This International Women’s Day, Let’s Get Back On Track

International Women’s Day is one time of year that I always think of my daughters and my granddaughter. As a mother, I want them to have a better life than I’ve had – and I’m lucky I’ve had a good life. As I think about my colleagues and other women I know, I think we’ve had some real setbacks this year because of the pandemic. Pre-pandemic, we were moving towards equity in wage, opportunity, and education. On this day last year, I wrote about the need for an increase in female financial independence, and for women to suInternational Women's Daypport women. There was a long road ahead of us, but certainly progress was being made. For all the growth women in the workforce have achieved, and all the diversity and inclusion efforts made by organizations in recent years, much of this momentum came to a halt when COVID-19 hit.

In September of 2020, 865,000 women dropped out of the labor force, as compared to 216,000 men. It is estimated that across the globe, female job losses due to COVID-19 are 1.8 times higher than male job losses. In fact, the National Women’s Law Center reports that women labor participation is at its lowest (57%) since 1988.

Prior to the pandemic, 46% of women worked in low-wage jobs, earning a median of $10.93 an hour. Women of color are even more likely to have a low-paying job. Even women who were in high-paying industries were still earning $0.92 compared to the dollar of a man with a similar background.

This past year, though, the disparities were much more severe. In low-paying, female-dominated industries like retail sales, food services and hospitality there were significant layoffs. Further, healthcare professionals, the majority of which are women, did not necessarily lose their jobs but were faced with unprecedented risk of exposure, inflexible schedules, and stress. Job loss also meant a decrease in benefits such as health insurance for women, making access to healthcare further inequitable, and during a pandemic, no less.

COVID-19 highlighted the already present childcare crisis, which grew with the closure or cancelation of schools, daycare and other childcare centers such as camps and recreational activities and left working parents in an impossible situation. Further, remote learning became the norm, and for those with younger kids, this has meant a lot of hands-on time for parents, typically during work hours. All of this during what has been an overwhelming time for even the luckiest of us. The results?

A survey from May and June of 2020 reports that one in four women who left the workforce during that time did so due to lack of childcare. Between last February and August, mothers of children ages 12 years and younger lost 2.2 million jobs, compared to 870,000 jobs lost for fathers of that same group.

If we think about the future of women in the workforce, according to McKinsey and Oxford Economics, employment for women may not recover until 2024, which is two years past the estimate for men. A domino effect could play out, if nothing is done to stop it. For example, when women exit the workforce, even if they view it as temporary, they will be disadvantaged when and if they want to return, likely to miss out on promotions, pay and career paths similar to the trajectory they once were on. Further, they will be in a worse spot when it comes to retirement savings, even without the assistance of an employer-sponsored retirement plan (which is another factor). Since Social Security is based on lifetime earnings, time out of the workforce will lessen that assistance down the road.

So, what can we do to turn the clock back? Here are some things that policymakers and businesses should consider:

  • Wage parity, period!
  • A revamp of the childcare system such as more federal funding and/or tax credits that incentivize both parents to work
  • An increase in flexible work schedules
  • Initiatives that support digital literacy in women, in addition to general education, so that they have the same kinds of opportunities in a remote world
  • Continue to implement paid leave policies for family and medical leave as well as sick leave
  • Implement flexible benefits programs that allow furloughed and laid off people to cover this temporary period

Although this has been a challenging time, we can’t give up! Let’s remember that this year we welcomed the first ever female Vice President, a woman of color, into the White House. We are seeing more focus on diversity and we are hearing more women speak out publicly about their inequitable experiences. Let’s use this encouragement to get back on track and create a better future for our daughters and granddaughters. If there’s one thing we women have proven, it’s our resilience. So, don’t lose hope. Regroup and press on!  Happy International Women’s Day!

Understanding the Impacts of Massachusetts’ New Healthcare Law

Massachusetts has long been a leader in the provision of quality, affordable and accessible healthcare. At the beginning of this year, Governor Charlie Baker signed off on ‘Laura’s Law’ which addresses a range of healthcare issues highlighted as a result of the COVID-19 pandemic.Massachusetts Healthcare Law

