REPORT ON EXAMINATION
OF
ORANGE-ULSTER SCHOOL DISTRICTS PLAN
AS OF DECEMBER 31, 2017
EXAMINER: CHARLES J. MCBURNIE
REVIEWER: WAI WONG, CFE
DATE OF REPORT: SEPTEMBER 21, 2022
TABLE OF CONTENTS
ITEM NO.
PAGE NO.
1.
Scope of the examination
2
2.
Description of the Plan
A. Corporate governance
B. Territory and plan of operation
C. Stop-loss coverage
D. Administrative service agreements
E. Municipal cooperative agreement
F. Plan document and summary description
G. Underwriting results
H. Internal controls
4
5
8
10
11
12
17
19
20
3.
Financial statements
A. Balance sheet
B. Statement of revenue and expenses and surplus
20
22
23
4.
Claims payable
24
5.
Claims stabilization reserve
25
6.
Market conduct activities
A. Standards for prompt, fair and equitable settlement of
claims for health care and payments for health care
services (“Prompt Pay Law”)
B. Mental Health Parity and Addiction Equity Act
(“MHPAEA”)
26
26
27
7.
Compliance with prior report on examination
29
8.
Summary of comments and recommendations
32
September 21, 2022
Honorable Adrienne A. Harris
Superintendent of Financial Services
Albany, New York 12257
Madam:
Pursuant to the requirements of the New York Insurance Law and acting in accordance
with the instructions contained in Appointment Number 31761, dated April 30, 2018, attached
hereto, I have made an examination into the condition and affairs of Orange-Ulster School Districts
Health Plan, a municipal cooperative health benefit plan certified pursuant to the provisions of
Article 47 of the New York Insurance Law, as of December 31, 2017, and respectfully submit the
following report thereon.
The examination was conducted at the administrative office of Orange-Ulster School
Districts Health Plan, located at 4 Harriman Drive, Goshen, New York.
Wherever the designations the “Plan” or “OUSDP” appear herein, without qualification,
they should be understood to indicate the Orange-Ulster School Districts Health Plan.
Wherever the designation the “Department” appears herein, without qualification, it should
be understood to indicate the New York State Department of Financial Services.
2
1. SCOPE OF THE EXAMINATION
The previous examination was conducted as of December 31, 2013. This examination of
the Plan was a combined (financial and market conduct) examination and covered the four-year
period from January 1, 2014, through December 31, 2017. The financial component of the
examination was conducted on a risk-focused basis as defined in the National Association of
Insurance Commissioners (“NAIC”) Financial Condition Examiners Handbook, 2018 Edition (the
“Handbook”). The examination was conducted observing the guidelines and procedures in the
Handbook. Where deemed appropriate by the examiner, transactions occurring subsequent to
December 31, 2017, were also reviewed.
The financial portion of the examination was conducted on a risk-focused basis in
accordance with the provisions of the Handbook, which provides guidance for the establishment
of an examination plan based on the examiner’s assessment of risk in the Plan’s operations and
utilized that evaluation in formulating the nature and extent of the examination. The examiner
planned and performed the examination to evaluate the Plan’s current financial condition, as well
as identify prospective risks that may threaten the future solvency of “OUSDP”
The examiner identified key processes, assessed the risks within those processes and
assessed the internal control systems and procedures used to mitigate those risks. The examination
also included an assessment of the principles used and significant estimates made by management,
an evaluation of the overall financial statement presentation, and determined management’s
compliance with the Department’s statutes and guidelines, Statutory Accounting Principles, as
adopted by the Department, and NAIC Annual Statement instructions and NAIC annual statement
instructions.
3
Information concerning the Plan’s organizational structure, business approach and control
environment were utilized to develop the examination approach. The examination evaluated the
Plan’s risks and management activities in accordance with the NAIC’s nine branded risk
categories.
These categories are as follows:
• Pricing / Underwriting
• Reserving
• Operational
• Strategic
• Credit
• Market
• Liquidity
• Legal
• Reputational
The examination also evaluated the Plan’s critical risk categories in accordance with the
NAIC’s ten critical risk categories. These categories are as follows:
Valuation / Impairment of Complex or Subjectively Valued Invested Assets
Liquidity Considerations
Appropriateness of Investment Portfolio and Strategy
Appropriateness / Adequacy of Reinsurance Program
Reinsurance Reporting and Collectability
Underwriting and Pricing Strategy / Quality
Reserve Data
Reserve Adequacy
Related Party / Holding Company Considerations
Capital Management
OUSDP was audited annually, for fiscal years 2014 through 2017, by the accounting firm
Urbach Hacker Young LLP, (“UHY - LLP”). The Plan received an unmodified opinion in each
of those years. Certain audit work papers of UHY - LLP. were reviewed and relied upon in
conjunction with this examination.
4
The examiner reviewed the corrective actions taken by the Plan with respect to the
recommendations contained in the prior report on examination. The results of the examiner’s
review are contained in Item No. 7 of this report.
This report on examination is confined to financial statements and comments on those
matters which involve departure from laws, regulations or rules, or which require explanation or
description.
2. DESCRIPTION OF THE PLAN
OUSDP is a municipal cooperative health benefits plan operating under the provisions of
Article 47 of the New York Insurance Law. The Plan operates exclusively for the benefit of the
employees, retirees and dependents of the Plan’s member school districts and the Orange-Ulster
Board of Cooperative Educational Services (“BOCES”). The Plan has been in existence since
1982 and is composed of eighteen (18) school districts and the Orange-Ulster BOCES. It was
issued a certificate of authority on November 1, 2000, pursuant to the provisions of Article 47 of
the New York Insurance Law. The Plan was issued a Certificate of Authority by the
Superintendent on November 1, 2000. Pursuant to such Certificate of Authority and in accordance
with the Municipal Cooperative Agreement, each of the participants of the Plan have agreed to
share the costs and assume the liabilities for medical, hospital, surgical, and prescription drug
benefits provided to covered employees (and retirees) and their dependents under the Plan.
