I had the pleasure of speaking at The New England HR Association (NEHRA)’s Annual Legal Summit a couple weeks ago. The summit brought together attorneys, CEOs, insurance experts and HR professionals to discuss changes in regulations and laws that directly impact the workplace experience of employees. Some of the major topics discussed included how to adapt to a hybrid workforce, how to know who to hire during and cultural and legal considerations when facing substance use and mental health issues in the workplace. All in all, the conference was a great success and allowed for fantastic networking opportunities and provided guidance around a range of compliance considerations that apply to countless employers nationwide.
During NEHRA’s Legal Summit, I presented on, Piecing Together the Puzzle of the Paid Leave Landscape, in which I dove into history of Paid Family & Medical Leaves (PFML) in the US and explained the current landscape of which states provide PFML (and to what degrees). I moved on to show breakdowns on a global level for paid leave for new fathers, new mothers and for an employee with a health problem. As you’ve probably heard, data shows that the US is far behind when it comes to enacting federal legislation that provides paid family leave in comparison to the rest of the world. Without federal paid leave policies, it has fallen on individual states to create, enact and enforce paid leave policies. Of the fifty states in the US, 23 have rejected PFML proposals and have no safety net for employees who face medical or family issues that would require time off work, unless a program is provided by their employer.
After addressing some of the global and national trends, I explained some of the barriers of access to paid family leave within the US. For instance, women are 20% more likely to leave their jobs when they don’t have access to paid leave and 25% of new mothers return to work less than two weeks after giving birth1. Additionally, when breaking down access to paid leave based on race, research conducted by the National Partnership for Women & Families found that 28% of black respondents reported having requests for leave denied, compared to 9% of white workers. It is clear even within states or organizations that provide some form of paid leave, many Americans are facing very different realities when trying to utilize or understand their paid leave options.
As this was a legal summit, I tackled some of the major questions employers ask about leave surrounding compliance, costs, and leave options if they reside in a state that does not provide PFML. I reviewed some best practices employers can take when developing and evaluating leave policies such as leveraging benchmarks, looking into funding options (e.g. self-insurance, captive insurance, etc.), and utilizing technology and appropriate metrics to evaluate financial impacts. I also noted that different perspectives must be considered when developing leave policies. For instance, employees have different priorities; they are often worried about job security, getting paid and workload upon return when assessing taking paid leave. On the flip side, navigating leave from an employer perspective can be a daunting task when having to traverse FMLA, state laws, ADA/ADAAA, HIPAA, discrimination laws and more; so, it is essential to utilize resources to make sure your company is abiding by all regulatory standpoints.
All in all, I was in great company at the NEHRA legal summit! As per usual, NEHRA hosted some of the leading experts in the field and tackled major topics employers and HR professionals are facing currently. I hope to see many of you again during NEHRA’s 2022 Annual Conference in October.
In April of 2022, the Bureau of Labor Statistics reported that inflation hit a staggering 8.5%. If current projections hold true, this year will have the highest inflation rate since 1981. COVID-19, supply chain problems, Russia’s invasion of the Ukraine, housing price increases, and more predictable market cycles are some of the driving forces behind such high inflation. In our line of work – insurance, risk management, and employee benefits – macroeconomic factors like these are seen in the challenges our clients face and they solutions they prioritize. To complicate things, the property and casualty realm is also subject to things like natural disasters, climate risk, changes in societal litigiousness, and ransomware/cyber risk. That said, we sat down with Peter Johnson, Spring’s Chief Property & Casualty Actuary, to discuss how this challenging environment interplays with his work in the captive insurance space.
Q: Is inflation having an impact on underwriting and pricing?
A: This is case-by-case between captives but as an overall average, yes. A captive in a strong surplus position and favorable historical loss experience will still be able to provide favorable pricing even when the industry is seeing high loss trend and rate increases. Higher frequency and/or severity trends are certainly still impacting pricing needs for certain lines, such as cyber and excess liability where experience isn’t frequent in nature and the credibility of a single company’s experience is low. Specifically for cyber, ransomware loss costs have grown exponentially over the last 3 years and rate increases are being observed by both commercial carriers and captives. Further for both cyber and excess liability where commercial market pricing issues exist capacity has also shrunk and captive are being looked to, to fill the gap.
Q: Is inflation currently impacting reserving and if not, do you think it will in the future?
A: In general, yes, for many casualty lines where loss trends are high or increasing, but this is also a case-by-case basis since captives with good data credibility and stable historical loss experience can respond to their actual loss development and may not have a need for much, if any, reserve increases due to inflation. Cyber liability, commercial auto liability and excess liability are three lines in the industry with increasing severity trends and captive reserving practices often consider industry trends when company experience isn’t fully credible by itself, so I would expect some reserve strengthening for these lines due to trend assumption increases. Supply chain issues have been an obvious issue in the used car market and depending on a captive’s auto exposure and experience, there may be both increasing auto rate levels and reserve levels for the captive.
Q: Some analysts have suggested that while commercial market insurers are concerned about inflation, the impact might be offset to some extent by the benefit of higher interest rates in their investment portfolios. Would you expect captives to realize a similar investment benefit? Would you expect it to be significant?
A: To the extent a captive’s investment portfolio is invested in higher yielding fixed income, securities or other investments that are inflation sensitive then yes, there would be some offset.
Q: Are there specific coverage lines in captives that will be more affected by inflation than others?
A: Cyber, excess liability/umbrella and auto liability have seen higher trends than workers’ comp. Geography is an important factor as well since certain areas have seen noticeably higher/lower trends than the industry average. For example, medical professional liability severity trends have increased, but this varies significantly by region. Some states are seeing double digit severity trends and rate increases while others are experiencing very modest increases. Difference in litigiousness and jury awards drive much of these state-by-state differences. Property is certainly impacted by inflation with increases in cost to build, but natural catastrophes such as hurricanes, wildfire and wind/hail have typically had more of an impact and to compound things the current supply chain and inflation issues immediately after a disaster can lead to even costlier natural disasters. According to NOAA National Center for Environmental Information 2021 came is second all-time with 2020 coming in first as far as the total number and total cost of these disasters.
