THIRD PARTY ADMINISTRATOR UPDATE...- Unfair claim settlement consistency practices - Failure to escheat - Failure to adequately control and monitor retained asset accounts Additionally,

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THIRD PARTY ADMINISTRATOR UPDATE

POLSINELLI .COM

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REGULATORY AND LITIGATION DEVELOPMENTS

INSIDE THIS ISSUE

Steve Imber(913) [email protected]

Justin Liby(913) [email protected]

State Regulators Escheat Probe Expands

New Third Party Administrator Registration Requirement in Massachusetts

Utah Enacts Law Prohibiting Rebates

Third Party Administrator Registration Change in Wyoming

Third Party Administrator Client Spotlight

Third Party Administrator Compliance and Regulatory Services

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5For additional information about our Third Party Administrator Compliance & Regulatory Services or the contents of this Update, please contact Steve Imber or Justin Liby.

2011 | VOLUME 1

State Regulators Escheat Probe Expands

State regulators continue to expand their investigation of the claims settlement practices of the life insurance industry. Working through the

National Association of Insurance Commissioners (NAIC), state insurance regulators have formed a special task force (“Multistate Examinations/Settlements Covering Life and Annuities Claim Settlement Practices Including Unclaimed Property”) to help coordinate regulatory investigations involving the claim settlement practices of life insurance companies.

State insurance regulators have been investigating a number of large life insurance companies regarding their possible failure to pay death benefi ts to benefi ciaries of life insurance policies. The alleged unfair practices include the use of the U.S. Social Security Administration’s Death Master File by insurers for purposes of terminating payments under annuity contracts, but failing to use this same information to facilitate the payment of claims on life insurance policies. The task force is chaired by the Florida Offi ce of Insurance Regulation, and the following states are participating in the task force: California, Illinois, Iowa, Louisiana, New Hampshire, New Jersey, North Dakota, Pennsylvania and West Virginia.

In addition to the NAIC task force, the California Insurance Department and the Florida Offi ce of Insurance Regulation have also conducted separate public hearings in this matter. Further, the California Insurance Department announced market conduct examinations of 10 large life insurance companies for their alleged failure to pay life insurance benefi ts. Among the possible violations of law discussed by California insurance regulators at their public hearing were:

- Unfair claim settlement consistency practices - Failure to escheat - Failure to adequately control and monitor retained asset accounts

Additionally, there are also approximately 35 states that have hired Verus Financial LLC, a Connecticut fi rm which is attempting to fi nd unclaimed assets for states. New York Attorney General Eric Schneiderman recently issued subpoenas to at least nine life insurance companies to assess consumer

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REGULATORY AND LITIGATION DEVELOPMENTSREGULATORY AND LITIGATION DEVELOPMENTSTHIRD PARTY ADMINISTRATOR UPDATE

protection issues and to confi rm whether these insurers have issued payouts on policies of deceased customers. Several class action plaintiff fi rms are also busy “trolling” for life insurance policy benefi ciaries and investigating large life insurers for potential violations of state consumer protection and insurance laws.

New York insurance regulators ordered life insurers to use the Social Security Death Master File to locate insureds and report on the effectiveness of their search for benefi ciaries. The New York Insurance Department sent a “308 Letter” to all 172 life insurers licensed in New York. Life insurers must attempt to determine if benefi t payments are due, locate and make payments to benefi ciaries, and submit a report on their results by September 30, 2011. The New York Insurance Department is also planning to develop an amendment to its unfair claims practices regulations to require life insurers to perform regular Death Master File checks and will also require insurers to collect more data in order to better track policyholders and benefi ciaries. ■

New Third Party Administrator Registration Requirement in Massachusetts

The Massachusetts Division of Insurance (MA DOI) has implemented a new Third Party Administrator (TPA)

insurance regulation that became effective May 27, 2011. The law requires third party administrators that administer health insurance business on behalf of Massachusetts residents to become registered with the MA DOI. The regulation does not grandfather in TPA’s that were doing business in Massachusetts prior to May 27, 2011.

TPA’s subject to the new Massachusetts registration requirements are defi ned as:

“A person … who, on behalf of a Health Insurer or purchaser of health benefi ts, receives or collects charges, contributions or premiums for, or adjusts or settles claims on or for residents of the Commonwealth. Third party administrator shall also include pharmacy benefi t managers and any other entity with claims data, eligibility data, provider fi les and other information relating to health care provided to residents of the Commonwealth and health care provided by health care providers in the Commonwealth….”