For the examination period, there were eighteen (18) school districts and one (1) BOCES
participating in the Plan. As of December 31, 2017, the nineteen (19) municipalities participating
in the Plan were as follows:
5
• Chester Union Free School District
• Monroe-Woodbury Central School District
• Cornwall Center School District
• Orange–Ulster BOCES
• Eldred Central School District
• Pine Bush Central School District
• Florida Union Free School District
• Port Jervis City School District
• Goshen Central School District
• Rondout Valley Central School District
• Greenwood Lake Union Free School
District
• Tuxedo Union Free Central School District
• Highland Central School District
• Valley Central School District
• Highland Falls Central School District
• Warwick Valley School District
• Kiryas Joel Village School District
• Washingtonville School District
• Marlboro Central School District
A. Corporate Governance
Pursuant to its Municipal Cooperative Agreement, management of the Plan is to be vested
in a Governing Board, comprised of one (1) representative from each participating School District,
including the BOCES. The Plan’s Governing Board members, and their principal business
affiliations as of December 31, 2017, was as follows:
Name and Residence
Principal Affiliation
Erin Brennan
Rock Tavern, New York
Director of Business,
Chester Union Free School District
Patrick Cahill
Fishkill, New York
Assistant Superintendent for Management Services,
Monroe-Woodbury Central School District
Lorelei Case
Cuddebackville, New York
Assistant Superintendent for Business,
Port Jervis City School District
Denise Cedeira
Jeffersonville, New York
Assistant Superintendent for Business,
Highland Falls Central School District
Deborah McBride Heppes
Goshen, New York
Assistant Superintendent for Financials,
Orange-Ulster BOCES
Timothy Holmes
Uniondale, New York
Assistant Superintendent for Business,
Warwick Valley School District
Jan Jehring
Middletown, New York
Superintendent,
Florida Union Free School District
6
Name and Residence
Principal Affiliation
Ann Lierow
Lagrangeville, New York
Assistant Superintendent for Business,
Greenwood Lake Union Free School District
Ruth Luis
New Hampton, New York
Business Administrator,
Eldred Central School District
Louise Lynch
Salt Point, New York
Business Administrator,
Highland Central School District
Marc Matatia
Guilderland, New York
Business Administrator,
Tuxedo Union Free Central School District
Kim McEvoy
Accord, New York
Key Personnel,
Rondout Valley Central School District
Robert Miller
Johnson, New York
Assistant Superintendent for Business,
Goshen Central School District
Paul Nienstadt
Washingtonville, New York
Assistant Superintendent for Business,
Washingtonville School District
Michael Pacella
Newburgh, New York
Assistant Superintendent for Business,
Pine Bush Central School District
Lisa Raymond
Neversink, New York
Assistant Superintendent for Business,
Valley Central School District
Harvey Sotland
Poughquaq, New York
Assistant Superintendent for Business,
Cornwall Central School District
Schaye Wercberger
Central Valley, New York
Director of Business,
Kiryas Joel Village School District
Patrick Witherow
Middletown, New York
Business Administrator,
Marlboro Central School District
According to its Municipal Cooperative Agreement, the Board of Directors is to meet at
least once each quarter in the months of October, January, April and July. The time and the place
within New York State of such meetings shall be provided in a written notice to the Board members
provided by the Chairman, Secretary or their designee.
The minutes of all meetings of the Board of Directors were reviewed. Such meetings were
generally well attended.
7
Article IV of the Plan’s Municipal Cooperative Agreement states:
“The following officers of the Health Plan Committee shall be elected
annually at the November meeting and shall have the duties set forth
below:
(i) Chairperson: The chairperson shall have general supervisory
responsibilities for the Plan; and the Health Plan Committee such as
(1) develop the agenda, (2) preside over meetings; and. (3) appoint
sub-committees as required upon authorization from the full Board.
(ii) Secretary: The Secretary includes (1) keeping official minutes of all
Board meetings, send copies to all Board members, superintendents,
plan administrator and claims administrator, (2) send out notices of
all meetings, (3) conduct correspondence for the Board as directed
by Chairperson and (4) act as Chairperson in the absence of the
Chairperson.
(iii) Plan Administrator: The Administrator shall be (1) responsible for
custody of all Board minutes, correspondence and other official
records of the Plan except for claims information, (2) designate the
Plan’s attorney in fact to receive process of summons or other legal
process.
(iv) Chief Fiscal Officer: The Chief Fiscal Officer is appointed by the
Chairperson annually in November, who shall be a fiscal officer of a
participating school district.”
Review of the Board of Directors’ meeting minutes of the Health Plan Committee noted
that the Plan’s management failed to appoint the Chairman, Secretary, Plan Administrator and
Chief Fiscal Officer, as required by Article IV of the Plan’s Municipal Cooperative Agreement.
It is recommended that the Plan comply with Article IV of its Municipal Cooperative
Agreement, by electing the Chairman, Secretary, Plan Administrator and Chief Fiscal Officer, in
accordance with its Municipal Cooperative Agreement.
It was noted that although the Plan’s Board authorized and established specific committees,
such committees were not formalized within the Plan’s Municipal Cooperative Agreement or
other corporate documents.
It is recommended that the Plan revise its Municipal Cooperative Agreement or by-laws to
include any and all of its standing committees.
8
During the examination period, the Plan did not maintain any committee minutes for the
Plan. As a good business practice, the Plan should maintain minutes of the proceedings of its
committees.
It is also recommended that the Plan, as a best practice, and in conformance with Section
624(a) of the New York Business Corporation Law, keep meeting minutes of its established
committees.
