Tag Archives: connecticut

EEOC Caves on Wellness Programs

In a deep dark recess of the Federal Register this week, large corporations quietly received permission to “play doctor” with their employees. Corporations can now impose even more draconian and counterproductive wellness schemes on their workers. The hope of the corporations is to claw back a big chunk of the insurance premiums paid on the behalf of employees who refuse to submit to these programs or who can’t lose weight.

A Bit of Background on Wellness

The Affordable Care Act (ACA) allowed employers to force employees to submit to wellness programs under threat of fines. Specifically, the ACA’s “Safeway Amendment” — named after the supermarket chain whose wellness program was highlighted as a shining example of how corporations could help employees become healthier — encouraged corporations to tie 30% to 50% of the total health insurance premium to employee health behaviors and outcomes. (As was revealed while ACA was being debated, Safeway didn’t have a wellness program. The fictional Safeway success was a smokescreen for corporate lobbyists to shoehorn this withholding of money into the ACA.)

Once this 30% to 50% windfall became apparent, many corporations figured out what this vendor (Bravo Wellness) advertised: There is much more money to be made in clawing back large sums of money from employees who refuse to submit to these programs than in improving the health of employees enough to allegedly reduce spending many years from now. “Allegedly” because — unlike simply collecting fines or withholding incentive payments — improving employee health turns out to be remarkably hard and ridiculously expensive to do. It is so hard and expensive that:

Most importantly, the complete lack of regulation has allowed the wellness industry and health plans to expose employees to significant potential harms to maximize revenue.

See also: Wellness Promoters Agree: It Doesn’t Work

The Federal Government Green Lights “Wellness-or-Else” Programs

There are no regulations, licensure requirements or oversight boards constraining the conduct of wellness vendors, and there is only one agency — the Equal Employment Opportunity Commission (EEOC) — providing any recourse for employees. The Business Roundtable has taken on the latter at every opportunity. First, the Business Roundtable threatened President Obama with withdrawing its support for the ACA unless he declawed the EEOC. Then, the Business Roundtable arranged for sham Senate hearings titled “Employer Wellness Programs: Better Health Outcomes and Lower Costs.” Finally, it threatened to push the “Preserving Employee Wellness Programs Act” to legislatively eviscerate the EEOC’s protections.

But it turns out the legislation was not necessary; the EEOC has now caved in. These programs are defined as “voluntary,” yet, as of now, employees can be forced to hand over genetic and family history information or pay penalties. So, as in 1984, where “war” means “peace,” employees can now be required to voluntarily hand over this information.

Let’s be clear. Genetic information isn’t about employee wellness programs, which do not work. It is all about the penalties. Genetic information is worthless in the prevention of heart disease and diabetes, as Aetna just showed in a failed experiment on its own employees.

Knowing family history does have some predictive value, but it is unclear how employees are going to benefit from employers collecting it. Self-insured employers could either fire the employee or do nothing. Neither is useful for the employee. If the employer is fully insured, this information is akin to a “pre-existing condition” in the old days. The employer’s premiums will increase as long as employees with bad family histories remain on their payroll.

See also: The Yuuuuge Hidden Costs of Wellness

The Good News, Part 1: Corporations Wising Up

The Business Roundtable — and its friends at the U.S. Chamber of Commerce — might want to connect their computers to the Internet. It turns out that many companies are finally realizing that compelling employees to submit to medical screens just to claw back some insurance money isn’t worth the morale hit.

Increasingly, employers are learning that what the national data shows is also true for themselves: These programs simply do not work. For example:

And the morale hit? A formerly obscure faculty member who led the successful employee revolt against the Penn State wellness program was just elected president of the Penn State Faculty Senate — largely because employees were so grateful for his leadership in that revolt.

The Good News, Part 2: Wellness for Employees

As a result, many companies are deciding that clawing back some insurance money is not worth the damage done to their workforces. They are replacing “wellness done to employees” with “wellness done for employees.” These companies are improving the work environment, upgrading their food service, encouraging fitness or simply adding features like paternal leave or financial counseling. They might still hold a “health fair” every now and then, but their medical tests are conducted infrequently (based on actual clinical guidelines) instead of allowing vendors to screen the stuffing out of employees to find diseases that do not exist.

