Tag: Insurance Law

California Appellate Court Issues a Decision That Mutual of Omaha Insurance Agents Qualify as Independent Contractors as a Matter of Law

From a recent posting in the National Law Review an article by attorney Thomas R. Kaufman of Sheppard Mullin Richter & Hampton LLP regarding the way insurance companies treat their independent agents:

December 31, 2011, as a final act for the year, the First Appellate District of the California Court of Appeal issued a good appellate decision for employers on the issue of independent contractor status, Arnold v. Mutual of Omaha. The case creates a veritable roadmap for insurance companies on how to treat agents so that they maintain their status as independent contractors rather than employees.

The Key Facts

Ms. Arnold worked as a non-exclusive insurance agent for Mutual of Omaha, which meant she was authorized to sell their products but was free to (and did) sell products of other insurance companies. Nonetheless, she claimed she was actually an employee rather than an independent contractor (IC), and that she therefore was entitled to recover for reimbursement of expenses and waiting time penalties for unpaid final wages on behalf of herself and a purported class of similarly situated agents. The factual record was very strong for the defense as to the limited control Mutual of Omaha exercised over Arnold (and its other agents):

  1. The contract Arnold signed with Mutual of Omaha expressly stated that the parties understood it was an independent contractor agreement.
  2. Her chief duties were to procure and submit insurance applications, collect money, and service clients.
  3. She was compensated entirely on commissions for products sold, with a chargeback if money was uncollected or refunded.
  4. She received no performance evaluations and nobody at Mutual of Omaha monitored or supervised her work schedule.  Plaintiff decided when, where, and to whom she would market insurance.
  5. Although Mutual of Omaha provided some training on its products and sales techniques, it was not mandatory for ICs to take the training.  The only mandatory training was as to compliance with certain state insurance laws and regulations.
  6. Mutual of Omaha provided some office space if agents wanted to use it, but it was optional, and agents had to pay for the “workspace and telephone service.”  Mutual of Omaha also did not pay for business cards or any other business expenses, although it provided certain services for a fee if an IC wanted them.
  7. Under the IC agreement in place, either party could terminate the relationship at any time with or without cause, or if Arnold failed to sell a Mutual of Omaha product for 180 days.

On this record, the trial court granted summary judgment to Mutual of Omaha that Arnold was an independent contractor rather than an employee.  Arnold appealed.

What Makes the Case Noteworthy

The court of appeal affirmed, declaring that it was not even a close case.  As a preliminary matter, the court held the common law test of employee v. IC applies to claims under Labor Code Section 2802.  This is a multi-factor test (roughly 10 factors depending how you count them), codified in a decision called S.G. Borelli & Sons, Inc. v. DIR, 48 Cal. 3d 341 (1989).  This holding is not exactly earth-shaking as the plaintiff’s argument of statutory interpretation was not particularly cogent.  It is the summary judgment aspect of the case that makes it notable, because the case sets forth a pretty good roadmap of what an insurance company who wants to have independent contractor agents should follow to preclude a lawsuit that the agents are really employees.  The court pointed to the existence of undisputed facts on several specific issues as justifying summary judgment:

“After a careful review of the opposing evidence, we find nothing that raises a material conflict with the supporting evidence summarized above. The salient evidentiary points established Arnold used her own judgment in determining whom she would solicit for applications for Mutual’s products, the time, place, and manner in which she would solicit, and the amount of time she spent soliciting for Mutual’s products. Her appointment with Mutual was nonexclusive, and she in fact solicited for other insurance companies during her appointment with Mutual. Her assistant general manager at Mutual’s Concord office did not evaluate her performance and did not monitor or supervise her work. Training offered by Mutual was voluntary for agents, except as required for compliance with state law. Agents who chose to use the Concord office were required to pay a fee for their workspace and telephone service. Arnold’s minimal performance requirement to avoid automatic termination of her appointment was to submit one application for Mutual’s products within each 180-day period. Thus, under the principal test for employment under common law principles, Mutual had no significant right to control the manner and means by which Arnold accomplished the results of the services she performed as one of Mutual’s soliciting agents.”

The court mentioned that several other factors further tilted in Mutual of Omaha’s favor, but it appears that establishing undisputed facts on the above items would generally be sufficient to support summary judgment.  Furthermore, the court recognized that a plaintiff cannot avoid summary judgment simply by raising a triable issue of fact on one or two minor factors of IC status.  Rather, the court held that if a reasonable factfinder considering all of the evidence together could not conclude that the agent was an employee, the employer is entitled to judgment:

“The existence and degree of each factor of the common law test for employment is a question of fact, while the legal conclusion to be drawn from those facts is a question of law. (Harris v. Vector Marketing Corp. (N.D. Cal. 2009) 656 F.Supp.2d 1128, 1136.) Even if one or two of the individual factors might suggest an employment relationship, summary judgment is nevertheless proper when, as here, all the factors weighed and considered as a whole establish that Arnold was an independent contractor and not an employee for purposes of Labor Code sections 202 and 2802. (SeeVarisco, supra, 166 Cal.App.4th at p. 1106.)”

Copyright © 2011, Sheppard Mullin Richter & Hampton LLP.

Fraud, Prescription Drugs, and the Elderly

Recently posted in the National Law Review, Winner of the  Winter 2011 Student Legal Writing Contest,  Nicole J. Ettinger, law student at SUNY Buffalo Law School wrote an article about the elderly population is often a target for those who seek their financial resources:

Buffalo Law

The elderly population is often a target for those who seek their financial resources—from identity theft, to telemarketing schemes, to health care fraud.[1] The elderly population is seen by many in society as a vulnerable group as a whole; this is often because some in the elderly population may be suffering from dementia or other ailments that may cloud those individuals’ memories. Knowledge about how dementia affects an elderly person’s abilities to recall events or fully orient himself can create predatory opportunities for those who wish to take advantage of this common illness.[2] Those who prey on the elderly likely believe the elder has a substantial amount of money and would easily fall for scams.[3] One area of concern involving fraud against and involving the elderly is fraud in prescription drugs, specifically Medicare Part D.[4]

I. Background of Medicare Part D

Medicare Part D, implemented in 2006, came into being under the Medicare Modernization Act of 2003 [hereinafter “MMA”].[5] The MMA provided assistance for paying for prescription drugs for some elderly persons as before Part D, Medicare only covered prescriptions issued from a hospital or doctor’s office.[6] As long as one is eligible for Medicare Parts A or Part B, he is eligible for the optional[7] prescription drug plan, Medicare Part D.[8]

Like Medicare Parts A and B, Part D is administered through the federal government, but unlike A and B, the actual prescription services are delivered through various approved private insurers.[9] There are two types of Medicare Part D Plans: Prescription Drug Plans (PDP) and Medicare Advantage Plans (MA-PD).[10]  PDPs only provide prescription coverage while MA-PDs also provide the medical services that Medicare Part A and B provide, but through a private company.[11]

For Medicare eligible elders with a more limited income, the Low or Limited Income Subsidy, or Extra Help, is available to assist with some or all of Part D prescription costs.[12] A major benefit of the Extra Help program is that these recipients do not have to face the coverage gap, or “doughnut hole,” that comes with most Part D plans.[13] For an elderly individual or couple who do not apply for the Extra Help subsidy, the “doughnut hole” is a certain spending point, $3,6100.00 in 2010 and $2,480.00 in 2011,[14] after which the elderly individual is responsible for paying for the full costs[15] of his prescription medications. After the individual reaches a second spending benchmark—$4,550.00 in prescription drug costs for 2011—catastrophic coverage will be triggered.[16] During catastrophic coverage, the individual will pay for only 5% of drug costs.[17]

To assist with these difficult costs to the elderly, the Patient and Affordable Care Act [hereinafter PPACA] implements a plan for the hole to “close” in 2020.[18] The closure of the doughnut hole means that the individual will be responsible for paying for only 25% of his prescription costs for brand-name drugs, as 50% will be covered by the pharmaceutical company and 25% by a federal subsidy[19] and 25% for name brands.[20] The program starts the closure of the hole gradually, as it began in 2011 with a 50% discount for brand-name prescription medications and a 7% discount for generic prescription medications.[21] Despite the discount programs and forthcoming changes to the Medicare system,[22] the costs of prescription drugs are still a concern and a major financial burden for many elderly people.

