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Construction Executive Magazine Shares Insight from Leaders in Surety Bonding

November 18, 2019


Construction Executive Magazine asked several leaders in surety bonding about the risks involved when bidding on projects outside their niche during an economic downturn. Read their responses here.

Here is what Andy Thome, President of J.W. Terrill, a Marsh & McLennan Agency in St. Louis, had to say: 

When branching out to geographies or niches outside of your core discipline, proceeding with caution is the best approach.

For example, after the 2008 financial meltdown, there was a significant flight to federal work. The government speaks a unique language and operates in a world known as FAR (Federal Acquisition Regulations). While transparency abounds, FAR rules are substantially “different” than those in the private sector. Many contractors underestimated the backroom demands and utilized their “go-to” subcontractors, which were also new to the process. Contractors that chose to engage with a government contracting specialist performed better than those that didn’t, but few of the general contractors that dove into the government sector have stayed the course.

In another instance, multi-family and senior living facilities have been a hot market for years. While many contractors have performed well, several problems arise when general contractors utilize “residential plus” subcontractors versus commercial light subcontractors. Depending on the plans, owner and geography, the quality of the building envelope system has been an ongoing source of concern. Construction defect (CD) litigation is on the rise, and negotiating an equitable contract that has proper contract “hygiene” can be crucial to a project’s success.

Challenging your team to talk through the risks associated with a new opportunity is a great way to vet the project. Including your surety agent and insurance professional in the discussion (if you feel they are qualified to have a seat at the table) puts you in the best possible position to make sound decisions as you endeavor to move into a new niche or region.

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Medical Loss Ratio Rebates

October 28, 2019


Show Me the Money

The Affordable Care Act’s (ACA) Medical Loss Ratio (MLR) standards require health insurance carriers to spend a specific percent of premium on health care services and activities that could improve quality of care. [1] If the carrier does not meet the MLR standards, it must provide rebates to the policyholders – the employer in the group market and the individuals in the individual market. Each year, insurance carriers calculates their MLR across the particular market segments’ books of business and issues rebates to policyholders if the money spent on health care and quality care activities is less than the required MLR standards.

When an employer receives a rebate, it has 90 days to determine what portion of the rebate is allocable to plan participants and distribute the rebate to participants or use the rebate for their benefit.

Who Gets the Money?

Step 1
Determine if any portion of the rebate is a “plan asset.” Plan assets belong to the participants and may not be kept by the sponsoring employer or used to pay its expenses. The relevant plan documents should indicate the source of the premiums paid to the insurance carrier and might describe the ownership interest in rebates or refunds of premiums received by the plan. 

In many instances, the plan documents will not resolve ownership interests, and the employer will need to rely on the sources and relative ratios of paid premiums in order to determine what portion of the rebate is a plan asset.

Step 2
If the plan documents do not resolve ownership interests, determine what portion of the rebate is a plan asset.

How Premiums are PaidPlan AssetWho Receives the Rebate
100% from the plan’s trust assetsYes100% belongs to the trust as a plan asset and must be used for the benefit of participants
100% by participantsYes100% belongs to the participants
100% by employerNo100% belongs to the employer and may be used for any purpose
Employer and participants each pay a fixed % of the premium (Example: Employer pays 70% and participants pay 30%)Yes, partiallyA % of the rebate belongs to the participants equal to the % of the total premium paid by the participants[2]The remainder of the rebate belongs to the employer and may be used for any purpose
Participants pay a fixed dollar amount and the employer pays the balancePossiblyThe portion of the rebate that exceeds the employer’s contributions is plan assetsThe remainder of the rebate belongs to the employer and may be used for any purpose

Step 3
Determine how to use the portion of the rebate allocated to plan participants.

Rebate Considerations 

  1. Plan Participants. For the MLR rebate, the employer may determine it is reasonable to use the rebate for current plan year participants and not the exact participants from the plan year for which the rebate applies. This includes current COBRA participants. Factors used to make this determination can include the cost and administrative difficulty of locating former employees and/or whether a large number of the same individuals are participants in both plan years.

    The available guidance prefers the rebate be used for participants in the same insurance policy (or policies) that generated the rebate, but it should be reasonable to share the rebate with participants in the employer’s other medical coverage depending upon the facts and circumstances.[3] For example, if the plan option that generated the rebate has been replaced, it should be reasonable to use the rebate for participants in the plan option(s) that replaced it.   
  2. Preferred Rebate Methods. The most common approaches are to pay the rebate in cash, use it to reduce future premiums in the current year (a full or partial “premium holiday”) or apply it to enhance benefits. Enhanced benefits might include HSA contributions or additional wellness benefits. For small rebates or small remainders of larger rebates, an employer could use the rebate to pay for flu shots or educational presentations.

    Note: We do not support the use of rebates to fund opportunities for a relatively few number of participants to win prizes such as through a raffle. This is contrary to the policy that employers should provide a reasonable, fair, and objective rebate allocation method that benefits the entire class of participants. 
  3. Tax Consequences. If the participant premiums were paid pre-tax through an Internal Revenue Code Section 125 cafeteria plan, a rebate paid as cash or as a cash equivalent will be treated as taxable income. This will also be the case when provided as a premium holiday as the employee’s taxable take-home pay will increase.
  4. Timing. The employer must distribute or use the participant’s portion of the rebate within ninety (90) days of receipt.

[1] These are 85% in the large group market and 80% in the small group market.

[2] If the fixed percentage of premiums paid vary by tier of coverage, an employer could choose to use a single average percentage rate for all tiers or determine a weighted average percentage rate for each tier.

[3] In theory, this could extend to all participants in benefits incorporated under the same ERISA plan number, but we generally recommend against this.

