Health and Benefits

Health Care Service Provider Audit

When switching to a new health insurance plan, how will I know if my employees can continue to use their preferred physicians, hospitals and facilities?

When an employer changes its health plan, it often means moving from one provider network to another.  An employer must consider the benefits of moving to the new network against the potential that some of its employees may need to find new doctors.

To assist employers with this analysis, RMC offers a healthcare provider audit. This audit compares the penetration of proposed service provider networks in the geographic regions that apply to eligible employees. The audit is based on a sample of primary care physicians, specialty care physicians, and facilities identified as providers of interest by the employer and its employees. Results are presented in an easy-to-understand format, which allows for easy comparison between the network alternatives.

Provider Networks

Health insurance arrangements utilize provider networks to offer members access to medical services at pre-negotiated discount rates. Provider networks are often assembled by health insurance companies. Healthcare providers who elect to participate in a network agree to provide their services to network members at pre-negotiated discount rates, rather than at their usual “off-the-rack” rates.  Healthcare providers benefit from this arrangement through the volume of plan participants steered to them by the network. Plan participants benefit by gaining access to the network’s discounted rates for medical care.

Provider networks range in size from regional to national, and in breadth of access from narrow managed care networks to broad open access networks. Customized local networks can be assembled with significant member volume (i.e., plans with thousands of insured members). The network options available vary by location and insurer. Multiple networks may be offered in situations where an employer requires broad regional or nationwide coverage, or where the array of choices available to plan members includes multiple insurance carriers.


An employer is considering switching health insurance carriers at renewal. However, the employer is concerned that switching insurance carriers might mean that some of its employees will lose access to their existing doctors or clinics. To ensure a smooth transition to a new carrier, the employer requests RMC to conduct a healthcare provider audit. The employer will use the healthcare provider audit to determine how employees will be impacted by the decision to change insurance carriers.

The first step in the audit is for RMC to provide the employer’s employees with a temporary link to a portal where each employee can identify the doctors and/or facilities they would like to include in the audit. The employees also identify the importance of each doctor and/or facility on a scale of 1 to 10; 1 being of low importance and 10 being of high importance. Lastly, they identify if they would like to keep the name of the doctor or facility confidential.

The window for submissions is typically limited to five business days, which can be extended at the employer’s request. Employee submissions on the portal are sent directly to RMC. Once the portal closes, RMC prepares an audit of the networks to assess compatibility with the providers identified by the employees. The results of the audit are provided in a simple table format, as shown below.

Table 1 – Service Provider Audit Results Example #1

In this example, Network A provides the least access to the requested service providers – two doctors, one infusion facility, and one major hospital do not accept Network A.

Network C provides more access when compared to Network A, but one facility and provider – marked confidential by an employee – do not accept Network C.

Network B provides the most access, with only one facility that does not accept Network B.

The relative importance of each provider also factors into the decision-making process. For example, the below audit was prepared using two networks.

Table 2 – Service Provider Audit Results Example #2

Network A provides the least access to the requested service providers – three providers do not accept Network A.

Network B provides the most access so the requested service providers – one provider does not accept Network B.

One might assume that Network B is the obvious choice since more doctors on the list accept Network B. However, the one doctor that does not accept Network B was marked as a 10 out of 10, in terms of importance. The sum of the doctors and facilities that do not accept Network A only adds up to 6. Therefore, an argument could be made that Network A is a better option.

When faced with a decision like Example #2, the relative importance of each provider, volume of participants, provider specialty, and a host of other factors should be considered in the decision-making process.

Risk Management

Bad Facts Make Bad Law

One of the first things that a first-year law student learns in law school is that bad facts make bad law.  Well, the most recent example of the truth of that adage was delivered by the United States Tax Court in an opinion filed on March 10, 2021, in Caylor Land & Development, Inc., et al v. Commissioner T.C Memo. 2021-30, another victory for the IRS in a captive insurance case.  However, the facts in this case were so bad and so untethered from the typical captive insurance arrangement that it is difficult to see how this case will have any negative impact on the captive insurance industry.

Findings of Fact

The lead petitioner in the case, Caylor Land & Development, Inc. (Caylor Land), was an Arizona corporation engaged in commercial and residential real estate development.  Its owner, Rob, was the son of the founder of another general building contractor, Robert Caylor Construction Company (Caylor Construction).  Over time, Rob bought Caylor Construction from his father and also formed a number of different entities representing different construction projects.  The Tax Court found that this was not uncommon in the real estate business, where every project carries a separate risk.  The Tax Court also found that Rob ran the “empire” through Caylor Construction.

It is important to note the relationship between Caylor Construction and Caylor Land and between Caylor Land and the other members of Rob’s “empire”.  It appears that most of the revenue generated by Rob’s business ventures was concentrated in Caylor Construction.  Those funds were then distributed to the other entities through “consulting fees” paid to Caylor Land.  For example, the Tax Court found that, in 2009, Caylor Land had $1.4 million in gross revenue, of which $1.2 million were consulting fees paid by Caylor Construction.  Caylor Land then paid much of what it received from Caylor Construction to the other entities, also as “consulting fees”.  The “consulting fees” paid by Caylor Land to the other entities in Rob’s “empire” constituted a significant part of the revenue of those entities.

Why does this matter?  First, the Tax Court questioned whether the payments called “consulting fees” were really consulting fees.  There were no written agreements between any of the parties and no records of what consulting actually took place.  In addition, the entities used almost all of the “consulting fees” to pay insurance premiums.

