Compliance Update Health and Benefits

The United States Supreme Court Decides the Rutledge Case

In a previous article, we told you about a case that was argued in the United States Supreme Court on October 6, 2020.  That case, Rutledge, Attorney General of Arkansas v. Pharmaceutical Care Management Association, was decided by the Court in a unanimous opinion issued on December 10, 2020.

What Was The Case About?

To refresh your recollection, the State of Arkansas had passed a law, known as Act 900, regulating the price at which pharmacy benefit managers (PBMs) are required to reimburse pharmacies for prescription drugs.  While invisible to most plan participants, PBMs are an important part of most employer healthcare plans.

A PBM is an intermediary between a healthcare plan and a pharmacy.  When a plan participant goes to a pharmacy to fill a prescription, the participant may or may not have a co-pay.  Whether the participant has a co-pay or not, the participant expects that the cost of the prescription will be mostly paid by the plan.  Ultimately, the participant is right.  However, it is not the plan that makes a payment to the pharmacy.  The plan’s PBM pays the pharmacy, and the plan reimburses the PBM.

The problem that Act 900 sought to address is that the amount paid to the pharmacy by the PBM may bear no relation to either the amount paid by the pharmacy to acquire the prescription drug or the amount paid by the plan to the PBM.  The PBM enters into a contract with the pharmacy pursuant to which the PBM agrees to reimburse the pharmacy according to rates set by the PBM and known as the maximum allowable cost (MAC).  The PBM also enters into a contract with the plan pursuant to which the plan agrees to reimburse the PBM at a certain amount.  The difference between the MAC for a particular drug and the amount paid by the plan represents profit for the PBM.  However, in certain cases, it may only be the PBM that is making a profit.  That is because the MAC may be less than the pharmacy’s acquisition cost.  And, if that happens too often, a pharmacy may be forced out of business.

Act 900 attempted to resolve this problem by requiring PBMs to periodically update their MACs to ensure that the MAC for a particular prescription drug equaled the pharmacy’s acquisition cost.  In addition, Act 900 provided an appeal procedure whereby a pharmacy could challenge a PBM’s MAC when it was below the pharmacy’s acquisition cost.  Finally, Act 900 provided that a pharmacy could refuse to deliver a prescription drug to a plan participant if the PBM’s reimbursement rate was less than the pharmacy’s acquisition cost.

This case began when the Pharmaceutical Care Management Association (Association), a trade association of the some of the largest PBMs, sued the State of Arkansas in federal district court.  The Association claimed that Act 900 was preempted by the Employee Retirement Income Security Act of 1974 (ERISA) and, as a result, unenforceable.  The Association won in the District Court, and the District Court’s judgment was affirmed by the United States Court of Appeals for the Eighth Circuit.  The State filed a Petition for a Writ of Certiorari, which the Supreme Court granted.

The Supreme Court Finds No ERISA Preemption

In an opinion written by Justice Sotomayor, the Court reviewed the law of ERISA preemption.  It said that ERISA preempts any state law that relates to an employee benefit plan.  Further, a state law relates to an employee benefit plan if it has a connection with or reference to such plan.

The Court found that the purpose of ERISA was “to make the benefits promised by an employer more secure by mandating certain oversight systems and other standard procedures”.  It accomplished this by ensuring that an employer would not be subject to the differing rules and regulations of the various states.  “ERISA is therefore primarily concerned with preempting laws that require providers to structure benefit plans in particular ways, such as by requiring payment of specific benefits.”

Not every state law that affects an ERISA plan is preempted.  “This is especially so if a law merely affects costs.”  The Court discussed its earlier decision in New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Company, in which the Court held that a New York law that imposed a surcharge on hospital billing rates for plans other than Blue Cross Blue Shield plans was not preempted by ERISA.  In discussing the Travelers case, Justice Sotomayor wrote that:

Plans that bought insurance from the Blues therefore paid less for New York hospital services than plans that did not.  This Court presumed that the surcharges would be passed on to insurance buyers, including ERISA plans, which in turn would incentivize ERISA plans to choose the Blues over other alternatives in New York.  Nevertheless, the Court held that such an “indirect economic influence” did not create an impermissible connection between the New York law and ERISA plans because it did not “bind plan administrators to any particular choice.”