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The Affordable Care Act’s Employer Mandate: Part 3

October 28, 2019


Offers of Coverage and Avoiding Penalties

This article is Part 3 in a series intended to provide an overview of the Employer Shared Responsibility provisions (also known as the “employer mandate”) under the Affordable Care Act (ACA). The employer mandate generally requires applicable large employers (ALEs) offer affordable, minimum value medical coverage to its full-time employees in order to avoid potential employer mandate penalties. These employer mandate penalties are better known as “employer shared responsibility payments” or ESRPs.

We covered how to determine whether an employer is and ALE in Part 1, and how to determine ACA full-time employees (FTEs) in Part 2. This article addresses the ESRPs and how to avoid them through offers of coverage to FTEs.

Remember Why We Care

The employer mandate has two potential penalties, each indexed annually and assessed monthly on a pro-rated basis.

Plan year beginning
on or after
Section 4980H(a)
Annual Penalty
Section 4980H(b)
Annual Penalty
January 1,
January 1, 2020$2,580 (projected)$3,870 (projected)

The Section 4980H(a) penalty (the “no offer” penalty) is triggered when an ALE fails to offer minimum essential coverage to at least 95% of its FTEs, and at least one FTE qualifies for a subsidy in the public health insurance exchange.

The Section 4980H(b) penalty (the “inadequate offer” penalty) is triggered when an ALE offers minimum essential coverage to at least 95% of its FTEs but fails to offer affordable, minimum value coverage to an FTE who qualifies for a subsidy in the public health insurance exchange.

Aggregated ALE Groups

ALE status is also determined in the aggregate for certain groups of related legal entities identified under the Internal Revenue Code, and each member employer of an aggregated ALE group is known as an “applicable large employer member” or ALEM. An ESRP triggered by one ALEM does not affect the other ALEMs within the aggregated ALE group. In other words, if one ALEM triggers a penalty it does not “poison the well” for the others.

Avoiding the No Offer Penalty

Coverage is shorthand for “minimum essential coverage” or MEC.  In general, MEC is any employer-sponsored medical plan, including the new individual coverage HRA (ICHRA).[1] 

In order to avoid ESRPs, an offer of MEC must be made to FTEs at least annually. Active or passive enrollment can be used provided the FTEs have an effective opportunity to elect or decline coverage.[2] An ALE does not have to provide FTEs with the ability to decline coverage if the coverage provides minimum value and employee-only coverage is either 100% employer paid or the employee’s required contribution toward employee-only coverage meets the federal poverty level affordability safe harbor (addressed under Federal Poverty Level Safe Harbor later in this article).

The Offer Must be Made for the Entire Month to Most FTEs
An ALE only receives credit for offering coverage to an FTE for a given month if the offer of coverage includes every day of the month. For example, if coverage begins on the date of hire, FTEs who are hired on any day after the 1st of the month do not count as having received an offer for that month. This is relevant when determining if the ALE offered coverage to at least 95% of its FTEs for that particular month. 

Note: If an FTE is hired after the first of the month and is offered coverage effective as of the date of hire or is in a permitted waiting period before coverage is effective, the ALE may exclude the FTE from the 95% calculation for the applicable month or months. On the FTE’s corresponding IRS Form 1095-C for that year, the ALE would reflect Code 2D (limited non-assessment period) in Part II, Line #16. This would avoid a potential ESRP.

Similarly, an ALE may exclude an FTE who loses coverage mid-month from the 95% calculation. The Form 1094-C/1095-C instructions indicate an ALE should reflect Code 2B (not full-time) in Part II, Line #16 in this situation. This would also avoid a potential ESRP. 

Believe it or not, an ALE does not receive credit for making an offer of coverage to an FTE unless the FTE can also enroll his or her natural and adopted children up to age 26, if any. In other words, an ALE that limits its offers of coverage to employee-only coverage cannot meet the 95% offer standard. This special rule does not include spouses, stepchildren, or foster children.

Reminder: Within an aggregated ALE group, the 95% standard and any applicable ESRP penalties are determined on an ALEM-by-ALEM basis.

The Offer May be Made by Another Employer

  1. Aggregated ALE Groups. If one ALEM makes an offer of coverage to an employee, that offer of coverage is considered to be made by every ALEM in the aggregated ALE group. If an individual is employed by two or more ALEMs, only one ALEM needs to offer coverage for all of the ALEMs to receive credit.
  2. Professional Employer Organizations and Staffing Firms. Employers often use professional employer organizations (PEOs) and staffing agencies to outsource staffing, human resources, and payroll duties. The IRS allows the client-employer to take credit for an offer of coverage made to the worker by the PEO/staffing agency so long as the client-employer pays a higher fee in exchange for the PEO/staffing firm assuming the responsibility to provide health insurance. We recommend this be reflected as a line-item in the amount billed by the PEO/staffing agency and paid by the client-employer.
  3. MEWAs. Multiple employer welfare arrangements (MEWAs) are formed when two or more unrelated employers join together to sponsor a health plan. Similar to the ALEMs above, an offer of coverage made to an employee by a MEWA will count as an offer of coverage made by the employer participating in the MEWA.

Calculating the No Offer Penalty

An ALE that fails to make an offer of coverage to 95% of its FTEs is vulnerable to the no offer penalty, which is triggered if a single FTE qualifies for subsidized coverage in the public health insurance exchange.

This no offer penalty amount is calculated by multiplying the applicable penalty amount by all of the ALE’s FTEs, but the ALE gets to subtract 30 FTEs from this total (“free FTEs”). This 30 free FTEs exclusion applies at the aggregated ALE group level, and each ALEM is assigned a share based on its proportion of all FTEs in the aggregated ALE group.

Example 1: This example uses the projected 2020 no offer penalty. Pro-rated monthly, the penalty is $215/month ($2,580 / 12).  