The principal officers of the Plan as of December 31, 2017, were as follows:
Officers
Deborah McBride Heppes
Lorelei Case
Lisa Raymond
John Staiger
The Governing Board of the Plan designated John Staiger, Jr. as the Attorney-in-Fact, who
is authorized to receive service on a summons or other legal paper in any action, suit or proceeding
arising out of any contract, agreement or transaction involving the Plan.
B. Territory and Plan of Operation
As of December 31, 2017, the Plan held a Certificate of Authority to operate the business
of a municipal cooperative health benefit plan as authorized by Section 4704 of the New York
Insurance Law in the counties of Orange, Sullivan and Ulster. Pursuant to the requirements of
Article 47 of the New York Insurance Law, the Plan is required to maintain contingency reserves
equal to 5% of the annualized earned premium. The Plan met the contingency reserves
requirement throughout the examination period.
9
It was noted that the Plan’s official name on its Certificate of Authority, is the Orange
Ulster School Districts Plan, however, the Plan at times refers to itself as the Orange Ulster School
Districts Health Plan, in their filings and correspondence.
It is recommended that if the Plan continues to refer to itself as Orange Ulster School
Districts Health Plan that it, officially submit to the Department a request to change its name on
its Certificate of Authority to reflect the name it uses.
The Plan provides medical, hospital, surgical, prescription and drug benefits to eligible
members and retirees of the participating school districts in Orange, Ulster and Sullivan counties.
The Plan reported annual written premiums of $148,976,223 for the fiscal year ending December
31, 2017. The Plan’s total lives covered as of December 31, 2017, was 19,274, a decrease of 2,234
from prior year December 31, 2016.
A review of the meetings minutes of the Plan noted that the Minisink Valley Central School
and the Enlarged City School District, withdrew from the Plan, effective August 31, 2016, and
September 30, 2017, respectively.
Below is a summary of the Plan’s annual premium writings and corresponding member
enrollment for the four-year examination period:
Calendar Year
Net Premium Income
Enrollment*
2014
$129,549,701
9,923
2015
$138,370,916
10,316
2016
$144,331,545
9,766
2017
$148,976,223
8,764
*Enrollment for covered employees and retirees
10
The Plan’s total written premium increased to a total of $27,567,802 ($148,976,223-
$121,408,421) or 22.7% for the examination period. Such increases were attributable to annual
rate increases during the examination period for the examination period. Conversely, the Plan’s
member enrollment decreased by a total of 998 members or 10.2% from 2013 (9,762) through
2017 (8,764) due to withdrawal of two school districts, consolidations of some employment
positions within the Plan’s participating school districts and attrition.
C. Stop-Loss Coverage
As required by Section 4707 of the New York Insurance Law, the Plan maintains both
aggregate stop-loss coverage and specific stop-loss coverage. The issuer of the stop-loss coverage,
American Alternative Insurance Corporation, is a New York authorized reinsurer.
The following is a summary of the Plan’s stop-loss coverage program as of December 31,
2017:
Type Limits
Excess of loss (one layer) 100% of excess of $950,000 per member, per
contract year.
Aggregate excess-of loss $1,000,000 excess of the annual aggregate
attachment point (100% of incurred claims
expenses), for the current contract period.
As of January 1, 2018, the Plan replaced its stop loss coverage with America Alternative
Insurance Corporation with stop-loss coverage from United States Fire Insurance Company, which
is also a New York authorized reinsurer in New York State.
11
D. Administrative Services Agreements
The Plan entered into contractual agreements with the following vendors for various
services, for the examination period:
Envision Pharmaceutical Services, Inc.
• Preparation and distribution of identification cards;
• Maintenance of appropriate records of each Plan participant;
• Preparation and distribution of enrollment forms and benefit claim forms; and
• Notification to the Plan’s claimant of denials, the basis for the denials and the claimant’s
right to appeal the denials
Quantum Health Solutions, Inc.
• Evaluate data on specific provider patterns;
• Maintain a cohesive provider panel with ongoing orientations to the program Billing
procedures;
• Contract preferred rates with outpatient and impatient providers in the company region;
• Orient Providers on the Orange-Ulster Contract;
• Data reports; and
• Coordinate with Plan’s third-party administrator and medical network agreements
Empire HealthChoice Assurance, Inc. d/b/a, Empire BlueCross BlueShield
• Pharmacy benefits administrative services;
• Rebate and reporting services to Medicare D plans; and
• Pharmacy network contracting, claims processing services for covered drugs, perform
standard concurrent utilization review analysis and formulary management services;
• First level review of written requests for appeal from members or participating pharmacies
that consist of ministerial verification that claim(s) were processed in accordance with the
Plan’s benefits package member eligibility
HealthCare Strategies, (“HCS”)
• Utilization Review, and case management;
• Outpatient Services Review; and
• Medical Information Help Line
12
Segal Consulting
• Provides annual actuarial certification of compliance regarding the Plan’s premium rating
and claims reserve process and stop-loss requirement as required by Article 47 of the New
York State Insurance Law
Harris Beach PLLC
• Provides outside General Counsel Services to the Plan
Urbach Hacker Young LLP.
• Serves as the Plan’s Certified Public Accountant (“CPA”). Provides financial audit
services
The agreements between the Plan and Empire BlueCross BlueShield did not include a
provision for the Plan to audit or have a third-party audit Empire BlueCross BlueShield’s
compliance with its obligations under the contract.
It is recommended that the Plan initiate audits of all services, including claims processing,
provided by all its contracted third-party administrators.
It is further recommended that if the Plan is unable to have audits done of its third-party
claims administrators that the Plan obtain annual certifications from its third-party claims
administrators that claims are being processed in accordance with the Plan’s Document and
applicable statutes, rules and regulations (relative to claims submitted by the Plan’s participants).