Q: Would you anticipate any changes in captive strategies in response to inflation?
A: For captives with active investment advisors, I’d expect a response on the investment side depending on their current investment profile and the surplus and loss reserve position of the captive. There certainly could be a variety of responses on the insurance risk side, particularly if inflation is driving up claim severity and significantly changing the risk profile of a captive. Capitalization, limits, retentions, reinsurance, and pricing are all potentially impacted and would need to be considered.
Q: Is there any advice you’d offer captive owners regarding inflation strategy?
A: In general, it is important to sensitivity test your proforma projections every few years based on practical adverse loss outcomes and investment income scenarios. These financial projections can consider higher than anticipated inflation trends over a multi-year projection horizon. This will help determine appropriate captive capitalization levels, reinsurance, pricing, and risk margin to protect against possible adverse events.
Q: Any final thoughts on the subject?
A: Firstly, large jury awards remain top of mind for many company executives and boards. Although the impact on industry combined ratios is less obvious based on what I’ve seen, this continues to be a big concern and is part of the driving force behind pricing increases in the commercial market for certain liability lines.
Secondly, as carrier capacity presumably decreases and underwriting profit margins increase for certain carrier lines where rate level increases outpace loss trend, captives will continue to be utilized to insure more risk and recoup underwriting and investment income related profits otherwise going to commercial carriers.
There you have it. While there are many negatives that sprout from inflation, one positive is that it allows captives to continue to elevate their status as a strategic risk management and financial tactic for organizations of all kinds, and help companies better face the difficult economic climate.
A recap of the Boston Business Journal Future of Healthcare Event on April 7th
Spring was proud to sponsor the Boston Business Journal’s breakfast event earlier this month. The title, “The Future of Healthcare,” is a critical point of discussion for our team and our clients day in and day out, and carries more weight now since the pandemic highlighted critical system gaps. Our consultants continuously look for innovative solutions that help organizations mitigate the impacts of rising healthcare costs, attract and retain employees, address behavioral health, and ultimately frame insurance and employee benefits in a more strategic way. Our work closely aligns with the market and what is trending with key players, such as insurance carriers, healthcare providers, technology vendors, and more. As such, we were delighted to get the inside scoop directly from industry partners.
The in-person (refreshing!) event provided much food for thought and called upon the sentiments of a range of stakeholders. Michael Dandorph, President and CEO at Tufts Medicine, provided the healthcare provider viewpoint. Andrew Dreyfus, President and CEO of Blue Cross Blue Shield of Massachusetts (BCBSMA), an industry veteran, brought the health plan perspective to the table. And Ali Hyatt, General Manager of Provider Commercialization and Marketing at Amwell, a telemedicine company, rounded out the discussion.
While the panelists all brought different points of view, there was a clear consensus as to what areas of healthcare need the most attention, and where the industry should focus in order to shape a more positive “Future of Healthcare.” A common thread was the need to view healthcare through the lens of the consumer (the patient) and find ways to improve that experience. We repeatedly heard the word transformation, meaning we all need to reframe our thinking and our approach to address the following key areas:
It’s no surprise that affordability was front and center, as healthcare costs continue to climb. As Dreyfus pointed out, the problem only got worse when COVID-19 necessitated paying higher salaries to staff, and caused premiums to increase. The rise of high-cost specialty drugs, which now represent around 25% of healthcare spending, and the consolidation of healthcare systems add even more fuel to the fire. As a result, employers are increasingly shifting more of the health plan costs to their employees, creating real barriers to care. Dreyfus cited a survey that found that in Massachusetts, half of the public has delayed or avoided necessary care due to costs. And as Hyatt pointed out, access is the most important driver of affordability. It is lack of access that tends to escalate prices for all parties within the healthcare system.
But enough about the problem; we all know it’s grim. When it comes to solutions, the panelists had ideas. Amwell is focused on making things like follow-up treatment, appointment making and care regimens easier to build an infrastructure that yields better outcomes. Tufts Medicine is working to build trust with consumers to help them better manage their health proactively, so that perhaps the patient never has to come to the hospital at all. Dreyfus emphasized the need to move away from the current fee-for-service system, where physicians earn less if they can keep a patient out of the hospital, which is backwards. “We should be paying for health and outcomes,” stated Dreyfus. High costs in a pandemic-stricken environment have pushed people away from engaging with healthcare systems and added to stress, leading to increased issues surrounding…
The speakers came at mental health from multiple angles. There is the obvious problem, which is that COVID-19 took immeasurable tolls on mental health. For as much good that technology has done regarding the flexibility to “work-from-anywhere,” it has also been detrimental. Dandorph pointed out that remote work for many just means logging on earlier and signing off later, with almost no down time. Hyatt added that a recent Microsoft study showed that employees were pulling an additional “third shift” from 9-10PM, feeling the need to log back in at night after tending to family or other obligations. Beyond work pressures, we also have retirees and seniors to consider, who have been isolated, vulnerable and afraid since the onset of the pandemic, and have been exhibiting increasing signs of depression and/or dementia as they struggle with loneliness.
Then there is the more specific problem, which is burnout within the healthcare industry. Dandorph dubbed this the “pandemic before the pandemic,” with suicide rates among physicians more than double that of the general population. COVID-19 amplified things, and staff has been retreating ever since, adding to the labor shortage we are seeing across all sectors. To solve for this crisis, the panelists stressed the need to simplify processes to relieve the burden on healthcare professionals. They are looking at ways to eliminate clinicians spending hours on the phone for pre-authorization processes, or typing up notes, and ultimately remove steps when possible. By integrating automation technologies and digitizing routine tasks, not only will staff get back time, but administrative costs should also go down.