WiseCorp has 65 total employees, 50 of whom are FTEs for the year. WiseCorp fails to offer MEC to at least 95% of its FTEs (48 FTEs). Bob, an FTE, enrolls in coverage in the public health insurance exchange and receives a subsidy for 8 months during 2020.

WiseCorp’s no offer penalty is calculated as follows:

$215 x (50 FTEs – 30 “free FTEs”) = $4,300/month

$4,300 x 8 months = $34,400

Example 2: The same facts as in Example 1, except that WiseCorp is an ALEM in an aggregated ALE group with 300 total FTEs. 

WiseCorp may exclude 5 free FTEs from its no offer penalty calculation.

50 WiseCorp FTEs / 300 total FTEs = 16.67%

30 free FTEs x 16.67% = 5 free FTEs

WiseCorp’s no offer penalty is calculated as follows:

$215 x (50 FTEs – 5 “free FTEs”) = $9,675/month

$9,675 x 8 months = $77,400

Avoiding the Inadequate Offer Penalty

Just because an ALE makes an offer of coverage does not mean it has avoided all potential ESRPs. Even if an ALE offers MEC to at least 95% of its FTEs, an FTE can still trigger an inadequate offer penalty if the IRS finds that the offer of coverage does not provide minimum value AND/OR is unaffordable.

Minimum Value
Coverage is considered to provide minimum value (MV) if the plan covers at least 60% of the total allowed cost of covered services that are expected to be incurred by a standard population. The plan must also include coverage for hospital and physician services.[3] MV can be determined by an actuarial valuation or by using an MV calculatorjointly developed by the IRS and Department of Health and Human Services.

A plan is deemed affordable if the employee’s portion of the premium does not exceed an annually indexed amount of their household income.

Plan year
on or after
Section 4980H(b)
Annual Penalty
Employer Affordability
Safe Harbor
January 1, 2019$3,7509.86 %
January 1, 2020$3,870 (projected)9.78 %

Remember, the penalties are actually pro-rated monthly

Note: If wellness incentives can affect the employee’s contribution toward the cost of coverage, employees must be treated as satisfying any tobacco-related incentive and failing all other incentives no matter what the employee actually does.

Since it’s generally impossible for an employer to know an employee’s household income, the IRS created three affordability safe harbors. Each safe harbor is based on the employee’s required contribution toward the cost of employee-only coverage for the lowest cost, MV plan the employee could have elected for that plan year.  It doesn’t matter if the employee waived coverage, elected a more expensive plan option, or enrolled a spouse or dependent(s).

  1. Form W-2 Safe Harbor. Under the Form W-2 safe harbor, coverage is deemed affordable if the employee’s share does not exceed 9.86% (9.78% in 2020) of wages reported in Box 1 of the employee’s W-2. Box 1 does not include pre-tax payroll deductions, such as 401(k) contributions and many other benefit elections. Employers can reasonably estimate employee W-2 earnings when pricing coverage, but affordability may not be certain until the end of the year. This safe harbor method cannot be combined with another safe harbor method during the same calendar reporting year. This might affect some employers with non-calendar year plans whose premiums change during the calendar year.
  2. Rate of Pay Safe Harbor. The rate of pay safe harbor is a formula that operates differently for salaried and hourly employees:
    • For salaried employees, coverage is deemed affordable if it does not exceed 9.86% (9.78% in 2020) of the employee’s gross monthly salary as of the first day of the plan year.[4]
    • For hourly employees, coverage is deemed affordable if it does not exceed 9.86% (9.78% in 2020) of 130 paid hours multiplied by the lower of the employee’s rate of pay as of the first day of the plan year or the employee’s rate of pay at the beginning of a given month.
  3. Federal Poverty Level Safe Harbor. Under the Federal Poverty Level (FPL) safe harbor, coverage will be deemed affordable if the employee’s share of the premium does not exceed 9.86% (9.78% in 2020) of the mainland FPL for a single individual. For 2019, the FPL safe harbor is $102.62 (($12,490 / 12) x 9.86%). This safe harbor ignores an employee’s actual compensation.This safe harbor does not exclude pre-tax benefit deductions, but it misses bonuses, commissions, and tips.

Calculating the Inadequate Offer Penalty

The inadequate offer penalty is triggered if the coverage offered doesn’t provide minimum value and/or was unaffordable, and an FTE qualifies for a subsidy in the public health insurance marketplace. The employer would be assessed an inadequate offer penalty for each FTE who receives a subsidy. For 2020, the maximum [projected] annual inadequate offer penalty is $3,870 per FTE. This penalty is pro-rated monthly.

Intentional Strategy

The inadequate offer penalty only applies to FTEs who waive coverage and actually receive a subsidy in the public health insurance exchange. For 2020, this penalty is approximately $322.50 per FTE per month, which may be less than the employer’s cost to offer affordable, minimum value coverage (and absorb additional claims experience). As a result, some employers might make a business decision to willingly accept potential inadequate offer penalties.

[1] MEC does not include HIPAA-excepted benefits, such as dental and/or vision only coverage, spending accounts (FSAs, HRAs) limited to dental and/or vision only coverage, and many types of fixed indemnity and supplemental coverage.

[2] Whatever election approach is used, we recommend employers maintain some sort of record in order to be able to demonstrate that the offer was made.

[3] This prevents many benefits from meeting the MV standard including “skinny” MEC plans, telemedicine, and onsite/offsite clinics.

[4] The rate of pay safe harbor cannot be used for an employee whose salary decreased during the year.

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National Health Observance for April – World Immunization Week (April 22-28)

April 17, 2019


Each year, the last week of April is marked by the World Health Organization (WHO) as World Immunization Week.  The purpose of this week is to promote the use of immunizations to protect people of all ages against disease. The standard definition of “immunization” is the action of making a person or animal immune to infection, and to stimulate the body’s own immune system to protect the person against subsequent disease.  According to WHO, immunizations currently prevent between 2-3 million deaths every year in all age groups, and are recognized as one of the most successful and cost-effective health interventions in the world.  They are an important piece of the puzzle when it comes to overall health and wellness.  However, the WHO also found that only 85% of the world’s children receive their recommended immunizations.