  • Telehealth: the law mandates equal coverage for virtual visits, including for behavioral health. It also provides a short-term model for how these services should paid. This should provide Massachusetts residents to expanded access to safe, virtual healthcare.
  • COVID-19: Laura’s Law states that treatment and testing for COVID-19 must be covered by insurance companies, including MassHealth. This applies to all inpatient, emergency and cognitive rehab services as well as necessary outpatient services related to the virus. Testing for the asymptomatic is also covered in this provision.
  • Surprise Billing: the new law states that providers must tell patients in advance of anything out-of-network, and Massachusetts plans to recommend a default rate for out-of-network billing later this year.
  • Expansion of Care for MassHealth Members: Laura’s Law eliminates referral requirements so that MassHealth subscribers can access urgent care facilities more easily.
  • Medicaid: under the new legislation, community hospitals will receive two years of enhanced Medicaid reimbursements, a 5% bump in the average monthly Medicaid payment at a collective cost of up to $35 million per year.
  • Scope of Practice: the pandemic necessitated an increase in scope of service for certain healthcare workers to meet the surging demand for care. Under Laura’s Law, this increase in scope will remain permanent for Advanced Practice Nurses and Optometrists.

Lastly, the state is calling for the undergoing of a study to examine the impact of COVID-19 on the healthcare system, especially in Massachusetts.

Governor Baker referenced a silver lining upon rollout of this law, wherein the pandemic garnered the momentum needed for policymakers to support changes, and the collective healthcare experience of Massachusetts residents in 2020 informed the legislation, so it should be effective in addressing the gaps in healthcare that became obvious. We won’t be surprised if other states being to issue similar policies.

11 Essential Pieces of the Stimulus Bill for Employers

The $900 billion COVID-19 relief bill passed by Congress at the end of 2020 is robust and nuanced. It covers a lot of ground, and can be confusing to navigate. As professionals in the insurance and benefits field, we went ahead and summarized the key points most relevant to our clients and colleagues.

 

  1. FFCRA Paid Leave

The COVID-19 pandemic continues and the vaccine is unlikely to be available on a wide-scale basis in the next several months. In light of this, the refundable payroll tax credits for emergency paid sick leave (EPSL) and extended family and medical leave (E-FMLA), which were enacted pursuant to the Families First Coronavirus Response Act, are extended through March 31, 2021.  Notably, only the tax credits are extended, which means compliance with the EPSL or E-FMLA requirements is voluntary for employers after December 31, 2020.

COVID Relief Bill

 

The policy behind this may have been to incentivize employers to continue allowing employees in the middle of FFCRA leave as of January 1, 2021 to finish out, and be paid for, any remaining leave to which they would have otherwise been entitled.  The tax credit is only available for leave that would otherwise satisfy the FFCRA, had it remained in effect, i.e., if employees for whom the employer provides paid leave would otherwise meet the eligibility requirements under the FFCRA and did not use the full amount of EPSL or E-FMLA leave between April 1, 2020 and December 31, 2020.

  1. FSAs and DCAPs

  • Employers offering a Dependent Care Assistance Program (DCAP) or health FSA may allow participants to carry over all unused DCAP and health FSA contributions or benefits remaining at the end of the 2020 plan year to the 2021 plan year.
  • Employers offering a DCAP or health FSA may extend the grace period for using any benefits or contributions remaining at the end of a plan year ending in 202
    0 or 2021 to 12 months after the end of the applicable plan year.
  • Similar to DCAPs, employers offering a health FSA may allow participants who cease participation during the 2020 or 2021 plan year to continue to be
  • reimbursed from any unused benefits through the end of the plan year (and applicable grace period) in which participation ceased.  This is often referred to as a “spend down” provision when included in a traditional DCAP.
  • Employers offering DCAPs may reimburse employees for dependent care expenses for children who turned 13 during the pandemic.  The relief applies to plan years with open enrollments that ended on or before January 31, 2020 (e.g., calendar year 2020 plans).  It also applies for the subsequent plan year (e.g., calendar year 2021 plans
    ) to the extent the employee has a balance at the end of the 2020 plan year after any relief adopted by the employer, such as an extended grace period or carry over.  The relief allows the employer to substitute “age 14” for “age 13” for purposes of determining eligibility for reimbursement of a child’s expenses.  In general, DCAP eligibility ends at age 13, except in cases of mental or physical incapacity.
  • Employers offering a health FSA or DCAP may allow employees to make prospective election changes (subject to annual limitations) to their 2021 contributions without experiencing a change in status event.
  1. Surprise Billing

A hot topic of late, surprise billing will be banned starting in 2022. This includes a ban on the consideration of reimbursement rates by Medicare, Medicaid, CHIP, or TRICARE, as well as a ban on “usual and customary charges” which should prevent providers from suggesting higher rates.