The good news is the stigma around mental health has fallen – maybe not completely, but significantly. For their part, BCBSMA has dramatically expanded their staff in this area, adding around 17,000 social workers, psychologists, psychiatrists and others. In some cases, the health plan is paying mental health practitioners more to bring them back into insurance networks, as they are often separate due to administrative burden. BSBCMA has also committed to pay at parity for mental health visits indefinitely.
The panelists agreed that all the touchpoints of healthcare are inter-related; you can’t have a strong system if one cog in the wheel is poor. Specifically, the mental health component can be helped in part by…
Telehealth was a hot topic at the Boston Business Journal event. While it was even higher during the height of the pandemic, Tufts Medicine is still seeing about 80% of behavioral health visits and 15%-20% of all healthcare visits in a virtual format.
In summary, there’s no going backwards. Telehealth is here to stay, and Hyatt told a memorable story highlighting its value beyond mere convenience. She described a patient treated by Amwell who, at the time did not have a primary care physician (PCP) and was struggling with bronchitis systems. He was a smoker, mid-50’s, with various health issues such as emphysema and high blood pressure. He remembered he had access to Amwell and through his virtual visit, the clinician was able to discern that his nebulizer tubing was cracked, that he was not taking his blood pressure medication, and that his wife’s cuff he had been using wasn’t the right fit. After the visit these problems were resolved and he was enrolled in a care management program through the insurer from which he receives nutrition tips, reminders about appointments, and more. As Hyatt put it, “This was a consumer who would have gotten lost in the system.” Dreyfus agreed that seeing patients in their home environment can be extremely valuable, as the clinician can do things like look into their fridge to get a gauge of their diet, look into their medicine cabinet to understand drug-to-drug interactions, or flag things like rugs that could cause a fall.
Telehealth does not work for every medical issue, and some still prefer in-person care. Importantly, Dreyfus flagged up that someone seeking mental health services, for example, may not be comfortable doing so in their home, which could be the source of their stress. But as Hyatt pointed out, we shouldn’t be viewing it as telehealth versus in-person care, but how it all works together. The panelists think of telehealth as the beginning of a series of services that are more focused on the patient experience with the goal of increasing…
As Dandorph explained, a virtual healthcare visit is one aspect of where the future of healthcare is going, but we need to think about digital more broadly. He pointed out that in the tech industry for example, they have figured out how to engage consumers and be a regular part of their lives without being intrusive. Healthcare isn’t there yet. But if we can engage patients with their health early and often, and make their care needs and system navigation easier to understand, the result will be better outcomes and lower costs across the board. Dandorph introduced the concept of food as medicine and suggested partnerships that could enable all types of populations to eat healthier.
There are myriad ways to achieve such engagement, and one of them pitched by Dreyfus is to make the home the new locus of care. We were able to figure out at-home COVID-19 tests, so why stop there? Are there other tests or treatments that could be out-of-the-box? With the appropriate clinical support, better outcomes may be more likely in a home environment, and could be more comfortable for the patient and convenient for unpaid caretakers. This is especially true for elders, where the panelists agreed that long-term care needs to be a big piece of this puzzle as we move forward.
To bridge the consumer engagement gap, Tufts Medicine is thinking differently regarding hiring and leadership. Dandorph and his team brought in leaders from outside the healthcare realm, more familiar with consumer markets, who could think differently about making those connections and building brand recognition. Hyatt echoed this sentiment. At Amwell, they prioritize having a mix of staff; a balance of those from healthcare who understand the realities and the regulatory environment, and those from outside the industry who can bring fresh ideas and rethink the consumer experience. Hyatt noted that the biggest issue at a health system in New York was around payment and billing, where patients were frustrated with the complexity. We again get back to simplicity.
While all of these innovations are fantastic, we need to remember that they are not all equally accessible, which brings us to…
Like mental health, health inequity was another issue unmasked by COVID-19. There is still a digital divide, where technology solutions may not be accessible for some. There are social determinants of health to consider, Dandorph noted, such as food access, safe housing, economics, and education. When we talk about Food as Medicine, as an example, it may not be simple for everyone due to costs or inconvenience. And as Dreyfus pointed out, we are still dealing with underlying racism in care. So, what can we do about it?
Recently collected all their member data – race, ethnicity, and other measures – and published it in a transparent way, highlighting where they stand now and where they need to improve equity efforts. They also developed similar reports for healthcare systems and vendors in the region. Then, they committed to using their value-based care programs to eliminate the inequities they found. The health plan made a $25 million grant to the Institute of Healthcare in Improvement in Boston. And starting in 2023 they will be the first plan in the country to pay hospitals more for achieving equity goals, as they have in the past to improve quality of care. Tufts Medicine is focused on developing more culturally competent services, as a start, but Dandorph stressed that health inequity is a societal problem that will require stronger…
Yes, the healthcare system in the U.S. is broken in some ways. But it isn’t just up to hospitals and carriers to fix it. The panelists emphasized that things work better when silos are broken down, admitting even their organizations could work in closer collaboration, as they are aligned on priorities and direction. Dandorph explained the need for more partnership between the private and public sectors. For example, federal regulation is needed in the realm of high cost prescription drugs. Further, the government funds 40% of all healthcare in the U.S. through either Medicare or Medicaid, and many of its members are the ones suffering most from problems related to inequity and mental health. “These are macro societal issues,” said Dandorph, and as a society we need to elevate the economic status of those vulnerable communities and work on building trust between the people and the companies who can help them. This will take more work than any of the panelists’ organizations can do
alone. It will require community leaders. It will require businesses and employers to be more involved. Just like patients need help connecting the dots of their care, we need to connect the dots between each other.
Ultimately, the first 5 focus areas can be solved for only if #6 plays a larger role. Many of the objectives discussed – shifting from a sickcare system to a healthcare system, lowering costs, minimizing complexity, eliminating disparities, driving engagement in healthy behaviors – can only be accomplished through greater and widespread collaboration and connectivity.