A health insurer is defi ned to include insurance companies and any other entities providing coverage for health, dental or vision services.

Applications for initial registration must contain the following:

(1) A narrative description of its activities(2) A copy of the basic organizational documents of the

TPA(3) Bylaws or similar documents regulating the internal

affairs of the TPA(4) A listing of the services that the TPA offers(5) Proof that the TPA has contracts with insurance

producers licensed in Massachusetts if the TPA will be managing the solicitation of new or renewal business on behalf of a health insurer

TPA’s must also report to the MA DOI any material changes to their initial registration within 30 days of such changes.

TPA’s must renew their registration annually no later than April 1 of each year and must also submit an annual report to the MA DOI no later than April 1 of each year, certifi ed by at least two offi cers of the TPA. The annual report shall include information with respect to the TPA’s self insured customers and other fi nancial data. Failure to fi le the annual report in a timely manner will subject the TPA to a late penalty of not more than $100 per day. Any TPA which collects premiums for or adjusts claims for residents of Massachusetts on behalf of a health insurer that itself is required to submit an Annual Comprehensive Financial Statement to the MA DOI is exempt from the annual reporting requirements for those services that the TPA provides on behalf of the health insurer.



The MA DOI may, after a hearing, suspend or revoke the registration of any TPA if it fi nds:

(1) The TPA failed to submit to the MA DOI the annual report

(2) The TPA has its license or registration to do business suspended or revoked by any state

(3) The TPA is insolvent or impaired(4) A proceeding for receivership, conservatorship,

rehabilitation or other delinquency proceeding regarding the TPA has been commenced in any state

(5) The fi nancial condition or business practices of the TPA pose an imminent threat to the public health, safety, or welfare of Massachusetts residents

The MA DOI may also impose a fi ne of not more $1,000 for each and every violation.

If you have questions regarding the new registration requirement for third party administrators in Massachusetts, please contact Steve Imber at (913) 234-7469 or [email protected]; or Justin Liby at (913) 234-7427 or [email protected]. ■

Utah Enacts Law Prohibiting Rebates

Utah recently enacted a new law addressing unfair inducements related to insurance. Utah House Bill

333, which became effective March 18, 2011, provides that a licensee, or an offi cer or employee of the licensee, may not induce a person to enter into, continue, or terminate an insurance contract by offering a benefi t that is not specifi ed in the contract or directly related to the contract. The new Utah law places additional limitations on both insurers and third party administrators.The new Utah law defi nes prohibited inducements to include providing a premium or commission rebate or paying the salary of an employee of a person who purchases an insurance product. The new law also places additional limitations on insurers and third party administrators,

prohibiting them from engaging in the following services unless a fee is paid:

• Performing background checks on prospective employees

• Providing legal services• Performing drug testing that is directly related to an

insurance product purchased from the licensee• Preparing employer or employee handbooks, except

a licensee may:- Provide information for a medical benefi t section

of an employee handbook- Provide information for the section of an

employee handbook directly related to an employment practices liability insurance product purchased from the licensee

- Prepare or print an employee benefi t enrollment guide

• Providing job descriptions, postings, and applications for a person that purchases an employment practices liability insurance product from the licensee

• Providing payroll services• Providing performance reviews or performance

review training• Providing union advice• Providing accounting services• Providing data analysis information technology

programs, although it is permissible to provide certain technology services such as electronic enrollment platforms or enrollment systems

• Providing administration of health reimbursement accounts or health savings accounts

• A de minimis gift or meal not to exceed $25 for each individual receiving the gift or meal is presumed to be a social courtesy that is not conditioned upon the purchase of insurance.

If you have questions regarding permissible activities by third party administrators under the new law, please contact Steve Imber at (913) 234-7469 or [email protected]. ■



Third Party Administrator Client SpotlightThis section of our Third Party Administrator Update highlights our third party administrator clients, and we will continue to feature our third party administrator clients in future newsletters. In this issue, we focus on PROPS a service offered by Linkia, LLC.

