HDH Newsletters

New Medicare Secondary Payer
Reporting Requirements

Responsible Reporting Entity (RRE) Registration Extended to September 30, 2009

Background
During the last several months, there has been a flurry of information shared about the new Mandatory Secondary Payer (MSP) reporting requirements contained in the Medicare, Medicaid, and SCHIP Extension Act of 2007 (Act). Section 111 of the Act requires an employer that is deemed a Responsible Reporting Entity (RRE) to report all liability (insured or self-insured), no-fault, and workers’ compensation claims involving a Medicare-eligible claimant to the Department of Health and Human Services Centers for Medicare & Medicaid Services (CMS).

Some of the criteria provided for determining RRE status remains open to interpretation, and industry leaders are currently working with CMS to further clarify the definition.

CMS has recently extended the RRE registration deadline from June 30, 2009 to September 30, 2009, giving firms more time to understand the new provisions, determine their RRE status, and implement new reporting processes to ensure compliance.

Understanding RRE Status
Some questions remain regarding exactly which employers qualify as an RRE. For most insurance programs, the RRE will be the insurer as in most cases it is the insurer that is financially responsible to make payments to the Medicare beneficiary.

However, if you are a self-insured entity or if there is an element of self-insurance, such as a self-insured retention (SIR) included in your liability or workers’ compensation program, and you are financially responsible for making payments to the Medicare beneficiary, then you are the RRE. For self-insured plans with excess coverage, you will be the RRE for any payments made directly (or through a Third Party Administrator) to a beneficiary up to your self-insured retention. The excess carrier will be the RRE for any payments it makes directly or through a TPA to a beneficiary above the retention. An employer without liability insurance is also considered an RRE.

Penalties
Under the new reporting rules, CMS is authorized to impose significant statutory penalties for non-compliance. The power to fine begins following the RRE registration period. Employers that are considered by CMS to be the RRE but do not register and do not submit reporting information will open themselves up to fines of $1,000 per day, per file for as long as a claim is not reported.

Next Steps
Employers need to determine their RRE status. If you qualify as the RRE, you need to register as such with CMS prior to September 30, 2009. If in doubt about your RRE status, visit the CMS Web site for more information on the reporting requirements and registration process.

Stay tuned for more information on this topic. HDH will continue to provide updates and clarifications as they become available.

If you have questions about the new Medicare Secondary Payer’s new mandatory reporting requirements, please contact the HDH Group.

Securing the Physical & Digital Enterprise

Cyber threats present new and different liabilities and exposures for companies across most industries. A common misconception is that cyber and data crime are limited to organizations that do business via the Internet. With a changing regulatory landscape and expanded protections for patient and customer privacy rights, the need to secure personal data from external and internal threats is real for most organizations. The risks associated with a data breach are particularly high for organizations in healthcare, financial services, retail, education and legal industries.

As business data volumes continue to grow and the digital networks they reside in and flow through continue to proliferate, relying on security measures alone to protect your business from a costly and reputation-damaging network assault represents a significant financial risk for most organizations. When you consider the mobility of data with hand-held devices, the ease of web-access to critical internal data systems, and the growing reliance upon hosted data applications, and then overlay those considerations against an ever-changing backdrop of technically-sophisticated cyber criminals, a new framework for assessing your organization’s cyber risk begins to come into focus.

According to the technology research firm Gartner Group, cyber attacks are becoming more subtle in their sophistication, thus improving their results. And, while the costs to individuals responding to fraudulent schemes continue to rise, so do the costs for businesses. The Ponemon Institute, an industry-recognized organization dedicated to advancing responsible information and privacy management practices in business and government, recently studied organizations that experienced the loss or theft of customers’ personal data in a digital attack. The study found that the resulting loss of business due to a data breach was significantly higher than the costs associated with detecting an attack, notifying customers, and helping customers work through the resulting problems.

Protect Your Digital Assets
Traditional insurance policies were not designed to provide for the types of risk and loss associated with cyber crime. There are a number of insurance carriers offering a variety of policies to protect against these risks. Securing the right coverage requires an assessment of risk to determine which policy and coverage levels represent an appropriate risk transfer strategy. The risk assessment process helps identify the limitations of existing insurance policies and calculate the potential costs of a cyber hit. At the completion of the risk assessment process, most companies come to the conclusion that the costs and reputation damage of a cyber hit are too costly to ignore.

Manage Your Total Cost of Risk
Every business faces risk. The decisions you make relative to the management of that risk impact every area of your business – particularly the bottom line. The HDH Group works with clients - whether local, national, or international in scope - to develop customized and comprehensive risk management programs designed to enhance their financial results. To learn more about how to better protect your business from cyber crime or a digital assault, please contact your HDH Group account manager.

Understanding Captives

By William Knox, ARM, Director, Alternative Risk Division, HDH Group

When insurance markets begin to harden, there is invariably more discussion amongst risk managers and financial officers about captives; discussing whether or not the business should consider this sort of alternative risk strategy. In light of where we are in the cycle of hard and soft markets, I thought it would be helpful to revisit what a captive is by describing and outlining the fundamental benefits of this alternative risk transfer vehicle, and discussing how to determine whether a captive is a good option for the organization.