The Captive

In 2007, Rob engaged Tribeca to form and manage a captive insurance company called Consolidated, Inc. (Consolidated).  Consolidated was incorporated under the laws of Anguilla in December, 2007.  Here is where the facts get a bit sketchy.  The Tax Court found that Caylor Construction paid insurance premiums of $1.2 million in December, 2007, which it deducted on its 2007 tax return.  It thought this unusual, because Caylor Construction had not yet provided any underwriting information to Tribeca and the actual insurance policies were not issued until sometime in 2008.  The Tax Court found this strange, because the policies were “claims-made” policies but were not issued until after the policy coverage period had ended.  In addition, it found that Caylor Construction had paid premiums of $1.2 million for, at most, ten days of coverage in 2007 and possibly for “none at all”.

What the Tax Court did not say in its opinion, but must be true, is that the policy coverage period was the calendar year.  Otherwise, if the policy coverage period were December, 2007, to December, 2008, a policy delivered in early 2008, would not have been issued after the expiration of the policy coverage period.  In addition, premiums paid in December, 2007, would not have been for ten days of coverage.

IRS Audit

The IRS audited all of the entities for the 2009 and 2010 tax years.  It denied Caylor Construction’s deduction for the “consulting fees” paid to Caylor Land.  In addition, it denied a deduction for the payments made by the other entities to Consolidated.  The cases of all taxpayers were consolidated were trial.

Since the years under audit were 2009 and 2010, whatever happened in 2007 should have been immaterial to the result in this case.  However, the Tax Court clearly was affected by what happened in 2007.  In addition, it found that this pattern repeated itself in subsequent years – premiums were paid before the policies were even priced, and the policies were not issued until after the expiration of the policy coverage period.  In addition, the Tax Court found that, while premiums were paid by all of the entities, actual policies were issued to only a small number of the Caylor entities.  If the other entities were even covered under the policies, they were covered as additional insureds.

The Tax Court’s Opinion

In the opinion, the Tax Court said that there are three issues in the case:

  1. whether the “consulting fees” paid by Caylor Construction to Caylor Land were deductible as ordinary and necessary business expenses;
  2. whether the payments to Consolidated were “insurance expenses”; and
  3. whether the IRS could impose accuracy-related penalties.
1. Consulting Fees

The Tax Court resolved this issue fairly easily.  It found that there was no consulting agreement between Caylor Construction and Caylor Land, no invoices for consulting services and no evidence that consulting services were actually provided.  As a result, the money transferred from Caylor Construction to Caylor Land was more like a distribution of profits and not an ordinary and necessary business expense.

2. Insurance

The Tax Court’s analysis of whether the payments made by the various Caylor entities to Consolidated were insurance premiums should be familiar to anyone who has read the opinions in the Avrahami, Reserve Mechanical and Syzygy cases.  In fact, the judge in the Caylor case is the same judge who decided Avrahami.

The Tax Court repeated that insurance premiums are generally tax deductible as ordinary and necessary business expenses.  However, money set aside as “a loss reserve or a form of self-insurance are not”.  So, the issue in the case was whether the amounts paid to Consolidated were insurance premiums or a loss reserve.

The Tax Court also repeated the familiar refrain that the Internal Revenue Code does not define the term “insurance”.  That has been left to case law, and the Supreme Court has said that insurance has four characteristics:

  • risk-shifting;
  • risk-distribution;
  • insurance risk; and
  • whether an arrangement looks like commonly accepted notions of insurance.

Finally, the Tax Court said that it would focus on two of those factors – risk-distribution and commonly accepted notions of insurance – as it had done in Avrahami, Reserve Mechanical and Syzygy.

a. Risk Distribution

Risk distribution depends upon the concept of the “law of large numbers”.  By accepting premiums and risk from a large number of insureds, an insurance company protects itself against the adverse experience of a small number of insureds.  In Avrahami, Reserve Mechanical and Syzygy, the captives used a reinsurance pool to establish risk distribution.  In each of those cases, the Tax Court had found that the pool was not insurance, so it could not be used to establish risk distribution.  The implication is that, if the pool had been properly managed and, as a result, had been found to be insurance, it could have been used to establish risk distribution.

However, in the Caylor case, this issue was moot.  Although Tribeca maintained an “insurance pool” and told its clients that they had to participate in the “insurance pool” in order to have adequate risk distribution, Consolidated chose to not participate in the pool.  Of all the bad facts in this case, this is perhaps the worst and most curious.  It is also the reason why this case may have little impact on the captive insurance industry as a whole.  Why would a captive insurance company make the conscious decision to forego the best tool available to distribute risk among other captives and other insureds?

Instead of participating in a reinsurance arrangement to distribute risk, Consolidated chose to rely on the fact that it was providing insurance to twelve brother and sister entities.  This argument was based on the holding of Revenue Ruling 2002-90, in which the IRS said that there would be sufficient risk distribution, if a captive provided insurance to at least twelve related entities and no entity represented less than 5% or more than 15% of the total risk insured by the captive.

Unfortunately for the petitioners, the Tax Court did not buy this argument.  First, the Tax Court said that the number of related entities is not determinative.  Instead, the issue is the number of risk exposures assumed by the captive that matters.  This position is very troubling for a couple of reasons.  First, the Tax Court relied on cases that involved captives that were not microcaptives to support its position.  These cases involved multi-national corporations and thousands of insureds.  No microcaptive could possibly satisfy that test.  Second, and perhaps, most importantly, the Tax Court completely ignored Revenue Ruling 2002-90, which is one of the few pieces of guidance that the IRS has issued in the area of captive insurance and has never been withdrawn.  If a court can overrule the stated position of the IRS, no taxpayer can be safe from persecution.