 

More specifically, healthcare consumers won’t get balance bills when they seek emergency care, are transported by air ambulance, or upon receiving nonemergency care at an in-network facility but from an out-of-network physician or laboratory. Instead, they will pay the deductibles and copays outlines in their in-network plans, and the insurer and the provider will use arbitration to come to an agreement on acceptable payments, leaving the patient out of the process. For those without insurance, the secretary of the Department of Health and Human Services will create a provider-patient bill dispute resolution process.

 

  1. Direct Economic Relief

While not quite as generous as the last wave, this $286 billion portion of the latest stimulus bill allows for:

  • Direct payments of $600 for individuals making up to $75,000 per year, and $1,200 for couples making up to $150,000 per year, as well as a $600 payment for each dependent child
  • An additional $300 per week for all workers receiving unemployment benefits will be provided through March 14, 2021
  • An extension of the Pandemic Unemployment Assistance (PUA) program, with expanded coverage to the self-employed, gig workers, and others with nontraditional work engagements
  • The Pandemic Emergency Unemployment Compensation (PEUC) program, giving additional weeks of federally-funded unemployment benefits to individuals who exhaust their regular state benefits
  • An increase in the maximum number of weeks an individual can claim benefits through state employment, the PEUC program, or the PUA program, to 50 weeks

 

  1. Small Business Relief

As the Amazons of the world rake in revenue, small businesses have been left in a tough spot throughout the pandemic. The $325 billion piece of the bill includes the following relief for small businesses:

  • Over $284 billion for first and second forgivable Paycheck Protection Program (PPP) loans
  • Lending options
  • Expanded PPP eligibility for 501(c(6) nonprofits
  • $20 billion in grants for small businesses in low-income communities
  • $3.5 billion worth of continued small business administration (SBA) relief
  • Enhancements for SBA lending
  • $15 billion allocated toward live venues, independent movie theaters, and cultural institutions

 

  1. COVID-19 Testing, Treatment & Prevention

As the US grapples to keep up with the demand for testing and treatment as cases continue to surge, Congress has set aside $69 billion to address this dire situation. This section includes funding for the procurement of vaccines and therapeutics as well as for vaccine distribution. $300 million of this will be reserved for high risk and/or underserved areas. $22 billion will go to states for testing, tracing and mitigation programs. Mental health, support for healthcare providers, and COVID-19 research are all accounted for within this bucket.

  1. Schools

As schools of all types and levels struggle with remote learning and protection from the virus, the bill includes $82 billion to assist, including allowances for states, K-12 schools, and higher education institutions that have been significantly impacted.

  1. Child Care

Child care has become one of the biggest struggles for working parents throughout COVID-19. How can they mind their children at home while doing their jobs? Or, how can child care centers keep children and their families safe? As such, $10 billion has been allocated for the child care sector through the Child Care and Development Block Grant (CCDBG) program. The funds can be used to provide child care assistance to families, as well as to aid child care businesses with their new challenges. Of this, $250 million will be set aside for the Head Start providers for low-income children and families.

 

  1. Coronavirus Relief Fund Extension

The bill includes a provision that extends the availability of funds provided to states and localities by the Coronavirus Relief Fund in the CARES Act from 12/30/20 to 12/31/21.

 

  1. Employee Retention Tax Credit

The bill extends and expands the refundable Employee Retention Tax Credit (ERTC), part of the CARES Act, helping to keep more employees on payroll and more small businesses and nonprofits afloat.

  1. Student Loans

    The student loan provision of the original bill was been extended, so through the end of 2025, employers can make payments toward employees’ student loans – up to $2,500 annually – and have that amount be excluded from workers’ taxable income.

 

 

In addition, the bill expanded the lifetime learning credit, a tax break worth up to $2,000 per return can be used to offset the cost of undergrad, grad, or professional degrees.

There are also two important, miscellaneous tax issues we wanted to mention:

  • You are able to deduct qualifying expenses that exceed 7.5% of adjusted gross income on your federal income tax return, as long as you itemize your return. This is now permanent.
  • Workers whose payroll taxes have been deferred since September now have until 12/31/21 to pay back the government (extended from 4/30/21).

On top of our abbreviated list of must-knows, the bill also includes sections pertaining to Private Mortgage Insurance (PMI), environmental tax credits, broadband, transportation, farming and agriculture, and more. What the bill does not include is state and local aid funding, liability protection from COVID-19 lawsuits, and relief for the restaurant industry, among other areas.