In the United States, over 155 million people received medical and health-related benefits through some form of employer-sponsored program in 2021, according to the Kaiser Family Foundation. As healthcare costs continue to increase year over year, it should not come as a surprise to learn that after compensation-related expenses, healthcare costs are usually the second highest expense for most employers.
Employers are beginning to ask important questions about the future of their health care offerings and turning over every stone in an effort to control these ever-increasing costs. For employers that are currently leveraging fully insured plans, a prime opportunity to lower the total cost of healthcare exists through self-funding. By transitioning to a self-funded program, employers can achieve savings of anywhere from 5% to 15% depending on their program design and cost structure.
Self-insurance has become the most prevalent way to fund for healthcare benefits. Of those employers offering employer-sponsored programs, 67% choose to do so through a self-funded program. 
What is Self-Insurance?
Self-insurance, also known as self-funding, is a strategy used by employers to gain control over healthcare costs. In addition to control, the significant savings achieved through self-insuring is exactly why so many are considering a transition, as a viable alternative to manage and lower costs.
Self-insurance is the process of unbundling a fully insured plan, where employers use a third-party administrator to operate the plan from a benefits and claims processing perspective. This ensures that employees are not impacted by the change. The most significant difference pertains to how the program is funded; instead of paying a fixed premium amount, employers take a portion of the financial risk associated with the claims of the program, in exchange for lower overall costs.
The incentive for incurring this additional risk directly relates to the hefty charge carriers typically add on to their fully insured premiums. By taking on this extra risk, employers strip away these insurance carrier profits and are able to reduce their healthcare spending. To protect against the catastrophic losses that may occur due to higher-than-expected claims frequency or severity, employers typically take advantage of medical stop-loss coverage.
Groups looking to move to self-insurance should focus on understanding the financial and qualitative impact of this move. For this reason, we usually recommend groups that are larger (over 100 enrolled lives) to contemplate this strategy. The reason for this threshold is that most states regulations allow companies with over 100 enrolled employees (50 enrolled employees in some states) can request the insurance carriers for their historic claims information. This can then be reviewed by actuaries to help understand and outline the financial implications of potentially taking on some of the risk associated with moving to self-insurance.
Managing Risk – Stop Loss Insurance
The largest concern when considering a self-funded program relates to the risk of the program being impacted by unexpectedly high claims – be it due to the volume of claims or due to the exposure to a handful of large loss claims. One very sick individual or a series of unanticipated smaller claims could lead to a higher-than-expected claims level in a self-insured plan. Stop-loss insurance minimizes or eliminates this risk as well as dramatic fluctuations in claim costs over time, creating a level of predictability.
Provides employer protection for the risk of catastrophic loss by providing insurance coverage for total group claims over a certain dollar amount. Stop-loss carriers issue policies that pay when the aggregate claims amount exceed a pre-determined percentage of expected claims levels. Aggregate stop loss is usually expressed as percentage of expected claims like 125%.
Provides employer protection for individual catastrophic claims. Similar to aggregate stop-loss, financial protection is provided when the claim exceeds the pre-determined deductible or attachment point. Specific stop loss is usually expressed as a deductible amount like $25,000 per individual. For both specific and aggregate stop-loss, all claims exceeding the attachment point are covered by the stop-loss carrier and not the responsibility of the employer.
Additional benefits to self-funding include design flexibility, cost transparency, and increased savings. Further, increased insight into the actual cost of care, administrative costs, and any loaded fees or additional expenses to the plan allow for more informed decision making.
Full Transparency & Increased Access to Data
Many fully insured employers don’t understand the true cost of their program or areas of claims concentration, or using a broker or advisor, as commissions are often loaded into premium rates. Additionally, obtaining claim information in a fully insured environment is challenging. Increased transparency and data with self-funding allows employers to analyze cost drivers and implement targeted programs to lower utilization costs, while increasing employee health and satisfaction. In a self-insured plan this information is easily available on a timely basis, thereby allowing employers to better understand their programs and make changes to cater to their unique demographic of employees before their next renewal.
Program & Design Flexibility
Every state has a unique list of mandated coverages that can add significant costs for both employers and their employees. Because self-insured plans are governed by ERISA and generally pre-empt state law, employers avoid these additional costs by allowing them to design plans that meet both employer and employee needs, increasing satisfaction for all stakeholders.
Better-than-expected claims in one year can offset next year’s expenses or reduce program contribution levels. In addition, employers may choose to purchase medical stop-loss insurance or a level funding arrangement to provide additional security and create consistency from a cash flow perspective.
Typically, premiums paid in fully insured programs include loaded fees and industry loss trends. In a self-funded program, employers not only minimize or avoid paying these additional charges, but their costs are directly correlated to their specific experience, and not that of their peers. Tools such as consumer-directed health care, price transparency tools, specialty networks, value-based plan designs, and wellness programs all can be built seamlessly into a self-funded plan and help drive down utilization costs and the total cost of healthcare.
Want to learn more?
Self-insurance remains a powerful tool in an HR team’s arsenal to control and potentially reduce the burgeoning healthcare costs, as well as provide benefits that are targeted to their population. Employers who make the change can reap immediate advantages and avoid, or at least slow down, inevitable cost increases. Our client, edHEALTH, is a prime example of self-insurance done right, where their members were able to gain savings, offer enhanced coverage, and take a more targeted approach to employee benefits. Our Consulting Team is made up of highly trained risk funding professionals with years of experience. We help employers navigate the self-funding waters and to develop the best funding strategy to meet their individual needs.
1. 2021 Employer Health Benefits Survey. kff.org. https://www.kff.org/report-section/ehbs-2021-section-1-cost-of-health-insurance/.
Vaccine mandates for COVID-19 continue to evolve and change. Organizations are facing pressure from various internal stakeholders as well as federal and state agencies that often contradict each other. COVID-19 rates are declining in the US, which has translated into decreased mandates and the lightening of previous requirements. With that said, some areas of the world are experiencing a renewed surge, which may signal a pendulum swing is coming related to vaccine and mask mandates. Only one thing seems certain – mandates and COVID-19 requirements will keep changing, and employers must design programs, policies and tools that continue to be flexible.