What’s even more disturbing is that the Tax Court did not even have to ignore the holding of Revenue Ruling 2002-90 in order to achieve its desired, and probably pre-determined, result.  The Tax Court found that Caylor Construction represented more than 30% of the risk assumed by Consolidated.  So, Consolidated could not satisfy the requirements of Revenue Ruling 2002-90, even if the Tax Court were to have given effect to that guidance.

b. Commonly Accepted Notions of Insurance

The Tax Court next discussed whether Consolidated was operated in accordance with the commonly accepted notions of insurance.  The Tax Court acknowledged that it did not have to reach this issue, since the failure of risk distribution would be enough to uphold the tax deficiency.  However, this did not stop the Tax Court from discussing this issue.

There are five factors that a court takes into consideration when trying to determine whether an arrangement looks like insurance:

  • whether the company was organized, operated and regulated as an insurance company;
  • whether the company is adequately capitalized;
  • whether the policies were valid and binding;
  • whether the premiums were reasonable and the result of arm’s-length bargaining; and
  • whether claims were paid.

i. Organized, Operated and Regulated

The Tax Court acknowledged that Consolidated was organized as an insurance company under the laws of Anguilla, although there was some question whether Anguilla had ever actually regulated the company.  Apparently, the taxpayer did not even introduce a copy of Consolidated’s insurance license into evidence.  However, the Tax Court found that did not matter whether Consolidated was regulated like an insurance company, because it found that Consolidated was not operated like an insurance company.

First, the Tax Court was troubled by the way in which the policies were issued.  There was expert testimony that Consolidated backed into the premiums.  According to the expert, no other insurance company priced policies as Consolidated had.  In addition, the expert testified that no other insurance company would issue a policy after the expiration of the policy coverage period, as Consolidated uniformly did.

Second, the Tax Court was troubled by the way in which Consolidated paid claims.  The Tax Court found that, over a period of four years, the insureds had submitted two claims.  In each case, Tribeca, as captive manager, had requested documentation to support the claims.  However, instead of providing such documentation, Rob simply overruled Tribeca and ordered Consolidated to pay the claims.  The Tax Court found that no insurance company would pay a claim without an adequate showing that the claim was covered by the policy.

ii. Adequately Capitalized

The Tax Court found that Consolidated met the minimum capitalization requirements of Anguilla and that is all that is required.

iii. Valid and Binding Policies

As discussed above, the Tax Court found that the policies written by Consolidated were “claims-made” policies.  This means that the policies only cover claims that occur during the policy coverage period and are reported to the insurance company during the policy coverage period or within sixty days thereafter.  However, the Tax Court also found Consolidated did not issue the policies until after the expiration of the policy coverage period.  The Tax Court found this to be abnormal.  No insurance company issues a policy after the expiration of the policy coverage period when there is no longer a risk of loss.

iv. Reasonable Premiums

The Tax Court found that the premiums were not actuarially determined.  Instead, they were “backed into” in order to add up to $1.2 million.  The biggest issue was that Tribeca did not ask for “loss runs” from the insured.  In addition, Tribeca did not review the loss history of any prior policy coverage period before renewing a policy at the same premium as before.  No insurance company would determine premiums, let alone issue a policy, without reviewing an insured’s loss history.

v. Payment of Claims

As discussed above, the Tax Court found that Consolidated’s claims procedure was abnormal and unlike any real insurance company’s.

For all of the foregoing reasons, the Tax Court found that Consolidated was not an insurance company in the commonly accepted notions of insurance.

3. Penalties

The IRS imposed accuracy-related penalties under section 6662 of the Code.  The Tax Court upheld the penalties, and this is, perhaps, the most important takeaway of the case.

Penalties can be imposed in a tax deficiency case if the taxpayer understates the amount of its taxable income by a certain percentage or if the taxpayer is negligent in asserting a tax position.  The Tax Court found that both apply in this case.

However, a taxpayer can avoid penalties if it can establish “reasonable cause” for its position.  In most cases, reasonable cause requires a taxpayer to show that it reasonably relied upon the advice of an independent tax professional.  The tax professional may not have a conflict of interest, must have knowledge and experience in the area and must have all of the facts.

The taxpayers claimed that they consulted with Tribeca, their CPA and their tax attorney before participating in the captive insurance transaction.  However, there were problems.  First, Tribeca was the captive manager and had an obvious conflict of interest.  A taxpayer cannot rely on the advice of the promoter of a transaction to establish reasonable cause.  Second, both the CPA and the tax attorney had advised the taxpayers that they were not familiar with captive insurance and that they were not comfortable with the transaction.  In addition, both testified at trial that they provided no advice to the taxpayers.

A captive insurance company is a complex undertaking.  Taxpayers are always advised to seek independent, knowledgeable advice before entering into the arrangement, if for no other reason than to make sure that they understand the nature of the transaction.  However, Caylor provides another reason to seek independent advice.  It is the only way for a taxpayer to avoid penalties.

Risk Management

Cyber Insurance: Does it Cover Malicious Software?

Does Cyber Insurance Cover Ransomware?

In a previous blog, we told you that an insurance policy is a contract and that its meaning is subject to general principles of contract law.  In the case, G&G Oil Co. of Indiana, Inc. v Continental Western Insurance Co., decided March 18, 2021, the Indiana Supreme Court provided another example of that legal axiom.

The Insurance Policy at Issue

The plaintiff in the case, G&G Oil Co. of Indiana, Inc. (“G&G”), purchased an insurance policy (the “Policy”) from the defendant, Continental Western Insurance Co. (“Continental Western”).  The Policy contained a number of different coverages, one of which was “Commercial Crime Coverage”.  The Commercial Crime Coverage part of the Policy included a “Computer Fraud” provision, which provided that:

We will pay for loss or damage to “money”, “securities” and “other property” resulting directly from the use of any computer to fraudulently cause a transfer of that property from inside the “premises” or “banking premises”:

  1. To a person (other than a “messenger”) outside those “premises”; or
  2. To a place outside those “premises”.

The Claim for Coverage under the Policy

One day, G&G discovered that its hard drives had been encrypted and that it was unable to access its computer systems.  Further, it found a message stating “To decrypt contact [email user].  Enter password.”

