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Debunking ‘Opt-Out’ Myths (Part 5)

Option programs in Texas and Oklahoma produce substantially less litigation than workers’ compensation systems do, which provides a powerful endorsement for states considering such programs.

A look at litigation for workers’ compensation and option programs must consider three main exposures: (1) claims for employer liability, (2) claims that the law violates the particular state’s constitution and (3) claims for wrongful denial of benefits.

Claims for Employer Liability

Public policymakers have long understood that it is not fair to require employers to pay a high level of statutorily mandated injury benefits and also be exposed to legal liability damage claims regarding the cause of injury. There are several approaches available to state legislators in striking that balance in a workers’ compensation system or an option to workers’ compensation, but each approach must reflect this inverse relationship between the extent of an injury benefit mandate and the extent of employer exposure to liability.

Employer exposure to liability has been almost entirely removed from workers’ compensation systems because of extensive benefit mandates that include medical coverage for life. However, the option to Texas workers’ compensation takes the opposite approach. It has no injury benefit mandates but exposes employers to broad liability for negligence.

That formula will be pursued by few, if any, other state legislatures because of the risk that certain irresponsible employers would provide no injury benefit coverage to their workers. However, the Texas option liability exposure does provide an additional incentive for employers to focus on workplace safety. It also provides employers with an incentive to make a strong commitment to take care of the injured employee’s medical and indemnity needs.

Employer liability exposure under the Texas option is real. There have been more than 80 liability settlements or judgments of $1 million or more. This unlimited risk of liability is ever-present.

However, option programs experience less than half as many disputed claims as the Texas workers’ compensation system (which is widely acknowledged as the one of the best-performing systems in the U.S.). The tiny percentage of disputed option claims is, primarily, because of legal requirements to fully communicate all rights and responsibilities (at program inception and continuing) in language that employees can understand — a requirement that is quite hard to find within any workers’ compensation program.

Option programs are also legally required to use claim procedures that ensure a full and fair review of benefit claims, including access to state and federal courts.

Yet only 1.5% of Texas option claims have any attorney involvement, and less than one in 1,000 liability claims actually go through formal litigation. So, this liability exposure has a positive impact on workplace safety, while still proving to be manageable and fully insurable in a highly competitive option marketplace.

It took more than a decade for the insurance industry and case law development to create the current balance that is delivering injury benefits to more than 95% of Texas workers through either workers’ compensation or option injury benefit plans. The existing Oklahoma option and the proposed Tennessee and South Carolina options all mandate some level of injury benefits and reduce employer exposure to liability to simplify the public policy debate and avoid this long period of industry maturation.

Constitutional Challenges

In existence for more than 100 years, the Texas option has never faced a challenge on constitutional grounds. Texas courts have long respected an employee’s right to work, employer rights to tailor employee compensation and benefits and the legislature’s right to determine an appropriate balance between mandated injury benefits and employer liability exposures.

The Oklahoma Supreme Court has now twice rejected lawsuits challenging the constitutionality of the Oklahoma option in 2013 and 2015. Oklahoma trial lawyers have filed more than a dozen lawsuits at the Oklahoma Supreme Court challenging the constitutionality of the 2013 workers’ compensation reforms. Oklahoma courts may further consider different provisions of the option law, but attorneys from the claimant and defense bar now agree that the Oklahoma Employee Injury Benefit Act is here to stay.

Oklahoma and Texas employers can freely move into and out of the workers’ compensation system at any time. So, even if the Oklahoma option is ever stricken down on constitutionality grounds (as unlikely as that prospect is), the law provides a 90-day grace period for employers to move back into workers’ compensation, without penalty. Similar provisions are in the pending Tennessee and South Carolina legislation.

Claims for Wrongful Denial of Benefits

Day-to-day legal challenges by injured workers regarding their rights to benefit payments are a normal feature of all workers’ compensation systems, and the same is true of option injury benefit systems. It is an unfortunate fact of life that, as with any line of insurance business, not every claim will be handled well. But as we have seen in Oklahoma over the past year and in Texas for more than two decades, dramatically fewer claims are disputed by injured workers under option programs.

Twice as many Texas workers’ compensation claims for benefits are disputed as compared with Texas option claims. This is true even when combining all injury benefit plan disputes and employer liability disputes under the Texas option.

Option opponents love to allege these programs only save money by failing to fully compensate injured workers. But, if this were true, why do we see fewer disputes in option programs?