Medicare Fraud

With the coming of the Part D program in 2006, some were concerned about the new and extended avenue for fraud—particularly against the elderly. When Part D first began, many predicted a dreary future for Part D, fraught with fraud, a plan some predicted to cause more trouble than it was worth.[23] Along with fraud related to billing, predictions included “enrollment based frauds, improper inducements to enroll, formulary manipulations, acceptance by plans or pharmacy benefit managers (PBMs) of improper inducements from manufacturers to have their drugs on formulary, improper reporting to the government of rebates received from manufacturers, and plan marketing programs.”[24]

Similarly, telemarketers and internet scammers may target the elderly who may not be as wary or meticulous in protecting their information and checking the legitimacy of the programs.[25] Elderly persons may find themselves enrolled in a Part D program with a premium that is too high for their income or one that excludes the prescription drugs they need from coverage.[26] While Medicare Part D was implemented five years ago, these concerns have not diminished.[27] While it is clear that such concerns have materialized, it is less clear how pervasive the fraud has become.[28]

The MMA requires Part D providers to implement a program to protect against fraud and other abuses of Medicare Part D.[29] While the Center for Medicaid & Medicare Services has its own lengthy suggestions, for the most part, each Part D plan is supposed to implement its fraud and abuse prevention through use of its own guidelines.[30] Some opine that flexibility for insurers to choose how to set up and implement their fraud, waste, and abuse monitoring programs provides a structure that “remains ripe for abuse” by these Part D insurers.[31]

One part of the Center for Medicare & Medicaid Services goals to reduce fraud in Part D is the implementation of the Medicare Drug Integrity Contractors program, or MEDICs, which “identif[y] and investigat[e] potential Part D fraud and abuse, develo[p] potential Part D fraud or abuse cases for referral to law enforcement agencies, ac[t] as a liaison to law enforcement, and serv[e] as an auditor of Sponsor and subcontractor Part D operations.”[32] MEDICs collect and investigate the kind of internal fraud that the Part D beneficiary may never be made aware of—such as submission of false claims for services not provided.[33]

The MEDICs rely heavily on reporting of potential fraud and abuse to their agency through complaints.[34] These complaints may come from the elderly individual himself or they can be reported by family members, healthcare providers, and other Medicare plans.[35] MEDICs are also supposed to complete their own internal analysis of potential fraud through “fulfilling requests for information from law enforcement agencies. . .; identifying program vulnerabilities; auditing the fraud, waste, and abuse programs that are part of plan sponsors’ compliance plans.”[36]

MEDICS are also supposed to apply internal methods of fraud and abuse analysis through “analyzing claims data, conducting Internet searches to identify leads, and analyzing complaint data for trends”[37] but this internal investigation has been limited.[38] Out of the 4,194 reports of potential fraud or abuse in 2008, 87% of these were reported from outside, non-MEDIC, sources.[39] For the cases identified through internal research, 93%, or 553 cases, were discovered through analyzing data trends.[40] Once MEDICs determine that the report of fraud and abuse may have legitimacy, they open an investigation. Out of the 4,194 reports in 2008, 1,320 of these cases were investigated.[41] For the cases that the MEDICs chose to investigate, the MEDICs referred sixty-five cases to the Office of the Inspector General and sent thirty-four “immediate advisements” to the Office of the Inspector General as well.[42] For the remaining cases, 257 were referred to state insurance commissioners and the final 39 were sent to CMS for review.[43]

While all of cases that come before the MEDICs are reviewed, not all are investigated. The MEDICs decide to complete an investigation where they find that the subject of their investigation[44] “engaged in a pattern of improper prescription writing or billing, submitted improper claims with actual knowledge of their falsity, or submitted improper claims with reckless disregard or deliberate ignorance of their truth or falsity.”[45]  The way that the investigations are completed is through a case review.[46] If after the MEDICs’ investigatory efforts, they determine potential fraud or abuse, the MEDICs are supposed to seek the assistance of the Office of the Inspector General to decide what should be done.[47] However, regardless of whether cases are referred for further investigation, the MEDICs are required to update CMS monthly with all referrals to outside agencies and their status.[48]

Out of the 1,320 cases investigated in 2008, 40% of identified fraud involved marketing schemes.[49] The marketing schemes involved behaviors ranging from unsolicited door-to-door marketing to individuals[50] to enrolling an elderly individual in a plan without his permission.[51] While the MEDICs report does not specify its definition of “permission,” it is likely that such tactics would include enrolling an individual who may say he agrees, but who does not have the capacity to enroll himself in a Plan without permission of that individual’s guardian or health care proxy.[52] Twenty-one percent of cases involved “drug diversion by beneficiaries”[53]and 15% involved inappropriate prescriptions, or billing for drugs not medically needed.[54]

While the MEDIC program appears to be organized and comprehensive from the outside, the MEDICs are limited in their ability to track and prevent Part D fraud.[55]The three national MEDICs programs reported that the limitations on their authority to access data as well as audit Plan sponsors limited their ability to enforce their mission of identifying and monitoring potential fraud and abuse.[56] For instance, as of 2008, the MEDICs could not gain access to much of the information they needed to complete their reports, as they were required to request information from the plan sponsors and could not receive this data from CMS directly.[57]

One other troubling finding from the MEDIC analysis is that plan sponsors are notrequired to refer identified cases of potential fraud to the MEDICs.[58] Thus, the information that the MEDICs received is what the Part D plans voluntarily provided and so the breadth of the MEDICs investigations were limited by the amount of data they could collect.[59] Perhaps “encouragement” is not sufficient to convince Part D plans to report concerns of fraud and abuse; the Office of the Inspector General suggests mandatory reporting to MEDICs, rather than recommended reporting so that the MEDICs will be made privy to a greater amount of incidents and will subsequently be able to provide greater protection against such fraud.[60]

Beyond the legal or budgetary limitations of the MEDIC programs, some still do not feel that Medicare’s plan for protecting the elderly population against fraud and abuse in Part D programs is sufficient.[61] In one instance of Part D fraud, seventy-four-year-old Mr. Aldridge’s Medicare Part D plan was switched to a Medicare Advantage plan after a Part D plan employee forged Mr. Aldrige’s signature to enroll him.[62] Mr. Aldrige’s doctors did not accept this new healthcare plan.[63] The unapproved switch cost Mr. Aldrige hundreds of thousands of dollars in out –of-pocket prescription drug costs before the problem was straightened out—while the salesman who allegedly committed the forgery that devastated Mr. Aldrige received a $300.00 commission for Mr. Aldrige’s enrollment.[64] Unfortunately, Mr. Aldrige’s story is not unique, there exist horror stories of people and plans who will enroll elderly individuals who lack capacity to contract,[65] who were not proficient in English,[66] those whose life-sustaining medications are not actually covered by the plan,[67] or by garnering enrollment by marketing in a way that  the elderly may wrongfully believe that Plans are government entities.[68]

