Companies need strategies, Execs need success

And those two often don’t match up very well.

Example.  Work comp insurance companies benefit when medical and indemnity costs are lower than expected.  So, lower medical costs = better “outcome” for the company.

Many – if not most – managed care executives are evaluated in part based on “network penetration” and “discount below fee schedule”.  Thus, the more dollars that flow thru their network, and the deeper the discount those providers give the network, the “better” the executive’s performance is.

Superficially, this makes sense – more care thru lower cost providers equals lower medical cost, which benefits the insurance company.

“Superficially” being the key word.  Here’s the problem with this model.

Insurers contract with PPOs, which in turn contract with providers to deliver services at a discount. Most PPOs get paid a percentage of the savings that is delivered by that discount, typically 15 to 22 percent of the savings. So, the more the PPO ‘saves’ the more it makes. On the surface, this sounds good: the system rewards the PPO for saving money and does not pay it when it delivers no savings.

Under a percentage-of-savings arrangement, reducing total medical cost is ignored in favor of saving money on unit costs. The PPO gets paid for savings on individual bills. Therefore, the more services that are delivered and the more bills generated, the greater the ‘savings’ and the more money the PPO makes.

The system encourages over utilization because it is in the PPO’s best interest financially to have numerous providers generate lots of bills for lots of services. Also, the providers, squeezed by a per-unit fee schedule that is lower than fee schedule/Usual and Customary Rates (UCR), have a perverse incentive to make up for that discount by performing more services.

The fact is few carriers, TPAs, or employers have realized that per-bill ‘savings’ is the wrong way to assess a managed care program – or the executive running medical management. And unless senior management changes their evaluation methodology, their managed care departments will have no incentive to change their program to one that actually does reduce total costs.

This is by no means the only example out there; I’m quite sure you can come up with more than a couple off the top of your head.

What does this mean for you?

Take the time to understand  – really understand – what success is, and what drives success.  You may be unpleasantly surprised to learn your execs’ motivations are diabolically opposed to your company’s success.

Federalizing workers’ comp

Insurance folks decry the difficulty inherent in operating in multiple states, each with their own rules, requirements, standards, and demands.  It would be all so much easier if there was one national standard, and some would argue this would make for a “fairer” system.

However.

States have the Constitutional authority to oversee and regulate most insurance functions. While federal legislation and resulting regulations can – and do – supercede State laws (think voting rights, interstate speed limits, education standards, firearm background checks), to date states have been left pretty much alone when it comes to workers’ comp.

Is that going to change?

I think not, but reasonable people can make a good case for some national standardization – which would almost certainly require Congressional action. Of course, given Congress can’t even bother to authorize spending to deal with the opioid disaster or take action on Zika, something as tiny and non-problematic as workers’ comp is not likely to get any Congressperson’s attention.  

Here’s where it gets ideologically sticky.

Folks who normally favor small, limited Federal government find themselves advocating for national standards to streamline work comp for insurers and employers. The hodgepodge of state regs creates a whole host of inappropriate incentives;

  • injured employees get higher wage replacement payments depending on the state “where they were injured”
  • while employers get lower rates in states with low wage replacement levels and
  • doctors get paid more to treat workers’ comp patients in Connecticut than in Massachusetts – a LOT more

Those just scratch the surface; talking with Bob Wilson yesterday about this, he noted many payers are most frustrated by EDI rules and regs.  Set up in an effort to normalize state requirements around a set of national standards, Bob noted many states seem to have a need to tweak things just a bit here and there. Once that begins, there’s no such thing as “standard”.

What does this mean for you?

Ideology sometimes conflicts with reality.

Monday catch-up

Summer’s arrived in upstate New York – and boy do we appreciate it. While I was watching all the trees turn green, I missed reporting on a bunch of stuff last week.

So better late than never, here it is.

P&C industry outlook

Let’s start with the macro stuff.  A couple weeks back, Fitch published a piece wherein they opined the P&C industry is in for a tough time this year. After several years of stellar performance, Fitch expects prices to decrease as competitors battle for market share. Here’s how they put it:

Renewal rates are flat or declining for most commercial market segments following a hardened market from 2011-2014. The price competition comes from underwriting success and market capacity expansion from earnings accumulation. As price competition intensifies however, this will likely be a drag on premium growth, according to Fitch. Commercial lines written premium volume grew by only 1.8 percent in 2015.

For work comp, Fitch identified prescription drug costs and continued low interest rates as problematic; the first increases costs while the second reduces investment income.

Opioids

The number of opioid scripts in the US actually declined last year. And that was the third year in a row. That’s the best news we’ve heard in quite a while. Since 2012 – the peak year for opioid script volume – the number of scripts has dropped by 12% – 18% (depending on the data source).  

