Public Act 106 was signed into law effective October 1, 2007. The intent of the reform has three primary purposes:
1. To require all Michigan school districts to at least consider a variety of insurance options. The law forces carriers to provide 36 months of claim data to their current clients so that they are able to solicit bids from potential new carriers.
2. To introduce idea of required “risk control” in the form of “case management,” which places quality standards on carriers and administrators.
3. To allow smaller districts to join together to form larger risk pools. This enables all school districts can have access to health care solutions, even if they previously have been unable to do so because of their size.
Detailed Summary
Affects all Public Employers
The act defines a public employer as a city, village, township, county, school, or community college. Pools are required to allow any public employer to join, provided they agree to join.
Can Self-fund Individually or as a Pool
Public employers may self-fund individually; or may form a pool and self-fund the pooled claims and administrative expenses.
Case Management
The act requires that carriers and plans meet certain quality and case management standards.
Bid Solicitation
When “Establishing” a Plan
Subject to collective bargaining, districts and pools “establishing” benefit plans after October 1, 2007, are required to solicit four (4) competitive bids. Our legal counsel’s interpretation is that a plan may be considered to be “established” on the date on which a labor contract is ratified. However, there are various opinions and each district should seek legal advice pertaining to its specific situation. This requirement is discussed further in the topic called “Soliciting Bids”
All districts and pools, regardless of size, are required to seek bids when they are “establishing” a benefit plan. Our legal counsel considers any plan design change to constitute “establishing” a plan. (For example: A district changing its prescription drug benefit co-pay from $5/$10 Rx to $10/$20 Rx must solicit bids for this plan.)
When “Renewing or Continuing” a Plan
All districts and pools, regardless of size, are required to bid every three (3) years when “renewing or continuing” a benefit plan. This means that no later than October 1, 2010, all districts should have solicited bids.
Number of Bids Required
When bidding, districts are required to solicit four (4) or more bids for each program that is being established, renewed, or continued. The requirement seems to be applied separately to medical, dental, and vision benefits. Therefore, if a district is keeping everything the same except for its vision plan, bids would be solicited only for the vision plan.
Definition of a “Bid”
Although the law does not’t specifically define what is required in soliciting a bid, we understand it to mean that a district will clearly define its program and ask for various carriers or service providers to proposed costs for providing the benefits defined in the request. (Multiple quotes for different products from the same carrier does not seem to fit this definition.)
One bid must be from a Voluntary Employee Benefits Association (VEBA). MESSA, PET (“MEBS”), and SET are VEBA’s.
It is important to note that bids need to be solicited, not necessarily received. The district is under no obligation to accept the low bid.
Bidding Self-funded Plans
If a district is self-funding its medical, dental, or vision plans, it is required to solicit bids from various Third Party Administrators (TPAs), Stop Loss Insurance carriers, and any other services that are involved in the administration of the plan.
At least one bid needs to be solicited from a VEBA, although currently most VEBAs generally do not administer self-funded programs.
Claims Data
The Act requires that districts supply claims data with their requests for bids. Claims data must also be provided to any carrier that requests to bid. See the “Requesting Claims Data” topic for more information about obtaining claims data.
In order for claims data to be supplied with bids, the district needs to be able to obtain it. Therefore, the Act mandates that public employers with 100 or more enrolled employees shall be provided with claims data.
Also, to facilitate pooling, the Act states that public employers with a “letter of intent” to join 100 or more employees in a medical plan shall be provided with claims data.
Claims data shall be made available 120 days prior to renewal and cover a 36-month period. It also needs to be de-identified-identified per HIPAA. The Act requires that all carriers and administrators compile claims data beginning 60 days from October 1, 2007.
Pool Requirements & Regulations
Size
In order to form a self-insured pool, the pool must include a minimum of 250 employees enrolled in the health plan. Districts that enter into a pool must commit to stay in for a minimum of three (3) years. If they leave after their 3-year commitment expires, they cannot rejoin within two (2) years of leaving.
OFIS
The Office of Financial & Insurance Services (OFIS) has regulatory responsibility for self-funded pools. Therefore, pools must obtain a certificate of registration from OFIS. See the “OFIS Pooling Application” to for detailed information.
The Act provides OFIS with a 0.25% of premium fee to offset the offices expenses incurred as part of monitoring these pools.
Reserve Requirements
Pools must establish reserves in an amount totaling the greater of 25% of current year premiums or 35% of previous year’s claims. In the first year, this requirement can be 100% satisfied by a letter of credit. But in year two (2), the letter of credit can cover only 75% of the reserve requirement; and then in year three (3) and beyond, a letter of credit and account for only 50% of the reserve requirement. (The implication is that the plan needs to net actual cash over the first few years in order to establish appropriate reserves.)
Excess Loss Insurance
Excess loss insurance is required for pools, but the Act does not specify requirements for coverage levels.
Governing Board
Each pool must have a governing board and each pool member employer gets equal vote, either in electing representative board members or in decision making. At least 50% of the governing board trustees must be either covered by the plan or be collective bargaining representatives of covered members.