Or, companies are actually focusing efforts where they can make a difference, such as steering employees to safer hospitals or educating employees on how to purchase healthcare services wisely. (Disclosure: My own company, Quizzify, is in the business of teaching employees how to do the latter.)

Notwithstanding this disruption and regardless of the harm it has caused, the $7 billion wellness industry has excelled in perpetuating its own existence. Industry thought leaders recently proposed a scheme to encourage companies to disclose how fat their employees are and have even managed to get a few large employers to sign on to it.

The sheer audacity of that scheme and the complete disregard for its consequences on overweight employees means the war on “voluntary” wellness-or-else programs is by no means over. Like every other industry threatened by reality but supported by deep-pocketed allies such as the Business Roundtable, the wellness industry can rely on the government to delay the inevitable.

Consequently, it might be quite some time before the inevitable course of reality overcomes the wellness-or-else pox on the healthcare system.

Oregon Study Shows Which States Are Next

The biennial study on workers’ compensation premium rates issued by the Oregon Department of Consumer and Business Services (DCBS) was released last week, and, as always, is worthy of a review by those of us entrenched within the industry. The study ranks all 50 states and Washington, D.C., based on rates that were in effect Jan. 1, 2014. This year’s results show that major reforms don’t always gain the results that were intended or marketed to the industry; and while the results may not accurately reflect legislative intentions of the past, the report may be a better predictor of major reforms to come.

The study shows that, despite extensive reforms designed to lower costs, California now has the most expensive rates in the nation, followed by Connecticut. North Dakota had the least expensive rates. In the Northwest, Idaho’s rates were the 14th most expensive, followed by Washington. Oregon researchers also compared each state’s rates to the national median (midpoint) rate of $1.85 per $100 of payroll — California, for instance, was almost twice the median

According to Mike Manley, one of the co-authors of the survey, “We continue to see a trend in the distribution of state index rates in our study clustering in the middle of the distribution. A record 21 states are within plus or minus 10% of the 2014 study median. This makes the rank values more volatile from one study to the next. I would recommend that states look also to their ‘Percent of study median’ figure for comparisons over time.”

Because states have various mixes of industries, the study calculates rates for each state using a standard mix of the 50 industries with the highest workers’ compensation claims costs in Oregon. Details about how the study was conducted can be found here. A summary of the study was posted Wednesday, Oct. 8; the full report will be published later this year.

The summary report, available here, provides the complete ranking of the states premium rates. I have taken that data and added a comparative column that shows at a glance how far up or down the scale a state has moved since the last report in 2012. The table presents an interesting view, particularly juxtaposed with the knowledge of what states have undergone significant reforms in the past few years.

table1bob

We can see that there were major drops in premium rank for both Kentucky and Wisconsin. Kentucky moved from 22nd-highest in the nation to 40th, improving by 18 positions. Wisconsin moved down 11 spots, from 12th-highest to 23rd. While Wisconsin did enact some changes in 2012, neither state is considered to have been a major reform state over the last few years.

For a couple of those states undergoing dramatic reforms, Oklahoma and Tennessee, it is too early to tell the effect, as they are just implementing changes this year. Others, however, including California and Kansas, saw premium costs as a comparative rise despite reforms intended to do otherwise. Illinois, another reform state, did see some positive movement, but it is probably not statistically significant given the weight of the costs and issues in that state.

I would postulate based on this report that people in New Mexico, Hawaii, Missouri and Delaware may be thinking of what changes should be in order, because they had dramatic negative movement on the scale this year. Even if past reforms overall are not creating significant improvement in these numbers, I am pretty sure they will be a better predictor of what states may be facing reform in the future.

Oregon has conducted these studies in even-numbered years since 1986, when Oregon’s rates were among the highest in the nation. The department reports the results to the Oregon legislature as a performance measure. Oregon’s relatively low rate today reflects the state’s workers’ compensation system reforms and its improvements in workplace safety and health.