In Rutledge, the Court said that it is required to follow the holding of Travelers.

Act 900 is merely a form of cost regulation.  It requires PBMs to reimburse pharmacies for prescription drugs at a rate equal to or higher than the pharmacy’s acquisition cost.  PBMs may well pass those increased costs on to plans, meaning that ERISA plans may pay more for prescription-drug benefits in Arkansas than in, say, Arizona.  But “cost uniformity was almost certainly not an object of pre-emption.”

The Court also found that Act 900 does not refer to ERISA plans.  The reason that Act 900 does not refer to ERISA plans is that it is equally applicable to non-ERISA plans.  Since Act 900 does not have an impermissible connection to ERISA plans and does not refer to ERISA plans, it is not related to ERISA plans and is not preempted.

What Will Be The Impact of Rutledge?

This depends on whom you ask.  The State of Arkansas, as well as the over 30 other states with similar laws, will be pleased.  The states can now regulate the reimbursement rates that pharmacies are paid for prescription drugs to ensure that no pharmacy is forced to close because the MAC is less than the pharmacy’s acquisition cost.  The pharmacies are happy because, in states with such laws, they will no longer be forced to sell prescription drugs for less than cost.

On the other hand, the PBMs are not pleased.  Obviously, this could reduce their profit margins if they are required to increase their MACs.  The impact on prescription drug plans is less clear.  One of the arguments made by the Association before the Supreme Court is that PBMs will be forced to pass on increased costs to healthcare plans.  This will increase the cost of prescription drugs to the plans.  This may force plans to increase co-pays or eliminate certain coverages.  However, the Court’s role in this case was not to judge the wisdom of Act 900.  It was simply to determine whether it was preempted by ERISA.  And, since cost regulation does not relate to an ERISA plan, it found that Act 900 is not preempted by ERISA.

Health and Benefits

The Real Cost of a Premium Holiday

As group health insurance premiums rise each year, employers look for solutions to mitigate their increased costs. An emerging trend this year is “premium holiday”, which insurers are offering to make it seem like employers can save on coverage.

In reality however, this price adjustment trend rarely results in long-term savings and can easily result in employers paying more.

Premium Holidays Rarely Offer Sustained Savings

A “premium holiday” usually provides a break on premiums for one month, thereby seeming to reduce an employers’ health insurance costs for the year. Most of these programs skip an entire month’s premium for the first year that coverage is in place, although a few may offer a one-month discount instead.

However, these price adjustments rarely deliver on their promise of reducing overall costs.

Plans that offer a so-called “premium holiday” frequently come with increased costs both in the upcoming plan year and in any years thereafter.

For the upcoming year, a premium holiday can be used to make a policy’s annual premium appear artificially low. Offering a one-month discount on a policy that’s seeing a major rate increase can mask the increase to a significant degree.

In reality, the increase is usually still quite substantial even after the one-month premium discount is taken into account.

In future years, a policy’s premium can increase dramatically when a one-month premium holiday isn’t included in the renewal. When employers are no longer given a discount, their next policy premium not only increases by the annual rate increase, but they also have to take into consideration that they are paying for twelve months rather than eleven.

The result is that premium holidays often result in employers spending more on health insurance than they intend to or realize.

The Increased Costs That Premium Holidays Mask Are Significant

While the exact amount that employers end up paying for health insurance is specific to each employer and its policy, the increased costs that premium holidays mask can be substantial. To see just how much this scheme can actually cost an employer, consider the following example of an employer who pays $120,000 in annual health insurance premiums.

The employer is facing a rate increase of 24 percent for 2021, which equates to a $28,800 increase for the year based on its 2020 premium of $120,000. As an incentive to renew, the employer is offered a one-time premium holiday that saves it $12,400 in 2021.

Although this looks attractive at first glance, the total premiums for the year come to $136,400 – an increase of 14 percent!

Moreover, the employer’s premium increase for 2022 will be based on a premium of $148,800, even though the employer only paid $136,400 in 2021.  Even if the insurer does not raise rates in 2022, but only eliminates the premium holiday, the employer will pay $148,800 in 2020, an increase of almost 10% percent.