E. Municipal Cooperative Agreement
Section 4710(a)(1) of the New York Insurance Law states:
“The governing board of the municipal cooperative health benefit plan shall:
13
(1) file for approval with the superintendent a description of material changes in any
information provided in the application for a certificate of authority in the form and
manner proscribed by the superintendent.”
During the review of the Plan’s Municipal Cooperation Agreement, it was determined that
the Plan used an MCA, dated 2012, which was never approved by the Superintendent.
It is recommended that the Plan submit its Municipal Cooperation Agreement to the
Superintendent for approval prior to use.
During the examination period, the Plan amended its 2012 Municipal Cooperative
Agreement (“MCA”) without filing for approval with the Superintendent. It should be noted the
Plan is obligated to comply with the most recently approved version of its MCA until the
Department approves an amended version.
It is recommended that the Plan comply with Section 4710(a)(1) of the New York
Insurance Law by filing for approval with the Superintendent, a description of the material changes
in any information provided in the application for its Certificate of Authority.
Section 4705 (a)(7) of the New York Insurance Law states:
“The municipal cooperation agreement, under which the municipal
cooperative health benefit plan is established and maintained, and any
amendment thereto, shall be approved by each participating municipal
corporation by majority vote of each such corporation's governing body,
and shall:
(7) designate the plan's attorney-in-fact to receive service of summons or
other legal process in any action, suit or proceeding arising out of any
contract, agreement or transaction involving such municipal cooperative
health benefit plan; and”
14
During the examination, the Plan was unable to provide any evidence that the Municipal
Cooperation Agreement was approved by each participating municipal corporation by majority
vote of each such corporation body.
It is recommended that the Plan adhere to Section 4705(a) of the New York Insurance Law,
by having the Municipal Cooperation Agreement approved by each participating municipal
corporation by a majority vote of each such corporation’s governing’s body.
The last approved Municipal Cooperation Agreement the Plan had in effect was dated as
of 1999. A review of the agreement found the following deficiencies:
The Plan’s MCA failed to designate the Plan’s attorney-in-fact to receive service of
summons or other legal processes in any action, suit or proceeding arising out of any contract,
agreement or transaction involving such municipal cooperative health benefit plan.
It is recommended that the Plan adhere to Section 4705(a)(7) and designate the Plan’s
attorney-in-fact to receive summons or other legal process in any action, suit or proceeding arising
out of any contract, agreement or transaction involving such municipal cooperative health benefit
plan.
Section 4705(b)(2) of the New York Insurance Law states, in part:
“(b) The municipal cooperation agreement shall provide that the plans
chief fiscal officer…
(2) shall, notwithstanding any provision of the general municipal law make
payment in accordance with procedures developed by the plan's governing
board and acceptable to the superintendent…”
15
The Plan’s MCA failed to state that the Chief Financial Officer (“CFO”) shall,
notwithstanding any provision of the General Municipal Law make payment in accordance with
procedures developed by the Plan’s governing Board and acceptable to the Superintendent.
It is recommended that the Plan comply with the provisions of Section 4705(b)(2) of the
New York Insurance Law, by including in its MCA that the CFO shall, notwithstanding any
provision of the General Municipal Law, make payment in accordance with procedures developed
by the Plan’s governing Board and which are acceptable to the Superintendent.
Section 4705(b)(4) of the New York Insurance Law states, in part:
“(b) The municipal cooperation agreement shall provide that the plans
chief fiscal officer…
(4) shall receive no remuneration, except that the participating municipal
corporation employing the chief fiscal officer may be reimbursed for
reasonable expenses incurred in connection with the duties of such fiscal
officer in connection with the plan…”
The Plan’s MCA failed to state the Plan’s CFO, shall receive no remuneration, except that
the participating municipal corporation employing the chief fiscal officer may be reimbursed for
reasonable expenses incurred regarding the duties of such fiscal officer relating to the Plan.
It is recommended that the Plan comply with Section 4705(b)(4) of the New Insurance
Law, by including in its MCA that the CFO, shall receive no remuneration, except that the
participating municipal corporation employing the chief fiscal officer may be reimbursed for
reasonable expenses incurred relating to the duties of such fiscal officer regarding the Plan.
16
Section 4705(d)(2)(D) of the New York Insurance Law states:
“The municipal cooperation agreement shall provide that the governing
board:
(2) may enter into an agreement with a contract administrator or other
service provider, determined by the governing board to be qualified, to
receive, investigate, recommend, audit, approve or make payment of
claims under the municipal cooperative health benefit plan, provided
that…
(D) all such agreements shall comply with the requirements of subdivision
six of section ninety-two-a of the general municipal law.”
The Plan’s MCA failed to include a statement that any agreements entered into with a
contract administrator or other service provider “…shall comply with the requirements of
subdivision six of section ninety-two-a of the general municipal law.
It is recommended that the Plan include in its MCA a provision that all agreements entered
into with a contract administrator or other service provider shall comply with the requirements of
subdivision six of Section ninety-two-a of the general municipal law.
Section 4705(f) of the New York Insurance Law states:
“The municipal cooperation agreement shall specify the rights and
obligations of a municipal corporation withdrawing from a municipal
cooperative health benefit plan to any contribution (or premium
equivalent) refund or reserve fund or for any contingent assessment
liability or other obligation.”
The Plan’s MCA did not specify the rights and obligations of a municipal corporation
withdrawing from a municipal cooperative health benefit plan to any contribution (or premium
equivalent) refund or reserve fund or for any contingent assessment liability or other obligation.
It is recommended that the Plan comply with Section 4705(f) of the New York Insurance
Law and specify the rights and obligations of a municipal cooperation withdrawing from the
17
municipal cooperation health benefit plan to any contribution (or premium equivalent) refund or
reserve fund or for any contingent assessment liability or other obligation.
Section 4705(g) of the New York Insurance Law states:
“(g) Every municipal cooperation agreement shall contain a provision
stating that nothing contained in such agreement shall be construed to
waive any right a covered person possesses with respect to the
confidentiality of medical records and that such right may only be waived
upon the written consent of such covered person.”