Here are some key links for the study/workers’ compensation costs:
• To read a summary of the study, go here.
• Prior years’ summaries and full reports with details of study methods can be found here.
• Information on workers’ compensation costs in Oregon, including a map with these state rate rankings, is here.

Same-Sex Marriage: An Update on Handling Claims

The pace of legislative and judicial activity surrounding same-sex marriage has quickened.

Currently, 17 states plus the District of Columbia allow same-sex couples to marry. Several states have expanded the legal rights available to spouses in same-sex relationships through civil unions and domestic partnerships. On June 26, 2013 the U.S. Supreme Court ruled in  Windsor v. United States, No. 12-307 that section 3 of the federal Defense of Marriage Act (DOMA), which defines marriage, is unconstitutional. Since this decision, several state attorneys general have announced that they will no longer defend their state’s same-sex marriage bans.

Here is an update on the issue of same-sex marriage and claims handling considerations:

Same-Sex Marriage Overview

In the states that recognize these unions, the legal status of same-sex marriages is identical to opposite-sex marriages.

The first states that allowed same-sex marriage did so as a result of court decisions—Massachusetts in 2004, Connecticut in 2008 and Iowa in 2009. However, most states and the District of Columbia provided for same-sex marriage through legislation. Below is a summary of changes in the states over the past two years on this fast-moving issue:

2012

Washington

Legislation establishing same-sex marriage was approved February 2012, but opponents gathered enough signatures to put the issue on the November 2012 ballot. Voters upheld the law, and same-sex marriages began on Dec. 6, 2012.

Maryland

Gov. Martin O’Malley signed same-sex marriage legislation into law on March 1, 2012. However, opponents of the legislation obtained enough signatures to file a referendum challenging the law during the November 2012 election. The law was upheld by the voters and became effective on Jan. 1, 2013.

Maine

During the November 2012 election, voters approved a ballot measure legalizing same-sex marriage. The measure became effective Dec. 29, 2012.

New Jersey

The legislature passed a same-sex marriage bill in February 2012, but the measure was vetoed by Gov. Chris Christie. A legal challenge was raised to the state’s law that only provided civil unions for same-sex couples, and a lower court ruled that the state had to allow same-sex couples to marry beginning Oct. 21, 2013. After the New Jersey Supreme Court denied an appeal for delay, Gov. Christie announced that the state would drop its appeal, making same-sex marriage legal in New Jersey.

2013

Rhode Island

Gov. Lincoln Chafee signed legislation that legalized same-sex marriage, eliminated the availability of civil union and recognized civil unions and same sex marriage from other states on May 2, 2013. This bill became effective Aug. 1, 2013.

Delaware

Gov. Jack Markell signed into law on May 7, 2013, same-sex marriage legislation that also recognized civil unions and same-sex marriage from other jurisdictions. The law became effective July 1, 2013.

Minnesota

Following the defeat of a constitutional prohibition of same-sex marriage during the November 2012 election, the legislation passed a bill allowing same-sex marriage May 2013. The law went into effect on Aug. 1, 2013.

California

On June 26, 2013, the U.S. Supreme Court declined to decide the California challenge to Proposition 8, concluding that it had no authority to consider the question in the case. The effect of that decision was to reinstate the federal district court decision overturning Proposition 8, thus allowing same-sex marriage in California.

Hawaii

During a special session held in October and November 2013, same-sex marriage was passed after both houses agreed to the addition of an amendment that strengthened the exemption of religious organization from being required to provide facilities, goods or services for the marriage or celebration of the marriage if it violates their religious beliefs. Gov. Neil Abercrombie signed the bill on Nov. 13, 2013, and it became effective on Dec. 2, 2013.

Illinois

Gov. Pat Quinn signed Senate Bill 10 into law on Nov. 20, 2013, and same-sex marriages will be available beginning June 1, 2014. A ruling by a U.S. district judge allowed residents of Cook County, Ill., to begin marrying on Feb. 21, 2014.

New Mexico

The New Mexico Supreme Court ruled on Dec. 19, 2013, that same-sex couples are allowed to marry. The ruling went into effect immediately.