Regardless of your organization’s current strategy surrounding vaccines, testing, and masking protocols, it is critical to consider tracking systems, communications, incentives, and equity.
Vaccine tracking systems
While public tools like this COVID-19 tracker are available, many organizations are wondering how they can record and track vaccine and booster status if that is a requirement for employees. Without a tracking mechanism, policies will be difficult to enforce. However, collecting vaccination status and test results is considered confidential medical information. It is important to understand the privacy factors and risks involved in housing such information. Whether using a third-party platform or something internal, make sure you cover your compliance bases.
No matter the course of action you take, be prepared to deal with opposing viewpoints. If you are taking a hard vaccine mandate stance, does that mean employees who do not comply will be terminated? Are you offering exemptions and if so, how easy are those to get? Are you at risk of being sued over these policies? Alternatively, if you are not implementing a vaccine mandate or similar masking/testing requirement, it will be important to make accommodations for employees who feel unsafe in such an environment. Perhaps separate workspaces need to be ensured, or expanded remote working policies put into place. Whatever your corporate decisions, plan to over-communicate. If your programs and policies are fluid, many employers have found an information hub useful so employees know where to look for the most current information.
In 2021, incentives for vaccinations were popular. State governments facilitated cash-based lotteries. Honda offered cash incentives to employees, and Kroger offered both cash and free grocery incentives. In true Massachusetts form, the state offered free Dunkin’ iced coffees to those getting vaccinated. Now, incentives have petered out a bit, but Arkansas is still handing out a $20 lottery ticket to anyone who gets a shot, and New York is offering the chance at ski passes to those who get a booster. The bottom line here is that vaccination and booster incentives are fair game. Just keep in mind that at this stage in the game, they may or may not be effective.
The walk back of the federal OSHA law means a patchwork of policies exist between states. If your organization has employees in multiple states, make sure you are aware of the legislation across the board. As an extreme example, be prepared to develop a policy strategy for employees in states where vaccine mandates are prohibited even for private companies. A uniform policy may not be feasible but ideally you should set corporate requirements and then adjust only where required by law.
The vaccine discussion has been a hot topic for over a year and we are not done with it yet, as risk factors keep changing. If you have questions about vaccine compliance, communications, accommodations, or reporting, please get in touch with Spring and we would be happy to help. Our client, edHEALTH, and its member schools, have effectively navigated the evolving and charged landscape of COVID-19 policies, which have been even more complicated in the realm of higher education. Here are some additional tools available to help you out.
As seen in the New England Benefits Council (NEEBC) blog.
We are one year into eligible Massachusetts employees being able to apply for paid leave benefits under the Massachusetts Paid Family and Medical Leave (PFML) program. Although stats for the MA PFML Rookie Year have not been released yet, the first six months were telling:
- Over 53,000 applications, with 23% being denied
- 58% of applications were related to medical leave and the remaining for bonding, given that care for a family member with a serious illness was not yet a covered reason
- Only 18 applications for military exigency leave and 6 applications to care for a service member
- Employees aged 30-39 submitted the most applications (35%) and more than twice as many women applied for leave, compared to men
- Average weekly benefits were $705.98 for family leave and $699.00 for medical leave
- Turnaround times, once the Department of Family and Medical Leave (DFML) received all data including employer responses, took a median of 12 days to make a claim determination
- Average duration of leave was 53 days (57 days for medical leave and 51.5 days for family leave)
- Total benefits paid was equal to about $168 million (about $92 million for medical and $76 million for family leave)
While we await data for season of 2021, let’s dissect the highs and lows and see if MA PFML has a shot at Rookie of the Year!
Let’s start with the highs:
The plan appears to be running at a sustainable level with sufficient funding, indicated by a reduction in contribution rates, which is good for residents of the Commonwealth.
Employers were able to successfully create private plans without significant hurdles in the process, allowing MA firms to continue their history of rich benefit designs without negatively impacting corporate plans.
Massachusetts has been a strong example of early and broad education of the program. Individuals in the state were told about benefits that may be available to them in plenty of time before the program went live, giving them the opportunity to ask questions and better understand what their experience might be in the case they need leave. The state hosted various webinars to different audiences, providing real time information and continuous updates on the status of the program’s launch. The website houses a multitude of helpful information and is continually updated. For questions not answered in these channels, individuals may also call the DFML for benefit questions or the Department of Revenue (DOR) for questions concerning private plans or contributions, and the state is typically always able to answer even in-depth questions.
While the state has had multiple home runs implementing a PFML program, just like evaluating Rookies of the Year like Jonathan India and Kyle Lewis, we need to think of the swing-and-a-miss situations as well. The most significant strike for the MA PFML was their system:
- The system for PFML administration continues to lag with the most significant unexpected deficiency likely related to their inability to handle intermittent leaves which are the most challenging and frustrating for employers.
- Employer access was an obstacle, leaving employers without the ability to “monitor” claims or have insight into the status at a time when COVID claims and time away from work were skyrocketing.
- Another systematic issue was linking contribution with plans. Since contributions are due at the close of the quarter, claims could be reported prior to contributions being paid. Unfortunately, those triggered denials as employers struggled to notify the state, register and swap from private plans to the state plan. Employees were given conflicting information as employers tried to resolve this gap in “coverage.”
Just like anyone’s first year in the pros, our first year with MA PFML threw us curveballs we did not expect, and as a result, we have learned some important lessons. The ever-evolving landscape of PFML laws has put pressure on employers with employees across the country, as they try to meet employee needs while balancing corporate responsibilities and equity. As we all become more seasoned players in this complex game of leave, Spring has outlined some best practices for employers handling PFML:
- State plans should act as guidance for internal company policies. Mimicking a state plan could be restrictive as new programs emerge and existing programs evolve.
- Have a clear understanding of the definition of eligible employees under each statutory and/or federal law. Someone considered an employee in Massachusetts may not be considered an employee in Connecticut (e.g., 1099 contractors).