One writer suggests that Medicare fraud, including Part D fraud, is still so rampant because federal enforcement measures are lacking.[69] CMS has not taken as strong hand on enforcement as needed.[70] In one situation, insurance companies suspended their marketing practices voluntarily after there were reports of fraud against the elderly in their plan, but these companies were permitted to continue their marketing plan just three months later.[71] Reflective of these sentiments is a 2008 survey by the National Association of Insurance Commissioners Senior Issues Task Force, which noted that out of the thirty-six states that participated in the survey, all but two of them had received complaints on the marketing of private Medicare plans within their state.[72]

i.  Medicare Part D Fraud and the Courts

One reason noted for the limited success in monitoring and preventing Medicare fraud and abuse is that the Medicare Modernization Act of 2003[73] preempts state legislation preventing fraud in the marketing and practice of Part D plans.[74]Therefore, if a state wishes to enforce its own stricter regulations against fraud, these efforts may be preempted by federal law.[75] In Uhm v. Humana Inc., a group of elderly individuals brought a class action suit against a PDP with whom they had all enrolled for their Medicare Part D coverage.[76] The elderly plaintiffs argued that due to this PDP plans’ advertising methods, they thought that their prescription drugs would be covered by the plan once Part D began in 2006.[77] However, when the plaintiffs requested information about their plan and requested copies of the forms needed to order their prescriptions, they did not get a response and had to purchase their prescriptions out of pocket—a great expense.[78]

The PDP argued that the plaintiffs’ state claims[79] were preempted by the MMA—the court agreed, reasoning that “the language of the MMA preemption clause is clear: if Part D establishes standards that cover plaintiffs’ claims, then those standards supersede state law, and plaintiffs’ state law claims are preempted.”[80] While the elderly plaintiffs called such a result “absurd,” the court defended by stating that all PDP plans still must report to CMS according to federal regulations and such grievances could result in large fines to the PDP plans.[81] This, however, is likely little consolation to elderly individuals who had to pay for their medication costs out of pocket, especially where it is possible that the MEDICs, who may receive such grievances, may have limited access to other complaints relating to the PDP plan and so may not be aware about the extent of fraud.[82]

Some fraud may seriously risk an elderly individual’s health. In one heinous case, a sole physician at a small clinic, in exchange for $1000 weekly, allowed the two operators of the clinic to use his provider number to order rare medications, which were not medically necessary for the clinic’s patients, but allowed the highest payment from Medicare.[83] The clinic dispensed some medication to their largely poor and elderly patients –despite that the medication was risky.[84] While it was discovered that the clinic was not legitimate, the clinic managed to receive nearly $650,000.00 from Medicare before detection.[85] Such scenarios result in many writers and activists suggesting plans for solutions.[86]

II.  Possible Solutions or improvements to Part D Fraud

One solution scholars have suggested for curbing fraud is to limit the number of plans available.[87] Second, scholars suggest that state laws should not be preempted, to allow for more stringent regulation of Part D plans by the state.[88]

The proposal to reduce the number of PDP and MA-PD plans available is premised on the notion that fewer plans will lead to less confusion, more efficient regulation, and greater standardization amongst the plans.[89] The proposal is worth consideration due to the many choices that are available out there, which may confuse and overwhelm any person seeking to find an appropriate  Part D plan. Further, fewer plans may limit the aggressive marketing tactics some Plans may feel they need to take to stand out from the many others.

The risk that comes with placing federal restrictions on the amount of plans available to Medicare Part D recipients—thus, the elderly and disabled—is that there is an unavoidable hint of paternalism.[90] The proponents of this proposal seek to combat this assumption by claiming that the government limiting the number of Part D plans is comparable to employers acting as a broker while choosing their employee health plans.[91] While this analogy may be disjointed, the proposal still has merit, despite the recognizable shroud of paternalism and possible concerns regarding restrictions on free markets.[92] A system with limited providers may not be a limit on freedom of choice, as the proposal explains that there should still be a sufficient number of options.[93] Some studies show that many elders report confusion and frustration surrounding Medicare Part D.[94] If this is the case, limitations would be helpful in easing the choosing process.[95] As the federal government would be responsible for narrowing the number of insurers issuing Part D, the government would also be responsible for evaluating the Plans’ quality.[96]

Such a system may be beneficial in reducing fraud, if it could be shown that part of the reason that fraud occurs is because there are so many plans in place. A system with limited choice of Part D providers may not directly reduce fraud, but appears that its side effects may lead to such a result. It may be the case that if fewer plans are offered, government oversight could be greater because there would be fewer plans to monitor and audit; further, the quality of plans may improve.[97] Further, beyond concerns of fraud, the other benefit that may come with such a plan would be “simplicity” for the elder in choosing a Part D plan.[98] If limited plans are available, the first time an elderly individual enrolls, he may feel less overwhelmed and more willing to research plans that fit his needs best where the amount to research does not seem so vast and frustrating.[99] While the true effect on providers is uncertain, another benefit of limited Plans may be that Part D plans marketing tactics may become less aggressive if the amount of Plans that are accepted to operate in each state are limited and enforced, so that there are not many plans jumping for a bite at the “apple” all at once. The theory is based on the idea that the plans providers will know that they have been accepted by the government as one of only a few providers in that state and thus, that their competition is limited to far fewer companies. Further, if that Plan attempts aggressive or suspicious marketing, due to the smaller “community” of plans, it is possible the other plans may be more likely to report them, providing for internal enforcement.

The second proposal to for reducing fraud is that federal laws and regulations shouldnot preempt stronger state laws protecting against fraud in Part D plans.[100]Currently the MMA explicitly preempts state laws and regulations relating to enforcement of state fraud and abuse plans because of the fact that Medicare is a federally operated program so, beyond state licensing or solvency laws, state laws are not applicable.[101] The reason that some argue that state laws should not be preempted is that state laws and regulations to monitor and enforce marketing requirements and limitations “offer faster and more responsive remedies” than federal programs.[102]

Such a plan to allow for state enforcement may be a very helpful solution where Medicare’s guidelines on some aspects of Medicare fraud, waste, and abuse programs are merely suggestions, rather than requirements. As discussed above, Part D plans are not mandated to report claims of fraud, waste, and abuse and additionally, the structure for implementing such plans are largely left to the Part D insurer.[103] This is corroborated by evidence presented that the federal government and Medicare do not always take strong efforts to enforce marketing standards. While the news shows recent “crackdowns” on Medicare fraud operations by health care providers,[104] it is not clear how strong the enforcement is for marketing, despite the federal regulations putting forth such standards.[105] At least when Medicare Part D first began, “CMS issued only ‘warning notices’ to plans violating marketing standards.”[106]

States’ ability to enforce their own stronger laws and regulations against Part D providers may be an  effective option for fraud reduction. If Plans, especially those only offered in one state, are held responsible to the states, active state boards such as within Attorney General’s Offices and bureaus of Consumer Fraud could serve as additional pairs of eyes on the providers.[107]

Part III: Conclusion

Proper information about Part D Plans’ abuse and fraud programs along with consumer protection education for the elderly and their caretakers can serve as important methods of protection.[108] For the former, this may include that Part D providers must provide their current and potential enrollees with clear, plain-English information regarding the Plan’s fraud and abuse programs and detailed information on how an enrollee could file a complaint or grievance.

Second, Medicare should fund consumer fraud education programs to be taught at nursing homes and assisted living facilities; for those who may be living alone, this information may provided from Medicare and distributed to the elderly individual’s doctors, families, or the elders themselves.  Additionally, the elderly individual should be taught basic fraud prevention strategies such as to never give out his personal information—especially to someone who calls over the phone or who stops by the individual’s home to enroll them in a plan.[109] Elderly individuals should also be advised not to give their Medicare card or information to anyone they may meet, especially if the person offers free equipment, medication, or prizes in exchange for private information.[110] While such suggestions may seem simplified when contrasted with the fraud reduction suggestions earlier in this paper and in many scholars’ writings, proper consumer protection education may be a first and important step in preventing against fraud until such programs might be implemented to target and monitor fraud from the inside, out.