G&G consulted with the FBI and was advised that it would need to contact the hackers in order to negotiate the release of its computer systems.  G&G did contact the hackers, who demanded a ransom to release its servers.  G&G paid the ransom, and its computer systems were restored.

G&G filed a claim with Continental Western to recover the ransom paid to the hackers.  However, Continental Western denied the claim.  First, it determined that computer hacking was specifically excluded from the Policy because G&G had declined that coverage in another part of the Policy.  Second, Continental Western found that the ransom was voluntarily paid by G&G to the hackers.  The hackers did not “transfer funds directly” from G&G.

G&G filed a lawsuit against Continental Western.  In the trial court, each party filed a motion for summary judgment.  The trial court granted Continental Western’s Motion for Summary Judgment finding that G&G’s loss was not “fraudulently caused”, as required by the Policy, but was the result of theft.  In addition, it found that G&G’s payment to the hackers was not a loss “resulting directly from the use of a computer” but was “a voluntary payment to accomplish a necessary result”.

G&G appealed the decision of the trial court to the Court of Appeals, where it did not fare any better.  The Court of Appeals held that “the hijacker did not use a computer to fraudulently cause G&G to purchase Bitcoin to pay as ransom” and that “the hijacker did not pervert the truth or engage in deception in order to induce G&G to purchase the Bitcoin”.  The Court of Appeals found that this ground was sufficient to uphold the decision of the trial court and, as a result, did not decide whether G&G’s loss resulted directly from the use of a computer.

The case was then transferred to the Indiana Supreme Court for review.

An Insurance Policy is a Contract

The Indiana Supreme Court said that there were two issues to be decided.  Is ransomware “fraudulent conduct” under the Policy?  And is the payment of a ransom to hackers a loss that results “directly from the use of a computer”?  The answer to both questions involves the interpretation of the Policy language.  And, when interpreting an insurance policy, the Court recognized that:

. . . an insurance policy is a contract like any other . . . but we do apply some specialized rules of construction in recognition of the frequently unequal bargaining power between insurance companies and insureds.  One such rule is that courts construe ambiguous terms against the policy drafter and in favor of the insured.

However, policy language will not be deemed ambiguous simply because the parties to the contract interpret it differently.  Instead, policy language is ambiguous only if it is susceptible to two or more reasonable interpretations.  And, whether an interpretation is reasonable is not determined from the perspective of the parties to the policy but from the perspective of an “ordinary policyholder of average intelligence”.

“Fraudulently Cause a Transfer” is Unambiguous

For reasons not pertinent to this article, the Court found that the term “fraudulently cause a transfer” is not ambiguous.  It found that its normal meaning, based both on caselaw and the dictionary, is “to obtain by trick” or deception.  The issue for the Court, therefore, was whether the encryption of G&G’s computer systems was obtained by trick or deception.

Now, to get into the legal weeds a bit because this case was decided on motions for summary judgment, the standard of review was different.  A motion for summary judgment essentially asserts that there is no genuine issue of material fact; that a trial to determine the facts is not necessary; and that, as a result, the trial court can decide the case as a matter of law.  Therefore, when an appeals court reviews a grant of summary judgment, it first needs to consider whether there are genuine issues of material fact.  And, if it decides that there are genuine issues of material fact, then the proper remedy is to remand the case to the trial court for trial; not to enter judgment for one of the parties.  That is what happened here.

In its initial claim letter to Continental Western, G&G stated that:

It is our belief that the hijacker hacked into our system via a targeted spear-phishing email with a link that led a payload downloading to our system and propagating through our entire network . . .

The Supreme Court found that this allegation in G&G’s claim letter was enough to defeat Continental Western’s motion for summary judgment but was not enough to award summary judgment in G&G;s favor.  Not every ransomware attack is necessarily fraudulent.  “For example, if no safeguards were put in place, it is possible a hacker could enter a company’s servers unhindered and hold them hostage.  There would be no trick there.”  Because G&G could not establish that its computers were hacked by trick or deception, and Continental Western could not establish that G&G’s computers were hacked as a result of G&G’s negligence or its failure to adopt ordinary safeguards, neither party was entitled to summary judgment.  Therefore, the case would have to be remanded to the trial court for trial on this issue.  That is, of course, unless the Court found that G&G’s loss did not result directly from a computer as a matter of law; in which case, it could uphold summary judgment for Continental Western.

The Payment of Ransom Resulted Directly from a Computer

G&G claimed that its loss resulted directly from a computer because it would not have had to pay ransom without the hacking of its computer.  Continental Western claimed that the payment of ransom was voluntary and, as a result, the payment did not result directly from a computer.  The voluntary nature of the payment broke the chain between the hacking and the payment.

The Supreme Court said that the dispute required it to interpret the policy language “resulting directly from the use of a computer”.  Again, for reasons not pertinent to this article, the Court said that the term “directly” means immediate or proximate.  It requires a straight-line chain of events between the hacking and the payment.  There could be no intervening cause to disrupt the chain of events.

The Supreme Court found that the payment of the ransom was proximately caused by G&G’s need to access its computer systems.  Without access to its computers, its business would have been disrupted, and it would have suffered even greater loss.  The payment was voluntary only in the sense that G&G was fully aware that it was making the payment.  It had no choice.  It was made under duress.  As a result, the Supreme Court found that the payment of the ransom resulted directly from a computer, and G&G was entitled to summary judgment on this issue.

What Does This Case Mean?

So, does this case answer the question that was asked at the beginning of the article?  Does cyber liability insurance cover ransomware?  Not yet.           