Option program savings are achieved through more employee accountability for injury reporting, earlier diagnosis, persistent medical care from the best providers and more efficient resolution of fewer disputes. Option programs help ensure that employers and injured workers are communicating, engaged at the table (with or without legal counsel) and working together for better medical outcomes and return-to-work. This model must be contrasted with employers and injured workers routinely fighting through the complexity contained in thousands of pages of workers’ compensation statutes, regulations and case law that necessitate attorney involvement for basic system navigation.

A large cadre of workers’ compensation claimants and lawyers can be found in the hallways and hearing rooms of the Oklahoma and other state workers’ compensation commissions and courts on any given day. But there have been few day-to-day Oklahoma option benefit challenges. Oklahoma option programs now cover more than 22,000 workers, and almost every claim that has arisen over the past year has been fairly and efficiently resolved through the injury benefit plan’s claim procedures — essentially the same claim procedures that have applied to private employer group health and retirement plans across the U.S. for more than 40 years.

Over the span of 26 years in Texas and the past year in Oklahoma, not one state or federal employee has ever been hired to specialize in the oversight or administration of the approximately 50,000 option injury program claims that are successfully resolved every year. In contrast, tens of millions in taxpayer dollars are spent in many states every year to oversee and administer day-to-day workers’ compensation claims.

As further testimony to employee appreciation for the full disclosure of their rights and responsibilities under option injury benefit plans and the customer service they receive, not a single workforce in the past 26 years has organized a union as a result of the employer electing an option to workers’ compensation in Texas or Oklahoma. For workforces that are already unionized, their members and leadership appreciate the fact that option programs routinely pay a higher percentage of disability benefits, with no waiting period and no (or a higher) weekly dollar maximum.

Plus, disability benefits are paid on the employer’s normal payroll system, which allows employers and injured workers to seamlessly continue deductions for group health, retirement, child support and union dues. Successful Texas option programs have been in place for many, many years that cover textile, communications, food and commercial workers, teamsters and other collective bargaining units.

Conclusion

With liability exposures clarified and injured workers clearly more satisfied and getting better, faster under option programs in Texas and Oklahoma, legislators and employers in other states no longer need to “wait and see.” Single-digit annual cost savings can still be achieved through traditional workers’ compensation reforms, but option-qualified employers are seeing strong, double-digit cost reductions. Option programs support tremendous productivity, reinvestment and economic development gains for injured workers, employers and communities.

So, in spite of rhetoric from trial lawyers trying to survive and from their allies in the workers’ compensation insurance industry who fear free-market competition, there is no reason why workers’ compensation option legislation and program implementation should not be pursued by state legislators and employers as fast as their other priorities permit.

14 Things to Know About ACA Software

If you are a large employer or employee benefit broker, chances are you have spent a lot of time trying to determine the best ACA 6056 reporting and compliance solution. At ACA Reporting Service, we do not sell software – rather, full-service reporting. However, we have researched almost a dozen different Affordable Care Act employer reporting and compliance vendors, and we thought we would pass along what we learned.

Beginning Questions to Ask Yourself

As an employer or benefit broker, this is how the ACA software question breaks down for you.

1). Some employers will have their online enrollment (benefits administration) and payroll with the same vendor. In those cases, as long as the client is willing to pay for it, it will likely to make sense to just perform this required ACA reporting of IRS forms 1094 and 1095 with that vendor.

2). Some employers will not have an outside benefits administration vendor or payroll. They do everything in-house. For these employers, there is going to be a lot of ACA work to be done, and obviously you will need a stand-alone solution.

3). Finally, you have some employers that have payroll and benefits administration with different vendors. This would include the scenario where one of these functions is performed in-house. In these cases, you will either need to consolidate both payroll and benefit plan elections with one vendor, or you will need a stand-alone solution.

Basic conclusion: If you are an employee benefit broker with various types of employer clients, we don’t see a scenario where you can get away without having a stand-alone ACA software solution to help your clients meet their 6056 Affordable Care Act employer reporting requirements.

What do you need to know in evaluating ACA stand-alone software vendors? Here are some questions to ask yourself:

1). Security? What if all the Social Security numbers of your client’s employees were stolen? Can you imagine the fallout? Many of the systems we reviewed were severely lacking in terms of security. What level of encryption is being used for the data?

2). Branded to your company? Many different ACA reporting vendors offer the ability to brand a portal to your company and let your employer clients log in.

3). Is the system mainly a benefits administration system? This can make an extreme difference. Will this add costs for the ACA reporting module? Also, with many benefits administration systems, there are additional charges for EDI (electronic data interface – where election data is sent to insurance carriers). Will additional fees apply with this new ACA reporting?