[1] Fraud Target: Senior Citizens, Federal Bureau of Investigation,http://www.fbi.gov/scams-safety/fraud/seniors (last visited Apr. 28, 2011).

[2] Id. (“Con artists know the effects of age on memory, and they are counting on elderly victims not being able to supply enough detailed information to investigators. In addition, the victims’ realization that they have been swindled may take weeks—or more likely, months—after contact with the fraudster.”)

[3] Supra n.1.

[4] Alice G. Gosfield, Medicare and Medicaid Fraud and Abuse ,§ 1:2 (2010). “’[Defining] fraud and abuse,’ as it is customarily used, to cover misconduct in the delivery and financing of health care.”

[5] Public Law 108-173. See also, Centers for Medicare & Medicare Services, Medicare Prescription Drug Benefit Manual, Chapter 1 at 3. (2008), available athttps://www.cms.gov/PrescriptionDrugCovContra/Downloads/Chapter1.pdf (last visited Apr. 24, 2011).

[6] 42 USCA § 1395y (2002) See also, Medicare Part D: Prescription Drug Program, Evelyn Frank Legal Resources Program (updated Nov. 7, 2010), available athttp://wnylc.com/health/download/6/.

[7] Part D is mandatory for those who receive Medicare and Medicaid benefits, known as “dual eligibles.” See 42 C.F.R. § 423.34(a) (2005).

[8] 42 C.F.R. § 423.30(i)-(ii).

[9] Medicare Part D: Prescription Drug Program, Evelyn Frank Legal Resources Program, 5 (updated Nov. 7, 2010), available at http://wnylc.com/health/download/6/.

[10] See Centers for Medicare & Medicare Services, Medicare Prescription Drug Benefit Manual, Chapter 1 at 3. (2008), available athttps://www.cms.gov/PrescriptionDrugCovContra/Downloads/Chapter1.pdf (last visited Apr. 24, 2011).

[11] Id. at 7.

[12] See 42 CFR § 423.780. To receive Extra Help, the individual must be either eligible for Supplemental Security Income (SSI), Medicaid, Medicare Savings Program, or whose income and resources fall below certain benchmarks. See generally, POMS, 00815.023 Medicare Savings Programs Income Limits, available athttps://secure.ssa.gov/apps10/poms.nsf/lnx/0600815023. See also See 42 CFR §§  423.773, 423.780, POMS HI 03030.025 Resource Limits for Subsidy Eligibility,available at https://secure.ssa.gov/apps10/poms.nsf/lnx/0603030025.

[13] Eighty percent of Part D plans have a gap and do not offer any gap coverage. See Richard L. Kaplan, Analyzing the Impact of New Health Care Reform Legislation on Older Americans, 19 Elder L. J. 213, n. 13, (citing  Jack Hoadley, et. al, Medicare Part D 2010 Coverage Spotlight: The Coverage Gap, Exhibit 1, (2009))(citing Georgetown University/NORC at the University of Chicago’s analysis of CMS PDP Landscape Source Files, 2006-2010, for the Kaiser Family Foundation).

[14] The elderly individual first pays a $310.00 premium and then pays 25% of prescription costs up to $2480.00. POMS HI 03001.005, available at https://secure.ssa.gov/apps10/poms.nsf/lnx/0603001005, See also Pub. L. 118-148.

[15] Referred to as TrOOP, True Out of Pocket Costs. See Centers for Medicare and Medicaid Services, Prescription Drug Benefit Manual. Chapter 9, Part D Program to Control Fraud, Waste and Abuse.

[16] POMS HI 03001.005, available athttps://secure.ssa.gov/apps10/poms.nsf/lnx/0603001005; Announcement of Calendar Year (CY) 2011 Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies and Final Call Letter, Center for Medicaid & Medicare Services (Apr, 5, 2010) available athttp://www.cms.gov/MedicareAdvtgSpecRateStats/Downloads/Announcement2011.pdf at 34.

[17] Id.

[18] See 42 USCA § 1395w-114a , Public Law 111-148.

[19] See 75 FR 29556 (2010)(“For purposes of sections 1860D-14A and 1860D-43 of the Social Security Act (the Act), as set forth in the Patient Protection and Affordable Care Act of 2010, Public Law 111-148 § 3301, and the Health Care and Education Reconciliation Act of 2010, Public Law 111-152, collectively known as the Affordable Care Act), see also, Social Security Act § 1860D-14A(b)(1)(B).

[20] See 75 FR 29556 (2010)

[21]  Patient Protection and Affordable Care Act, 42 USCA § 1395w-114a ; SSA-POMS, HI: 03001.001, available athttps://secure.ssa.gov/apps10/poms.nsf/lnx/0603001001.

[22] One study notes that after the 2006 implementation of Part D, in 2006, the mean yearly out of pocket costs for prescription medications decreased by 32% one year after Part D was put into effect. However, the study notes that this decrease in expenditures is for those who did not have any prescription coverage before Part D (decrease from an average of $963 to $517 between 2005 and 2006), while those who had some prescription coverage or were dual eligible people with Medicaid, Part D did not vary their out of pocket costs for medication very much (from $600 to $582 in 2006). See Christopher Millett, et. al, Impact of Medicare Part D on Seniors’ Out –of-pocket Expenditures on Medications, 170 Arch. Intern. Med. 16 (2010).

[23] See, e.g., Alice G. Gosfield, Medicaid and Medicare Fraud and Abuse, § 1.18- Medicare Part D (2010).

[24] Id.

[25] Fraud Target: Senior Citizens, Federal Bureau of Investigation,http://www.fbi.gov/scams-safety/fraud/seniors (last visited May 5, 2011).

[26] Infra n.103. But see, 42. C.F.R. § 423.38(c)(8)(i) (allowing for disenrollment if there was material representation of the benefits of the plan while marketing the plan to the individual).

[27] See, e.g., In February, 2011, police arrested one hundred and eleven health care professionals across nine different U.S. cities for Medicare fraud.  http://blog.lawinfo.com/2011/02/18/medicare-fraud-111-us-doctors-nurses-arrested/ (last visited Apr. 30, 2011).

[28] See  Rita Isnar, A Glimpse of the Future of Compliance Oversight by CMS: Part D Plans Case Study, Journal of Health Care Compliance, 13 No. 1 JHTHCC 51, (Jan-Feb. 2011), “Despite the requirements and emphasis placed on protecting the Part D benefit, few PDPs have met CMS’s requirements for addressing fraud detection, correction, and prevention by developing an effective compliance program.”

[29] See 42 C.F.R. § 423.504(b)(4)(vi)(H).

[30] 42 U.S.C. § 1395w-104; 42 C.F.R. § 423.505(b)(4)(vi)(H), CMS Manual, Part D Program to Control Fraud, Waste and Abuse, ch. 13, at 3-4.

[31] Supra n.4 at 1189.

[32] CMS Manual, Part D Program to Control Fraud, Waste and Abuse, ch. 13, at 10,

[33] Department of Health and Human Services, Office of the Inspector General,Medicare Drug Integrity Contractors’ Identification of Potential Part D Fraud and Abuse at 5 (Oct. 2009) (all data analyzed in this 2009 report is from 2008).

[34] External complaints are the primary source of fraud reports to the MEDICS. Id. at 3.

[35] Id.

[36] Id. at 2.

[37] Id.

[38] Id. at 8.

[39] Id.

[40] Id.

[41] Id. at ii.

[42] Id. at ii.

[43] Id.

[44] Id. at 5. MEDICs do not only investigate plan providers, but also investigate pharmacies, providers, and even the Medicare enrollee.

[45] Id.

[46] Id. at 4.

[47] Id. (citing Center for Medicare Services, MEDIC Statement of Work, § 6.2 (2d. Ed., Sept. 28, 2007).