While G&G was successful in overturning the judgment of the lower courts, it has not yet recovered under the Policy.  It simply earned the right to a trial on the issue of whether the ransom paid to the hackers is covered under the Policy.  In the end, it may prevail.  But, again, it may not.  Whether it prevails will depend upon whether it can establish that the encryption of its servers was “fraudulently caused”.  The moral of the story is that the time to understand an insurance policy is before a claim is filed, not after.  You can be sure that, when G&G purchased the Policy from Continental Western, it never expected that a claim would result in a lawsuit.  It expected to be protected against this type of loss.  However, at this point, we do not know whether there will be a happy ending for G&G or for Continental Western.

A business looking for insurance needs the advice of an experienced professional.  An insurance professional can help you identify the risks that your business faces and make sure that you obtain the right policy to cover those risks.  That might mean negotiating with the insurance company to include coverages that are not normally contained in their standard policy form.  It may also mean eliminating exclusions that rob an insurance policy of its relevance.  In addition, an experienced insurance professional may be able to introduce you to alternative risk management strategies, such as a captive insurance company.  With a captive insurance company, a business owner can tailor its insurance coverage to provide its business with the ultimate in insurance protection.

Press Release

Jessica George Joins RMC as Commercial Lines Account Executive

RMC Group is pleased to announce that Jessica George has joined the company as a Commercial Lines Account Executive. Jessica is responsible for maintaining relationships with our business clients and soliciting new business for the Property and Casualty division of RMC Group.

Jessica George
Jessica George

“I’m excited to be part of RMC’s expanding P&C division and am looking forward to contributing to its growth,” Jessica said.

Jessica brings 15 years of experience in the insurance industry to RMC Group.  She previously worked for Gulfshore Insurance Agency and Gallagher Lutgert in similar Commercial Lines roles.

Jessica attended FSW State College and holds a Property and Casualty General Lines (Florida 2-20) license.

Michael Rindenau, Director of Marketing with RMC Group, commented, “Jessica has more than 15 years of account management experience, in-depth insurance knowledge and high standards of professionalism making her uniquely qualified to handle the day to day needs and requirements of our clients. She will be an integral member of our team at RMC Group.”

Press Release

Courtney Boles Appointed to Gilbert-Insured Trust Board

Courtney Boles, Captive Risk Consultant for RMC Group, was recently appointed to the Town of Gilbert Self-Insured Trust Board.

The Board is responsible for the operation of the Town of Gilbert’s self-funded medical and dental plans. The Trustees provide oversight of plan administration and financials and make recommendations to the Town Council regarding risk retention/reinsurance options and funding requirements.

Courtney Boles Headshot
Courtney Boles – Captive Risk Consultant

“I’m excited to serve on the Gilbert Self-Insured Trust Board and have an opportunity to help the Town of Gilbert provide the best Health, Dental, and Workers Compensation benefits for their employees in an efficient and cost-effective manner. The Town of Gilbert is focused on the future with a mission to Anticipate, Create, and Help People,” Courtney said. “It’s good to see the town’s approach to risk management reflects this commitment and I’m looking forward to using my experience in the self-insured space to support their goals and give back to a place I love.”

Courtney joined RMC Group’s Captive Insurance division in September 2020, and is responsible for building relationships and soliciting new business. Courtney concentrates on the Southwest United States.  However, she helps business owners with their risk throughout the entire country.

Health and Benefits

Employer Challenges with Medicare-Eligible Employees

An increasing number of employers are facing Medicare-related health insurance issues, and these issues are expected to only become more prevalent in the coming years. Here is an overview of the issues from the underlying causes to how employers might navigate them.

Medicare-Related Health Insurance Challenges Are Increasing

Two trends are contributing to the overall increase in Medicare-related health insurance challenges for employers.

First, older Americans are simply working longer.  While this isn’t a new trend, the Bureau of Labor Statistics projects that this trend will continue, with about one-third of seniors age 65 to 74 expected to be working in 2029. Even among seniors age 75 and older, the BLS expects more than 10 percent of the demographic to be working at the end of the decade.

Second, the Social Security full retirement age can be higher than the eligibility age for Medicare.  While a person can retire and begin receiving reduced Social Security benefits at age 62, the earliest full retirement age is 66 and for people born after 1960, it is 67.  In addition, benefits increase if an employee works beyond their full retirement age, maxing out at age 70.  This means that there could be a two-year gap, where an employee becomes eligible for Medicare at age 65, but will not be fully eligible for Social Security until age 67. Many people may choose to work beyond their Medicare eligibility birthdate as a result.

The result is that Medicare-related health insurance challenges are not something that employers can afford to ignore. Many employers are already facing with these issues, and those that aren’t will probably face them soon.

Medicare is a Four-Part Health Insurance Plan for Seniors

Medicare is, of course, the nationally subsidized health insurance plan that is available to those 65 and older.  The program consists of four main parts:

  • Part A: Generally, covers stays in hospitals, skilled nursing facilities and certain at-home care. Most enrollees aren’t charged a premium.
  • Part B: This usually covers doctor’s visits, outpatient exams, and tests. Premiums are usually charged.
  • Part C: Medicare Advantage plans are offered as alternatives to “standard” Medicare plans, and they may have different rules and out-of-pocket expenses. These plans are offered by approved private insurers, which charge premiums.
  • Part D: This part covers prescription drugs. These plans are offered by private insurers, which charge premiums.

Because Medicare Part A is premium-free, many employees who have access to employer-sponsored plans may choose to enroll in this part of Medicare alone.  Instead, they may rely on their employer-sponsored plan to cover office visits, outpatient services, and diagnostic testing.