4). Is the ACA reporting solution even built yet? Many, MANY of the ACA reporting module demos we sat in on were from vendors that do not even have the software built yet.

5). How long will your data be stored? The IRS has said that audits will begin starting in about 18 months of filings, and that can last for 7 years total. If you do not have a methodology to get back to your data at the time of inquiry, you are stuck.

6). Is your vendor set up to file with the IRS? Did they just lie to you and say yes to that question? As of the writing of this blog, no one is set up to file with the IRS electronically (efile) for forms 1094 and 1095. The IRS has literally just issued the guidelines to begin getting started with this.

7). Variable hour tracking? Do you need variable hour tracking to determine eligibility? For many employers, a simple spreadsheet will do the trick. Many vendors have quite robust capabilities in this area, and for some employers this will definitely make sense.

8). The “Gotcha Moment.” This comes at the end of a great presentation when you’re told there is an additional charge of $3 to $5 per employee to file the forms with the IRS. Generally, these costs will render noncompetitive whatever solution you were just shown.

9). Robust ACA logic? We cannot tell you how important this is! If you have spent as much time looking at these forms as we have (especially in terms of form 1095c lines 14, 15 and 16), you will know that performing this reporting is MUCH MORE than just uploading a spreadsheet. The codes for these lines are based on logic. Most systems do not have this logic built into their system, so it will be up to you as an employer or benefit broker to figure this out. For most employee benefit agencies, you can count on this little “bug” shutting down your operations in January.

What if you decide to just file them incorrectly? When your largest client has 100 employees bring them letters from the IRS, you will then realize this was a very bad idea.

Also, without robust logic built into the system, there will be no accommodation for situations such as someone terminating in November/December and then electing COBRA in January. The codes for these situations are different.

10). Are forms stored for future access and corrections? Bottom line – there are going to be issues with the reporting from time to time. Do you have the ability to go back into the system and create a new/corrected 1094 or 1095 form on behalf of the employee? Many systems that rely solely on a census upload would require you to basically start over to make this one fix. OR, your staff can just manually create one in .pdf, which will take a lot of time.

11). Do you have to pay for the whole system up front, or are there monthly options? Do you need to commit to multiple years with the software vendor? Do you have to pay continually for the solution or only once? Are there implementation costs? Are there separate fees for the IRS form file reporting and all other functions in the system?

12). Can the employee elections be uploaded via census, or do you need to type it all in?

13). Will the vendor have adequate customer support between Jan. 1 and Jan. 31 so that you can KNOW you will be able to get all the work done?

14). Do you want to just let the payroll vendor do the work for your client? Do you really want to recommend that your client have another function performed by someone who wants nothing more than to take your business away from you?

. . . OK, that is enough! We hope you find this helpful.

So What Is the Actuarial Value Of My Health Benefit Plan?

Introduction
Now that health care reform is gradually rolling out into the market, the concept of the “actuarial value” of a specific set of benefits is increasingly important. The Patient Protection and Affordable Care Act of 2010 defines four metallic categories of benefit plans ranging from Bronze to Platinum. The actuarial value of these categories range from 60% for Bronze increasing by 10% for Silver, Gold and capping out at Platinum at 90%. The benefit plans offered through the public exchanges will be required to offer benefit plans that are valued within ±2% of each of the metallic levels. This limitation is critical to benefit plan sponsors as they evaluate their current benefit plans.

Actuarial Value Defined
The actuarial value of a specific health plan is the ratio of net value of the actual benefits to the value of these same benefits without copays, deductibles, limits, and/or coinsurance or other items paid for by the individual covered under that plan. For example, in the case of a plan with an actuarial value of 70% (i.e., the Silver plan), this suggests that 30% of the cost is the responsibility of the individual and 70% is paid for by the health plan or carrier involved. Similarly a Gold plan (i.e., 80%) would cover 80% of the cost with the individual responsible for 20%.

As long as the plan has an actuarial value within 2% of the metallic target it would qualify for that metallic level. For example, a plan with an actuarial value in the range of 68% to 72% would qualify as a Silver Plan. A plan with a value outside of the 2% range would not quality as a specific metallic plan and could not be offered. As a result, it is critical to be sure you know the actuarial value of your plan and what metallic plan it qualifies for.

