to “Five Signs of Inclusion”: ethos, public relations/marketing, policies and practice, physical accessibility, and technical accessibility. They then walked through several tools and platforms that can help employers exhibit all five signs of inclusion.

  2. “Disability and Fitness for Duty in Transgender Employees”

    Brian Hurley, a medical doctor and expert in addiction and mental health, led an interesting session that educated attendees on sex development, gender identity, gender expression, sexual orientation, and gender dysphoria. He helped raised awareness around issues in the workplace, citing that 90% of transgenders surveyed reported experiencing harassment at work, and ended with an outline of model employer practices pertaining to transgender employees.

  3. “Get Explicit About Implicit Bias Using Compassionate Dialogue”

    In this presentation, more indirectly related to inclusivity as some others, a woman led an interactive discussion around implicit biases and the fact that we all have them. These are involuntary, inherent attitudes and stereotypes that we may not know we have. This of course can be problematic in the workplace, so audiences were given “debiasing” techniques to prohibit their implicit biases from interfering in fair and compliant practices.

absence managementWith over three full days of educational presentations, there were plenty of other hot topics such as mental health, return-to-work strategies, FMLA and ADA issues, and data and technology trends. The Spring team partnered with clients to present “Implementation Done Right”, where they highlighted best practices and tips for top-notch absence management programs.

All in all, the event was a valuable learning experience. But it wasn’t all business – we hosted an “extracurricular” activity at a local Austin brewery to relax and mix things up, and there were all sorts of networking opportunities throughout. We are already looking forward to next year’s conference.

Your 6-Step Plan to Captive Optimization

Captives should adapt to their parent companies’ changing risk profiles. Following this plan helps risk managers identify and execute necessary changes.

You conducted a feasibility study before forming your captive, establishing long term goals and objectives, determining which risks to write, where to domicile, and how to finance it all.

But that was five years ago.

Since then, your company has made two acquisitions, expanded its workforce, implemented new technology, contracted with new suppliers, and been affected by a new federal regulation.  In short, the risk profile has changed considerably.

Is your captive keeping up?

As with all other business matters, your company’s captive needs and goals are likely to change over time, especially with new and emerging risks sprouting up frequently. We recommend a ‘refeasibility’ study at least every five years to reassess risk appetite and exposure.

A ‘refeasibility’ study ensures your captive insurance company is still serving your organization’s needs and furthering its mission, rather than holding it back. Unlike the initial feasibility study, this periodic checkup must consider your existing captive structure and financing strategies, and take into account how the captive has performed thus far.

To gain a holistic view of your captive’s performance and evaluate the need for change, captive owners should ask themselves these five questions:

  1. Do your captive’s goals align with your risk profile?

    Evaluating your captive’s goals in the first step of a refeasibility plan. And that begins with collection of data. Claims experience, reserve and surplus levels, loss ratios and other measures of efficiency indicate how successfully the captive has operated and where it has underperformed.

    This indicates whether it has met initial goals, and whether those goals should change. This decision is also largely dependent on changes in the insured organization’s risk profile and the subsequent impact on insurance needs.

    Moving employee benefits into a captive may be a more efficient way to provide coverage for a larger payroll. Greater reliance on automation or IoT technology may likewise increase the need for cyber coverage tailored to an organization’s specific needs. Emerging risks should be considered in this assessment. For example, new technologies like driverless cars and drones and increasing automation will create both risks and opportunities across various industries.

    Performance metrics can help risk managers identify areas where resources can be shifted to support the coverage needs demanded by organizational change and emerging risks.

  2. How will proposed changes impact other parts of the captive company?

    The second stage of the study considers how adjustments to long term goals affect other pieces of the captive puzzle, such risk financing and use of reinsurance.

    Adding new lines of coverage or expanding or reducing existing ones will necessitate an evaluation of risk financing strategies and could lead to changes in an organization’s investment mix or retention levels. This may also impact reliance on reinsurance as a component of the overall risk transfer strategy.

    The best way to pinpoint the extent to which these changes should be made is through stress-testing.

    Running through scenarios with reasonable adverse case outcomes highlight where more or less financing is needed to service claims and maintain favorable loss ratios.

  3. What specific implementation strategies will make your changes stick?

    As with any enterprise-wide change, a detailed roadmap lays the groundwork for successful outcomes and can gain the confidence of stakeholders.

    This stage identifies lines of insurance that could be moved into the captive or other coverages that would be more cost effective to insure through the traditional insurance market. Along with cyber and employee benefits, some of the most common risks to insure in captives include professional liability, auto liability, reputation, and business interruption.

    Capital management strategies should also specify how surplus will be used going forward.

    There are several considerations in appropriately managing the capital and surplus levels over the life of a captive, including average cost of capital, retention levels, reinsurance use and taxes, among others.  A team of actuaries and consultants could review and develop strategy to address these.

  4. Does your existing captive structure still work?

    Captives have taken on a number of different forms since their inception — single parent, group/association, rental captives, sponsored captives, non-controlled foreign corporations, etc. The primary differences between these structures center on the way risk is shared among the parties involved and how the captive is financed and regulated.