There Are Other Ways to Mitigate Rising Health Insurance Costs

For an employer faced with rising health insurance costs, there are other ways to mitigate this expense. One way is through a self-funded health plan. A self-funded health plan can reduce an employer’s cost of providing health insurance to its employees, while still providing high quality coverage.

Contact us to learn more about how self-funded health plans can help mitigate these rising insurance costs. One of our team members would be happy to discuss the benefits of a self-funded health plan for your business.

Risk Management

Captive Insurance for the Mortgage Industry

The mortgage industry is flourishing.  Low interest rates and migration out of population centers mean more people are looking for homes, which means more people are looking for mortgage loans. However, with increased business comes increased exposure. While record lending may fuel growth, it also adds risk.

Growing Risks and Exposures

The mortgage industry faces many different types of risks.  Whether a business is a lender or a loan originator, there is exposure. The pandemic has caused shutdowns, forcing many businesses to close; some permanently.  This has resulted in layoffs and job losses. The employment rate, which was recently at an all-time low, is now more than double what it was before the pandemic.

When borrowers lose their jobs there is an increased chance of a loan default. Unemployment, underemployment, and a struggling economy can be tell-tale signs that the housing market is going to suffer, if not now soon. And, as a rule of thumb when the housing market struggles, the mortgage industry suffers as well.

In some cases, a loan originator that sold the loan may be required to buy the loan back or refund commissions.  These losses go directly to the business’ bottom line and are in addition to more traditional risks, such as E&O, legal liability, employee-related claims, and reputational risk that any business may face.

A business may be able to insure against some of these risks.  However, not every risk can be covered commercially, and some insurance coverages may be prohibitively expensive.  Fortunately, there is a solution when the commercial market will not do.  And that is a captive insurance company.

A captive is an insurance company formed by a business to cover the risks and exposures of the business.  It enables a business to buy insurance that is tailored to the specific needs of the business.

Coverage Possibilities

RMC has worked with the mortgage industry for many years. We have helped mortgage companies form and manage very successful captive insurance companies.  Some of the risks that a captive can cover are:

  • Administrative Actions – fines and penalties by governing bodies
  • Collections Risk / Clawbacks – based on EPO’s and EPD’s
  • Directors & Officers – exposures for the officers of the company
  • Deductible Reimbursement – reimburse deducible layers of commercial insurance risk
  • Cyber – broad coverage
  • Loss of Key Contract – losses of revenue because of a lost contract (think Fannie/Freddie Mac)
  • Medical Buydown – layer of employee medical insurance should the company meet the requirements
  • Regulatory Change – operational or revenue losses based on regulatory changes
  • Reputational Risk – covers revenue lost due to a reputational exposure

Mixing Commercial Risk into a Captive

A captive insurance company can cover many types of standard commercial risks.  Some risks can be fully covered by the captive, instead of through the traditional commercial market.  Other risks may be better handled by a combination of a captive and a commercial insurer.

E&O, Fidelity Bonds, Professional Liability, Workers Compensation, General Liability, and Property can all be written by the captive or by a combination of a captive and commercial insurer. In some cases, it may make sense to use a fronting carrier where an admitted company is required. In other cases where an admitted carrier is required, a business can reduce premiums by increasing its deductible, and the captive can write a deductible reimbursement policy.

Taking on the Risk of Your Health Insurance

A mortgage company, like any business, has employees.  And, like any business, health care is a major expense.  Most businesses are unaware that a captive can help them reduce their healthcare costs.  By using its captive to assume some of its healthcare risks, a business can significantly reduce its overall spending while still providing its employees with first-class healthcare.

To discuss your options and to see if a captive insurance company is right for your business, contact RMC today at [email protected] or 239-298-8210.

Health and Benefits

Reducing Costs with Narrow Network Health Insurance: What Employers Need to Know

Rising health insurance costs continue to burden businesses with increasing overhead expenses. The trend is likely to accelerate as a result of the Covid-19 pandemic.

Premiums for employer-sponsored health plans have steadily increased from 1999 to 2018, more than doubling their costs in the 20-year span. Large employers expected to see a 5- or 6-percent increase in 2020 before Covid-19 struck.