In order to understand the prevalence of immunizations overall, the World Health Organization analyzes the global vaccination coverage each year, which is defined as the proportion of the world’s children who receive recommended vaccines.  The WHO is working extensively to improve the 85% statistic.  The United States may not feel the burden of limited access to vaccinations but it is felt in countries such as Afghanistan, Ethiopia, India, Indonesia, and South Africa.  The WHO wants every country to intensify their efforts to ensure that all people have access to lifesaving vaccines.

In recent national news, vaccines have become a frequent topic of conversation – good and bad.  Because of this, the theme for 2019 is Protected Together: Vaccines Work!  The primary goal of World Immunization Week is to raise awareness about the importance of full vaccinations.  For social media purposes, the WHO is using the tagline “#VaccinesWork” in order to further increase awareness and spark a global movement.

2019 Campaign Objectives:

  • Demonstrate the value of vaccines for the health of children, communities and the world.
  • Highlight the need to build on immunization progress while addressing gaps, including through increased investment.
  • Show how routine immunization is the foundation for strong, resilient health systems and universal health coverage.

Information contributed by Kelsey Kempen, a St. Louis University dietetic intern. Kelsey spent time at J.W. Terrill learning about community nutrition and corporate wellness.


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2018 Stop-Loss Survey

February 25, 2019


Last year we published our inaugural Stop-Loss Survey, which allowed employers and their advisors to more accurately benchmark deductibles and premium levels based on peers of similar size and geographic area. As a result of the success of our 2017 Marsh & McLennan Agencies Stop-Loss Survey, we are excited to share with you the results of our 2018 survey. The upper Midwest region of Marsh & McLennan Agency (MMA) is comprised of 11 offices in 10 states providing employee benefits consulting to 2,500 employers throughout the USA.

As with all aspects of the insurance industry, the only constant is change. The stop-loss excess insurance market is no exception to the innovative cost containment strategies being implemented by payers and their customers, the employer. Expanded utilization of shared risk arrangements by third party administrators (TPAs) and providers, broad interest in reference-based pricing, growth of employer stop-loss captives and the advent of what is expected to be the first million-dollar prescription are just a few of the pressing topics our employers and consultants are implementing strategies around. Now more than ever, ensuring appropriate coverage levels and premium rates remain the focus for most employers.

To provide benchmarks for reinsurance coverage that are representative of local markets, 243 MMA clients were surveyed. These respondents cover nearly 200,000 employees and vary in size from nine to 20,000 covered employees, with an average of 825. Of the respondents, 99% purchased some level of specific (individual) stop-loss coverage, although at varying levels from $20,000 to $1,000,000 per individual. In addition, 135 (56%) of employers purchased some level of aggregate coverage with corridors ranging from 10% to 25%.

For the full survey please click here: 2018 Stop Loss Survey

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Is it Time for a Benefits Administration Technology Solution?

January 30, 2019


The benefits you offer your employees are valuable.

Your benefits package is also a key factor when attracting – and keeping – top talent. When employees aren’t engaged in their benefit offerings, it can lead to costly turnover and job dissatisfaction. But there is some good news. When it seems like your employees are dissatisfied with their benefits, you may not need to offer richer benefits; you just need to communicate your benefits more effectively.

To reach the modern employee, employers must adapt. Technology is now a critical component in benefits communication.

But with so many technology solutions available, where do you start? MMA can help narrow down your choices by performing a needs assessment specific to your organization to provide you a short list of benefit administration systems that could fit your requirements. Some of the advantages of a benefits administration system can include:

Employee Engagement and Education – You work hard to provide the right benefit choices to your employees – so you want to ensure they have the information they need before, during, and after enrollment. By engaging the employee – you are helping them understand how their benefits fit together and recognize the value of their total benefits package.  MMA can assist in finding the right system for your company that your employees can view benefit education, enroll in their benefits, & provides a confirmation of coverage back after enrollment decisions are made. This will allow your employees to make successful, informed benefit decisions.

Streamlining the Enrollment Process – Technology is playing a growing role in benefits enrollment – and flexible enrollment solutions are more important than ever! Innovative technology solutions make enrollment swift, simple, & successful. You will be able to provide a single source system that allows your employees to enroll in all your benefits – medical, dental, vision, core ancillary benefits, & voluntary worksite products.

Attracting and Retaining Top Talent – Moving into 2019 employees desire to use their phones, computers, & tablets to obtain information about everything! Show them that your company is here to meet their needs from a benefits and communication strategy. Employees that understand their benefits and have easy and informed access to them will appreciate your willingness to provide them with a top tier benefits package and this will in turn create a positive work environment and loyal employees.

Reducing your HR staff’s Time Spent on Benefits Administration – Benefits administration can be time consuming and burdensome for your HR team. Utilizing technology to help free up time for your HR team will allow them to focus on other pressing, important HR activities and be more effective. A technology solution can drive tangible improvements to your day to day business. Some examples of this can be removing paper enrollments, implementing real time evidence of insurability decision making tools, & reduced questions from employees.

In summary – technology moves quickly and communicating your benefits can be difficult, so let a benefits administration system that is focused on streamlining your benefit education and enrollment work for you and your HR team. MMA has a consulting team focused on finding you the right technology solution to help your company, your employees, and the overall vision you are trying to achieve regarding employee engagement and understanding of the total benefits package you are providing.

Author: Vickie Ward
Vickie Ward is the Technology and Voluntary Benefits Consultant providing guidance to clients regarding the right fit for benefits administration for their company. She has over 18 years’ experience in the insurance industry and has specialized in ancillary insurance coverage throughout that time. Her focus now is providing education to employers surrounding technology and how it can help communicate benefits to their employees.