Of the 33 states that still prohibit same-sex marriage, 29 have done so through constitutional provisions. Efforts to overturn state constitutional prohibitions have been initiated in the federal courts and have moved, or are about to move, into four federal appellate courts.

  • The Virginia case, Bostic v. Rainey, is expected to be appealed to the U.S. Court of Appeals for the 4th Circuit in Richmond, Va.
  • The Oklahoma case, Bishop v. U.S., 04-cv-848, U.S. District Court, Northern District of Oklahoma (Tulsa) is to be heard before the U.S. Court of Appeals for the 10th Circuit in Denver, Colo., along with the Utah case, Kitchen v. Herbert, 13-cv-00217, U.S. District Court, District of Utah (Salt Lake City). Oral arguments are scheduled to be heard separately for these two cases in April 2014.
  • The Nevada case, Sevcik v. Sandoval, 12-17668, will be heard before the U.S. Court of Appeals for the 9th Circuit in San Francisco, Ca.

In all four cases, the rulings are stayed pending appeal, meaning marriages cannot occur at this time. It is anticipated that the U.S. Supreme Court will be again asked to review this issue in 2015 or soon thereafter. Meanwhile, more action through legislation and ballot initiatives is expected to occur this year.

Civil Unions

A civil union is a category of law created to extend rights to same-sex couples. These rights are recognized only in the state where the couple resides, and no federal protection is included.

In 2013, the Colorado legislature passed a bill to establish civil unions for same-sex couples. The bill also provides recognition of civil unions from other jurisdictions. Gov. John Hickenlooper signed  SB 11 into law on March 21, 2013, and it became effective on May 1, 2013.

Delaware and Rhode Island replaced their civil union provisions with same-sex marriage, as previously occurred in Connecticut, New Hampshire and Vermont.

In Hawaii, civil unions remain available to same-sex and opposite-sex couples alike. The status of civil unions in Illinois and New Jersey are not yet clear with the legalization of same-sex marriage.

Domestic Partnerships

Domestic partnership is a civil contract between same-sex or opposite-sex, unmarried, adult partners who meet statutory requirements. Laws vary among states, cities and counties for domestic partnerships. Several states register these partnerships.

Washington has recently announced that registered domestic partnerships for same-sex partners will be converted to marriages on June 30, 2014, if marriage has not occurred or the partnership has not been dissolved by that time. The conversion will not apply to the domestic partnerships of heterosexual couples.

Reciprocal Beneficiaries

A reciprocal beneficiary agreement is a consensual and signed declaration of relationship for two adults unable to marry each other. Reciprocal beneficiary laws in Colorado, Hawaii and Maryland allow some benefits of marriage such as workers’ compensation survivor and health-related benefits.

Claim-Handling Considerations and Suggestions

The definitions of “spouse,” “dependent” and “marriage” are changing, and these changes affect the handling of casualty claims as we determine who is an eligible dependent or has legal standing to file certain causes of action. It is important that we are mindful of the state laws and any case law in the particular jurisdiction relating to same-sex unions.

Some state insurance departments have issued bulletins regarding their compliance expectations. For example, the Minnesota Departments of Commerce and Health issued  Administrative Bulletin # 2013-3 to advise property and casualty insurers that any policy issued in Minnesota on or after Aug. 1, 2013, providing dependent coverage for spouses must make that coverage available on the same terms and conditions regardless of the sex of the spouse. The bulletin reminds insurers that defining a spouse in a way that limits coverage to an opposite-sex spouse would be discriminatory and unfair and a violation of Minnesota Statutes section 72A.20, subdivision 16.

When evaluating the eligibility of dependents, one area of uncertainty involves same-sex couples that have a valid marriage but move to a state that does not recognize their marriage. The U.S. Supreme Court decision in Windsor did not address Section 2 of DOMA, which does not require states to give effect to same-sex marriages performed under the laws of other states. In the past, most federal laws looked to the state of residence at the time benefits are sought, rather than where the marriage occurred.