In case you’re interested, prescription opioids accounted for about $10 billion in total spend in 2015. Workers comp accounted for around 14% of that, a rather striking figure when you consider total work comp medical spend accounts for 1.4% of overall US medical spend.

Yup, work comp uses about ten times more opioids than other payers.

And how the bad news; the drop in scripts hasn’t been accompanied by a decrease in the death count, which stands at 28,000 for 2014.

California Workers’ Comp

Well, at least it hasn’t gotten any worse.  That’s my take on the just-released CWCI study on the UR/IMR process for Q1 2016.

  • IMR volume is about the same as last year at 160,000 determination letters per year;
  • the overall IMR uphold rate is the same as last year at 89%;
  • Rx drug requests still account for nearly half of all disputed medical service requests submitted for IMR (and 40% of the Rx drug IMRs are requests for opioids or compound meds);
  • and a small number of docs still account for the majority of the disputed  service request that undergo IMR (the top 10% of medical providers accounted for more than ¾ of the IMR service requests).  

My take – the IMR process is preventing people who don’t need opioids from getting scripts for opioids.  That’s a very, very good thing.  Yet the same docs keep prescribing this crap to patients knowing full well these requests will be rejected.

I’m very much looking forward to hearing all those “injured worker advocates” heaping praise upon the system for protecting their clients’ health and wellbeing, and that of their kids as well.

I’ll personally nominate each of them for a Comp Laude Award.

Who’s running your company.

Is it the execs or the IT department?

The workers’ comp, and, for that matter, the entire property and casualty insurance industry, is chronically systems-poor.  While other industries view IT as a strategic asset, continually investing billions in IT, WC/P&C considers IT an expense category to be mined for pennies to add to earnings per share.

We all know how much execs HATE unallocated loss adjustment expenses

Execs at payers are hamstrung by IT departments that can’t/won’t/aren’t able to implement systems changes. In fairness, IT departments are hamstrung by a lack of strategic vision in many C-suites, which in turn is motivated by financial markets or executive comp plans at mutuals.  Suffice it to say there is plenty of blame to go around – but the result is insurers’ strategy is often greatly limited by IT.

For example, underwriting and distribution. Yes, Google’s initial foray into insurance was short-lived, but that wasn’t because they weren’t selling insurance. In fact profits were good – but “good” by insurance standards, not by tech standards.  Google just couldn’t make the profit levels they are used to.

At some point another tech innovator will figure this out and/or decide a lower profit level is just fine, and then woe betide insurers.

Another example – the medical management world is changing dramatically, and work comp insurers are very hard pressed to adapt. Bundled payments, narrow networks, electronic medical records and vertically integrated delivery systems are here today, and will grow dramatically in importance tomorrow. Flexibility, adaptability, and the ability to move quickly are essential – and equally impossible.  Changing vendors requires IT to design, implement, test and monitor new data feeds to multiple systems and stakeholders.

Conversely, some payers have tied themselves to external vendors who act as consolidators or pipes, thereby greatly reducing the carrier’s IT burden.  In exchange, a LOT of power is transferred to the pipe vendor.  That’s fine if:

  1. incentives are aligned over the long term, and
  2. the vendor is able and willing to make changes to providers, processes, and feeds as necessary, and
  3. there’s transparency.

However, expediency and underinvestment comes at a cost.

mass-extinction_1077_600x450

CEO T Rex: “Hey, when is that B2B platform scheduled for testing?”

CIO Triceratops: “18 months after I get the money to hire the staff you cut to reduce ULAE…”

The B2B and healthcare delivery market is evolving at a pace akin to that the dinosaurs saw after the meteor hit.  So, here’s a couple of questions you may want to ask yourself.

  1. Does your strategy drive your IT, or does your IT drive your strategy?
  2. What’s your plan to adapt to the revolutionary changes hitting distribution and medical management?
  3. Does your IT department, management, vendors, and infrastructure support that plan?
  4. What happens when – not if, but when – a carrier or new entrant builds the infrastructure and capability you can’t or won’t?

Opt Out and work comp – the definitive report

At the 2016 WCRI Conference, several hours were devoted to opt out – what’s happening in TX and OK, variations among and between proposals to expand opt out to other states, employer views and challenges and problems and opportunities and…

No stone was left unturned.  Now, some folks think this was way too much time spent on what is a pretty small issue.  I’d suggest the exhaustive and complete review was helpful and needed, providing attendees, reporters, and you, dear reader with a source for a 360 perspective.

Trey Gillespie opened the Opt Out session with a dispassionate, thorough, and compelling demolition of the idea itself and execution thereof.