Actuarial Cost Model
The primary tool used to derive the actuarial value of a specific set of benefits is the actuarial cost model. This is a tool used by actuaries which presents detailed utilization, unit cost information, Per Member Per Month cost information, value of copays/ deductibles/ coinsurance, etc. The actuarial cost model typically includes assumptions for each of the major service types which could include as many as 50 or 60 categories of service. The standard definition used by our company includes the following categories:

Hospital Inpatient
  Medical Stays
Surgical Stays
Pediatric Stays
ICU/CCU
Neonatal ICU
Behavioral Health – Mental Health
Behavior Health – Substance Abuse Detox.
Behavioral Health – Rehabilitation
Maternity – Mother (Vaginal)
Maternity – Mother (C-Section)
Maternity – Well Newborn
Maternity – Other than delivery
Out-Of-Area
Skilled Nursing
Total – includes mat and snf
Hospital Outpatient
  Emergency Room
Outpatient Lab & Path Facility
Outpatient Surgery – Hospital Based
Outpatient Surgery – Free standing
Outpatient Surgery – Other
Home Health
Partial Day – Rapid Treatment Unit
Partial Day – < 24 Hour Observation Bed
Partial Day – Behavioral Health – Mental Health
Partial Day – Behavioral Health – Substance Abuse
Other Outpatient (PMPM)
Out-Of-Area (pmpm)
 
Radiology & Chemotherapy (Non-IP)
  CT/MRI/Nucl/Angio – Professional
CT/MRI/Nucl/Angio – Technical
Mammography
Radiation Therapy
Other Radiology – Professional
Other Radiology – Technical
Chemotherapy Services – Facility
Chemotherapy Services – Other
Out-Of-Area (pmpm)
Total
Physician Services – Primary Care
  Primary Care Surgery
IP Visits – Primary Care
Office Visits – Primary Care
Emergency Room Visits – Primary Care
Lab & Path – Primary Care Office
Consults – Primary Care
Immunization & Injection – Admin
Preventive Services
Cardiology – Primary Care
Pulmonology – Primary Care
Allergy – Primary Care
Behavior Health – Primary Care
Primary Care Management Fee
Total
Physician Services – Specialist
  Inpatient Surgery
Outpatient Facility Surgery
Office Surgery
Anesthesia Services
Inpatient Visits – Specialist
Inpatient Visits – Behavioral Health (Psych/Sub Abuse)
Inpatient Visits – Newborn
Office Visits – Specialist
ER Physician Visits
Radiology – Inpatient Professional
Lab & Path – Specialist Office
Lab & Path – Inpatient Professional
Lab & Path – Outpatient Professional
Consults – Specialist
Immunization & Injections – Serum
Physical Therapy
Speech Therapy
Occupational Therapy
Obstetrics – Delivery (Vaginal)
Obstetrics – Delivery (C-Section)
Obstetrics – Other
Well Woman Exams
Cardiology – Specialist Services
Pulmonology – Specialist Services
Allergy – Specialist Services
Neurology
Dialysis
Outpatient Behavioral Health – Specialist Services
Other Medicine
Out-Of-Area (pmpm)
Total
Prescription Drugs
  Generic
Formulary – Brand Name
Non-Formulary – Brand Name
Mail Order Drugs
Total
Other Services
  Ambulance
Appliances & Prosthetics
Chiropractic Services
Podiatry Services
Vision Services – Exam
Visions Services – lenses, frames, etc.
Total

Categories are often modified based upon the needs of the actual situation. However, for each of the specific categories of service, the critical assumptions are presented. These assumptions are for a specific population, managed in a specific way, with specific demographics, assumed charge levels, assumed health status, and assumed benefits.

An example of a specific set of utilization and cost assumptions is shown in the following table:

Illustrative Cost Model For Hospital Patient Services

Hospital Inpatient Annual Admits Per 1000 Length Of Stay Annual Bed-Days Per 1000 Average Cost Per Day N/A Average Cost Per Stay PMPM Claim Cost
  Medical Stays 21.20 3.90 82.68 $4,522.82 N/A $17,639.01 $31.16
Surgical Stays 14.50 4.45 64.53 $8,308.59 N/A $36,973.24 $44.68
Pediatric Stays 7.50 4.20 31.50 $5,628.40 N/A $23,639.29 $14.77
ICU/CCU 4.50 4.30 19.35 $9,045.65 N/A $38,896.28 $14.59
Neonatal ICU 2.20 5.50 12.10 $4,116.77 N/A $22,642.26 $4.15
Behavioral Health – Mental Health 2.50 6.50 16.25 $3,483.58 N/A $22,643.26 $4.72
Behavioral Health – Substance Abuse Detoxification 1.10 5.40 5.94 $1,809.13 N/A $9,769.30 $0.90
Behavioral Health – Rehabilitation 0.30 10.50 3.15 $1,340.10 N/A $14,071.00 $0.35
Maternity – Mother (Vaginal) 11.60 2.35 27.26 $5,156.02 N/A $12,116.64 $11.71
Maternity – Mother (C-Section) 3.90 3.95 15.41 $6,030.43 N/A $23,820.20 $7.74
Maternity – Well Newborn 15.50 2.20 34.10 $1,356.85 N/A $2,985.06 $3.86
Maternity – Other than delivery 0.91 2.10 1.91 $6,017.03 N/A $12,635.76 $0.96
Out-Of-Area 4.30 3.50 15.07 $7,236.52 N/A $25,327.81 $9.08
Skilled Nursing 1.80 11.45 20.61 $1,742.12 N/A $19,947.32 $2.99
Total – includes mat and snf 91.81 3.81 349.85 $5,202.06 N/A $19.821.75 $151.66