The Plan’s MCA did not contain a provision stating that “nothing contained in such
agreement shall be construed to waive any right a covered person possesses with respect to the
confidentiality of medical records and that such right may only be waived upon the written consent
of such covered person”, in accordance with Section 4705(g) of the New York Insurance Law.
It is recommended that the Plan comply with Section 4705(g) of the New York Insurance
Law and incorporate the language in its MCA that nothing contained in such agreement shall be
construed to waive any right a covered person possesses with respect to the confidentiality of
medical records and that such right may only be waived upon the written consent of such covered
person.
F. Plan Document and Summary Description
Section 3217-a(a)(18) of the New York Insurance Law states, in part:
“(a) Each insurer subject to this article shall supply each insured, and upon
request each prospective insured prior to enrollment, written disclosure
information, which may be incorporated into the insurance contract or
certificate, containing at least the information set forth below. In the event
of any inconsistency between any separate written disclosure statement
and the insurance contract or certificate, the terms of the insurance contract
or certificate shall be controlling. The information to be disclosed shall
include at least the following…
18
(18) a description of the method by which an insured may submit a
claim for health care services”
FA review of the Plan Document and Summary Description (2006), found that it failed to
include a description of the method by which an insured may submit a claim for health care
services.
It is recommended that the Plan discloses the method by which an insured may submit
claims for health care services in accordance with Section 3217-a(a)(18) of the New York
Insurance Law.
Section 3224-a (j) of the New York Insurance Law states in part:
“(j) An insurer or an organization or corporation licensed or certified
pursuant to article forty-three or forty-seven of this chapter or article forty-
four of the public health law or a student health plan established or
maintained pursuant to section one thousand one hundred twenty-four of
this chapter shall accept claims submitted by a policyholder or covered
person, in writing, including through the internet, by electronic mail or by
facsimile.”
A review of the Plan’s Summary Plan Document determined that said Document did not
contain the provision that a policyholder or covered person may submit claims via internet,
electronic mail, paper, or facsimile, in accordance with Section 3224-a(j) of the New York
Insurance Law.
It is recommended that the Plan, amend its Summary Plan Document, to reflect that a
policyholder or covered person may submit claims via internet, electronic mail, paper, or facsimile,
in accordance with Section 3224-a(j) of the New York Insurance Law.
19
Section 4709(c) of the New York Insurance Law states:
“(c) Conspicuously printed on the first page of the plan document and
summary plan description, in at least ten point bold-face type, shall be the
following statement:
This municipal cooperative health benefit plan is not a licensed insurer. It
operates under a more limited certificate of authority granted by the
superintendent of financial services. Municipal corporations participating
in the municipal cooperative health benefit plan are subject to contingent
assessment liability.”
A review of the Plan Document and Summary Description (2006), determined that the Plan
failed to include the statement “This municipal cooperative health benefit plan is not a licensed
insurer. It operates under a more limited certificate of authority granted by the superintendent of
financial services. Municipal corporations participating in the municipal cooperative health
benefit plan are subject to contingent assessment liability.”
It is recommended that the Plan comply with Section 4709(c) of the New York Insurance
Law by including the above statement.
G. Underwriting Results
The underwriting results presented below are on an earned-incurred basis and encompass
the four-year period covered by this examination:
Amounts
Ratios
Claims
$567,554,917
97.89%
General administrative expenses
45,660,709
7.87%
Net underwriting (loss)
(33,422,353)
(5.76%)
Premium
$579,793,273
100%
20
H. Internal Controls
The Plan relies on third-party administrators to process and pay claims to providers. A
review of the Plan’s oversight of its third-party administrators found the following deficiencies:
1. The Plan does not have an internal control function nor an Internal Audit Department.
As a result, the Plan is unable to exercise proper oversight of the third-party
administrators it uses to process and pay claims
2. The third-party service providers used by the Plan do not adequately review the
eligibility of Out-of-Network providers for payments. This could result in payments to
ineligible providers.
It is recommended that as a best business practice the Plan exercise greater oversight of its
third-party administrators.
It is also recommended as a best business practice the Plan ensures that Out-of-Network
providers are eligible to receive payments.
3. FINANCIAL STATEMENTS
The following statements show the assets, liabilities and surplus as of December 31, 2017,
as contained in the Plan’s 2017 filed annual statement, a condensed summary of operations, and a
reconciliation of the surplus account for each of the years under examination. The examiner’s
review of a sample of transactions did not reveal any differences which materially affected the
Plan’s financial condition as presented in its December 31, 2017, financial statements.
The firm of Urbach Hacker Young LLP. was retained by the Plan to audit the Plan’s
combined statutory-basis statements of financial position as of December 31
st
, of each year in the
21
examination period, and the related statutory-basis statements of operations, surplus, and cash
flows for the year then ended.
Urbach Hacker Young LLP. concluded that the statutory financial statements presented
fairly, in all material respects, the financial position of the Plan at the respective audit dates.
Balances reported in these audited financial statements were reconciled to the corresponding year’s
annual statements with no discrepancies noted.