 

If you have questions about what you’ve read or need help bringing your health, benefits, or leave programs up to speed, please get in touch (insight@springgroup.com).

7 Predictions About How COVID-19 Will Change Healthcare

Covid-19 has taken the world by storm, and a myriad of markets are being impacted significantly. Businesses of all sizes are having to implement layoffs, terminations and furloughs to stay afloat, even with the federal relief being offered. At the crux of it all is health care: where we look to save the lives of our friends and loved ones, where we rely on accessibility to care, where we put our hopes for a cure.

Some would argue that health care in the U.S. was broken before the pandemic hit. Whether you agree with that or not, Covid-19 has no doubt highlighted gaps in the health care system and our abilities to handle a catastrophe. Health care providers, insurance carriers, employers and consumers will all be impacted even after the dust settles and the urgency diminishes. Here are seven ways we expect the health care markets to be affected.

1. Telemedicine is here to stay

While early adopters were already utilizing telemedicine, everyone has come to see the real value of it. Covid-19 has instilled in most people a certain degree of germaphobia that isn’t likely to go away any time soon, so many are wondering why they would go to a hospital or clinic to get a diagnosis, consultation or prescription when they don’t need to. That said, there is a demographic divide here: older generations, who often have more medical needs and appointments, are generally less comfortable switching to a digital format.

A great advantage of telemedicine is its ability to even the playing field in terms of access. It doesn’t matter if you live in Manhattan or the rural countryside, you can get the same care at a comparable price. This is extremely important as we see the ways in which Covid-19 has widened the socioeconomic divides in our country.

Telemedicine will rise in popularity for mental and behavioral health issues as well. This at a time when anxiety, depression and hardships are at a recent high. We also anticipate a boost in concierge telemedicine services as well.

An increase in telemedicine utilization may yield cost savings in the long term. In the short term, however, details are blurry in terms of pricing for visits. Further, some people now using telemedicine may not have otherwise seen a doctor at all, which skews utilization rates.

2. Deferred health costs

There are still a lot of unknowns regarding the impact Covid-19 will have on health insurance costs. At a high level, we estimate the net impact on the cost of medical claims over 12 months (April 4, 2020 to March 3, 2021) for an “average employer” to be an increase of 6%-8%, with most simulation results in the range of 2%-14%. Member demographics, location and industry will impact these projections. Further, our proprietary modeling shows that short-term drug spend is up, while short-term medical spend is down.

3. Cost shifting

The April unemployment rate for the U.S. was 14.7%. For comparison’s sake, the average unemployment rate for the year of 2019 was 3.6%. This uptick in unemployment will cause many who were previously covered under employer-sponsored health plans to move to governmental programs, such as Medicaid or Medicaid, if eligible, as these are much less costly than the employer-sponsored plan’s COBRA. In fact, commercial prices are often far more than 50% above Medicare payment rates according to the Medicare Payment Policy report to Congress. As the unemployed struggle with finances and find themselves in different income brackets, this shift will be significant.

As a result, health care facilities, which are already losing revenue due to the lack of elective procedures during the pandemic, will face further financial woes because they make less money from patients who are insured through governmental programs than they do for those insured commercially. Meanwhile, the commercial insurers (i.e., Cigna, Blue Cross Blue Shield), may actually save money amid the crisis due to a lower volume of claims (which goes back to the delay of elective procedures). This point is important for employers to be aware of as a negotiating tactic as they approach their plan renewal.

4. Expansion of coverage

With the government and carriers making exceptions to existing health plan policies through 2020, it is clear that we were dealing with critical coverage gaps, and we anticipate these areas to stay written into health plans. This goes for telemedicine benefits, counseling and mental health, extra prescription refills, relaxed utilization management requirements, specialized treatment, vaccines and changes to flexible spending account (FSA), health savings account (HSA) and health reimbursement arrangement (HRA) eligible purchases. The result will be an overall broader offering of benefits at a higher cost.

5. Push for more government involvement

Throughout the crisis, we have learned that employer-sponsored programs can only get us so far. Especially with election season upon us, we’re predicting a jump in support for programs like Medicare For All, where a public program better suited and funded for “unprecedented circumstances” would already be established. We can see this in the recent grant of additional funding for Medicaid.

6. Greater focus on claims control strategies

We expect employers to take a closer look at how they can minimize volatility and improve population health management. This might involve a stronger emphasis on risk management strategies and programs and advanced data and reporting procedures. More companies will be turning to consultants and actuaries for things like trend analyses, audits, repricing and projections. We anticipate that more businesses will be considering population health management programs as a long-term strategy for a healthier population that will, in turn, lower claims costs and lessen operational risk in the face of a similar catastrophe. More than ever, the key to a business’s success will stem in part from its ability to encourage and facilitate a healthy workforce.