Now, Covered California is projecting premium increases of 4 to 40 percent for employer-sponsored plans nationwide this year — and filings with the District of Columbia support those numbers. Aetna and United Health have asked regulators to approve increases of 7.4, 11.4, 17.4 and 38.0 percent for various plans in the District.

In light of this trend, more and more businesses are turning to narrow network health insurance plans as one way to mitigate rising premium expenses. These plans were fairly uncommon when premiums were much lower. But 18 percent of large companies (i.e., 5,000-plus employees) offered a narrow network plan in 2018. While fewer smaller companies offered these plans, many smaller companies are following the lead of larger employers and are beginning to turn to these plans as a cost-mitigation strategy.

If your business is looking to mitigate the rising costs of health insurance, a narrow network health insurance plan can be the solution. When used appropriately, a narrow network health insurance plan can effectively address rising health insurance costs for both employers and employees. The following are some of the most common questions businesses have about these plans.

What Are Narrow Network Health Insurance Plans?

Narrow network health insurance plans limit provider choice. They are defined by a narrow network of healthcare providers. A narrow network may include physicians, specialists, hospitals, urgent care clinics and other medical providers; it just doesn’t have as many options as a broad network plan. While there isn’t a universal mark for exactly what constitutes a narrow network, all of these plans are more restrictive than their broad network plan counterparts.

In restricting the provider networks, narrow network health insurance plans are similar to health maintenance organizations (HMOs). HMOs commonly also have more restrictive lists of in-network providers.

Are Narrow Network Health Insurance Plans Compliant with the Affordable Care Act?

Not only are narrow network plans generally compliant with the Affordable Care Act (ACA), but they have long been a primary component of the ACA’s cost-controlling strategy.

When the ACA adopted marketplace exchanges back in 2014, approximately 70 percent of the health insurance plans made available through the exchanges were either narrow network or ultra- narrow network plans. These types of plans continue to dominate the individual marketplace today, accounting for 72 percent of marketplace plans in 2019. (For the 2014 survey, a narrow network health insurance plan was defined as a plan where 30 percent of a region’s 20 largest hospitals did not participate in the plan.)

Just as the ACA marketplace exchanges can offer narrow network health insurance plans, an employer can generally offer these plans without worrying about non-compliance penalties. Many narrow network health insurance plans meet all of the ACA requirements. A health insurance professional who has experience with these types of plans can make sure that your business chooses an ACA compliant plan.

How Do Narrow Network Health Insurance Plans Help Control Employers’ Health Plan Costs?

Narrow network health insurance plans help mitigate costs by prioritizing cost, while also ensuring that plan participants have adequate access to healthcare.

First and foremost, narrow network health insurance plans limit the providers that the plan works with. This is often done by lowering reimbursement rates for providers. This results in limiting in-network providers to those providers willing to accept the plan’s rates. In most cases, much more affordable coverage is secured.

Second, these plans usually provide very limited or no coverage for out-of-network claims, which are generally more expensive. By limiting out-of-network coverage, a narrow network health insurance plan can hold costly out-of-network claims in check. In comparison, a plan that offers more out-of-network coverage would have to pay more for these often-expensive claims.

Third, these plans tend to not require primary care referrals for specialist visits. This is a point of distinction between narrow network plans and HMOs, which usually do require referrals. The savings is not insignificant. Even though a single referral visit might not result in a huge claim, the cumulative savings across all participants is substantial when these claims are eliminated.

Results of These Reasons

For these reasons, a narrow network health insurance plans reduces the cost of healthcare. As a result, an insurance company that offers narrow network health insurance plans is generally able to charge lower premiums.

An alternative for cost mitigation is to require its employees to pay a larger share of premiums. However, this is no way to engender employee satisfaction and usually is not the best option. Thus, a narrow network plan is seen by many business leaders as a better cost-mitigation tool.

Narrow network health insurance plans available through marketplace exchanges can save individuals and families about 16 percent on their premiums. Detailed data on employer savings isn’t as readily available because businesses have adopted these plans at a slower pace than individuals. But businesses can normally expect to see their costs drop when adopting a narrow network health insurance plan.