Captives 101
Most risk managers of large organizations are familiar with the constructs of a captive, even if their company does not employ this alternative risk management strategy. However, due to changes in tax, regulatory and market conditions – including the growth in onshore locations for domiciling captive insurance companies – more and more, captives represent a viable risk management option for a variety of organizations, not just the large multinationals.

According to Towers Perrin, a captive is:

“A closely held insurance company whose insurance business is primarily supplied by and controlled by its owners, and which the original insureds are the principal beneficiaries. A captive insurance company’s insureds have direct involvement and influence over the company’s major operations, including underwriting, claims management, policy, and investment.”

Or, more simply, a captive is a formalized form of self insurance. It enables organizations to retain some of its risk internally by forming an insurance company to insure its own risk.

The majority of captives are used to insure standard property and casualty risks – things like workers’ compensation, product liability, and professional liability. However, a growing number of large captive owners have started using captives to insure some employee benefit risks. And, some industry analysts project that captives will eventually be used for pension and post-retirement benefits.

Captive Benefits
Before the thought of forming and running your own insurance company becomes overwhelming – let’s discuss some of the reasons to consider forming a captive.

First and foremost, costs. An important qualifier is costs over time. I didn’t say reduced costs, though captive owners should aim to realize decreased costs over time. There are other important cost considerations beyond reductions to be considered, though I understand that reducing costs is a goal of most captive owners.

Other cost benefits include stabilized budgets, tax benefits, and even decreased insurance costs for risks outside of the captive. With captives that have been formed under the right circumstances (a topic for a future article), the company will typically be able to set insurance reserves equal to expected losses, providing consistency in insurance costs. The goal here is a good spread of risk with predictable losses. Additionally, tax advantages only available to insurance companies can be extended to the captive – again, if the captive was created properly with this benefit in mind.

For organizations that have formed a captive to self insure some of their risks, they now have a stronger position from which to negotiate improved rates with commercial insurers for risks outside of their captive. Commercial insurers understand that once a company insures a risk through a captive that risk rarely moves back to the commercial market. So, if a carrier knows the organization has the option to move other risks into an established captive, they are typically inclined to extend more favorable terms than they might have otherwise.

Of course there are other benefits to consider, but the above highlight some of the primary benefits. Once an understanding of why to consider a captive has been established, next organizations need to determine whether or not it really is the right strategy for the business.

Forming a Captive
The first step on the journey to forming a captive is the feasibility study, which in reality should include a pre-feasibility study. The full study is involved and will require an investment of time and money. So, before conducting a full study, organizations can take an early captive litmus test by: identifying the reasons for considering a captive and the objectives for such a program; reviewing their current insurance program and loss experience; and determining whether or not there are any organizational or industry factors that would undermine the success of such an alternative risk transfer strategy. Depending on the outcome of this initial analysis and evaluation, the organization may determine that it does, or doesn’t, make sense to hire a business advisor to conduct a more formal evaluation and ultimately a full-blown feasibility study.

It is important to understand that the success of a captive is directly related to upfront expectations, how it is formed, and most importantly how it is managed. Since most companies considering a captive are not currently ‘in’ the insurance industry, most will retain a business advisor that specializes in captives to initially guide them through their evaluation process, and ultimately to form and manage the captive.

The HDH Group is such a business advisor. We currently manage over $20 million in alternative risk program premiums across six different domiciles for a wide variety of clients, including banks, healthcare facilities, contractors, restaurants, manufacturers, and others.

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About the Author: Bill Knox manages the Alternative Risk Division of the HDH Group. He has spent over 22 years in the insurance industry, serving in various positions in New York, Los Angeles, and Pittsburgh. He began his career with the captive division of Cigna Worldwide in New York City before transferring to Los Angeles in 1989. He then came to Pittsburgh in 1991 as Vice President and Global Manager for a national broker before joining the HDH Group in February of 1998.

HDH Promotions
HDH recently promoted Barbara McGinley to senior vice president and manager of the firm's Benefits Division. Barbara has over 18 years of experience in the investment, individual and group insurance industries. Other recent promotions in its Benefits Division include Eric Rheam to Senior Consultant and Amber Daer to Benefits Administrative Assistant.

HDH New Hires
Nevin Beyer recently joined the HDH Group’s Construction Division. Located in our Harrisburg office, Nevin’s area of focus is the origination, placement and processing of Contract Surety Bonds. Prior to joining HDH Group, Nevin was CEO of Velocity Financial Services and has over 14 years of banking and financial services industry experience.

Welcome New Clients!
HDH is pleased to welcome our new clients. The first quarter of 2009 represents the third-best quarter for new business development in our company’s 26 year history. We recognize that now more than ever clients are looking for strategic business advisors that work to improve their bottom-line performance, so we thank you for the trust you have placed in HDH. As an employee-owned company, all of us at the HDH Group are committed to assuring our clients’ success and we look forward to building a long and rewarding relationship with all of our new clients.

Welcome!