[48] Id. at 5.

[49] Id. at 19, Table A-1: Top Five Types of Potential Fraud and Abuse Investigated and Referred to the Office of the Inspector General in Fiscal Year 2008.

[50] See 42 CFR § 422.2268(d). As this paper will soon discuss, Part D plans are prohibited from unsolicited marketing of their plans. See,Federal Trade Commission,Medicare Part D Solicitations: Word to the Wise about Fraud (Apr. 1, 2006)(“Providers may come to your home only if you have invited them to do so.”).

[51] Id.

[52] See, Bloomberg News, Insurers Suspend the Marketing of Some Medicare Plans, printed in New York Times (Jun. 16, 2007) available athttp://www.nytimes.com/2007/06/16/business/16health.html?ref=coventryhealthcareinc (last visited Apr. 22, 2011) (“ Agents also forged signatures, signed up the dead and enrolled mentally disabled people without consulting their guardians.”).

[53] Drug Diversion included visiting multiple physicians to receive more than one prescription for medication, transferring prescription medication to an individual other than the person to whom the medication was prescribed, illegally selling prescription drugs, and forging a prescription. Id. at 19, Table A-1: Top Five Types of Potential Fraud and Abuse Investigated and Referred to the Office of the Inspector General in Fiscal Year 2008.

[54] Id. at 9.

[55] Id. at ii (Executive Summary), supra n.

[56] Id. at i.

[57] Id.

[58]CFR 42 § 423.504(b)(4)(vi)(G)(3) (2010); Medicare Drug Integrity Contractors’ Identification of Potential Part D Fraud and Abuse at iii.

[59] Id. at iii (“One MEDIC office stated it received relatively few referrals compared to the number of plan sponsors in its jurisdiction. The two other MEDICs indicated that while some plans referred incidents of potential fraud and abuse, other plans had never referred any such incidents.”).

[60] Id. at iv.

[61] See Borer, supra n.6.

[62] Id. at 1.

[63] Id.

[64] Id.

[65] Supra n. 80.

[66] Borer, 92 Minn. L. Rev 1165 at 1.

[67] See, e.g., Masey v. Humana, Inc., 2007 WL 2363077 (M.D. Fla.) (Part D plan allegedly characterized their advertisements so that woman believed that her chemotherapy drugs and then had to pay out of pocket when the Plan denied coverage for these prescriptions).

[68] See, Commonwealth of Pennsylvania v. Peoples Benefit Services, Inc., 923 A.2d 1230 (2007)( Non-government approved Part D plan marketed to elderly using symbols and names that the Commonwealth claimed would induce the elderly to enroll because they may believe that this plan was associated with—and approved by— the government).

[69] Supra n.94.

[70] Id.

[71] Id. at 4; supra n.81.

[72] See National Association of Insurance Commissioners Senior Issues Task Force, Second State Survey on Medicare Marketing Issues (Feb. 5, 2008), available athttp://www.naic.org/documents/committees_b_senior_issues_medpp_survey_2n….

[73] 42 U.S.C. § 1395w-26(b)(3) (2003) .

[74] Id. (“The standards established under this part shall supersede any State law or regulation (other than State licensing laws or State laws relating to plan solvency) with respect to MA plans which are offered by MA organizations under this part.”).

[75] 42 U.S.C. § 1395w-26(b)(3) (2003), CMS Prescription Drug Benefit Manual, ch. 9, Program to Control Waste, Fraud, and Abuse at 15.

[76] 2006 WL 1587443.

[77] Id.

[78] Id.

[79] Plaintiffs’ causes of action included “claim breach of contract, violation of state consumer protection statutes, unjust enrichment, fraud, and fraud in the inducement.”Id.

[80] Id.

[81]Id.

[82] Supra part II, see also Department of Health and Human Services, Officer of Inspector General, Medicare Drug Integrity Contractor’s Identification of Potential Part D Fraud and Abuse (Oct. 2009).

[83] See United States v. Silber, 2010 WL 5174588.

[84] Id.

[85] Id. at *1.

[86] See section III of this paper.

[87] See, e.g., Thomas Rice, 35 J. Health Pol. Pol’y & L. 961 (2011).

[88] See, e.g., Borer, 92 Minn. L. Rev. 1165.

[89] Id.

[90]Id. at 963-64. Rice, however, discusses Schwartz’s piece which explains that too many choices in any market may lead to people making poor choices because the plethora of options is “so cognitively burdensome.” Rice also cites studies that have shown that “when more choices are available, the likelihood of investing in retirement vehicles such as 401(k) plans decline, and the quality of choices made among investors is worse.”

[91] Id. at 962.

[92] While such a program may be somewhat paternalistic, it is necessary to note that the entire system of fraud protection could be said to fall within the paternalistic category as well by arguing that the elderly and disabled are a more vulnerable class which may need added protections, as opposed to private, non-Medicare plans.

[93] Id. at 970. Rice suggests between six and fifteen plans, but that the number depends on the state.

[94] Rice, Reducing the Number of Drug Plans for Seniors at 966.

[95] Id.

[96]Id.

[97] This was noted in a comparable program involving competitive bidding for Medicaid providers in Arizona. See Id. at 977.

[98] Id. at 987.

[99] Id. at 989. Individuals frustration with choosing a Medicare program may be the reason why many elders will remain in their Part D program, rather than switching, even when their plan changes the medications it covers or increases its premium.See, Id. at 965.

[100] Borer, 92 Minn. L. Rev. 1165 (2008).

[101] See, 42 U.S.C. § 1395w-112(g); Borer, Modernizing Medicare at 1179. Note, CMS agrees that state laws on marketing of Part D plans are preempted by federal law. See Borer, n. 124 (citing CMS, Questiins and Answers on Preemption, available at http://www.ins.state.ny.us/orgo2008/rg70720.htm.).

[102] Id. at 1185.

[103] See supra, section II, see also¸ Id. at 1188, “Depending on plans to self-police themselves is a dangerous strategy on its face and does not work in practice.”

[104] Supra n.56.

[105] See generally, 42 CFR § § 423.2262.

[106]Borer, 92 Minn. L. Rev. at 1188.

[107] Id. at 1199. Borer points out that the fact that Attorney Generals are elected positions, they will respond to individuals  complaints about problematic Plans or marketing tactics.

[108] Fraud Target: Senior Citizens, Federal Bureau of Investigation,http://www.fbi.gov/scams-safety/fraud/seniors (last visited May 5, 2011.)

[109] Department of Health and Human Services, Information Partners Can Use on: Preventing Fraud (Oct. 6, 2006).

[110] Federal Trade Commission, FTC Consumer Alert: Medicare Part D Solicitations: Words to the Wise About Fraud.

© Copyright 2011

 

 

Washington Supreme Court Affirms Class Certification and Post-Accident Diminution in Value Award to Automobile Insureds

Recently posted in the National Law Review an article by Dana Ferestien of Williams Kastner regarding Moeller v. Farmers Ins. Co, of Washington wherein the Washington Supreme Court affirmed lower court rulings in favor of a plaintiff class of automobile insureds:

On December 22, 2011, in Moeller v. Farmers Ins. Co, of Washington, a 5-3 majority of the Washington Supreme Court affirmed lower court rulings in favor of a plaintiff class of automobile insureds seeking breach of contract damages against their insurer for failure to compensate them for the diminished value of a postaccident, repaired car.

The Supreme Court acknowledged that a majority of other jurisdictions have previously denied coverage for diminished value because an automobile policy’s reference to “repair or replace” unambiguously encompasses only a concept of tangible, physical value. But the Court disagreed with this view, emphasizing that Washington law imposes “presumptions in favor of the insurance consumer that are inherent in the rules of construction regarding insurance contracts.” The Court explained that, it “must read an insurance contract as an average person would read it” and that, from the point of view of the consumer, “the reasonable expectation is that, following repairs, the insured will be in the same position he or she enjoyed before teh accidenten enjoyed before the accident.”
© 2002-2011 by Williams Kastner ALL RIGHTS RESERVED

 

Is Coming Together to Form the Larger Same (or Multi) Specialty Medical Practice the Answer?