The best way to determine the savings that your business can realize by implementing a narrow network health insurance plan is to engage an insurance professional to conduct an analysis based on your specific situation and plan details. An insurance professional familiar with narrow network and broad network health insurance plans can assist with completing an analysis.

How Do Narrow Network Health Insurance Plans Help Control Employees’ Health Plan Costs?

Employees likewise benefit from the lower premiums that narrow network health insurance plans offer. Unless an employer keeps the savings to itself, employees can expect to pay less for a narrow network health insurance plan than they would for a broad network health insurance plan.

Additionally, as discussed above, an employee does not need a primary care physician referral in order to see a specialist. An employee’s copay may be only $30 or $50 for a single referral. If the employee needs multiple referrals to specialists in a year, though, the savings can add up to hundreds of dollars. This can be an especially valuable to patients that have complicated health issues and families that have multiple people who need to see specialists.

Do Narrow Network Plans Provide Sufficient Access to Coverage?

While narrow network health insurance plans generally meet ACA requirements and usually provide adequate coverage for most employees, they do have limited networks of providers. An employer might find that it has some employees whose coverage needs are not sufficiently met by a limited healthcare network.

For example, some narrow network health insurance plans may not have certain specialists in-network within a given region. This can create an issue for employees who need to see out-of-network specialists and pay for the specialized care out of pocket as a result.

How Do Narrow Network Health Insurance Plans Fit Into Tiered Plan Structures?

To address the risk of insufficient network coverage, some businesses turn to a tiered plan structure. Tiered plans consist of two or more different health insurance plans. One of these plans is a narrow network health insurance plan, and another is a broad network health insurance plan.

With a tiered plan, employees can select and pay for whichever level of coverage best suits their situation. Those who don’t need extensive coverage can save on premiums by selecting the narrow network option. Those who need more extensive coverage can procure it through the higher-priced broad network health insurance plan.

A tiered plan might not save businesses as much as a strict narrow network health insurance plan could since some employees will likely opt for the more expensive broad network health insurance plan. Nonetheless, this structure is an effective way to reduce health plan premiums while still meeting employees’ needs.

In addition, a tiered network plan can reduce the risk of over-insuring some employees, since employees can tailor their plan selection to their individual needs.

What Other Challenges Come with Implementing Narrow Network Health Insurance Plans?

The limited healthcare provider networks of narrow network plans might create a few challenges during implementation of a plan. However, each of these can be addressed with a well thought-out implementation.

First, employees may not even know the providers who are in their current healthcare network or realize how the list of in-network providers will change. A 2015 study found that 44 percent of people who purchased health insurance for the first time weren’t aware of the providers who were in their network. Often, some people never bother to find out.

To address this concern, human resources representatives can educate employees on the providers in a narrow network (or even a broad network) during open enrollment. This is a best practice regardless of whether a business offers a narrow network health insurance plan or a different type of plan.

Second, some employees might discover that their current providers are not in their employer’s new narrow network health insurance plan. This is a challenge that may be managed by helping employees find new providers who are in-network. It’s generally not an issue after implementation, once employees have made any necessary provider changes. Also, employees who are unwilling to change providers can stay with their current providers by paying the out-of-network costs.

Third, some plans may lack providers in certain specialties. This should be kept in mind as businesses evaluate plan options, and it’s a good reason to consider a tiered plan structure (see Tiered Plan Structures).

Fourth, some employees who need specialized medical care may have to drive long distances for appointments and procedures. Businesses can accommodate employees who are in this situation by offering more paid sick leave. HR representatives can remind employees that a mileage deduction for medical-related driving is available if employees meet certain requirements. The medical mileage deduction for 2020 is 17 cents per mile.

Can Narrow Network Health Insurance Plans Be Paired with Health Savings Accounts?

Health savings accounts (HSAs) are tax-advantaged savings accounts that can be used for medical expenses. These accounts can only be set up in conjunction with high deductible health plans (HDHPs), which meet specific deductible and limit requirements as defined by the IRS.

For 2020, HDHPs must have deductibles of at least $1,400 for individuals or $2,800 for families. Their maximum out-of-pocket limits cannot exceed $6,900 for individuals or $13,800 for families.

HDHPs and narrow networks technically refer to different aspects of health insurance plans. However, the two features are frequently used in conjunction to mitigate costs. Thus, many narrow network plans are HDHPs and can have HSAs associated with them.