- All leave policies should be run concurrently, to the extent possible. The Federal Family and Medical Leave Act (FMLA) will generally run concurrently with MA PFML and other PFML laws when an employee meets the eligibility conditions of both plans.
- Private plans offer the most flexibility with plan provisions and aligning leave with other corporate leaves, however state plans seem to be simpler administratively. Carefully weighing these pros and cons is key to developing an adaptive leave program.
The replay we are watching the most, however, is that COVID-19 significantly increased the complexity of such a program. The need for leave has been exacerbated. Difficulty hiring employees has affected employers who must keep up productivity while more employees are away from their jobs, and the state had to administer a new leave program under less-than-ideal conditions. In addition, the tremendous growth of remote work has made it difficult for employers to determine where an employee may be eligible for leave.
Overall, workforces are evolving and regulations at the local, state and federal level need to be continually monitored. As we see benefits become available under new programs, such as CT PFML, and other states pass bills to develop PFML programs, such as New Hampshire and Maine, employers will need to assess their strategies and evolve accordingly.
A recap of a presentation by Peter Johnson of Spring, Deyna Feng of Cummins, and Melissa Updike of KMRRG at the VCIA 2021 annual conference.
Black Swan Events and Market Capacity
Over the last year and a half, the world as we know it has been flipped on its head. Not only did everyone’s day-to-day processes change completely, but the COVID-19 pandemic also stressed the insurance system significantly and resulted in a number of changes across various lines. “Black Swan” events are those that are unexpected, severe and affect a large number of companies and individuals which is exactly what happened with the COVID-19 pandemic. While the healthcare industry faced increasing premiums and alterations to mental health coverage, the property-casualty (P&C) market also was affected in an unpredictable way.
Rewinding back to prior to March 2020, the P&C market was experiencing an all-time high surplus, and was in a 10-year trend of suppressed rates. Therefore, when the “Black Swan” event of a pandemic hit, insurance companies were forced to significantly reduce capacity to mitigate social inflation and high-cost claim issues. In some cases this drop down insured limits by 75 percent or more of their prior year policy limits. This was evident particularly for cyber liability and umbrella coverage. Additionally, rates across lines were seeing double and triple previous years’ numbers.
On the other hand, some P&C lines actually saw improvement in their combined ratio during 2020. This means that where some lines saw increases in cost, other lines saw a drop in utilization, which “evened out” the overall market. This improvement can be seen in commercial and personal lines auto lines over the last year. The auto industry saw a dramatic downturn in utilization due to reoccurring “Stay at Home” executive orders hindering travel as well as other related changes to the industry.
Needless to say, this all yielded a difficult environment for employees and employers. In order to appropriately mitigate these new or changed risks, companies have been turning to policy exclusions as well as captive financing to better protect themselves and their employees from high-cost claims.
Policy Exclusions and How They Impact Your Business
During the pandemic, no insurance company or insured was truly prepared for the changes that were to come, and many insureds were faced with unexpected coverage exclusions and were left with potentially catastrophic payments. Some examples of policy exclusions include pandemic situations, interrupted business, long-term care, and others. However, employers who had a captive insurance company set up were sometimes safeguarded from policy exclusions, and companies without a captive increasingly flocked to establish one.
To illustrate the advantages, one captive held their policy exclusions to the standard of COVID-19 claims and were able to mitigate those costs through their reinsurance retention. As another example, the Kentuckiana Medical Reciprocal Risk Retention Group (KMRRG), a captive, was able to flip their exclusion around long-term care, a move which, although it was only a small component of their business, significantly minimized costly losses. The framing of this exclusion allows employers to wrap reinsurance around this risk, specifically if they utilize a captive funding vehicle.
Captives offer more flexibility around policy language and terms, which can be adjusted according to the specific risks of the parent company. It is generally the responsibility of the brokers to let their insureds know which reinsurance renewals were at risk during the pandemic. Most commonly these lines were workers compensation, healthcare programs, and other P&C lines, which can be written into a captive or an RRG solution. Note RRG’s cannot write workers’ comp and can only insure liability lines.
Maximizing Captive/RRG Solutions
Captive insurance is not a new concept; however, it is often overlooked as a method for employers to protect themselves against risk. Captives not only better reflect underwriting records but also allow insureds to recoup investment incomes that would normally have been lost to insurance companies.
Captives support the parent company’s risk management overall and provide financial protection and long-term savings, both necessary for any business in ordinary and extraordinary times. Generally, our team sees that, for every $1 of premium that a client converts from a commercial reinsurer to a captive, 10 percent to 40 percent of long-term savings in the form of investment income and underwriting profits are yielded.
A captive can step in to help when commercial market rates are unreasonable, such as the 200 percent to 300 percent rate increases, we have seen recently, which of course are impossible for CFOs to plan for. This happened with many insureds’ umbrella coverage. Many companies over the last 20 months were forced to significantly lower their limits and increase their retention levels simultaneously. With changing premiums (mainly increasing) on top of this reduced market capacity, more and more often companies are utilizing captives to get control over these types of high costs and expand coverage.
Additional benefits of a captive or RRG solution include transparency and improved claims management. For example, if COVID-19 claims do develop, with a captive you can react with a very specific claims management strategy instead of relying on a commercial carrier to do so. This allows you to hand select your partners such as attorneys and other advisors. You can also be sure that your discovery responses are consistent. Additionally, group aggregates have hardened even more in the market which has forced captive managers to become more creative than before. An illustration of that creativity can be seen in the example below.
Hospital Professional Liability in a Captive: Many entities were trying to get their mitigation placed, and by increasing primary levels they were able to provide some protection and increase their claims control.
