There has been an ongoing trend for large employer benefit plan sponsors, particularly those operating in multiple states, to move away from insured health and welfare benefit plans (“H&W Plans”) and to create self-insured plans. A rationale for this transition is that self-insured plans offer greater flexibility in benefit design because, by virtue of ERISA’s first preemption clause, 29 U.S.C. § 1144, they are not subject to state insurance benefit mandates. The following review of some of the burdens and obligations imposed on insured ERISA H&W Plans, multiple employer welfare arrangements (“MEWAs”), and voluntary employees' beneficiary associations (“VEBAs”) demonstrates that self-insured plans have been spared many of the obligations imposed by PPACA. I'm unaware whether or not Congress purposefully structured PPACA to encourage the growth of self-insured plans. PPACA imposes the following burdens and obligations: • Comprehensive Coverage for Health Benefits Package – Self-insured plans are not required to offer the package of benefits specified in Section 1302 of PPACA. This is required of insured plans only. • Essential Health Benefits Requirements – This provision of PPACA is applicable to “Health Plans” and, thus, does not apply to self-funded plans. • Prohibition of Discrimination Based on Salary – Self-insured plans are expressly relieved of the obligation to comply with this requirement. • Annual Limitation on Deductibles for Employer Sponsored Plans – This limitation does not apply to self-insured plans. • Guaranteed Issue of Coverage – This does not apply to self-insured plans. • Self-Insured Plans Are Not Subject to Jurisdiction of State Ombudsmen – PPACA provides for the creation of a state-level office for an “Ombudsman.” The function of the Ombudsman is to address complaints concerning violations by plans or plan officials of both state and federal laws. Section 2793 clearly provides that the Ombudsman’s jurisdiction is limited to insured plans. As a result of this exclusion of self-insured plans from the Ombudsmen’s jurisdiction, some complex ERISA preemption issues have been avoided. • Prohibition on the Making of False Statements and Representations – This provision is applicable only to MEWAs. • Application of State Law to Combat Fraud and Abuse – This provision also applies only to MEWAs. • Imposition of Cease and Desist Orders – This applies only to MEWAs. • Ensuring that Consumers Get Value for Their Dollars – This provision empowers the Secretary to investigate the reasonability of premiums and to publicize findings and conclusions. • Administrative Simplification – Pursuant to this provision, the Secretary is required to develop a “single set of operating rules” governing the administration of various functions and transactions that are common to all H&W Plans. The entities subject to these rules will have to file documented reports of compliance with the Secretary, and are subject to penalties if they make misrepresentations in those reports. The entities subject to these obligations are “Health Plans,” a category that excludes self-insured plans. • Guaranteed Renewability of Coverage – This requirement applies only to insurers. • Exemption from Sections 2716 and 2718 of the PHSA47 – These provisions involve (i) the prohibition…

There is no question that pharmacy benefit managers provide a valuable service. One that when properly implemented saves lives, reduces costs, increases employee productivity, and improves patient lifestyles. However, there are plenty of opportunities for pharmacy benefit managers to exploit loopholes in the supply chain and increase profits through arbitrage. In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices. When used by academics, an arbitrage is a transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, it is the possibility of a risk-free profit at zero cost. Traditional PBMs like Medco, CVS/Caremark and ESI take advantage of retail, mail-order and rebate price differences to reap excessive profits. I say excessive because much of these profits should go back to payors in the form of lower drug costs. I don't care what you've been told or by whom; if your PBM is unwilling to accept a fiduciary role and commit to it contractually then it is in all likelihood Hiding Cash Flows via arbitrage. I'll dive into this subject, with more detail, in later posts. In my opinion, the proposed merger of Medco and ESI will primarily benefit ESI and Medco shareholders. Sure ESI will have greater pricing power, but do you really believe for one second that these savings will be passed down to payors particularly small to medium-sized businesses? It is a public corporation with two goals: survival and shareholder return! I am not a Big Three (Medco, Caremark and ESI) hater. Don't get it twisted. I'm a capitalist at heart and strongly believe in every company's right to grow revenues, but at what cost? Simply put, I am telling you from experience what I've seen (see) as a former employee of Eli Lilly and Company and now the founder of TransparentRx, LLC and a mail-order pharmacy. Most pharmacies, PBMs, health insurers, and employers will in the long-run be negatively impacted by this merger if it is approved by the FTC.