    Sponsored captives, for example, offer a way for companies to take advantage of the established infrastructure of a traditional insurer and avoid the upfront costs of forming a captive — though they are not accepted in all domiciles.  Group captives allow companies with unrelated risks to spread out their exposure and reduce their total cost of risk, but can present management challenges.

    A captive’s domicile, the scope of risk it seeks to cover, and the financial strength of its parent company all help to determine which structure will work best.

  5. Does your captive account for recent case law and regulations?

    The technology industry isn’t the only one that is always changing. Laws, regulations and court cases, especially lately, have an impact on captives and need to be considered asCaptive optimization you are taking a fresh look at your strategy.

    Firstly, there’s tax reform. The tax rate reduction under the Trump administration has had a direct impact on captives, and a consolidated tax return that includes a captive insurance company should have its tax sharing agreement reviewed.

    Further, payments to a foreign captive should be reviewed to determine if the Base Erosion Anti-Abuse Tax (BEAT) is applicable, and anyone in the U.S. with an owner’s interest in a foreign insurance company needs to review their holdings. IRS Notice 2016-66 with respect to microcaptives should also be considered, which leads us to our next point.

    In light of two recent court cases – Avrahami vs. Commissioner and Reserve Mech. Corp. v. Commissioner – we now have more insight into what the IRS believes to be the criteria for a bona fide insurance company. As a result, we recommend going through a checklist of sorts to ensure the following regarding your captive:

    • Is the captive created for a non-tax business reason?
    • Is comparable coverage available in the market?
    • Are the policies valid and binding?

    Domicile-related regulations are also changing. Is yours compliant with your current domicile, and have you looked at the new domiciles available? Lastly, it’s imperative to take a look at the Dodd Frank Act, specifically the self-procurement tax to ensure your captive is appropriately aligned.

  6. Are the changes having the effect they’re supposed to?

    You’ve identified new opportunities for your captive, supported proposed changes with data and stakeholder feedback, and developed detailed and holistic plans to move forward. But you’re not done.

    The final step of any refeasibility study is to measure outcomes. Collect data again to see if newly established goals are being met and how the rest of the captive organization has been impacted.

    A great deal of this stage relies on solid industry benchmarks against which to measure current and future captive performance. Furthermore, it’s important that the optimization team takes this data and edits their implementation plan accordingly to keep captive performance on track, making actionable recommendations for staff to follow.

    To execute your plan, turn to expert help.

    These findings should serve as a baseline for measurement going forward. But look for a team of experts ranging from employee benefits, risk management and actuarial services to walk you through the steps and, ultimately, implementation. This is especially important as new risks continue to emerge and evolve; routine maintenance on your captive is important, just like it is on your car!

Local Shakeup: What a Partners & Harvard Pilgrim Merger Could Mean For You

On Friday, May 4th, the local healthcare market was shocked by the news of a possible merger between Partners HealthCare and Harvard Pilgrim Health Care, two of the largest healthcare organizations in the Massachusetts and New England areas. From a regional standpoint, this would throw a large wrench in an already uncertain and increasingly unaffordable healthcare market, whether for good or for bad (which I will get into later).
Healthcare New England

For some background, Partners HealthCare is a Boston-based hospital and physicians network with over 23,000 employees. Partners already owns several large, New England-based healthcare institutions like Brigham and Women’s Hospital, Massachusetts General Hospital (MGH), Neighborhood Health Plan and Mass Eye and Ear. Harvard Pilgrim Health Care, on the other hand, is a leading national health insurance carrier. With over one million members, it has a large footprint in New England

While still merely a possibility, the unknown is causing a certain degree of uneasiness. There are a lot of questions around:

  • Will this survive the antitrust reviews, based on consumer impact and consistency of the two organizations’ missions?
  • Will this make healthcare in New England specifically more expensive?
  • What are the positives a merger could have from a consumer standpoint?
  • Beyond power, what would be the real reason behind the merger? Traditionally, a hospital system and an insurance carrier would have two different, often conflicting goals.
  • What would this mean for the local, independent health systems like Lahey Clinic?

Although it is not possible to know all of these answers, consolidation often means less competition and higher costs.  Whether you’re locally-based or not, you’ll want to stay tuned!

Boston Healthcare Merger

Spring Spotlight: Grace Giannattasio

We know you’ve been missing these, so we’re back and we’re giving you the deets on Grace.

Title: Consulting AnalystSpring Consulting

Joined Spring in: July of 2017, although she’s sometimes still referred to as the “new girl” for some unbeknownst reason.

Professional interests/skills: Grace is an integral part of the Integrated Disability Management (IDM) team. As such she works on leave and absence management projects of varying kinds, like those related to the FMLA or ADA.

Outside-of-work: Grace is always making us jealous of her awesome tan, so it’s no surprise that she spends a lot of time outside (when Boston weather allows – a very small window!). She also enjoys reading and going to the beach (reading at the beach is a favorite activity).

Favorite season: Summer because, obviously. This is the only time she can work on said tan and beach reading.

Favorite flower: Grace went with lavender because it smells nice and is also known for helping you relax and sleep well.

Favorite part about working at Spring: “My favorite part about working at Spring is definitely the team I work with. Everyone is collaborative and supportive and the whole group works really well together.”

If your house was burning down, what non-living thing would you save? Grace would, rightly so, save her great-grandmother’s jewelry. Proud.