The utilization is shown on a “Per 1,000” basis and the claims cost is shown on a PMPM basis. PMPM stands for per member per month. The total shown above for Hospital Inpatient suggests that the overall inpatient hospital cost per covered life would be $151.66 per month prior to any offsets for deductibles, copays, coinsurance, provider discounts, medical management, demographic adjustments, etc. Similar assumptions are available for the rest of the categories previously shown. This information was developed for a typical commercially insured under age 65 population.

Developing Actuarial Values
Once the benefit design is determined, the information from the actuarial cost model is adjusted for variation in benefit design with the overall value of the benefits determined. The ratio of the value of the benefits to the overall value of covered services is the actuarial value of the benefit plan.

This is a fairly complex process. The government has developed their version of this process and has published a Federal AV Calculator. The final version of this was released on February 20, 2013. Most consulting firms have developed their own calculator to help their clients understand the process prior to the release of the Federal AV Calculator. Since the final calculator was released, there continues to be some serious concern by health actuaries as to the reasonableness of the federal calculator. We continue to use our own AV Calculator in addition to the Federal AV Calculator to better help our clients understand what variations in benefits lead to various AV values. This is a dynamic process with varying opinions depending upon the various plan designs and resulting AVs.

The following chart shows an illustrative result using our firm's AV calculator. This was prepared for a specific plan design in a specific geographic region. It is illustrative only to show the various components of cost variation.

View Chart

The above table shows each of the key variables affecting the actuarial value. Each is important to appropriately incorporate into the calculation. The starting Claim Cost in the first column is determined from the actuarial cost model previously discussed and will be adjusted for:

  • Geographic region
  • Health status
  • Smoking/non-smoking
  • Medical management
  • Utilization and cost inflation trend
  • Demographics

The first adjustment reflects the overall nature of the health benefit plan. A richer plan is associated with higher utilization, a lesser benefit plan is associated with lower utilization. The copay/deductible adjustment either raises or lowers the starting claims cost. The next step eliminates any costs that are excluded from the eligible expenses.

This particular example excluded brand drugs.

The next step evaluates the value of various copays (i.e., office visit copays, pharmacy copays, etc.). These are deleted from the value of the benefit costs since they are paid by the individual. Next coinsurance and deductible values are deducted. This example was developed for a $1,750 deductible 80% coinsurance plan. The last two adjustments are for the value of a family deductible limit and the out-of-pocket limit yielding the final cost. In this situation the final cost was $218.30. This was compared to the net value of benefits after excluded benefits (i.e., $309.85) with a ratio of 70.45% or a “silver” plan per our model.

Assuming this was consistent with the “authorized AV calculator” this plan could become a qualified plan under the Patient Protection and Affordable Care Act.

Complications
As you can see there are many different steps in the process to determine the actuarial value of a benefit plan. There are even more assumptions that have to be made to obtain these estimates of value. Armed with this information the plan sponsor can make informed decisions as to what benefit plan is appropriate and what they want to offer, if any.

These calculations are frequently based upon considerable amounts of professional judgment. Not all actuaries think alike so there oftentimes can be professional differences of opinion. It is critical that the plan sponsor obtain professional input they can trust and rely upon.

The American Academy of Actuaries is the primary organization granting credentials that are relied upon in the industry. One approach to obtaining relevant and reliable input is to insist that your advisor is a qualified health actuary with credentials from the Academy. In most situations, this individual would have both an FSA and MAAA credential and be a recognized member of the Society of Actuaries Health Section. Others are qualified to provide this type of input but valid actuarial credentials provide increased assurance that good input is being offered.