7. Rethinking long-term care

Among the many hardships the world faces today lies the fear instilled in those who have loved ones in nursing homes or like facilities. Based on the observations from the current crisis, they are hubs for exposure and infection among an already high-risk population. We predict the health care system of the future to include an overhaul of home health care programs and assistance, as many will not feel comfortable in larger care facilities, something once commonplace.

In summary, the outlook for the health care industry post Covid-19 will be a mix of positives and negatives. We do expect a hike in plan costs and mentality shifts that move people beyond traditional health care. Further, organizations of all types will be carefully analyzing their health care spend and loss history, gaining a better understanding of where each dollar is going and if it can be spent more strategically. These factors and more will constitute what will gradually become the new normal.

To Women’s Futures

As we celebrate International Women’s Day this month, I always reflect on women’s progress in the business world. When it comes to supporting and advancing women, there is still a long way to go. I take stock by looking at those closest to me, like my daughter, to determine if their lives have improved.

International Womens Day

When my daughter was young, I always used to give her advice to mitigate the financial risks in her life: When she started dating, I taught her to be self-reliant and to always be prepared to pay for herself. When she entered the workforce, I told her to plan for the future and put money in her retirement plan first and then budget the rest for day-to-day expenses. And when she bought her first home, I told her to ask questions and make sure she got answers about her mortgage contract, investments and details about where her money was going before signing anything. As I look at many women in the workforce today, I believe that there is more we must do to support and educate women them to ensure they are financially secure and independent no matter what their age or the support they need to get there.

Until we do, women will not progress at the rate necessary to achieve parity in the corporate world.

At a recent Insurance Supper Club event, I learned about women in our industry that researched the roadblocks women face when working toward financial security. The result was a manifesto called Insuring Women’s Futures (IWF), highlighting not only the problems but potential solutions for women’s success. Spearheaded by the Chartered Insurance Institute, the Insurance Supper Club and others, the group set out to look at the systemic impediments that impact a woman’s chance of financial success and professional achievement broadly, the risks women face and potential insurance and financial solutions to minimize women’s financial risks overtime. While it is focused on the UK, the manifesto’s message resonates with much of what we see in the US.

IWF identified 12 significant hurdles, like the gender pay and retirement gaps, where the path a woman takes can impact many women and place them at financial risk. Women need good financial footing in order to mitigate the risk and succeed in other aspects of their lives like business. The group is working together to improve women’s lifelong financial resilience and to address some of the root causes of women’s financial insecurity by navigating the pitfalls and raising awareness and engagement of women’s risks throughout society.

As one of the leaders in the insurance industry, it is my responsibility to recognize that women in our own community face these same challenges and that as an industry we must commit to overcoming them.   Within the insurance and financial services industry, we have many of the tools and knowledge that women need to create that foundation to build success upon and eliminate unforeseen risks like disability.

As Madeline Albright said, “There is a special place in hell for women who don’t help each other”. All women in a leadership role need to provide the same support that I did for my daughter and make sure that we are pulling one another up to the highest level. That starts with financial security.

5 Reasons to Consider an Integrated Workers’ Comp and Disability Program

For employers with robust benefits programs in place, an integrated approach is continuing to become an increasingly popular way to take things to the next level, and for good reason. Although the concept is not new, and our team of experts has been developing solutions for years, certain aspects are getting employers’ attention.

Spring’s 2016 and 2018 employer surveys, led by Spring’s Senior Vice President Karen English, show that the core drivers to developing an integrated program are:

  • Costs savings
  • Simpler administration
  • Upgraded employee experience
  • Enhanced tracking capabilities
  • Improved compliance

There’s a lot more impacting these areas than you might think, so let’s take a deeper dive.

Cost Savings:

Having an efficient benefits program with systems that speak to and work with each other can go a long way for your bottom line. Integration provides greater transparency into your workforce – absence management challenges, productivity, employee health – among other things. This knowledge is an opportunity to create a healthier, more present workforce.

If this sounds like qualitative “fluff”, it’s not. One healthcare client was able to save over $10M in direct and indirect costs through integration. These savings resulted from savings in the following areas:

  • Workers’ compensation
  • Disability
  • Unplanned absence
  • Vacation
  • Other Leaves of Absence

Their program, done in tandem with captive insurance company funding, also yielded risk diversification and stability, as well as further saIntegrated disability managementvings of 10% of premiums.