In response to the U.S. Supreme Court DOMA decision, the U.S. Department of Labor published  Technical Release  2013-4 on Sept. 18, 2013. This release indicates that the rule of recognition to be applied is based on the state where the marriage was celebrated, regardless of the married couple’s state of domicile. Guidance is also provided on the meaning of “spouse” and “marriage,” as these terms appear in the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), and the Internal Revenue Code that the department interprets.

This release likely also applies to the following four major disability programs administered by the Department of Labor's Office of Workers’ Compensation Programs (OWCP):

  • Longshore and Harbor Workers' Compensation Program and its extensions, including the Defense Base Act
  • Energy Employees Occupational Illness Compensation Program
  • Black Lung Benefits Program
  • Federal Employees' Compensation Program

Additional recommendations include:

  1. Ascertain whom the employer shows as the spouse.
  2. In addition to determining marriage or civil union, domestic-partnership registration should be confirmed.
  3. If interviewing a claimant in a jurisdiction that recognizes same-sex unions, in addition to “spouse” add the terms “domestic partner or designated beneficiary” to the questions.
  4. It might be necessary to find out when and in what state the marriage occurred.
  5. Any questions or concerns should be discussed with your supervisor, team leader, manager or defense attorney.

Sometimes, our duties as claims examiners are affected by laws seemingly unrelated to insurance. It is important that we consider the impact of headlines and changes in the law on our handling of workers’ compensation claims.

How Data Breaches Affect More Than Cyberliability

You’ve probably seen the recent headlines about the Target retail chain being hacked, resulting in approximately 40 million customer credit and debit card numbers being stolen by hackers. It would be easy to write another article about the importance of cyberliability insurance, but we’d like to go a step further. While it is true that a breach of this magnitude will be incredibly expensive and could strain the total limit capacity available in the cyber insurance marketplace, other insurance products that could possibly be triggered shouldn’t be ignored.

On October 13, 2011, the Securities and Exchange Commission’s (SEC) Division of Corporate Finance published the Cybersecurity Disclosure Guidance. Among other recommendations, the guide contained the SEC’s views on the type and extent of cyberliability risks and exposures that public companies should consider disclosing to investors. The guidance was issued to help investors understand the nature of a company’s cybersecurity risks. In quarterly and annual filings with the SEC, companies disclose risk factors that can have a material impact on their operations. When investors sue a corporation for actions that have harmed the company, and in turn their investments, that is a claim typically addressed by a Directors and Officers (D&O) Liability policy. In certain instances, they also might be covered by a dedicated cyber insurance policy or a Side-A excess policy (or both), to the extent the company has purchased such products, which are separate and distinct from a D&O form.

Like other public companies, Target has sought to abide by the SEC’s cybersecurity disclosure recommendations, most recently including cyber risk as one of 17 risk factors in the MD&A section of its February 2013 10-K:

If our efforts to protect the security of personal information about our guests and team members are unsuccessful, we could be subject to costly government enforcement actions and private litigation and our reputation could suffer.

The nature of our business involves the receipt and storage of personal information about our guests and team members. We have a program in place to detect and respond to data security incidents. To date, all incidents we have experienced have been insignificant. If we experience a significant data security breach or fail to detect and appropriately respond to a significant data security breach, we could be exposed to government enforcement actions and private litigation. In addition, our guests could lose confidence in our ability to protect their personal information, which could cause them to discontinue usage of REDcards, decline to use our pharmacy services, or stop shopping with us altogether. The loss of confidence from a significant data security breach involving team members could hurt our reputation, cause team member recruiting and retention challenges, increase our labor costs and affect how we operate our business.

State attorneys general have already initiated demands for information and protection for state residents. The Connecticut attorney general is asking for two years of credit monitoring and identity theft protection for state residents, along with more details on the breach and security protocols. Not surprisingly, there have been threats of consumer class actions against Target. It will also be interesting to see if shareholders, or more importantly the plaintiffs bar, think that the disclosure of the risk was adequate. Given the size of the breach, it would not be surprising to see any number of such suits filed against Target.

In the meantime, certain banks are advising consumers that the consumer will not be held responsible for fraudulent charges on their credit cards.

