Legislative/Regulatory Update for the Self-Insurance Industry

September 22, 2015

Mike Ferguson

President & CEO

Self-Insurance Institute of America, Inc.

Presentation Overview

• Stop-Loss Captive Programs – State Developments

• Stop-Loss Captive Programs – Federal Developments

• Enterprise Risk Captives (831b) – Federal Developments

• Affordable Care Act Implementation – Things to Watch

• NRRA – Captive Taxation

• SIIA Political Advocacy Strategy

• Conclusion/Q&A

The ACA and Stop-Loss Captive Programs

• The ACA has no direct affect on captive insurance generally, but…

• Many ACA proponents believe a growing self-insurance marketplace is harmful to the state and federal exchanges

• Individual self-insured group health plans are the “building blocks” for stop-loss captive programs

• Restricting access to stop-loss insurance is a strategy to slow the growth of the self-insurance marketplace…and in turn, stop-loss captive programs

• Some state captive regulators view these programs through a “political” lens rather than evaluating for solvency and related regulatory concerns.

Stop-Loss Regulatory Threats

• Maryland – More restrictive stop-loss terms

• New York – Restrict sale of stop-loss insurance to small group market

• Connecticut – Policy approval complications

• NAIC – Ongoing rhetorical attacks on self-insurance marketplace

• Federal Regulators – Redefine stop-loss insurance as health insurance

Self-Insurance Protection Act (SIPA) S. 775/H.R. 1423

• Hedge Against Possible Rule-Making Action by Administration

• Influential Senate and House Sponsors

• Growing Union Support

• SIIA Grassroots Involvement

831(b) Captive Insurance Legislation/ Regulation Increased Regulatory Concern

• IRS Dirty Dozen List – small captives for estate planning/ abusive tax shelters

• Treasury – 831(b) Abuses/ Study

Congressional Action

House/ Senate Legislation to increase 831(b) premiums for mutual insurance carriers - S. 905/ HR 1788

Senate Finance Proposal

• Original Proposal: Increase allowable premiums from $1.2 to $2.2 million for small mutual carriers; prohibition of reinsurance; and 20 percent limit on the allowable premium for 831(b) electing captives.

• Revised Legislation (SIIA Advocacy)- Premium Increase & Treasury Study/ Recommendations

SIIA Advocacy Leadership

ERC Working Group Proposal to Senate • Limitations on the use of irrevocable trusts for purposes of estate planning; • Limitations on the use of life insurance by 831(b) captives; and • Sunset provision of three years for new and existing captives.

NAIC Approved Language – Ban on Irrevocable Trusts & Life Insurance, 2 Year Sunset

Captive Insurers Clarification Act – S. 1561

Dodd-Frank – Create Double-Taxation Possibility

• Non-Admitted Reinsurance Reform Act (NRRA) created confusion as to whether captives would be taxed in home state.

• Captive domicile states concerned that by NRRA inadvertently including captives, owners would to re-domicile to home state to avoid added tax burden.

Captive Insurers Clarification Act (S. 1561)

• Senate legislation to prevent possibility of double taxation of captive insurers.

• Coalition for Captive Insurance Clarity (CCIC)

Cadillac Tax Developments

Current Regulatory Guidance • What’s In/What’s Out for Plan Valuation Purposes

• SIIA Input – On-Site Clinics Should Not be Included for Plan Valuation Purpose

• Administration Objection – Employers Using Clinics in Lieu of Major Medical

Future Regulatory Guidance • Tax Collection Administration Details

• SIIA Input – Clarify That the Plan/Employer and Not the TPA is Subject to Tax

Lobbying Environment • Business and Labor Groups Pushing to Repeal Cadillac Tax

• Big Obstacle – “Pay-For” Requirement

ACA Health Insurance Exchange Funding

• “Seed” Funding Terminated at the End at 2015

• Exchanges Proving More Assessments Than Anticipated

• State Exchanges Looking at Additional Revenue Sources (Assessments)

• Federal Exchanges Will Need New Appropriations

• Colorado Pulling from Reserves to Pay Operating Expenses – Hiring 23 New Positions

ACA Exchanges – “Active Purchasers” & Rate Review

• Original ACA legislative intent was to attract as many insurance companies as possible. When drafting process went partisan, the exchanges were viewed as fall backs to a public plan.

• States can vest power in exchanges to be “active purchasers,” allowing them to negotiate with insurance companies regarding terms and pricing

• Federal exchanges were directed to establish rate review programs – “shame” in lieu of “teeth”

• Any willing carrier can come into the exchanges can come into the exchanges for the first two years.

• Newly-announced rate hikes by health carriers in multiple states starting to test this regulatory oversight.

Large Groups and The ACA Exchanges

• Initially, the Exchanges will service (1) individuals and families in the individual market and (2) employees of small employer o In 2017, a State may elect to permit the sale of fully-insured large group plans through the

Exchange, but a State is not required to do so (Small Group Definition Changes to 100+ EEs in 2016) Upon an election, the adjusted community rating rules would apply and it is likely that many of the other

minimum standards (e.g., the requirement to provide the “essential health benefits” and the single risk pool rules) will also apply – Such Elections Could Spur New Interest in Self-Insurance Among 100+ EE Fully-Insured Groups.

Market Stabilization Provisions – Sunset in 2017

• Risk Adjustment – Profitable insurers share financial surpluses with less profitable insurers

• Reinsurance Program – Financial backstop for individual claims

• Risk Corridor – Contract between HHS and carriers based on premiums written/risk profiles. If the risk corridor is breached then either carriers pay HHS or the HHS pays carriers -- “bailout.”

Self-Insurance Political Action Committee (SIPAC)

Contribution Focus • House Energy & Commerce Committee Members • House Education & Workforce Committee Members • Senate Finance Committee Members • Senate Health, Education, Labor & Commerce Committee Members

Support Strategies • SIIA-Hosted Events • SIIA to Partner with Other Groups to Host Events • Member Trips • Attend Fund-Raising Event • Events at National Conference

Self-Insurance Defense Coalition

• U.S. Chamber of Commerce

• National Association of Manufacturers

• Council of Insurance Agents & Brokers

• National Association of Health Underwriters

• National Retail Federation

• National Franchisee Association

• National Association of Wholesaler-Distributors

• Heating, Air-Conditioning & Refrigeration Distributors International

• National Electrical Contractors Association

• National Coordinating Committee for Multi-Employer Plans

Conclusion – Comments/Questions

Contact Info:

Mike Ferguson

800/851-7789

mferguson@siia.org