The graph to the right shows the average levels of employer savings achieved by implementing an integrated program, spanning a range of direct and indirect cost categories.

 

Simpler Administration:

All parties benefit from an integrated benefits system. An immeasurable amount of time and effort is saved from not having to go to different platforms for critical information. This will speed up the claims process.

The best integrated programs send notifications and communications, and offer automated triggers, case management and documentation. For managers, results are easier to explain. For employees, access is simpler and more approachable. At the corporate level, you can expect faster turnaround time and greater visibility.

Upgraded Employee Experience:

Employees do not typically understand the nuances surrounding absences, nor the various policies, plans, and processes involved. They simply need time away. By integrating absence to include occupational and non-occupational events, your employees will experience:

  • Fewer points of contact
  • Clearer processes to follow
  • Faster turnaround times
  • Improved information access
  • Increase self-service options
  • Decreased confusion

These benefits lead to an enhanced employee experience including higher engagement, both at the organization and with their health. As all HR professionals know, engagement is critical for recruiting, retention and overall performance. Whether at risk or not, all employees will appreciate a smarter, more robust benefits program and an employer that is looking out for their wellbeing.

Enhanced Tracking Capabilities:

To make sustainable improvements, it is imperative to track your integrated program and mine the data across all absences to investigate patterns and draw predictions. An integrated program allows for metrics across plans and policies with drill-down features such as:

  • Occupational vs. non-occupational
  • Paid vs. unpaid
  • Job protected vs. non job protected
  • Return-to-work vs. stay-at-work
  • Sick, vacation, etc.
  • Self vs. family
  • Continuous vs. intermittent
  • Diagnosis specific

With all these different facets captured uniformly, you have reporting that is comprehensive; supports workforce planning and budget; allows for strategic planning with HR as a business partner; and offers opportunities for prevention; so that your organization can be proactive instead of reactive. These kinds of insights allow employers to move into population health management.

Improved Compliance:

With the hub of intelligence that an integrated program offers, employers have a more reliable way of remaining compliant when it comes to things like the ADA, FMLA and ERISA, as well as any state-specific regulations and policies unique to the company. Automation will make leave requests and absence tracking much easier to manage, and accurate documentation will aid accountability for employers and employees alike.

Ultimately, an integrated workers’ compensation and disability program can have significant positive impact on a company and its employees, especially for larger employers. We have seen great, quantifiable success with integrated programs from our clients. If you are thinking that this process seems too big a task to take on, don’t worry. Any company can start at any point along the continuum shown below, and gradually work their way to a model that facilitates population health management in the workforce.

 

Population health management

 

Legal Alert: New Court Ruling on Association Health Plans

Association Health Plans allowed small businesses to band together for more affordable healthcare, and they have been a hot topic of late. After the Department of Labor under the Trump administration issued its final ruling on Association Health Plans (AHPs) last summer, several states took up issue with it. Specifically, eleven states and the District of Columbia sued the DOL, arguing that the broad availability of AHPs as outlined in the final rule goes against the consumer protections provided by the Affordable Care Act, and that the new regulation reflects a misinterpretation of the Employee Retirement Income Security Act of 1984 (ERISA).

Last night, March 28th, Federal Judge John Bates sided with these states and ruled to blocked components of the new AHP rule. Specifically, he stated that the provision allowing small business and the self-employed to buy health insurance on the large-group market was a clear “end run” around the ACA, and, therefore, illegal.

AHPs are not being subject to the same requirements of the ACA, such as the provision of essential healthcare and the ability to base premiums on individual demographic factors. This led some to believe that the quality of healthcare provided by an AHP will not be adequate. Further, the final rule’s expansion of the term “employer” goes against ERISA’s intent to protect large companies’ plans. By enabling small businesses and individuals to join together and benefit from large group insurance rates, Judge Bates argued, AHPs violate components of the ACA that clearly define rules according to entity size.

What does this mean for AHPs now? Firstly, the new AHP rules in the eleven states who filed a suit and D.C. is no longer valid. Other states may choose to be more generous, as insurance is still regulated at the state level. Otherwise, the old AHP regulations, the ones in existing prior to June of 2018, still apply.

Ultimately, the court’s ruling yesterday stems from a misalignment between the Final Rule, ERISA and the ACA. Please get in touch if you have any questions.

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!