Learn more and stay in touch with Vickie Ward here!

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Slope it. Shore it. Shield it.

October 18, 2018


OSHA issued a press release announcing that it has updated the National Emphasis Program (NEP) on preventing trenching and excavation collapses in response to a recent spike in trenching fatalities.  The NEP will increase education and enforcement efforts.  The program began on October 1, 2018 with a three-month period of education and prevention outreach.  During this period, OSHA will continue to respond to complaints, referrals, hospitalizations, and fatalities.  OSHA-approved State Plans are expected to have enforcement procedures that are at least as effective as those in this NEP.

OSHA has a number of compliance assistance materials to help, including:

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Federal Agencies Release Final Regulations for Short-Term Limited Duration Insurance Coverage

August 8, 2018


The Departments of Labor, Health and Human Services, and Treasury recently released final regulations for short-term limited duration insurance policies (STLDI) that make several changes to the existing STLDI rules and also affect how these policies interact with other laws.  The final regulations become effective this Fall.  STLDI coverage is intended to provide individuals who experience short-term gaps in medical coverage with a cost-effective alternative to the more comprehensive and expensive coverage available through the public health insurance exchange (the “Marketplace”), COBRA, or through other coverage continuation laws.

Offering STLDI coverage to employees (or former employees) is not a viable employer strategy as the coverage will lose its STLDI protection under the final regulations.  Under the final regulations:

  • STLDI coverage is not required to meet the ACA’s plan design mandates, meaning it may have annual or lifetime dollar maximum limits, pre-existing condition exclusions, exclusions for ACA-mandated benefits, etc.
  • The permitted duration for an STLDI policy increases from 3 months to 364 days, and it may be renewed for up to 36 total months.
  • STLDI coverage does not qualify as minimum essential coverage (MEC) for the purposes of satisfying the ACA’s individual mandate tax penalty.  This penalty is charged when a taxpayer fails to maintain MEC for the tax year. The Tax Cut and Jobs Act of 2017 eliminates the penalty starting in 2019, so this issue will go away.
  • Insurance carriers are permitted to subject applicants to underwriting and may decline coverage.
  • A loss of STLDI coverage will not trigger mid-year election rights through the Marketplace.

Insurance carriers are not required to offer STLDI coverage.  Insurance carriers are required to provide a notice with the application materials to educate applicants about the limitations of these plans.  The final regulations also note that states can mandate additional limitations.


This alert was prepared by Marsh & McLennan Agency’s Employee Health & Benefits Compliance Center of Excellence.  The information contained herein is for general informational purposes only and does not constitute legal or tax advice regarding any specific situation. Any statements made are based solely on our experience as consultants. Marsh & McLennan Agency LLC shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein.  The information provided in this alert is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients. This is not legal advice. No client-lawyer relationship between you and our lawyers is or may be created by your use of this information. Rather, the content is intended as a general overview of the subject matter covered. This agency is not obligated to provide updates on the information presented herein. Those reading this alert are encouraged to seek direct counsel on legal questions. © 2018 Marsh & McLennan Agency LLC. All Rights Reserved.

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Artificial Intelligence is Disrupting the Insurance Industry

August 1, 2018


What exactly is artificial intelligence?

According to IBM, who has been doing research on the topic since the 1950s, artificial intelligence (AI) is simply “anything that makes machines act more intelligently”.­ This can be broken down further into two groups: applied or general. Applied AI is capable of doing only those tasks it has been designed for, such as driving/operating a car, or trading stocks. This is the most common type of AI, and has had a wide range of success in many applications. On the other hand, general AI is far more advanced and theoretical. Instead of seeing specialization in one task, “a machine [would be] able to perform any task a human can”. It would, in essence, be able to learn anything and apply it to any situation, to think and reason just like a human. This type of artificial intelligence, though generating much attention in the recent years, is still far from a reality.

Hand-in-hand with the concept of AI is the area of machine learning (ML). This is “a branch of artificial intelligence based on the idea that systems can learn from data, identify patterns and make decisions with minimal human intervention”. This technology is widely used today, mainly by industries who amass a large amount of data (e.g. financial services, government, health care, etc.). It is what gives a machine its ability to learn from the past, and make predictions/decisions for the future. The more it encounters, the smarter it becomes.

The financial services industry has been using artificial intelligence and machine learning for years. Referred to as FinTech, firms take advantage of AI’s power by providing sophisticated virtual customer service assistants, analyzing legal documents, and even making strategic trades on the stock market. Large firms such as JP Morgan Chase have adopted artificial intelligence to help analyze important documents, which in turn has reduced their time spent from 360,000 hours annually down to a matter of seconds.  With AI’s ability to streamline back-end operations and improve efficiency all around, one might wonder why other industries have been so late to the game. Insurance firms, for example, are only just beginning to experiment with the use of AI. Considering its resemblance to the financial industry, it seems odd that insurance is still lagging so far behind. There may be, however, two reasons why FinTech got a head start. For one, insurance is a very passive product. Whereas roughly 70 percent of insurance firms only hear from their customers once a year, financial institutions communicate with their clients almost 200 times annually. This frequent customer interaction, coupled with the heavy regulation following the economic crisis of 2008, created a need for change. It also created the perfect opportunity for disruption from startups and innovators. “From non-bank lending, because banks could no longer provide enough capital, to consumer friendly apps and efficient payment solutions” the introduction of FinTech was unsurprising. Given that the field has steadily grown over the years, and amassed $16.6B in investments for firms last year, AI’s possibilities should not be ignored. The question is: can other industries catch up?