Medicare Eligibility Begins at Age 65

A person becomes eligible for Medicare at age 65 and can enroll during the three months before the month in which they turn 65, the month in which they turn 65 or the three months after they turn 65.  When a person enrolls after their 65th birthday, coverage may apply retroactively for up to six months.

A person who does not enroll (or prove equivalent coverage) when first eligible for Medicare may have to pay a penalty if they enroll later.

Working May Impact an Employee’s Decision to Enroll in Medicare

Working part- or full-time does not affect Medicare eligibility, but it may impact an employee’s decision whether to enroll in Medicare.  The decision to enroll depends on an employer’s size and an employee’s coverage needs.

An eligible person working for an employer with fewer than 20 employees is required to enroll in Medicare coverage or face higher premiums later. An eligible person working for an employer with 20 or more employees can forgo Medicare coverage, as long as they have equivalent or better coverage through their employer or through their spouse’s employer.

Whether an eligible employee chooses to enroll in Medicare is a personal decision that depends on personal health, family coverage needs, employer-sponsored plan features, income level, and other factors. Many employees may elect to, at least, enroll in the free Medicare Part A coverage.  However, some will delay Medicare enrollment altogether.

Medicare Can Overlap with Employer-Provided Health Insurance

When an employee is both enrolled in Medicare and covered by their employer’s plan, one will provide primary coverage and the other will be secondary. Whether Medicare is primary or secondary depends upon the size of the employer.

When an employer has fewer than 20 employees, Medicare pays first and the employer’s plan pays second.  When an employer has 20 or more employees, the employer’s plan pays first and Medicare pays second.

Medicare Isn’t Compatible with Health Savings Accounts

Employees who are covered by a high-deductible health plan (HDHP) can contribute to a health savings account (HSA).  However, an employee may not contribute to an HSA, if they are enrolled in Medicare.  As a result, an employee’s decision whether to enroll in Medicare may depend upon the value they attach to the ability to make future contributions to an HSA.

Navigating Medicare Issues and Self-Funded Plans

Whether a Medicare-eligible employee enrolls in Medicare or stays in their employer’s health plan is a difficult decision for an employee.  However, it is also a challenge for employers that want to mitigate increasing healthcare costs by adopting a self-funded health plan.  Whether a self-funded health plan option is viable for a particular employer may depend upon the mix of an employer’s employees.  There is not a one-size-fits-all solution. Instead, each situation must be taken on a case-by-case basis and should be navigated with expert guidance.

RMC can provide the expert guidance that an employer needs with a consultative risk management approach.  RMC’s Medicare consulting services provides businesses with a clear path to a successful self-funded health plan transition.

To speak with a knowledgeable consultant at RMC, contact us today. One of our representatives will be happy to assist you and your business.

Press Release Risk Management

Vote Now for RMC’s Captive Employees

Voting for the Captive Review Power 50 has started and runs through April 12, 2021. Anyone in the captive community can nominate individuals they believe should make the cut on the prestigious list.

We have nominated two of our RMC employees and would love for you to vote for them as well!


First, we have nominated Mark Elwell, Executive Vice President of Risk, for Captive Service Professional. Mark is responsible for new program development and overall managment of the Captive and Property & Casualty Departments.

Second, we have nominated Courtney Boles, Captive Sales Consultant, for Captive Service Professional. Courtney not only brings new captives to the table, she also manages and services her captive clients.

And lastly, we have nominated Jessica Saba, Captive Administration Manager, for One to Watch. Jessica manages the day to day operations of the captives for RMC from regulatory compliance to client engagement. She is the point of contact for all captive questions.


Captive Review is looking for the best of the best in the captive insurance industry, dedicated professionals who are collegial, innovative, committed, visible, and have shown excellence over the past year.

Even during a pandemic, Mark and Jessica have been busy growing our captive department with the help of our sales team. Let’s show them our support with votes to get on this well-respected list.

Click here to vote!

Press Release

Scott Strenger Joins RMC as Executive Director

RMC Group is pleased to announce that Scott Arlen Strenger has joined the company as Executive Director, Property and Casualty Division.  He will also contribute sales to RMC’s Captive, Pension, and Health operations.

Scott A. Strenger
Scott A. Strenger

As Executive Director, Scott will be responsible for recruiting large commercial insurance clients to RMC’s Property & Casualty division, as well as developing relationships with new insurance carriers and oversight of the division. His goal is to deliver the best possible insurance coverage to clients based on traditional and alternative insurance market options.

Upon joining RMC Group, Scott commented, “After years of working for the alphabet shops, RMC Group is a breath of fresh air. From an active P&C Division to owning its own reinsurance company to having the very best middle market Captive Manager, RMC Group is well positioned for success.  In addition, with a 45-year history of being a closely held family firm, we can do whatever the big publicly traded shops do without putting investors interests before our clients.”

Scott continued, “We report to our clients, not shareholders who are only interested in quarterly profits. We are not only a national company, but an international company as well with a London office. I truly believe RMC Group is the only industry household name that isn’t…yet!”

Scott’s Experience

Scott brings 35 years of experience as a Strategic Advisor to both Middle Market and Multi-National Companies to RMC. Scott prides himself on his accessibility to his clients and the ability to see insurance from his clients’ perspective.  His in-depth knowledge of Property and Casualty insurance products and outstanding insurance carrier relationships will make him an important member of RMC Group.

Scott is a licensed insurance agent in the state of Pennsylvania, and a graduate of Rutgers University and Whittier Law School. Scott has worked for Marsh & McLennan, Aon, and World Insurance Associates. He has increased market share in every insurance vertical he has focused on. His clients do not leave, and he can boast a 96% retention rate over a long career.