Recently posted in the National Law Review an article by David Schick of Baker Hostetler regarding solo medical  practitioners have come together to form larger same (or multi) specialty groups for the following reasons:

Many small or solo practitioners have come (or are considering coming) together to form larger same (or multi) specialty groups for the following reasons.  The principle reason is to get a leg up on managed care.  Managed care entities often take advantage of small or solo practitioners in the same geographic area by forcing them to accept lower reimbursements rates.  Small or solo practitioners, who join together in a single group, can effectively negotiate with managed care as a unit and obtain higher reimbursement rates.

This same principle applies to negotiating for lower malpractice insurance and group health, life and disability insurance premiums, as well as other employee benefits.  The larger groups are able to obtain discounts on the premiums they pay, because the insurance carriers are covering a larger population of physician providers or employees, thereby spreading the risk across a larger population, and thereby reducing the cost of coverage per physician or per employee.  These are the same principles Wal-Mart, Costco and other large businesses use when negotiating with vendors.  They use their purchasing power to influence the vendors to lower the costs because of the volume.

Purchasing power has another twist.  Small or solo practitioners, who come together to form a larger group, can use their own numbers and collective net worth to purchase the sophisticated equipment used to generate ancillary revenue.  A new sonogram machine, MRI, PET, CT or linear accelerator can cost hundreds of thousands or millions of dollars.  On their own, physicians cannot afford these items and banks will not lend them the money to purchase the same because the banks feel the risk is too great.  By coming together, physicians can spread the cost over their numbers and either purchase the equipment themselves and/or obtain financing to purchase the same.  Once again, there is safety in numbers and purchasing power eliminates the obstacle.

Of course, the reason physicians want to obtain this equipment is to obtain the ancillary revenues this equipment generates.  Physicians typically can only bill for the professional component or the component of the health care generated only by the physician’s efforts (i.e. the consult, the surgical procedure, etc.).  Hospitals, on the other hand, can bill a facility fee and/or fees for the images or tests the equipment generates.  These fees are often much higher than the professional component.  Physician groups, with the purchasing power to obtain this equipment on their own, can bill for both the professional and technical components.

The federal and state antitrust, Medicare fraud and abuse, antikickback and self-referral prohibitions prohibit groups of small or solo practitioners from negotiating with managed care and from sharing ancillary revenues when they are loosely organized in “name only”, and not legally organized and operated as a “true” group practice.  As a fully organized and operated group practice, the physicians are no longer competitors, they are on the same team.  The same is true for sharing ancillary revenues, so long as that sharing is done in a legally permissible manner.

The legal entity constituting the group practice can be virtually any form of legal entity including, but not limited to, a corporation, whether a C corporation or S corporation; a limited liability company; a limited liability partnership, etc.  However, the choice of entity analysis is an involved one and should not be taken lightly.  A properly trained corporate attorney with a tax and health care background should be consulted to put this together, as it is not simply a matter of filing articles of incorporation with the Secretary of State.

Next the entity needs an agreement between its shareholders, members or limited liability partners, as well as properly drafted employment agreements: to govern their relationship with each other; to set forth the manner in which they will be compensated and share in ancillary revenues; and to govern the parties obligations in the event the physician shareholders’, members’ or limited liability partners’ employment and relationship with the entity is terminated for reasons including, but not limited to, the physician’s death, disability, retirement, or by the entity with or without cause.

Typically, the practice owners also own interests in the building within which the practice is located; as well as other joint ventures or entities such as ambulatory surgical or imaging centers.  Properly drafted shareholder, buy-sell, operating and/or partnership agreements governing these other entities define the physicians’ rights, duties and obligations to each other during their association, and specify whether and how the departing physician is to be bought out in the event that association terminates.

I often hear the following objections to coming together, the first of which is the most common.  “I generate the most ancillary revenues and I should get all of the ancillary revenues I generate one for one”.  The permissible rules for sharing ancillary revenues do not permit this and this thought process is short sighted.  Typically, it only takes one conversation to convince this same physician that he can get a 100% of $50,000 worth of ancillary revenues on his own; or he can get 20% of $1,000,000 (depending on the permissible sharing method used) by coming together with other physicians to former a larger group that generates significantly more and different ancillary revenues, than he can on his own.

Another objection I hear is, “Our group compensates each other equally, their group compensates each other on productivity, and the other group compensates each other using a hybrid of the two.  Further, our group is lean and mean, our office is nice and efficient and our rent is much lower than the other group.  We cannot bear their higher overhead”.  These obstacles can be overcome by cost center accounting whereby the revenues generated, and expenses incurred, by one cost center can be allocated to that cost center.

I once brought together four practices that wanted to come together for all the reasons described above.  The fact pattern was not exactly as follows, but this will do for purposes of illustrating my point: the four practices were located in four different cities; one practice was used to sharing revenues equally, one practice was used dividing revenues based on productivity, one practice used a hybrid model of 50% equal sharing and 50% productivity based, and the fourth practice was a solo practitioner; two of the practices had very high end expensive offices, lots of granite, marble and expensive improvements, the other practices were more modest; one practice had six members to begin with, another five, another two and the last practice was a solo practioner. The members of the larger practices were significantly younger than the members of the smaller practices, but the older practitioners had more mature practices, longstanding community relationships and well established referral patterns.

Each practice had strengths and weaknesses, and they were all tired of being beat up by managed care forcing them to compete against each other.  They came to me to bridge their differences so they could peacefully and successfully coexist and change their prognosis for the future.  We formed an S corporation and prepared a sophisticated shareholders’ agreement to govern their relationship with each other.  We set forth decision making parameters that gave every member an equal voice in decision making, but also set forth specific parameters designed to protect the smaller practices from being out voted by the larger blocks on key issues including compensation, termination, etc.

We designed a cost center accounting and compensation arrangement that shared global overhead by number of physicians and allocated revenues and non-global expenses to the cost centers.  The group used their purchasing power to negotiate higher rates and to purchase malpractice and group health, life and disability insurance at a lower cost per man.  They also were able to eliminate duplicate positions across the group thereby further reducing overhead.  Finally, they were able to use their purchasing power to purchase sophisticated and expensive equipment and they began sharing the ancillary revenues therefrom.  They have grown a lot since the beginning.  However, they remain nimble, have little trouble governing themselves and have enjoyed very little physician turnover.

Who knows what lies ahead.  Are ACOs and physician/hospital integration the future?  What about comanagement of patients?  No one knows for sure, but some form of integration and/or comanagement will likely be in the future.  If so,the larger group is likely to have more leverage when it comes time to negotiating integration and comanagement arrangements with area hospitals.

It is the golden rule: He who has the gold makes the rules and patient control is the gold.  Control the number of patients, the care they need and manage their healthcare in a way that discourages duplication and over utilization, while maintaining their health and maximizing the chances they stay out of the system, and you control the flow of the health care dollar.  The country also gets healthier in the meantime and individual suffering can be reduced.

I represent hundreds of physicians all across Florida; and although many enjoy a nice lifestyle, not one of them ever told me they got into medicine to get rich.  They took an oath and they wanted to help people.  Hospitals, the federal government, and managed care entities cannot treat patients without you; and, although they serve a valuable purpose, they are not the front line of defense and are not the tip of the sword.  Never forget that.  The patient needs his physician now more than ever.  Let us see to it that the patient gets what he needs and you do not go broke delivering it.