For the insurance industry, AI and machine learning have thus far been used in pricing, handling claims and detecting fraud, though firms are only now learning of its endless possibilities. Lemonade, a new property insurance company out of New York, is pioneering the way for other carriers to automate their processes and implement artificial intelligence. They enlist the help of chatbots, which are computer programs able to analyze language and mimic conversations to interact with humans. The bots are able to speak to multiple customers at once and are available anytime of the day. This is a major advantage for businesses that rely on fast, effective customer service.

Lemonade’s chatbot, Maya, “sells inexpensive homeowners’ and renters’ insurance, and their claims bot, AI Jim…recently settled a claim in three seconds”. Maya is able to communicate directly with customers and help them navigate through the confusion of applying for coverage. Their website claims she will craft the perfect insurance for you, without the need for customer service representatives and underwriters. The appeal of having a computer execute such tasks is that it reduces the time spent, the hassles and the costs. It makes the processes far more seamless, instantaneous and trustworthy. Even though Lemonade is targeting a niche group (millennials), other insurance companies should not turn a blind eye; they could learn a lot from the company’s operations and values. “Lemonade is fast and transparent rather than slow and opaque”. Many people will be drawn to this refreshing view in a notoriously mundane industry.


With the ever-increasing use of social media and “smart” gadgets, AI machines now have access to a wealth of data. This is especially useful when analyzing a client’s risk and setting an appropriate premium. Underwriting, a somewhat lengthy and intricate process, has been presented with the opportunity for automation. A bot is able to “scan a customer’s social profile to gather information and find trends and patterns”. This ability to analyze social media posts and determine a person’s risk within seconds puts AI’s capabilities far beyond humans’, and at a far lower cost. When considering the vast amount of data generated from the Internet of Things (IoT), the accuracy and knowledge of these bots will be unparalleled. AI also provides the “mechanics to capture ‘tribal knowledge’, thereby providing a uniform assessment metric across the entire underwriting process”. Tribal knowledge is defined as information that is known only to the insiders of a particular group or organization, and is not common knowledge to outsiders. In the world of underwriting, this tribal knowledge could consist of emails, internal reports, presentations and evaluations, all of which can help better assess a group’s risk.

One would think gathering personal data from people would be met with overwhelming opposition, but surprisingly “62 percent of younger groups said they’d be happy for insurers to use third-party data…to lower prices”. While it is exciting that companies may no longer base their premiums on generalized assumptions, and look to individualized data instead, a concern for privacy is presented. Allowing limitless access to your personal data is both risky and invasive. What happens to our freedom of speech if we can no longer share photos from a night out, or post our thoughts online without the threat of increased insurance premiums? Additionally, think of the impact a data breach would have if you allow all of your personal information to be in the hands of one company. To make matters worse, there is no guarantee these companies would not sell your information to third parties, thereby increasing the risk of a data breach exponentially. Consumers need to weigh the pros and cons before allowing insurance companies access to such personal information. Since when does affordability outweigh privacy?

Claim Handling

Claims processing can be “a monotonous task susceptible to errors stemming from uniquely human factors”. Not only does AI reduce the amount of time spent on claims, it also reduces the probability of error. Imagine having a machine analyze a photo of damage and estimate repair costs within seconds. The entire burden of handling the claim would fall off of the insurer and customer. AI will eliminate the need for having multiple people work on the same claim, thus decreasing administrative costs and the frequency of errors. Kristof Terryn, COO of Zurich, has instituted a project to automate their claims processes. He declared that it “will trim $5 million from expenses…for the 39,000 hours of claims handler time now being done by computer”. Though this is an impressive reduction in costs, most of the value stems from increasing the accuracy of claims and virtually eliminating errors during the process. Other companies that have implemented automation “of their claims process have seen a significant reduction in processing times and [an increase in] quality”. The use of chatbots also reduces the need for interaction with customers during the process. Any questions customers may have could be directed to those bots, therefore allowing workers to focus on more important tasks. Thanks to artificial intelligence, insurance companies’ resources can be better allocated; they will no longer require the manpower needed in decades past.

Fraud Detection

With the implementation of AI and machine learning comes the ability to analyze data better and faster than any human ever could. These machines are able to identify patterns within a claim, look to historical data and “help to recognize fraudulent claims in the process”. This should be of utmost importance to not only insurance carriers, but to the insureds as well. According to the FBI, it is estimated that insurance fraud costs the United States $40 billion annually. This cost is passed along to the insureds in the form of increased premiums, roughly “$400 to $700 per year”. A startup firm in France called Shift Technology is using AI in their fraud prevention services. They have “already processed over 77 million claims… [and] have reached a 75 percent accuracy rate for detecting fraudulent insurance claims”.1Even IBM offers AI services to fight financial crimes.  It is evident that this application of AI will grow exponentially in the future and drastically help cut the cost of fraud.

All things considered, artificial intelligence is set to flip the insurance industry upside down. Automating monotonous processes, reducing fraud and increasing accuracy are major advantages of using the technology. Insurance, which as an industry is notorious for its antiquated processes and values, is being disrupted by this emergence of artificial intelligence and machine learning. Disruption happens when an existing market, industry, or technology is displaced and replaced with something new and more efficient/worthwhile. Accenture claims that “75 percent of insurance executives believe AI will provide significant industry changes in the next three years”. Despite the fact some insurers have started to embrace the change, many others are unaware of the impact it is having already. While there are many kinks left to be ironed out, the reality is that companies have two options- catch up or be left behind.


About the Author

Ashley Evans: Analytics intern at J.W. Terrill, and senior at Saint Louis University pursuing a bachelor’s degree in Finance; Dean’s List recipient for two consecutive semesters. Interested in continuing her education with a Master’s in Applied Financial Economics.