Bracing for the Future
In order to be properly prepared for the next “Black Swan” event, employers and employees should consider the major lessons learned from the past year:
This is not unique to a pandemic situation. When leveraging a captive, it is imperative to have a wide range of exposures. Our actuaries know that, in line with the law of large numbers, the more risks and more exposures, adverse financial outcomes become less likely and more manageable. Considering the correlation between the risks is equally critical as one risk could lead to a domino effect of triggering another high-cost risk. A general rule of thumb for captives is adding low correlating risk to a captive will lead to more stable year-to-year financial results.
Speed to Market
What is your process to quickly adapt to changing market conditions?
Analyze Current Structure
Can you withstand another “black swan” event? What are the coverage improvements that can be made internally?
What is your cots of risk and risk tolerance? Do you need an improved insurance/reinsurance strategy?
Has an appropriate strategy been considered?
Do you have uninsured/underinsured risks? Is there sufficient market capacity for your exposure?
If there is a positive we can take from COVID-19, it should be that we learned important lessons and won’t be as blind sighted in the future. Looking ahead, companies should ascertain whether they have the right tools in place to better manage risk and financial losses. In addition to the risk structures and their advantages outlined above, considering cross exposures and diversified risks is the best and easiest way for companies to protect themselves and their employees in the event of another “Black Swan” event. Lastly, having an aggregate view of risks across the organization often leads to creating the most efficient and cost effective risk funding programs.
As seen in the Captive Review Group Captive Report, September 2021.
With the rapid spread of the Delta variant, the Covid-19 pandemic continues to leave employers with a series of unpredictable risks directly related to the pandemic. Among these risks is the potential higher cost of healthcare benefits offered to employees, a factor which must be built into any long-term risk management or cost-containment strategy. Covid-19’s impact on healthcare costs Based on tracking data across multiple employers, the future impact of Covid-19 on high cost claims will directly impact health insurance. Key factors include:
Direct costs related to Covid-19
Costs associated with testing, treatment and vaccines remain a primary source of plan costs. The most direct impact on captives is the high cost treatment tied to severe hospitalizations, particularly due to potent strains of Covid-19 like the Delta variant. There may also be ongoing health needs for members who recover from Covid-19 or are long-haulers.
Deferral of care
Plan members have chosen to defer elective treatments. While some of this care was eventually incurred over the course of the last year, many plan members continue to hold back on care, whether because of discomfort in a hospital setting or difficulty in finding care due to bandwidth issues. This influences future costs, particularly with unpredictable costly surgeries.
Missed preventative care
Client data across industries also showed a significant reduction in preventative care visits, and lower test numbers in areas such as labs, CT scans and MRIs. As a result, many employers are concerned because if certain health issues are not identified and treated early, the severity of the case and corresponding cost of care may be higher down the road.
Covid-19 propelled behavioral health issues into crisis levels. While it may seem indirectly related to broader healthcare, consider this: the national Alliance on Mental Illness reports that cardiometabolic disease rates are twice as high in adults with serious mental illness, and that depression and anxiety disorders cost the global economy $1 trillion annually in lost productivity. We are sure to see the repercussions of this in claims costs to come.
Health insurer risk premium margins built into insurance pricing have been increasing in light of all this uncertainty, as well as broader trends such increased prevalence of high cost specialty drugs and increasing hospital costs. In fact, the most prevalent specialty medications are increasing in price at 10%-15% annually, further contributing to unpredictability of future claims.
During the pandemic, employers have needed to confront their organizational philosophy on the employee value proposition and balancing the investment in employee benefits with the impact on the company’s stakeholders. The impact of Covid-19 has made employers more acutely aware of the need for sufficient healthcare coverage for employees and their families.
In order to provide attractive benefits in an environment of rising costs and volatility, employers must rethink the programs they offer and how they are funded. Many organizations have also revisited benefit program governance structures, how decisions are made, and how programs are monitored.
Perhaps your remote workforce has different needs than they did in 2019, or the pandemic has triggered new problem areas that can be addressed through wellness solutions or advocacy tools.
No matter your path, employers seeking to ensure that they offer comprehensive healthcare benefits to employees at an affordable cost need to consider the financial management benefit of potential long-term cost savings and mitigation of volatility associated with captive structures.
Captive Arrangements for Employee Benefits
As employers look at the impact of the pandemic, organizational planning requires balancing the increasing cost of healthcare with the risk associated with solutions that reduce the total cost of the program. At its simplest form, health insurance can be expensive if a fully insured program is purchased, as organizations pay a risk margin, often 20% to 40%, for transfer of the risk to an insurer. Small to mid-sized organizations typically mitigate this cost by self-insuring a portion of their healthcare risk with medical stop-loss to cover higher cost claims. However, the higher risk premiums required by health insurance, including stop-loss insurance, lead to steep healthcare plan costs and/or, in some cases, being forced to take on higher-than-optimal risk.
A captive arrangement is a strategic way for employers to benefit from self-insurance while creating a sustainable solution to partner with commercial markets. Captives provide substantial competitive advantages over traditional self-insurance, such as:
Reduced total cost of insurance
Insurance carriers develop premiums by heavily weighing on industry averages, state rates and, to some degree, on an employer’s individual loss experience. This may lead to pricing that may not accurately reflect an organization’s actual loss experience. Insurance carriers usually price to include substantial overheads, including risk and profit margins. A captive provides employers an opportunity to recapture premiums from the commercial market and build a sustainable long-term model for their insurance needs.
Insulation from market fluctuations
Conventional commercial insurance is vulnerable to market fluctuations. This has never been more evident than today, with hard insurance markets and premiums that are increasing substantially with almost no change in coverage level. As a member in a captive program, employers are less susceptible to unpredictable rising costs imposed by conventional insurers every renewal season, as a balanced funding approach can smooth the cyclical volatility of the commercial insurance markets.
Protection from cashflow volatility
Leveraging a captive to fund medical stop loss can lower the cashflow volatility often faced by self-insured programs on a monthly basis. Having a captive cover claims at a substantially lower stop-loss level allows employers to smooth out plan funding and mitigate cashflow risk to the company.