© 2011 Baker & Hostetler LLP

Government Coercion As A Vehicle To Alter Healthcare

Posted on November 14, 2011 in the National Law Review an article by attorney Frank R. Ciesla of Giordano, Halleran & Ciesla, P.C.  regarding  the Massachusetts Legislature, which previously mandates health insurance for all, has now moved into its next stage of attempting to contain the cost of healthcare:

 

The front page of the New York Times on Tuesday, October 18, 2011 stated that the Massachusetts Legislature, which previously mandates health insurance for all, has now moved into its next stage of attempting to contain the cost of healthcare.  One way of containing the cost that has been applied around the globe is to regulate the rates charged by insurers, which forces insurers to regulate the rates paid to providers.  Another way is to set an overall budget for healthcare as is done in Canada or certain European countries.  As the Times describes the Massachusetts plan, the approach being considered there is a flat “global payment” to networks of providers for keeping patients well.   All of these approaches alter the way providers are paid and attempt to shift the risks to the insurance companies or the providers.  In my opinion, each of these approaches illustrates the use of the governmental power of coercion to alter the healthcare field.

This use of coercion is shown in various ways in the Affordable Care Act (ACA), by penalizing employers for not providing healthcare insurance so that employer provided healthcare is no longer “voluntary,” by penalizing individuals who do not obtain healthcare insurance, and by requiring the expansion by the states of the State Medicaid programs to cover a larger portion of the population.

Coercion is not new to the healthcare field.  The federal government has long used its power of coercion to compel individuals and employers to pay the Medicare tax, and while Medicare Part B is voluntary, higher income individuals who select Part B are required to pay a higher premium than the vast majority of individuals participating in Part B.  The Medicare and Medicaid programs, while “voluntary” for physicians but not for hospitals in New Jersey, sets the rates they pay.

One of the new approaches to cost control under the ACA is the creation of Accountable Care Organizations (ACO) in which some of the risk of patient outcomes is shifted to the providers.

What is missing so far in the discussion of ACOs and in the Massachusetts debate, is a general obligation on the part of the beneficiaries as to their compliance with medical instructions, as well as their election to live a healthy lifestyle.  The government has exercised some coercion in this area, for instance, with significantly higher taxes on cigarettes as well as the numerous bans on smoking in various places.  Society’s experience with Prohibition has made it clear that that is not the approach to take again, in the area of cigarettes, or quite frankly, in any other area.  It should be noted that we are seeing calls for the legalization of marijuana and the taxation of marijuana rather than continuation of the current prohibition against the use of marijuana.  A similar approach is being taken in the area of alcohol with higher taxes on alcohol.

Whether or not this coercive tool, taxation or in the case of smoking, prohibition in certain areas, will be extended to other activities or circumstances, such as obesity, which result in additional healthcare costs is yet to be seen.  However, the changing of the paradigm in the healthcare delivery system, from payment to providers for the care they render to patients (whether or not the party is compliant with medical directions or the patients choose an unhealthy lifestyle) to shifting the risk resulting from bad patient conduct to the providers, is a giant step into the unknown.  One question that will need to be addressed is what authority will providers have in this new paradigm to require patient compliance with both medical directives and with lifestyle changes.

© 2011 Giordano, Halleran & Ciesla, P.C. All Rights Reserved

2011 Wisconsin Act 49: Wisconsin Tax Law Amended to Conform with Federal Adult Child Coverage Requirements

Posted in the National Law Review an article by Alyssa D. Dowse and Timothy C. McDonald of von Briesen & Roper, S.C.  regarding Wisconsin’s state income tax law for health coverage provided to an employee’s adult child to the exclusion provided for that coverage under federal income tax law.

As expected, Governor Scott Walker has signed legislation to conform the exclusion under Wisconsin state income tax law for health coverage provided to an employee’s adult child to the exclusion provided for that coverage under federal income tax law. If an employer’s health plan extends coverage to an employee’s adult child, then, through the end of the tax year in which the child attains age 26, the employee will not be subject to either federal or Wisconsin state income tax on the value of that coverage. This is the case regardless of whether the child otherwise qualifies as the employee’s tax dependent. This change in Wisconsin law is effective for tax years beginning on or after January 1, 2011.

If employer health plan coverage is provided to an employee’s adult child after the tax year in which the child attains age 26, then, as under current law, the employee will be subject to federal and Wisconsin state income tax on the value of that coverage unless the child qualifies as the employee’s tax dependent for health plan purposes.

Governor Walker signed 2011 Wisconsin Act 49 (the “Act”), which amends Wisconsin tax law to conform the state income tax exclusion for coverage provided to an employee’s adult child to the federal income tax exclusion, on November 4, 2011.

©2011 von Briesen & Roper, s.c

Medicare Part B premiums for 2012 lower than projected

Recently posted in the National Law Review an article by U.S. Department of Human & Health Services regarding Medicare Part B premiums:

Health & Human Services

Affordable Care Act helps keep Medicare affordable 

The U.S. Department of Health and Human Services (HHS) announced that Medicare Part B premiums in 2012 will be lower than previously projected and the Part B deductible will decrease by $22. While the Medicare Trustees predicted monthly premiums would be $106.60, premiums will instead be $99.90. Earlier this year, HHS announced that average Medicare Advantage premiums would decrease by four percent and premiums paid for Medicare’s prescription drug plans would remain virtually unchanged.

Thanks to the Affordable Care Act, people with Medicare also receive free preventive services and a 50 percent discount on covered prescription drugs when they enter the prescription drug “donut hole.”  This year, 1.8 million people with Medicare have received cheaper prescription drugs, while nearly 20.5 million Medicare beneficiaries have received a free Annual Wellness Visit or other free preventive services like cancer screenings.

“The Affordable Care Act is helping to keep Medicare strong and affordable,” said HHS Secretary Kathleen Sebelius. “People with Medicare are seeing higher quality benefits, better health care choices, and lower costs. Health reform is also strengthening the Medicare Hospital Insurance Trust Fund and cracking down on Medicare fraud.”

Medicare Part B covers physicians’ services, outpatient hospital services, certain home health services, durable medical equipment, and other items. In 2012, the “standard” Medicare Part B premium will be $99.90. This is a $15.50 decrease over the standard 2011 premium of $115.40 paid by new enrollees and higher income Medicare beneficiaries and by Medicaid on behalf of low-income enrollees.

The majority of people with Medicare have paid $96.40 per month for Part B since 2008, due to a law that freezes Part B premiums in years where beneficiaries do not receive cost-of-living (COLA) increases in their Social Security checks. In 2012, these people with Medicare will pay the standard Part B premium of $99.90, amounting to a monthly change of $3.50 for most people with Medicare. This increase will be offset for almost all seniors and people with disabilities by the additional income they will receive thanks to the Social Security cost-of-living adjustment (COLA). For example, the average COLA for retired workers will be about $43 a month, which is substantially greater than the $3.50 premium increase for affected beneficiaries. Additionally, the Medicare Part B deductible will be $140, a decrease of $22 from 2011.

“Thanks in part to the Affordable Care Act, people with Medicare are going to have more money in their pockets next year,” said Centers for Medicare & Medicaid Services (CMS) Administrator Donald Berwick, M.D. “With new tools provided by the Affordable Care Act, we are improving how we pay providers, helping patients get the care they need, and spending our health care dollars more wisely.”

Today, CMS also announced modest increases in Medicare Part A monthly premiums as well as the deductible under Part A. Monthly premiums for Medicare Part A, which pays for inpatient hospitals, skilled nursing facilities, and some home health care, are paid by just the 1 percent of beneficiaries who do not otherwise qualify for Medicare. Medicare Part A monthly premiums will be $451 for 2012, an increase of $1 from 2011. The Part A deductible paid by beneficiaries when admitted as a hospital inpatient will be $1,156 in 2012, an increase of $24 from this year’s $1,132 deductible. These changes are well below increases in previous years and general inflation.