Ray Ankner, President & CEO of RMC Group, commented, “Scott is a proven Property & Casualty expert with a number of years’ experience in the industry. He recognizes the need for innovative solutions, understands the markets, and puts his clients first.”

Ray continued, “Scott’s experience will be invaluable to drive business to our Property & Casualty division, our other divisions, and to build on our reputation as a leader in risk management.”

Press Release

RMC Group Expands Its Property and Casualty Division

RMC Group is pleased to announce that two team members have passed their Resident Customer Representative Insurance Exam. Kathleen Gill and Kelly Wild passed their state exam and are now licensed Florida 4-40 Customer Representatives.

The 4-40 Customer Representative License allows an individual to transact insurance in an office as a salaried employee of a General Lines Agent or Agency. Before taking the 4-40 exam, they had each received their Professional Customer Service Representative (PCSR) designation.

“We’re proud of their hard work and determination to further their careers,” commented Ashley Simpson, RMC’s Human Resources Manager. “And excited for them to continue to grow in their roles here at RMC.”

With two new customer service representatives in its Bonita Springs headquarters, along with new hires, Michael Rindenau and Joy Savasta-Lagan, RMC Group continues to expand its Property and Casualty division.

Health and Benefits

Memo on COVID Relief Package for 2021

On December 27, 2020, the Consolidated Appropriations Act of 2021 (the “Act”), was signed by President Trump.  While the Act is mostly known for its $600 payment to most Americans making less than $75,000 per year and the expansion of unemployment benefits, it also impacts employers in a number of ways.  This article discusses a few of those provisions.

1. Flexible Spending Accounts

Many employers maintain what is known as a “Cafeteria Plan”, which enables their employees to prefund certain expenses on a tax-advantaged basis.  An employer’s Cafeteria Plan may include a flexible spending account (“FSA”) for healthcare expenses and an FSA for dependent care expenses.  The Act changes some of the rules that govern both healthcare and dependent care FSAs.

A. Changing Election

Generally, an employee is permitted to make an election regarding participation in an FSA only once per plan year, without a “change in status”.  In addition, the election is generally required to be made before the start of the plan year.  The Act provides that, for plan years ending in 2021, an employee may change the amount of his or her contributions to an FSA during the plan year, without a change in status, as long as the total of the contributions does not exceed the statutory maximum.  Any change in the employee’s election will be effective prospectively.

B. Carryover Amounts 

FSAs used to be subject to a “use it or lose it” rule.  However, the Internal Revenue Code now permits an employee to carry over unspent funds remaining in his or her healthcare FSA at the end of one plan year to the next plan year.  An added benefit is that the carryover amount does not count against the maximum reimbursement amount for the following plan year.  However, the amount that an employee may carry over is limited.  For plan year 2021, the maximum carryover amount was $550.  The Act suspends this limitation for plan years 2020 and 2021.  Under the Act, an employee may carry over the entire remaining balance in his or her healthcare FSA to the following plan year.  The Act also extends this carryover provision to dependent care FSAs.  Prior to the Act, the carryover provision covered only healthcare FSAs.

C. Extension of Grace Period

An employer’s Cafeteria Plan may include a “grace period”.  During the grace period, an employee may use funds remaining in his or her FSA at the end of a plan year to pay costs incurred in the following plan year.  There are no limits on the amount that may be used in the next plan year.  However, the grace period cannot extend more than two and one-half months into the next plan year. Both healthcare FSAs and dependent care FSAs may provide a grace period.  The Act changed the upper limit of the grace period for plan years ending in 2020 or 2021.  For plan years ending in 2020 or 2021, the grace period can extend up to twelve months.

A plan may not have both a grace period and a carryover provision.  What is the difference?  A grace period generally does not limit the amount of funds, which may be used in the next plan year but does limit the period during which such funds can be used.  A carryover provision limits the amount that may be carried over from one plan year to the next but does not limit the period during which the funds can be used.  However, since the Act changed the grace period to twelve months and eliminated the dollar limitation on carryover amounts, there does not seem to be much difference between a grace period and a carryover provision for 2021.

D. Extension Period for Reimbursements

A participant is generally permitted to obtain reimbursements from an FSA only while actively covered by the employer’s Cafeteria Plan.  Under the Act, an employee may continue to receive reimbursements from a plan for the balance of the plan year, including any grace period, during which his or her participation in the plan ceases.  This provision applies only to healthcare FSAs and not dependent care FSAs.

E. Plan Amendment 

The foregoing plan provisions are permissible, not mandatory.  This means that an employer may offer a Cafeteria Plan but is not required to.  In addition, an employer’s plan may contain a carryover provision or a grace period but also may contain neither.  In order to add or change a carryover or grace period provision, an employer must adopt an amendment to its plan.  Generally, amendments must be adopted prospectively.  For 2020 and 2021, the Act permits an employer to amend its plan retroactively.  The amendment must be adopted by the last day of the first plan year after the plan year for which the amendment is to be effective.  That means that, for a 2020 calendar year plan, the amendment must be adopted by December 31, 2021.  For a 2021 calendar year plan, the amendment must be adopted by December 31, 2022.

2. Paycheck Protection Program

The Coronavirus Aid, Relief, and Economic Security Act (“the “CARES Act”), which was signed into law on March 27, 2020, created the Paycheck Protection Program (“PPP”).  The purpose of the PPP was to support small businesses in retaining and paying employees.  In addition to adding new money to the existing PPP program, the Act made other changes to the PPP program.

A. Second Draw

The Act creates what is known as a “second draw”.  This enables employers that received a PPP loan during the first phase of the program to apply for a second PPP loan.  In order to be eligible for a second draw, an employer must have:

i. no more than 300 employees;

ii. used or will use the full amount of the first PPP loan; and

iii. experienced a reduction in revenue of at least 25% for a 2020 quarter compared to the same 2019 quarter.