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A. Balance Sheet
Assets
Bonds
$30,210,906
Cash and cash equivalents
25,202,087
Investment income due and accrued
131,716
Health care and other amounts
2,173,188
Aggregate write-in: Restricted Deposit
380,000
Total assets
$58,097,897
Liabilities
Unpaid claims
$16,570,000
Reserve and surplus requirement (per NYIL §4706(a)(1))
6,836,563
Premiums received in advance
12,441,931
Accounts payable
3,844,545
Total liabilities
$39,693,039
Surplus
Unassigned funds (surplus)
10,956,047
Surplus (per NYIL §4706(a)(5))
7,448,811
Total surplus
$18,404,858
Total liabilities and surplus $58,097,897
23
B. Statement of Revenue and Expenses and Surplus
Surplus decreased by $4,493,626 during the four-year examination period, January 1, 2014,
through December 31, 2017, detailed as follows:
Revenue
Premiums
$561,273,385
Non- health revenues
2,338,521
Aggregate write-ins for other revenue
16,181,367
Total revenue $579,793,273
Expenses
Hospital and medical claims
$411,548,052
Prescription drugs
156,426,326
Net reinsurance recoveries
(459,461)
Compensation
1,085,796
Professional fees
265,330
Aggregate write-ins
44,309,583
Total expenses
613,175,626
Net loss
$ (33,382,353)
24
Surplus, per report on examination, as of
December 31, 2013
$22,898,484
Gain in
Surplus
Loss in
Surplus
Net loss
$33,382,353
Change in surplus per NYIL §4706(a)(5)
2,929,008
Aggregate write-ins for changes in other
net worth items
$31,817,735
0
Net decrease in surplus $ 4,493,626
Surplus, per report on examination,
as of December 31, 2017
$18,404,858
4. CLAIMS PAYABLE
The examinations total claims payable of $24,243,405 using the approved percentages and
expected incurred claims and expenses as of December 31, 2017 is $836,842 or 3.58% more than
the $23,406,563 reported by the Plan in its filed annual statement as of December 31, 2017. The
Plan failed to comply with Section 4706(a)(1) of the New York State Insurance Law.
Section 4706(a)(1) of the New York Insurance Law requires that the Governing Board of
a municipal cooperative health benefit plan establish a reserve fund, including a reserve for the
payment of claims and expenses thereon reported but not yet paid, and claims and expenses thereon
incurred but not yet reported, which shall not be less than an amount equal to twenty-five percent
(25%) of expected incurred claims and expenses thereon for the current plan year, unless a
qualified actuary has demonstrated to the superintendent’s satisfaction that a lesser amount will be
adequate. The Plan was granted approval by this Department on June 15, 2005 to reduce its
reserves for claims and related expenses to 17% from 25% of the current year’s expected incurred
25
claims and expenses. The Plan was granted additional approval by the Department on November
29, 2017 to reduce its reserves for prescription drug reserves and related expenses to 12% from
17% for the Plan’s prescription drug reserve factor for year ending December 31, 2017.
The examination analysis of the captioned account was conducted in accordance with
generally accepted actuarial principles and practices and was based on statistical information
contained in the Plan's internal records and in its filed annual and quarterly statements, as well as
additional information provided by the Plan.
The examination reserve was based upon actual payments made through a point in time,
plus an estimate for claims remaining unpaid at that date. Such estimate was calculated based on
actuarial principles which utilized the Plan’s experience in projecting the ultimate cost of claims
incurred on or prior to December 31, 2017.
It is recommended that the Plan’s claim payable reserve comply with the requirements of
Section 4706(a)(1) of the New York Insurance Law.
5. CLAIMS STABILIZATION RESERVE
As of December 31, 2017, the Plan did not maintain a claim stabilization reserve. This
Plan has total reserves and surplus of about $41.8 million which is about 135.5% of the sum (about
$30.9 million) of the claims reserve (about $23.4 million) and surplus (at $7.4 million).
Claim Stabilization Reserve and stop-loss insurance are mechanisms for maintaining
solvency and stability of the Plan. The required minimum reserves and surplus for waiving the
requirement for stop-loss insurance is assumed to be an indicator for providing a Claim
26
Stabilization Reserve. The assumption is that if total reserves and surplus is less than 150% of the
sum of the claims reserve and surplus, then the Plan should gradually accumulate a Claim
Stabilization Reserve.
The Claim Stabilization Reserve of $0 was reasonable but it is recommended that Orange-
Ulster should gradually accumulate a Claim Stabilization Reserve and concurrently maintain
overall financial solvency.
6. MARKET CONDUCT ACTIVITIES
In the course of this examination, a review was made of the manner of which the Plan
conducts its business practices and fulfills its contractual obligations to subscribers and claimants.
The review was general in nature and is not to be construed to encompass the more precise scope
of a market conduct examination.
The review was directed at the practices of the Plan in the following areas:
A . Prompt Pay Law
B. Mental Health Parity and Addiction Equity Act (“MHPAEA”)
A. Standards for Prompt, Fair and Equitable Settlement of Claims for Health Care and
Payments for Health Care Services (“Prompt Pay Law”)
The examination included a review of the Plan’s claims settlement practice and oversight
of the claims adjudication process. INDECS is the Plan’s Third-Party Administrator of claims.
As such, INDECS is responsible for some aspects of claims settlement, including out-of-network
claim payments, issuance of explanation of benefits statements (“EOB”), and appeals. However,
management of Orange-Ulster School District Plan retains the ultimate responsibility for
27
compliance with applicable provisions of the New York Insurance Law and related Regulations,
and therefore its management must be diligent in its oversight of the claims settlement and related
functions.
Section 3224-a of the New York Insurance Law, “Standards for prompt, fair and equitable
settlement of claims for health care and payments for health care services” (“Prompt Pay Law”),
requires all insurers to pay undisputed claims within thirty (30) days of receipt of a claim that is
transmitted via the internet or electronic mail or forty-five (45) days of receipt of a claim submitted
by other means such as paper or facsimile. If such undisputed claims are not paid within the
respective thirty (30) or forty-five (45) days of receipt, interest may be payable.
A review of the Plan’s submitted medical and hospital claims data for the period January
1, 2017, through December 31, 2017, relative to compliance with Section 3224-a of the New York
Insurance Law did not reveal any problem areas.