For employers that may not have their own captive or the resources to form one, there are a variety of group captive solutions in the medical stop-loss space. These solutions are turnkey in nature and simple to implement. Most well-structured group captive programs aim for a seamless transition for employers where there is almost no disruption. In other words, from an employee’s perspective, the claims process is entirely the same. With group captives in particular, all the mechanical aspects are handled by the group captive management team, with minimal effort required for an employer.
There are several group captive arrangements that employers can tap into. In selecting the most appropriate arrangement, you need to consider factors such as the upfront cost of the program, the extent to which customization will be available, the flexibility you will have for your organization within the group captive model, and how renewals will work.
Looking Beyond the Pandemic
As we look forward beyond the pandemic, employers should consider ongoing healthcare program effectiveness. Healthcare costs will continue to increase and become a larger portion of organizational budgets, but it is not too late to start leveraging innovative solutions to mitigate these costs. You can proactively adjust your tactics today and be better prepared for tomorrow, and with a captive you are truly in the driver’s seat.
As seen in Captive International
As the dust begins to settle on the COVID-19 pandemic, forward-thinking organizations are focused on programs that provide competitive benefits as they look to lure new workers and retain existing employees. They recognize that employee benefits give them flexibility to deal with the changing employee landscape, from a demographic and geographic perspective, as well as improving employee wellness, maximizing their savings and increasing employee engagement in the modern era.
COVID-19 impacted insurance coverages and industries differently, but a picture is emerging of what the employee benefits landscape will look like post-pandemicPrabal Lakhanpal of Spring Consulting
A holistic approach
Historically, employers were largely focused on ensuring they had adequate insurance coverage on a line-by-line basis, and these coverages often operated in silos. Today, more organizations are breaking down those silos and developing a view that is holistic, looking across the board to create an employee benefits program that emphasizes employee wellbeing and population health management.
Employee wellness is primarily the idea of not just providing employees with appropriate health, life and disability benefits, but also ensuring that employees have assistance regarding their overall wellbeing, including physical, financial, behavioral, social and intellectual health. Organizations increasingly understand how the individual components of their benefits programs are inter-related, and that evaluating and managing these relationships adds value to their employees.
A captive is an effective mechanism for achieving an integrated program. In an integrated captive program it is easy to bring together all the lines and ensure that the appropriate resources are being used to plug any gaps in the benefits portfolio. Most of our clients using this approach have been able to leverage the savings from the captive program to provide the additional coverages at almost no or nominal cost.
In addition, the transparency and clear line of sight into claims activity and utilization rates help employers plan for program changes, make decisions and adjust to changing employee needs sooner than they would be able to without a captive. Organizations that already had benefits in their captive when COVID-19 hit fared much better than those without one, as they were able to adapt quickly to make changes to their benefits that accounted for the unusual circumstances.
For example, we helped a large global employer leverage its captive to provide extended benefits for employees it was forced to furlough when the pandemic struck. Its carrier would allow for continued benefits for only three to six months, but by using the captive to take on the risk, the organization was able to keep benefits for furloughed employees for 12 months at no additional cost. This move went a long way to improve employee retention and morale.
If we think about the range of employee benefits in the US, medical stop-loss is perhaps the one that has changed the most and attracted the most interest in the last few years. It is typically not an Employee Retirement Income Security Act (ERISA) benefit so Department of Labor (DOL) processes don’t apply.
There are two driving forces behind this interest. First, healthcare costs continue to skyrocket, causing employers to look at alternative ways to bend the healthcare cost. Medical stop-loss in a captive is a smart, cost-conscious response to these market conditions.
The second factor is that for a long-time medical stop-loss has largely been considered a first-party risk. Over time, law firms and accounting firms have gradually started to categorize it as a potential third-party risk.
This transition to medical stop-loss being a third-party risk is gaining substantial traction and impacting the way programs may be structured to achieve insurance tax treatment. This concept needs to be individually assessed at the employer level, considering the circumstances of the organization. We highly recommend working with a captive attorney or tax advisor to ensure compliance.
Life and disability
Life and disability are other lines that have changed significantly in recent years. Typically, any coverage subject to ERISA needs to go through a DOL exemption process in order to be placed in a captive. Life and disability are usually subject to ERISA. Historically, the DOL had an expedited process, which allowed employers to submit an application for approval to add benefits to a captive.
In late 2018, the DOL paused this process in order to rethink and better understand how employers are using these benefit lines in a captive. They have since conducted an analysis and created a more streamlined exemption process for which we are already seeing applications flow through the DOL.
As we look to the future, I believe this will encourage more employers to think about life and disability as potential coverages for captives. These coverages not only help employers achieve best-in-class benefits provision, they also support captive insurance structure from a diversification point of view.
Another growing area of interest is the self-insuring of employer-paid disability coverages. This is an extremely useful solution for organizations and is quick to implement, but the feasibility of this needs to be evaluated on an individual employer basis.
While not new, voluntary benefits continue to pick up steam in the market. This trend correlates in part to my first point about a holistic approach, as voluntary benefits can offer a range of different protections that are not part of a traditional benefits package. In this way, employers and employees can address a larger spectrum of health and wellbeing concerns such as vision, financial wellness, or accident insurance, thus creating a more comprehensive program.
Voluntary benefits are an important tool to have as employers fight against rising healthcare costs, as they are a low-to-no-cost mechanism to support employees in managing those increasing costs.
Last, as most voluntary benefits are underwritten at extremely low loss ratios, insurance carriers make a substantial profit from a voluntary benefit that is fully-insured. By utilizing a captive (self-insured structure) for voluntary benefits, the employer can further reduce benefits costs for its employees. It’s a classic win-win.
The “new normal”, whether it feels normal or not, is not on the horizon, but at your doorstep. Cutting-edge businesses are taking a modern approach to address the challenging market conditions while still providing competitive benefits, retaining and attracting talent, and being risk-smart and mindful of their bottom lines.
Thinking holistically and reframing your strategy around medical stop-loss, life and disability, and voluntary benefits are just a few of the ways you can use your captive to stay ahead.