For more information on how seniors are getting more value out of Medicare, please visit:http://www.healthcare.gov/news/factsheets/2011/10/medicare10272011a.html

For more information about the Medicare premiums and deductibles for 2012, please visit:https://www.cms.gov/apps/media/fact_sheets.asp

© Copyright 2011 U.S. Department of Human & Health Services

How September 11 Changed Insurance

Recently posted in the National Law Review an article by Jared Wade of Risk and Insurance Management Society, Inc. (RIMS) regarding the impact on the entire insurance industry  after  September 11:

We are now more than 10 years removed from the worst terrorist attack in history. In the days and months following September 11, terrorism insurance weighed so heavily on the mind of both policyholders and insurers that the federal government was forced to add backstop capacity to the market.

But Jeff Beauman, vice president of all-risk underwriting for FM Global, explains that 9/11 affected much more than just one line of coverage. It arguably had a bigger impact on the entire insurance industry than even the vast losses suggest. Contract certainty was something that few talked about — and even fewer expected — prior to the attack.

Most insurance buyers will still tell you that they want their policies quicker, but improvement has been made. Furthermore, the number of lines involved in the claims made every insurer rethink its risk appetite. The industry, like the world, will never be the same.

RM: How did September 11 change insurance?

Jeff Beauman: Probably the biggest change I’ve seen has been a much higher interest in contract certainty. If you remember, in the months following 9/11, the concern that so many clients had, particularly those affected by the event, was that the policies they had purchased had not yet been issued. The industry as a whole had not been very good at getting policies issued quickly. Since that time, the industry has been working very hard to do so.

RM: Are clients still very concerned about contract certainty? How far along has the industry come?

Beauman: It’s always going to vary from one carrier to the next, but I do think that customers are much more appreciative of companies that are able to get policies issued on time-and [those] issuing policies where the language is very well understood by both parties. In terms of FM Global, we’re now issuing about two-thirds of our master policies before the effective date and 90% within 30 days.

What that means is that our clients have the written documentation very quickly after they decide to purchase coverage with us. Generally, I think, whether you talk to policyholders or underwriters, you will find that this emphasis on contract certainty has probably been a good thing for us as an industry.

RM: How so?

Beauman: It caused us to raise our game. Beforehand, you had a process by which policies would be issued “at some point,” and people came to accept it as normal because every [insurer] was equally bad. There was no good way for a client to compare one carrier to the next.

Now, you do have an expectation on the part of clients because, after big disasters, they have seen the importance of having that policy language issued. It’s something they now ask for. It gives the client a greater sense of confidence that they know what they have as part of their overall risk management strategy.

And the terrorism event of 9/11 helped to highlight the weakness the industry had in this area because there were so many claims being made without adequate policy documentation. There were disputes that received a lot of notoriety in the courts. So September 11 helped the industry improve.

RM: Was this because dealing with terrorism claims was so new and the specific policy language was so unfamiliar to everyone? Hurricane Andrew had many claims of its own, but did the particulars of the contract language matter less in that instance because hurricane claims had been dealt with before?

Beauman: Yes, that’s right. Part of what allowed the industry to not focus on contract certainty [in the past] was that they had some personal, first-hand experience to fall back on. Terrorism was so new to everybody and the event itself was so unusual, that it did cause a wake up. When you don’t have that personal experience to fall back on, you have to rely on policy language.

RM: There must have been a lot of people after 9/11 who believed that they had coverage for terrorism but weren’t sure what it consisted of.

Beauman: Exactly. In terms of the World Trade Center, limits were purchased under the presumption that the two buildings would never be damaged in the same event. And further complicating things was that it was what is considered a “clash event” because there were a lot of lines all involved in the same event, something no one had anticipated.

You had hull coverage for aviation because you had three airplanes involved. You had a lot of automobile policies that were affected. You had life insurance, obviously. You had property insurance. You had fine arts coverage. You had a lot of types of cargo insurance. You just had a lot of smaller lines that are not typically involved in the same occurrence. That forced insurers to re-evaluate their risk appetite and how they go about establishing their maximum lines.

RM: Has there ever been a “clash event” as broad as 9/11?

Beauman: No — and I would hope that none of us ever see an event like it again. It was the worst type of clash event because it was something that had never been imagined beforehand by anyone aside from the people who perpetrated it.

Take a typical event like Hurricane Irene that just happened. Underwriters understand that there is going to be wind damage. They understand there is going to be flood damage. They understand that there is going to be some damage to automobiles and buildings. They understand that there may be some people who lose their lives. Because they can visualize it, they can establish what their risk exposure might be, and they can operate their business comfortably depending on their risk appetite. 9/11 caused all underwriters to reconsider their risk appetite to make sure they weren’t over-extended.

———-

Jared Wade is senior editor of Risk Management.

Risk Management Magazine and Risk Management Monitor. Copyright 2011 Risk and Insurance Management Society, Inc. All rights reserved.

HHS Halts Implementation of the CLASS Program

Recently posted in the National Law Review an article written by Meghan C. O’Connor of von Briesen & Roper, S.C. regarding HSS’ announcement regarding CLASS Act:

The U.S. Department of Health and Human Services (HHS) announced plans today (October 14, 2011) to halt implementation of the Community Living Assistance Services and Supports (CLASS) Act. The CLASS Act is a voluntary, federally administered long-term care insurance program introduced in theAffordable Care Act (ACA). The program would have provided benefits to purchase long-term services and supports. Details regarding implementation and enrollment were to be announced by October 1, 2011.

Secretary Sebelius sent a letter to congressional leaders today noting no “viable path forward for CLASS implementation at this time.” The ACA conditioned implementation of the CLASS program on certification that the program would be actuarially sound and financially solvent for 75 years. However, HHS actuaries and the Congressional Budget Office could not find a way to meet these contingencies

Secretary Sebelius emphasized the continued need for affordable long-term care services and the lack of viable options in the current market.

©2011 von Briesen & Roper, s.c

The Financial Toll of the Arab Spring

Recently posted in the National Law Review an article by Jared Wade of Risk and Insurance Management Society, Inc. (RIMS) regarding political and social turmoil often disrupt business operations:

Political and social turmoil often disrupt business operations. And when we’re talking about revolutions like those seen throughout the Middle East in 2011, those disruptions — and the associated costs — amplify.

The Financial Times is here to provide some examples of just how much damage some companies have suffered. The start by noting a Grant Thornton survey from June that claims a whopping 22% of the world’s companies were affected by the Arab Spring. Globalization indeed.

International companies in sectors such as retail, travel and construction have unsurprisingly been early losers.

In July, Thomas Cook, the tour operator, said it expected operating profits this year of just £320m – compared with analysts’ estimates of £380m – because of declining business in Egypt, Tunisia and Morocco.

Cyril Sweett, a British consultancy and property company, warned last month that its next financial results would be hit because Middle Eastern turmoil had led to a number of projects being scrapped.

Other companies are struggling to collect payment for bills for projects disrupted by protest, armed conflict or regime change.

Dana Gas, a fuel producer heavily dependent on Egypt, is owed $200m by the country for invoices related to natural gas sales, according to Ahmed Al-Arbeed, chief executive, adding that some will be repaid this year.

Rentokil Initial, the pest-control to cleaning services company, said it would be “nice to get back” £4.8m it says it is owed for a rat-catching contract signed while Colonel Muammer Gaddafi was still in power in Libya, although it is as yet undecided on whether to revive its operations in the country.

Great anecdotes to help show the depth of the problem. And on the macro-level, here’s an infographic from Grant Thornton listing what percentage of companies in different regions have been negatively affected by the uprisings.



 

 

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