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  2. Marr, Bernard. “What Is The Difference Between Artificial Intelligence And Machine Learning?” Forbes. September 15, 2017. Accessed July 18, 2018.
  3. “What Is AI?” IT PRO. June 11, 1970. Accessed July 18, 2018.
  4. “Machine Learning: What It Is and Why It Matters.” SAS. Accessed July 18, 2018.
  5. Alton, Liz. “How Financial Services Use AI To Serve Customer Needs.” Forbes, Forbes Magazine, 8 Sept. 2017,
  6. Kurani, Ravi. “InsurTech Is the New FinTech – or Is It? – Earlybird’s View – Medium.”Medium, Augmenting Humanity, 23 Aug. 2016,
  7. “The Global Fintech Report Q4 2017.” Corporate Innovation Trends, 2018, Ads&utm_medium=FintechReport&msclkid=4a5f3b8d528b149feb2660d5b3c03485.
  8. Team, Writer Profile Of “How Artificial Intelligence Is Changing the Insurance Business.” Medium. February 14, 2017. Accessed July 18, 2018.
  9. Sun, Alex. “How Chatbots Can Settle an Insurance Claim in 3 Seconds.” VentureBeat,VentureBeat, 28 May 2017,  settle-an-insurance-claim-in-3-seconds/.
  10. “Lemonade Renters & Home Insurance | Protect The Stuff You Love.” Lemonade. Accessed July 18, 2018.
  11. Fromm, Jeff. “How Startup Lemonade Is Redefining Insurance For Millennials.” Forbes. July 12, 2017. Accessed July 18, 2018.
  12. Moodie, Alison. “How Artificial Intelligence Could Help Make the Insurance Industry Trustworthy.” The Guardian. January 28, 2017. Accessed July 18, 2018.
  13. Morgan, Blake. “How Artificial Intelligence Will Impact The Insurance Industry.” Forbes. July 25, 2017. Accessed July 18, 2018.          intelligence-will-impact-the-insurance-industry/#1daeb20a6531.
  14. Kumar, Krishna. “AI’s Huge Potential for Underwriting.” Insurance Thought Leadership. December 17, 2015. Accessed July 18, 2018.
  15. “What Is Tribal Knowledge? Definition and Meaning.”   Accessed July 18, 2018.
  16. “Young Consumers Willing to Let Insurers Spy on Digital Data – If It Cuts Premiums.”     Insurance Journal. June 21, 2018. Accessed July 18, 2018.
  17. “Insurance Fraud Prevention Gets Help From Artificial Intelligence.” Samsung Business Insights. January 19, 2018. Accessed July 18, 2018.
  18. “AI and Insurance: Are Claims Jobs in Danger?” Carrier Management. March 14, 2017. Accessed July 18, 2018.
  19. “Insurance Fraud.” FBI. March 17, 2010. Accessed July 18, 2018.
  20. “RegTech and Cognitive Risk & Compliance | IBM.” IBM Cognitive Advantage Reports.             Accessed July 18, 2018.   markets/risk-compliance.
  21. Howard, Caroline. “Disruption Vs. Innovation: What’s The Difference?” Forbes. June 20, 2016. Accessed July 18, 2018.
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Electronic Submission of Injury & Illness Records to OSHA

June 20, 2018


The U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) deadline for submitting 2017 OSHA Form 300A data is July 1, 2018, for establishments with 20-249 employees in certain high-risk industries. The Injury Tracking Application (ITA) is accessible from the ITA launch page, where you are able to provide your 2017 OSHA Form 300A information. Establishments with 250 or more are only required to provide their completed 2017 Form 300A summary data. OSHA is not accepting Form 300 and 301 information at this time.

(According to the OSHA website, OSHA announced it will issue a notice of proposed rulemaking (NPRM) to reconsider, revise, or remove provisions of the “Improve Tracking of Workplace Injuries and Illnesses” final rule, including the collection of the Forms 300/301 data. The Agency is currently drafting that NPRM and will seek comment on those provisions.)

Beginning in 2019 and every year thereafter, the information must be submitted by March 2.

See answers to more frequently asked questions on the rule.

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IRS Releases More Details on Letter 227 – Response to Appeal on Employer Shared Responsibility Payment

May 31, 2018


Late last year the IRS started sending employer potential penalty letters on the Employer Shared Responsibility requirements of the Affordable Care Act (ACA). The penalties were associated with the 2015 Forms 1094 C and 1095 C that employers submitted in 2016. Prior to releasing the penalty letters, the IRS posted guidance on how the penalty process would be managed. The guidance was reviewed in our article, IRS Employer Mandate Penalties.

Penalties are proposed to Applicable Large Employers (ALEs) in a Letter 226J. Included with the letter was a Form 14764.  This is the form ALEs would use to appeal all or a portion of the penalty assessed.

ALEs were given 30 days to respond to a Letter 226J.

The IRS responds to any Form 14764s that ALEs submit. The response is called Letter 227.  The IRS guidance indicated the IRS would create 5 different versions of the Letter 227 to address possible outcomes based on the employer’s appeal efforts.

The IRS recently posted more information about the different versions of Letter 227 on their website at

Different versions of the Letter 227 will either close the Shared Responsibility penalty issue or prompt employers to take additional steps. Additional steps may include paying the penalty or following the instructions provided in Letter 227 or Publication 5 to request a pre-assessment conference with the IRS Office of Appeals. A conference should be requested in writing by the response date shown on Letter 227, which generally will be 30 days from the date of Letter 227.