B. Mental Health Parity and Addiction Equity Act (“MHPAEA”)
Sections (a)(1)(v)(2), (c)(1) and (e)(1)(i) of 45 CFR 146.180 - Treatment of non-Federal
governmental plans states the following:
“(a) Opt-out election for self-funded non-Federal governmental plans
(1) Requirements subject to exemption. The PHS Act requirements
described in this paragraph are the following…
(v) Parity in mental health and substance use disorder benefits under
section 2726 of the PHS Act…
(2) General rule. For plan years beginning on or after September 23, 2010,
a sponsor of a non-Federal governmental plan may elect to exempt its plan,
to the extent the plan is not provided through health insurance coverage
(that is, it is self-funded), from one or more of the requirements described
in paragraphs (a)(1)(iv) through (vii) of this section…
(c) Filing a timely election
28
(1) Plan not governed by collective bargaining. Subject to paragraph
(c)(4) of this section, if a plan is not governed by a collective bargaining
agreement, a plan sponsor or entity acting on behalf of a plan sponsor must
file an election with CMS before the first day of the plan year…
(e) Notice to enrollees
(1) Mandatory notification.
(i) A plan that makes the election described in this section must notify each
affected enrollee of the election and explain the consequences of the
election. For purposes of paragraph (e) of this section, if the dependent(s)
of a participant reside(s) with the participant, a plan need only provide
notice to the participant.”
The Plan failed to comply with Sections 146.180(a)(1)(v)(2), (c)(1) and (e)(1)(i) of 45 CFR
146 - Treatment of non-Federal governmental plans by failing to file the required exemption notice
with the Center for Medicare and Medicaid Services (“CMS”).
Additionally, the Plan failed to provide notice to its enrollees that it elected not to comply
with the requirements of the Mental Health and Substance Abuse Parity Act for the years 2015,
2016, 2017 and 2018.
It is recommended that the Plan comply with Sections 146.180(a)(1)(v)(2), (c)(1) and
(e)(1)(i) of 45 CFR 146.180 - Treatment of non-Federal governmental plans by filing the required
exemption notice with the Center for Medicare and Medicaid Services (“CMS”).
It is also recommended that the Plan comply with Sections 146.180(a)(1)(v)(2), (c)(1) and
(e)(1)(i) of 45 CFR 146.180 and provide notice to its enrollees that it has elected not to comply
with the requirements of the Mental Health and Substance Abuse Parity Act.
29
7. COMPLIANCE WITH PRIOR REPORT ON EXAMINATION
The prior report on examination included eleven (11) recommendations detailed as follows
(page number refers to the prior report on examination):
ITEM NO.
PAGE NO.
Management and Controls
1.
The Department recommends that directors who are unable
or unwilling to attend board meetings consistently should
resign or be replaced. Furthermore, in selecting prospective
members of the board, a key criterion should be their
willingness and commitment
to attend meetings and
participate in the board’s responsibility to oversee the
operations of the Plan.
The Plan has complied with this recommendation.
9
Report on Examination
2.
The Department recommends that the Plan comply with
Section 312(b) of the New York Insurance Law and obtain
signed statements by each board member confirming that
such member has received and read the report on
examination.
The Plan has complied with this recommendation.
10
Stop Loss Coverage
3.
The Department recommends that the Plan obtain and
maintain aggregate stop-
loss coverage in compliance with
Section 4707(a)(1) of the New York Insurance Law.
A similar finding was cited in the prior report on
examination.
The Plan did comply with this recommendation.
12
30
ITEM NO.
PAGE NO.
Municipal Cooperation Agreement
4.
The Department recommends that the Plan comply with
Section 4710(a)(1) of the New York Insurance Law by filing
for approval with the Superintendent, a description of the
material changes in any information provided in the
application for Certificate of Authority.
The Plan has not complied with this recommendation.
13
.
Plan Document
5.
It is recommended that the Plan revise its Plan Document to
comply with the Affordable Care Act and submit such
document to the Superintendent for approval.
The Plan has complied with this recommendation.
18
Claim Processing
6.
The Department recommends that the Plan require INDECS
to implement or undergo periodic audits within a proactive
quality assurance program in order to identify and correct
errors that may be occurring on an ongoing basis, in addition
to retroactive reviews. The results of such audits should be
reported to the Plan’s management, at least annually. A
similar finding was cited in the prior report on examination.
The Plan has complied with this recommendation.
21
Rating
7.
The Department recommends that the Plan comply
completely with Section 4705(e)(3) of the New York
Insurance Law by obtaining an annual independent actuarial
opinion on the soundness of the Plan’s premium equivalent
rates. A similar finding was cited in the pr
ior report on
examination.
The Plan has complied with this recommendation.
21
31
ITEM NO.
PAGE NO.
Utilization Review
8.
The Department recommends that the Plan not require
members to utilize a Local School District Representative as
ombudsman during the appeal of claims. A similar finding
was cited in the prior report on examination.
The Plan has not complied with this recommendation.
22
9.
The Department recommends that the Plan ensure that the
appeal instructions issued
to its members are orderly,
complete, and consistent, stating specifically that the Level
One appeal is also the Final Adverse Determination. A
similar finding was cited in the prior report on examination.
The Plan has complied with this recommendation
23
10.
The Department recommends that the Plan’s Denial letters
accurately and completely reflect the member’s right of
appeal, in accordance with the requirements of Article 49 of
the Insurance Law. A similar finding was cited in the prior
report on examination.
The Plan has complied with this recommendation.
24
Explanation of Benefit Statements
11.
The Department recommends that the Plan comply with
Section 3234(b)(7) of the New York Insurance Law by
ensuring that its Explanation of Benefits statements
accurately and clearly explain member appeal rights. A
similar finding was cited in the prior report on examination.
The Plan has complied with this recommendation.
24
32
8. SUMMARY OF COMMENTS AND RECOMMENDATIONS
ITEM
PAGE NO.
A.
Corporate Governance
i.