If we look back at the 2007 breach at TJ Maxx (TJX), which affected more than 90 million credit cards, we could gain insight into how MasterCard and Visa might respond to the Target breach. They sued TJX and collectively recovered over $60 million. Other banks, such as Fifth Third Bancorp, Amerifirst Bank, Eagle Bank and SaugusBank, also made claims against TJX. Media reports indicate that TJX paid in excess of $250 million to resolve the myriad claims against it as a result of the 2007 breach. We would expect that number includes crisis management expenses, such the costs of forensic analyses, public relations expenses, notification expenses and other remedial costs. It also likely accounts for regulatory fines and penalties from the government, PCI fines paid to credit card companies, damages paid to both credit card companies and banks, cash and merchandise vouchers for harmed customers, and probably even credit monitoring. It would be challenging to quantify the lost revenue from jilted customers who chose to shop elsewhere following the breach, but we suspect it was meaningful.

Impact on Investors

A key question is, can investors still sue if the stock doesn’t have a precipitous drop? The answer is probably yes. Typical allegations in a securities claim allege that: 1) the management misled investors; 2) the truth came out; 3) the stock dropped as a result; and 4) the investors suffered financial loss. The damage valuation might be determined by comparing the price of the stock prior to the date the “truth” came out and the price after it had been disclosed. That’s an oversimplification of a securities claim, but still reflects the typical pattern.  For something like the Target breach, shareholders could argue that Target failed to fully disclose the potential cyber-related problems, lost business opportunities which kept the stock from rising and therefore caused the loss of future gains, mismanaged and failed to properly oversee its cybersecurity protection program, and other assorted alleged improprieties.

Other Claims

Apart from securities-related disclosure lawsuits, a company like Target also will likely be subject to consumer class actions and regulatory actions. Such lawsuits could lead to sizeable settlements, which could have an impact on the stock price and raise investor concerns. Target’s earnings similarly could be impacted by the costs of breach remediation and associated expenses. It also stands to lose significant opportunity costs, to the extent its management and staff becomes distracted by the post-breach activities. Whatever surfaces will require a lot of money spent in legal and forensic bills.

It is well-known that litigation naming a company’s directors and officers can arise from a variety of alleged misdeeds. Like other entrepreneurs, the plaintiffs are always exploring new legal theories to establish liability and recover damages in order to collect higher fees. When that happens, you can bet those defendants will quickly be looking to their D&O policy for assistance. For every cyberliability underwriter expressing relief that they aren’t insuring Target for this breach, there are likely two D&O underwriters concerned about their policy limit – assuming, of course, that Target has a sizeable D&O insurance tower in place.

Companies like Target likely employ a robust cybersecurity program to protect consumers’ personal and financial information.  But breaches aren’t limited to large multinational operations. According to cyberlaw expert Richard J. Bortnick of Christie Pabarue and Young, and publisher of the blog Cyberinquirer.com, small- and medium-sized public companies are just as much at risk, perhaps even more at risk, than companies like Target. “Every company of every size is at risk,” Bortnick said. “And if you think of it logically, small- and medium-sized companies are likely more at risk, and subject to greater residual financial harm, than the bigger firms. And in the cyber realm, that means small- and medium-sized companies that almost certainly have not invested the resources necessary for proper cybersecurity.” According to Bortnick, “regrettably, oftentimes clients call me in after a breach, not before. And on each occasion, I tell them that the cost to remediate a breach can be multiples of what it would have cost if I had been brought in before the breach and been able to work with the company to plan and implement a cost-effective, best practices cybersecurity regime. Not only does this approach discourage or even prevent hackers, it provides a company with a ‘best practices’ defense to a privacy suit and, potentially, to a shareholder lawsuit.”

As mentioned in the introduction of this advisory, the risks facing your clients following a data breach go beyond the obvious cyberliability insurance policy. How a company has prepared for a breach, what steps have been taken to prevent a breach and what plans are in place to deal with a breach are all executive-level decisions. Regardless of the size of the company, a data breach can be a significant threat to the survival of a company. Companies should buy a cyberliability policy to help respond to a data breach and a D&O policy to protect the management and board for their plans and decisions.