There are four different types identified by Gillespie

Tx – WC is not mandatory – so companies “opt in” to work comp

OK – qualified employers must have a benefit plan that meets specific requirements

TN – a proposed hybrid of the TX and OK models

SC – pending legislation proposes both models

Really, opt out moves occupational injury coverage from work comp to an ERISA plan – a federally-regulated benefit plan.  Gillespie identified a number of differences between ERISA and work comp; the ones I captured are below (I may well have missed others).

  • ERISA – there is no statutory or contractual entitlement to benefits
  • eligibility is based on employment status at the time of benefit – not the time of injury
  • employer decides what – if any – injuries are covered, and which employees, if any, are eligible.

Opt-out coverage commonly excludes industrial diseases caused by asbestos and silica and similar substances, along with assaults and terrorism.  It’s also much harder to “file a claim” as the reporting requirements, conditions, and limitations are much stricter than under work comp statute.

This last is key; according to NCCI, less than 20% of LT injuries were reported on the date of injury.  As opt out plans typically require immediate reporting, there’s a reasonable question as to the impact of opt out on those workers who can’t or don’t report their claim “immediately”.

There are also quite a few restrictions around the kinds and types of medical care that is covered.  Definitions such as “medically necessary” are fungible and, more disturbingly, almost all of the OK approved plans incorporate language that allows the Claims Administrator to terminate or change a previously-agreed-upon treatment plan at any point.

All in all, this makes a mockery of employers’ responsibility to make employees injured or hurt on the job whole.

More tomorrow…

Bob Hartwig – fast, frenetic, and fascinating

In one of his final appearances as President of III, Bob Hartwig PhD dove into the sharing or “gig” economy.

In a futile attempt to keep up with Bob’s frenetic pace, here’s my as-it-happens recording of his main points…

  • insurance is evolving to address coverage gaps for those who drive for Uber and Lyft, rent rooms via AirBnB, do work via TaskRabbit or Handy or laundry via Washio.
  • lots of variation by state e.g. Uber drivers are employees in CA but not in other states
  • smartphone usage is driving this – 50% of all adults worldwide have one – because it costs nothing to pair labor with demand – a revolutionary change
  • the tradition of the “good job” is only 135 years old…
  • Optimisitic folks think this frees workers from centraiized, often sclerotic  firms, enables workers to get paid more and work where they want when they want
  • Pessimistic folks see many jobs disappearing, the end of benefits, no investment in training and an increasingly difficult environment for those with low skills and education.
  • 22% of Americans have offered services in the sharing economy, most are male, young, minority, and urban.  All, coincidentally, categories at higher risk for work comp injury.
  • 71% of sharers are positive about the experience, AND 58% agree that the industry is exploiting a lack of regulation.
  • many “sharing” jobs are subject to automation
    • think Uber drivers – but its going to take a while (I disagree, it’s coming much faster than Hartwig thinks)

Will Banjo be the social media app that revolutionizes insurance?

It sure looks to be the front runner now.

Banjo consolidates all social media feeds into a single platform in real time, then maps then on a geographic grid so users can see what is happening instantly anywhere.

It’s an “event-detection engine”.

Ok, that’s cool.

What’s really useful is Banjo also establishes a baseline activity ‘profile’ (my word, not theirs) and triggers an alert when one of 35 billion geographic grid cells (each about the same size as a soccer field) goes “abnormal”.  And, users can look back in time to see what was happening just before the triggering event, and monitor how that event unfolded…

Want to track a hurricane and damage therefrom?

See where a tornado is headed?

Know instantly when a violent incident erupts?

Follow a demonstration in Egypt’s Tahrir Square as it moves and evolves?

Know which of your band’s songs are getting the most shout-outs?

See if an insured walked away from a “supposedly debilitating crash”?

The app has been used successfully to do all that and more.  Founded by perhaps the most eclectic entrepreneur in high-tech, a high-school dropout, former NASCAR crew chief, Navy veteran, crime-scene investigation expert turned coder, Banjo is now being used by a diverse group of commercial enterprises who want/need to find out instantly about key events happening anywhere – or in very specific places – around the world.

According to Inc., Banjo:

shows only geolocated public posts made from mobile devices; those posts are drawn from what [CEO Damien] Patton calls a “world feed” he’s created by aggregating more than a dozen major social networks (and counting), from Twitter to Instagram to Russia’s VKontakte to China’s Weibo…with all of the public posts in [a small geographic] area appearing as pins on the map and as cards, complete with text, photos, and video, alongside it. All this in real time.

What does this mean for you?

Early adopters are going to know sooner so they can react faster, and possibly profit more.

TRIA’s renewed, and this means…

Well, that’s a relief. In a welcome display of bipartisanship, Congress passed and the President signed into law a six-year renewal of TRIA.  Here’s how AIA described the key elements and changes to the program:

Under the six-year extension in the bill, starting in 2016, there will be phased-in increases to the program’s trigger (raising it from $100 million to $200 million in annual aggregate insured losses) and the insurer co-share (raising it from 15 percent to 20 percent).  In addition, the bill phases in an increase in the aggregate amount of insured terrorism losses required to be borne by the private sector from the current $27.5 billion to $37.5 billion. Any use of taxpayer dollars to fund those losses would be recouped post-event.