It is recommended that the Plan comply with Article IV of its
Municipal Cooperative
Agreement, by electing the Chairman,
Secretary, Plan Administrator and Chief Fiscal Officer, in
accordance with its Municipal Cooperative Agreement.
7
ii.
It is recommended that the Plan revise its Municipal Cooperative
Agreement or by-laws to include
any and all of its standing
committees.
7
iii.
It is also recommended that the Plan, as a best practice, and in
conformance with Section 624(a) of the New York Business
Corporation Law, keep meeting minutes of its established
committees.
8
B.
Territory and Plan of Operation
It is recommended that if the Plan continues to refer to itself as
Orange Ulster School Districts Health Plan that it, officially
submit to the Department a request to change its name on its
Certificate of Authority to reflect the name it uses.
9
C.
Administrative Services Agreements
It is recommended that the Plan initiate audits of all services
including claims processing provided by all of
its contracted
third-party administrators.
12
It is further recommended that if the Plan is unable to have audits
done of its third-party claims administrators that the Plan obtain
annual certifications from its third-party claims administrators
that claims are being processed in accordance with the Plan’s
Document and applicable statutes, rules and regulations (relative
to claims submitted by the Plan’s participants).
12
D.
Municipal Cooperative Agreement
i.
It is recommended that the Plan submit its Municipal
Cooperation Agreement to the Superintend for approval prior to
use.
13
33
ITEM
PAGE NO.
D.
Municipal Cooperative Agreement (cont’d)
ii.
It is recommended that the Plan comply with Section 4710(a)(1)
of the New York Insurance Law by filing for approval with the
Superintendent, a description of the
material changes in any
information provided in the application for its Certificate of
Authority.
13
iii.
It is recommended that the Plan adhere to Section 4705(a) of the
New York Insurance Law, by having the Municipal Cooperation
Agreement approved b
y each participating municipal
corporation by a majority vote of each such corporation
governing’s body.
14
iv.
It is recommended that the Plan adhere to Section 4705(a)(7) and
designate the Plan’s attorney-in-fact to receive summons or other
legal process in any action, suit or proceeding arising out of any
contract, agreement or transaction involving such municipal
cooperative health benefit plan.
14
v.
It is recommended that the Plan comply with the provisions of
Section 4705(b)(2) of the New York Insurance Law, by including
in its MCA that the CFO shall, notwithstanding any provision of
the General Municipal Law, make payment in accordance with
procedures developed by the Plan’s governing Board and which
are acceptable to the Superintendent.
15
vi.
is recommended that the Plan comply with Section 4705(b)(4) of
the New Insurance Law, by including in its MCA that the CFO,
shall receive no remuneration, except that the participating
municipal corporation employing the chief fiscal officer may be
reimbursed for reasonable expenses incurred relating to the
duties of such fiscal officer regarding the Plan.
15
vii.
It is recommended that the Plan include in its MCA a provision
that all agreements entered into with a contract administrator or
other service provider shall comply with the requirements of
subdivision six of Section ninety-two-a of the general municipal
law.
16
34
ITEM
PAGE NO.
D.
Municipal Cooperative Agreement (cont’d)
viii.
It is recommended that the Plan comply with Section 4705(f) of
the New York I
nsurance Law and specify the rights and
obligations of a municipal cooperation withdrawing from the
municipal cooperation health benefit plan to any contribution (or
premium equivalent) refund or reserve fund or for any contingent
assessment liability or other obligation.
16
ix.
It is recommended that the Plan comply with Section 4705(g) of
the New York Insurance Law and incorporate the language in its
MCA that nothing contained in such agreement shall be
construed to waive any right a covered person possesses with
respect to the confidentiality of medical records and that such
right may only be waived upon the written consent of such
covered person.
17
E.
Plan Document & Summary Description
i.
It is recommended that the Plan disclose the method by which an
insured may submit claims for health care services in accordance
with Section 3217-a(a)(18) of the New York Insurance Law.
18
ii.
It is recommended that the Plan, amend its Summary Plan
Document, to reflect that a policyholder or covered person may
submit claims via internet, electronic mail, paper or facsimile, in
accordance with Section 3224-a(j) of the New York Insurance
Law.
18
iii.
It is recommended that the Plan comply with Section 4709(c) of
the New York Insurance Law by including the above statement.
19
F.
Internal Controls
i.
It is recommended that as a best business practice the Plan
exercise greater oversight of its third-party claim processors.
20
ii.
It is also recommended as a best business practice the Plan
ensures that Out-of-
Network providers are eligible to receive
payments.
20
35
ITEM
PAGE NO.
G.
Claims Payable
It is recommended that the Plan’s claim payable reserve comply
with the requirements of Section 4706(a)(1) of the New York
Insurance Law.
25
H.
Claim Stabilization Reserve
The Claim Stabilization Reserve of $0 is reasonable but it is
recommended that Orange-Ulster should gradually accumulate a
Claim Stabilization Reserve and concurrently maintain overall
financial solvency.
26
I.
Mental Health Parity and Addiction Equity Act (“MHPAEA”)
i.
It is recommended that the Plan comply with Sections
146.180(a)(1)(v)(2), (c)(1) and (e)(1)(i) of 45 CFR 146.180 -
Treatment of non-Federal governmental plans
by filing the
required exemption notice with the Center for Medica
re and
Medicaid Services (“CMS”).
28
ii.
It is also recommended that the Plan comply with Sections
146.180(a)(1)(v)(2), (c)(1) and (e)(1)(i) of 45 CFR 146.180 and
provide notice to its enrollees that it has elected not to comply
with the requirements of the Mental Health and Substance Abuse
Parity Act.
28
STATE OF NEW YORK )
) SS.
)
COUNTY OF NEW YORK )
Alice McKenney, being duly sworn, deposes and says that the foregoing submitted report is true
to the best of his knowledge and belief.
_____________________________
Wai Wong, CFE