Having an HSA option can be helpful when introducing narrow network health insurance plans to employees. Businesses that haven’t yet switched to an HDHP can highlight the HSA as a beneficial feature that can help with both in-network and out-of-network costs. Businesses that already have an HDHP option can remind employees of the HSA feature, potentially using it to quell concerns about increased out-of-network costs.

Do Narrow Network Health Insurance Plans Have Broad or Narrow Pharmacy Plans?

Narrow network health insurance plans can be paired with either broad or narrow pharmacy plans. Choosing these two elements separately gives employers greater ability to adjust their health and pharmacy plan offerings to their budgets and their employees’ expectations.

How Can Employers Find a Narrow Network Health Insurance Plan?

For help exploring narrow network health insurance plan options, contact RMC Group. As experienced professionals in the industry, our team can perform a provider audit to compare your current plan’s in-network providers to those who participate in a narrow network. We’ve assisted multiple businesses throughout the country with narrow network health insurance plans, and we’re ready to help yours too.

Health and Benefits

What Does the CARES Act Say About “Balance Billing”?

What is Balance Billing?

Everybody knows about “balance billing”, even if they have never heard the term.  “Balance billing” refers to the bill that a patient gets from a medical provider for the difference between the provider’s charge and the amount paid by insurance.  Whether a patient gets a bill and the amount of the bill may depend upon whether the medical provider is “in-network” or “out-of-network”.

Balance Billing and the CARES Act

Politicians and academics have been talking about this problem for years.  However, nobody has been able to do anything about it.  Until now – at least in part.  The CARES Act provides $100 billion in relief aid for hospitals and other medical providers.  As a condition of receiving money from this fund, a provider is required to sign an agreement attesting to the receipt of the money and agreeing to certain terms and conditions.  Among those terms and conditions is the following, which appears on the Department of Health and Human Services website:

The Secretary has concluded that the COVID-19 public health emergency has caused many healthcare providers to have capacity restraints.  As a result, patients that would ordinarily be able to choose to receive all care from in-network healthcare providers may no longer be able to receive such care in-network.  Accordingly, for all care for a presumptive or actual case of COVID-19, Recipient certifies that it will not seek to collect from the patient out-of-pocket expenses in an amount greater than what the patient would have otherwise been required to pay if the care had been provided by an in-network Recipient.

In addition, a spokesperson for the Department said:

The intent of the terms and conditions was to bar balance billing for actual or presumptive COVID-19.


Like any government pronouncement, this one is racked with ambiguity.  For example, it should be easy to identify an actual COVID-19 patient.  But, who is a “presumptive COVID-19 patient”?  This and many other questions will have to be answered by further guidance.  However, this may be an important step forward in ending “balance billing”.

If you are interested in learning more about balance billing and other health insurance solutions for your business, contact RMC Group.


Health and Benefits

Stop Paying High Health Insurance Costs

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Imagine as a business owner not having a double-digit increase in your health insurance next year.

See the problem is that healthy groups are letting the health insurance companies keep the profits.

If a company has a relatively healthy workforce and good claims experience, what’s actually happening is the health insurance companies are letting those other companies be subsidized because of your good claims experience.

Is that really fair?

Now and what can happen is with a fully insured plan such like a Blue Cross or Blue Shield, your claims experience is a closely held secret and that doesn’t really help the diligent business owner.

Those companies that are really good at claims, really participate in the best way that they possibly can.

So that’s why you’re seeing those increases each and every year.

So by controlling those costs and that claims experience you can actually improve your cash flow and have protection against those catastrophic losses.

See with better cash flow you’re going to be able to offer more to your employees.

You’ve got transparency of claims, which is going to help you in further years to help reduce those costs.

It can also help you to duplicate those existing plans.

One of the biggest problems is people go well I don’t really want to go to that because it’s not going to be similar to what I have…

That’s just not true!

We can duplicate it or make them substantially the same as what you currently have.

And what this will also do is you are protected on the upside against those spiraling catastrophic claims because you’re protected by a reinsurance cap if you will so do.

You want to stay with what you’re currently doing or do you want to try something new that’s going to help your cash flow?