I interviewed AIA Associate General Counsel and work comp expert Bruce Wood via email to get his take on the news.

MCM – What does this mean for workers’ comp?

Bruce – The extension of TRIA eliminates the uncertainty hovering over workers’ compensation insurers in providing coverage where the ultimate risk of loss is unascertainable because of the inability to exclude terrorism losses from workers’ compensation.

MCM – Some have criticized TRIA as unnecessary; can you speak to that?

Bruce – Some critics of TRIA have said not to worry, that employers would simply be written through residual markets.  But, it is insurers who backstop the losses in residual markets. In a state with a state fund serving also as the market of last resort, the backstop is either the state’s taxpayers or the state guaranty fund.  And, who backstops the guaranty funds?  The same insurers.

The ultimate irony for those who have criticized an extension of TRIA because it puts the government at risk is that without TRIA, the government is at even greater risk, as all losses would end up being socialized.

MCM – What about large, self-insured employers?

Extending TRIA also is beneficial to employers self-insuring, because they will be able to secure sufficient excess coverage to remain self-insured.  After 9-11, we saw some migration from the self-insurance market to the insured residual market because self-insured employers were unable to secure adequate excess coverage.  These included here is Washington, high-profile risks such as the Washington Post and the Kennedy Center for the Performing Arts.

What does this mean for you?

Six years of certainty – at least about this exposure.

York’s acquisition of MCMC is done

There won’t be an official announcement, but word will go out to employees tomorrow – the long-pending York-MCMC deal is done.

I spoke at length with a (very) senior York executive earlier today; this person did not want his/her name used, not to maintain confidentiality, but to keep the focus where the company wants it to be – on MCMC and Wellcomp and management of those organizations.

MCMC will remain intact, as will Wellcomp, York’s medical management subsidiary.  Mike Lindberg will continue to run MCMC and Doug Markham stays in the top spot at Wellcomp with no changes to management or operations at either organization.  Unlike other “business as usual” pronouncements we’ve read of late (TechHealth, Genex among them), I take this at face value.  The parent company is looking to enhance MCMC’s offerings with services provided by Wellcomp and vice versa, the idea being prospects and customers can get a broader array of services from the overall entity.

From an organizational standpoint, both MCMC and Wellcomp will report up to the overall holding company.

One concern I’ve heard is that York will pull MCMC back from some of their carrier/TPA relationships, this will NOT happen.  First, it makes no sense financially; a lot of MCMC’s revenue comes from other payers.  Second, York currently provides claims and other services to lots of insurance carriers and other payers; MCMC’s diverse client portfolio sort of mimics York’s.

What does this mean for you?

Back to the lede – no official announcement is coming because York and MCMC don’t want to raise concerns about potential changes.  That’s also one of the main reasons they didn’t hurry to get it done so it could be announced in Las Vegas; it isn’t about creating a PR buzz, it’s about stability.

From what I hear from people I trust, there shouldn’t be concerns.

Bob Hartwig – drinking from the firehose

The always-entertaining and enlightening Bob Hartwig of the Insurance Information Institute was next on the podium – he violates a bunch of “presenting rules” (chiefly talking really fast) and is thereby proof that you can be a very good and very effective presenter by doing what works for you.

His view is historical trends indicate we are a few years away from a return to the bottom side of the insurance cycle.  I hope that’s true, but I’m less sanguine.

On the overall economy, he’s predicting growth of around 3% in GDP over the next few years along with a drop in the unemployment rate to below 6 percent (possibly) before the end of the year.  That would be good news – for work comp – indeed especially as it comes on top of the addition of over 9 million jobs since April 2010 (even more in the private sector).

Other good news:

  • hours worked per week are up to almost pre-recession levels
  • average hour day continues to slowly increase, it’s up 14.4 percent since the beginning of the recession.

Growth is going to come in high-frequency industries; construction manufacturing and energy will be big drivers. Construction employment alone is up 565k since January of 2011; we’re still over 1.6 million jobs down from the height just before the crash, altho that was a bubble-driven number.

Manufacturing employment is up 640,000, and those workers are making more stuff than just before the recession, even though there are fewer of them.  That means productivity is higher.

Of course, health care employment is up dramatically as well, and will grow faster than any other sector – adding 3 million new jobs over the next 8 years.  Energy exploration, production and transport will be another big driver.  Employment in this sector is higher than any time in the last 28 years and is going to increase even more.

The net?  Lots more employment in high wage sectors are ‘unambiguous positives for the workers comp sector.”