The five different possible Letter 227s are as follows:

  • Letter 227-J acknowledges receipt of the signed agreement Form 14764, ESRP Response. In this case, the employer agreed with the Shared Responsibility penalty that was assessed. The letter provides details on how the ALE can make the required payment. No response is required.
  • Letter 227-K acknowledges receipt of receipt of the signed agreement Form 14764, ESRP Response. In this case, the IRS agrees with the ALE’s appeal and indicates the proposed penalty has been reduced to zero. After issuance of this letter, the case will be closed. No response is required.
  • Letter 227-L acknowledges receipt of receipt of the signed agreement Form 14764, ESRP Response. In this case, the IRS revised the penalty amount based on the ALE’s appeal. The letter includes an updated Form 14765 (list of all FT employees purchasing subsidized coverage in the Marketplace by month) and revised calculation of the penalty. The ALE can agree and arrange to pay the penalty. The ALE can pursue the appeal further by request a meeting with the manager and/or office of appeals.
  • Letter 227-M acknowledges receipt of receipt of the signed agreement Form 14764, ESRP Response. In this case, the IRS does not agree with the appeal and is assessing the penalty included in the Letter 226J. The letter provides an updated Form 14765 (list of all FT employees purchasing subsidized coverage in the Marketplace by month) and revised calculation table. The ALE can pursue the appeal further by request a meeting with the manager and/or office of appeals.The response to the IRS conference is Letter 227-N. It acknowledges the decision reached in Appeals and shows the penalty amount based on the Appeals review. After issuance of this letter, the case will be closed. No response is required.

Concluding Thoughts The additional information on Letter 227 is helpful for employers to understand any response they receive to filing the Form 14764 to appeal the proposed penalty.

  • It will be interesting to see if the IRS continues to identify potential penalties from the 2015 Forms or if they start issuing penalty letters for 2016.
  • The IRS has sent several batches of penalty letters to ALEs across the country over the last six months. It is important that you respond to the letter within 30 days as indicated on the Letter 226J. In many cases, ALEs are successfully appealing substantial proposed penalties.
  • Only Letters 227-L and 227-M call for a response, which must be provided by the date stated in the letter. The Letter 227 is not a bill. The IRS will send Notice CP 220J to collect the employer shared responsibility penalties.
  • The last possible Letter 227 is issued after the ALE has participated in a pre-assessment conference with the IRS. This is the next step in appealing the potential 226J penalty if the IRS did not accept the first appeal submitted on the Form14764. ALEs must request this conference.
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Making Harassment Transparent

January 16, 2018


Sexual harassment is finally getting much needed media attention, but is media attention enough? Now is the time for employers to think critically about their culture and decide if they are doing everything they can to prevent harassment.  Harassment, in any form, is complex because it is the combination of law and perception. The Equal Employment Opportunity Commission (EEOC) defines illegal harassment, as unwelcome conduct against protected classes: race, color, religion, sex (including pregnancy), national origin, age (40 or older), disability or genetic information.  While a protected class is easy to identify, unwelcome conduct is very broad, vague, and subject to interpretation.  There is not a scale or way to measure a degree of harassment; illegal harassment is illegal.

But illegal harassment usually doesn’t appear overnight. Conduct that isn’t illegal harassment can promote the acceptance of bad, inappropriate, or hostile behavior.  So what should an employer do?  I would suggest tackling it from four perspectives:

Communication: How often do you talk to employees about harassment?  How bluntly do you talk to them about harassment?  Harassment isn’t a pretty conversation and at times it can be completely awkward, but it has to be done and it has to be real.  If your only communication on harassment is a policy in a handbook and an online training course consider how impactful that would be in prohibiting harassing behavior and promoting reporting such behavior.

Communication should be about workplace behavior as a whole. Establish what behavior is appropriate and what an employee should do when it becomes uncomfortable. Communication should include guidance for recognizing the effect of behavior, or intent vs impact.  It should also include unconscious behavior, recognizing one’s own implicit biases.  Harassment communication should make an employee more self-aware and an alleged victim comfortable in reporting a concern.  And, most importantly a clear understanding of the means to report and resolve concerning behavior.  Harassment communication is much more complex than checking a box.

Culture: Take an honest look at what is acceptable behavior in the workplace.  Does leadership drive the culture, and is it comfortable for everyone?  If the answer is no to either part of that question then there is work to be done.  Leadership should set, and follow, the expectations of conduct and have an open door policy that is “really open” for communication with the employees.  Most complainants just want the issue resolved.  If  your organization receives complaints and resolves them quickly and professionally in-house it lessens the  possibility an employee will go to a 3rd party.  Culture does not change overnight but is always guided by leadership, good or bad.

Human Resources:  An effective Human Resources Manager needs to be recognized as a leader and allowed to become Switzerland.  The worst organizational structure is when the senior HR member reports to a peer.  This is usually done because of a perceived need to keep a “handle” on HR (guiding employment decisions) or perceived lack of effectiveness of Human Resources impact on strategic decisions.  A competent HR leader can minimize risk and add to the bottom line through internal practices because employees are probably your biggest expense and gamble. While embracing Human Resources as a leader is key it is also important to allow them to function without inducement or coercion.  HR should be allowed to protect the company and the employees from liability.  HR needs to remain neutral, even if you might not like what it has to say.

Policies:  According to a study at University of Missouri – Columbia 98% of all organization have a harassment policy.  The truth is while a policy sets expectations it will not stop action.  The glitch is when an organization makes risky exceptions to those policies or plays ostrich to particular behavior.  Written words are not going to minimize your risk if the policy is not practiced as written or if there are exceptions made for a gender, classification, department, location, or “high performer”.   The whole point of a policy is to provide structure and guidance for the employees to know what the parameters are.  There is no legitimacy if the policy is just sitting on a shelf collecting dust and ignored.  That is when a policy could become a risk in court.  I do suggest having a clearly defined harassment policy, but it is pretty worthless if it is not implemented or enforced.

Behavior doesn’t change overnight and there will always be an individual that challenges the expectations. But that challenge is much easier to identify with clear expectations, communication, and sincere responsibility for the workforce.  All employees regardless of their race, color, religion, sex, national origin, age, disability or genetic information should want to come to work for you.  If that isn’t a concern to you, or your leadership, then be prepared for third party interference.

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