Professional Review of Orthotic & Prosthetic Services

(“PROPS”), was created by Linkia, LLC (“Linkia”) to

assist payers in administrative and clinical review of high-

dollar orthotic and prosthetic (“O & P”) claims. Claims for

artifi cial limbs can contain as many as 50 different codes

and cost $10,000 to $100,000. Medical managers assigned to

review these claims are not accustomed to reviewing such

intricate claims in such a specialized area. Linkia has found

that almost 50% of these claims over $5,000 contain coding

and clinical errors, generating potential savings to their

customers over $4,000 per claim on average.

Linkia, LLC is a specialty healthcare company dedicated

solely to Orthotic & Prosthetic management and care.

Linkia was founded by and operates as a subsidiary of

Hanger Orthopedic Group, the nation’s largest provider of

O & P services.

All of the nation’s largest health plans contract with Linkia

for O & P services. Linkia’s extensive knowledge and

experience in the O & P industry has enabled health plans to

improve their O & P service delivery to their insureds, while

helping to reduce their administrative expenses.

Linkia is licensed as a third party administrator and

utilization review organization in many states and is URAC

accredited.

Polsinelli Shughart is extremely proud of its association with Linkia. If you are interested in receiving more information on PROPS and/or Linkia, please contact Sarah Weiss at (301) 354-3621 or [email protected]. ■

Third Party Administrator Registration Change in Wyoming

Wyoming has implemented a change in the TPA

registration and renewal process to be effective

March 31, 2012.

TPA’s transacting business in Wyoming on or before April

21, 2011 were notifi ed of this change directly. Prior to

this change, insurers were required to register and renew

registrations for all TPA’s with whom they did business. In

2012, the TPA’s will be required to complete the registration

and renewal requirements.

The registration and renewal registration will include

the provision of an annual fi nancial statement listing the

insurers represented and the amount of funds handled for

each insurer. At renewal in March 2012, each TPA will need

to post one bond in an amount based upon the total funds

handled by the TPA.

TPA’s that enter into a contract with a new insurer during

any year must submit to the Wyoming Department

of Insurance an Insurer Appointment of Third Party

Administrator for the new insurer being represented. ■



Third Party Administrator Compliance and Regulatory Services

Polsinelli Shughart is pleased to offer its Third Party Administrator Compliance and Regulatory Services to

TPAs and insurers. Services provided to TPAs and insurers include, but are not limited to:

• TPA licensing and registration with state insurance departments on a multi-state or national basis in the 42 states that license or register TPAs.

• Assist TPAs and insurers with on-site audits and operational reviews.

• Assist TPAs responding to regulatory investigations or regulatory actions.

• Assist TPAs with annual license/registration renewals and reports.

• Review of Administrative Service Agreements for compliance with state laws.

• Assistance with Market Conduct Examinations.• Assist TPAs with foreign qualifi cations with

Secretaries of State.

Polsinelli Shughart’s Insurance Business and Regulatory Law group has experience representing third party administrators and other insurance businesses on a variety of compliance and regulatory issues on both a state and national basis. Attorneys in our group include a former state director of insurance, two members who were formerly general counsel at state insurance departments, as well as three members who were formerly in-house counsel for third party administrators. ■

The Third Party Administrator Update is a source of general information concerning third party administrators. Polsinelli Shughart provides this material for informational purposes only,. The material provided herein is general and is not intended to be legal advice. Nothing herein should be relied upon or used without consulting a lawyer to consider your specifi c circumstances, possible changes to applicable laws, rules and regulations and other legal issues. Receipt of this material does not establish an attorney-client relationship.

Polsinelli Shughart is very proud of the results we obtain for our clients, but you should know that past results do not guarantee future results; that every case is different and must be judged on its own merits; and that the choice of a lawyer is an important decision and should not be based solely upon advertisements.

Copyright © 2011, Polsinelli Shughart PC. In California, Polsinelli Shughart LLP.

SPECIAL THANKS to

Polsinelli Shughart attorneys

Jennifer L. Osborn and

Keith A. Wenzel for their

contributions to this newsletter.

Jennifer L. Osborn

Keith A.Wenzel

Documents

THIRD PARTY ADMINISTRATOR UPDATE...- Unfair claim settlement consistency practices - Failure to escheat - Failure to adequately control and monitor retained asset accounts Additionally,