Like the original PPP program, the second draw is administered by lenders authorized by the Small Business Administration. A business that desires to apply for a PPP loan, whether a so-called “first draw” under the CARES Act or a “second draw” under the Act, should contact their lender.

B. Eligible Expenses

The intent of the PPP program is for loan proceeds to be used for payroll expenses.  However, both the original PPP program under the CARES Act and the revised PPP program under the Act permit loan proceeds to be used for expenses other than salary.  The Act expands the percentage of loan proceeds that may be used for expenses other than salary from 25% to 40%.

C. Deductibility

There was some uncertainty under the CARES Act whether an employer whose loan was forgiven could also deduct the business expenses paid for with the loan proceeds.  The IRS took the position that an employer could not receive both loan forgiveness and deductions.  The IRS characterized this as double-dipping.  The Act makes clear the intention of Congress that a business may receive loan forgiveness under the PPP and deduct the business expenses paid for with the loan proceeds.

3. Employee Retention Credit

The CARES Act created an Employee Retention Credit (“ERC”), which provided a credit for eligible employers for payroll taxes paid by the employer.  To the extent that the employer’s payroll taxes exceeded qualified wages, the credit resulted in a refund to the employer.  The Act amends the ERC in a number of ways.

A. Extension

The Act extends the term of the ERC to June 30, 2021.  Previously, the Act was set to expire on December 31, 2020.  So, employers can now take advantage of the ERC through the first six months of 2021.

B. Eligibility

The Act expands the number of employers eligible for the ERC.  Under the CARES Act, the ERC was available to employers with fewer than 100 employees.  The Act extends the ERC to employers with fewer than 500 employees.  In addition, in order to be eligible for the ERC in 2021, an employer must be prohibited from fully or partially engaging in a trade or business as a result of a governmental order or its revenue during one of the first two quarters of 2021 must be 80% less than its revenue during a comparable quarter in 2019.  The CARES Act required a reduction in revenue of 50% or more.

C. Amount of Credit

The amount of the ERC is 70% of an employee’s “qualified wages” paid from January 1, 2021, through June 30, 2021.  The maximum amount of an employee’s qualified wages is $10,000 per quarter.  So, the maximum ERC per employee per quarter is $7,000.  The amount of the ERC under the CARES Act was 50% of an employee’s annual wages.

D. Coordination with PPP 

Under the CARES Act, an employer could not take advantage of both the PPP program and the ERC in 2020.  The employer had to choose one or the other.  The Act retroactively eliminates that restriction.  An employer that received a PPP loan in 2020 can retroactively claim the ERC for wages that were not paid with the PPP loan.  This is a huge benefit for employers that received a PPP loan in 2020; one that is not shared by employers who forsook a PPP loan in 2020 because the ERC provided a greater benefit.  They do not have the option of retroactively applying for a PPP loan for the same period for which they received an ERC.  A business that did receive a PPP loan in 2020 should consult its tax and legal advisors to determine whether it is also eligible to receive the ERC.

4. Health Plan Provisions

A. Surprise Billing

“Surprise billing” most often occurs in the context of emergency care.  When an employee requires emergency care, the employee is often unable to confirm whether the hospital or doctor is “in-network”.  As a result, the employee may be surprised when he or she gets a bill for the difference between the agreed-upon amount charged by the employee’s in-network provider and the amount charged by the out-of-network provider.

The Act addresses the problem of surprise billing by treating the care provided by the out-of-network provider as in-network for purposes of calculating the employee’s share of the cost of treatment.  As a result, an employee’s obligation is the same whether the treatment is received in-network or out-of-network.  However, this restriction does not cover all medical care and extends only to the point where the employee is stable and able to make informed decisions about his or her treatment.

The provisions of the Act regarding surprise billing go into effect on January 1, 2022.  However, regulations are supposed to be issued by July 1, 2021.

B. Reporting and Disclosure Requirements

The Act imposes a number of reporting and disclosure requirements on group health plans.  Beginning with plan years starting on or after January 1, 2022, group health plan identification cards must show in-network and out-of-network deductibles, out-of-pocket maximums, and a telephone number and website through which a participant can find certain information such as which hospitals and urgent care centers have relationships with the plan.  While an employer needs to be aware of this obligation, the delivery of identification cards is usually the responsibility of the plan’s TPA.

Also beginning with the first plan year after January 1, 2022, if an employer receives notice that an employee is scheduled to be treated by an out-of-network provider, the employer is required to notify the employee that the provider is not in-network.  In addition, the notice must provide the employee with a good faith estimate of the cost of the treatment, the plan’s financial responsibility for the treatment, the employee’s share of the cost and how much the employee has to pay before reaching the plan’s out-of-pocket maximum.  Again, while the employer needs to be aware of this obligation, it is generally the TPA that will provide the notice to the plan participant.

The Act also requires group health plans to submit certain information to the Departments of Health and Human Services, Labor and Treasury.  The first report is due December 27, 2021, and subsequent reports are due on each June1 thereafter.  The information required to be provided includes:

1. the dates of the plan year;

2. the number of participants and beneficiaries;

3. each state where the plan is offered;

4. the 50 most popular brand prescription drugs used by plan participants;

5. the 50 most expensive prescription drugs used by plan participants;

6. the 50 prescription drugs with the greatest increase during the plan year;

7. total spending on health care by the plan broken down by hospital costs, provider costs for primary care and specialty care and prescription drugs;

8. the average monthly premium paid the employer and the plan’s participants; and

9. rebates.

As with the other reporting requirements, the information will need to be gathered by the plan’s service providers.  It seems likely that regulations will be issued prior to December, 27, 2021, more clearly setting forth an employer’s obligations under the Act.