Medical StaffCARE, along with national brokerage firms, consulting firms and major insurance carriers, have observed health plan scenarios being presented to staffing companies that provide major medical benefits through a VEBA trust and/or a Captive insurance entity.

Serious questions have come forward from a number of staffing companies that are confused as to the type of plans they are being presented that are part of these VEBA/Captive arrangements.  Staffing companies are unclear if they are fully insured or self-funded.

It is critically important to understand the significant differences between self-funded major medical plans and fully insured major medical plans from both a contractual and regulatory perspective.

Self-Funded Major Medical

The Employer is ultimately responsible for claims liability incurred by plan members.  Not the stop-loss carrier. The employer can however purchase stop-loss coverage to limit their exposure to major medical claims that are now unlimited under ACA rules. A Self-Funded major medical stop-loss contract is between the stop-loss carrier and the employer, and does not extend to the employee. Stop-loss carriers offer casualty insurance not health insurance, and are not regulated by state insurance departments as health insurance.

Fully Insured Major Medical

The Health Insurance Company is responsible for claims liability incurred by plan members.  Not the employer.  Fully insured plans are contracts issued to the employer and enrolled employees.  Benefits and claims payments are guaranteed by rated health insurance companies that spread risk over many plans and many members. Major medical insurance companies and their contracts are highly regulated by both state and federal law to protect both the employer that offers the plan, and the employee that depends on the coverage they are purchasing. 

 The National Association of Insurance Commissioners (NAIC) has issued a white paper to inform the public of risks involved in self-funded major medical plans under ACA rules and mandates. These plans are increasingly being marketed without full disclosure of the financial construction of the plan or the risks involved. 

We have included a link to the NAIC white paper Stop Loss Insurance, Self-Funding and the ACA, along with other informative links that will assist staffing companies in understanding the risk they may be obligating themselves. 

Excerpts from the NAIC’s white paper include:

• “Most stop loss insurance policies contain explicit statements that the stop loss insurer is not the plan fiduciary, but the policy does not define what a plan fiduciary is…”
  
• “Before an employer can easily compare the cost of self-funding against the cost of private (fully insured) health insurance, he/she would have to have a clear and accurate picture of all the cost components of self-funding. There is no law requiring these costs to be made transparent to employers and no rate stabilization laws for stop loss insurance…”
  
• “Because stop loss insurance products are not generally required to conform to state or federal health insurance law, including the ACA, there may be exposure to additional risk in some stop-loss insurance products that is not immediately apparent…”
  
• “Many stop loss insurance policies state that premiums can increase at any time or even retroactively during the policy year when additional, unforeseen risk occurs, making financial planning very difficult…”
  
• “The concept of an “unforeseen risk” is problematic. The risk of plan participants developing medical problems during the year is precisely the risk the employer might reasonably believe it is insuring against when it buys a stop loss policy…”
  
• “Early termination or rescission of the stop loss insurance policies for the reasons stated above could result in financial disaster…”

Historically, self-funded major medical plans have worked well for larger standard ris (low turnover) companies able to analyze 3 to 5 years of fully insured major medical claims experience, and with 75%+ employee participation within their group. 

Contrast this to the staffing industry, where newly deemed full-time employees have little or no claims experience for a stop-loss underwriter to analyze, and low participation levels. ACA requirements allowing unlimited claims exposure makes estimating claims in this self-funded environment risky, even dangerous.

Captives Defined (Source: NAIC)

“In its simplest form, a captive is a wholly owned subsidiary created to provide insurance to its non-insurance parent company (or companies). Captives are established to meet the risk-management needs of the owners or members. They are essentially a form of self-insurance whereby theinsurer is owned wholly by the insured…”

The Federation Of Regulatory Counsel (FORC) is a national association of attorneys specialized in the arena of insurance regulatory law. FORC published the paper  VEBAS, ERISA, AND OTHER CLOAKING DEVICES, that describes the use of VEBAs and Captives and the potential regulatory issues that could develop.

FORC’s CONCLUSION

“A program will draw regulatory attention for review as unauthorized insurance by utilizing descriptions such as “VEBA,” “ERISA exempt,” and similar reference to federal nomenclature while avoiding licensure as an admitted insurer or MEWA or registration as an RRG, or causing the transfer of benefit risk to an entity unauthorized to accept such risk. A program which boasts low rates and minimal or no underwriting will invite heightened regulatory attention. An “exempt” program, which employs insurance agents to transact the program, will ensure regulatory attention, even when the agents are characterized as “labor consultants” or “business agents” to “enroll” or “negotiate” with potential association or union members. Legitimate ERISA plans, if properly established, may avert state insurance regulation. The funding of a benefit program through a VEBA will not, alone, evoke similar federal preemption or state exemption unless provided by state law…”.

While attorneys agree that a VEBA Trust structure is legal, any company being presented a product concept that includes a VEBA Trust or Insurance Captive arrangement should require the promoter to provide the following in writing:  

• Is this plan fully insured or self-funded?
•  If fully insured, why do I need stop-loss insurance?
•  Who is the originator of the VEBA? (Require an exact copy of the Trust Document and proof of its filing date and home situs)
•  Who are the current VEBA members (employers, not vendors)?
•  Who is on the VEBA’s Operating Committee, Board of Directors and/or Board of Trustees?
•  What actuarial firm developed the rates and claims projections?
•  How many groups were used in the analysis? 
•  What was the average participation rate in the groups? How many insured employees vs. total eligible employees were analyzed?
•  How many years of claims data were analyzed?
• If there is a captive entity involved, where is the captive located and to what level is it capitalized?  (This is important with unlimited claims liability under ACA rules).

Because these elements are unbundled and not regulated by states as a health insurance company, a staffing company should ask for copies of all contracts between the VEBA Trust and the Fiduciary, its TPA, its Stop-loss carrier, any Captive entity, and any other wellness, underwriter or operations vendor, including coverage limits.  

ESC advises staffing companies to conduct thorough due diligence when presented an ACA solution that is not fully insured by a rated domestic health insurance company.

Self-funded major medical insurance exposes employers to regulatory and financial risk not associated with fully insured plans — exposure which can be significant under the unlimited benefits rule of the ACA.