Insight, analysis & opinion from Joe Paduda


Are health insurers’ profits and costs the problem?

There’s a lot of bleating about the huge profits made by health insurers, with some – including too many who should know better – complaining loud and long. [Insurers and pharma netted about $97 billion last year.]

While some would argue the billions raked in by insurers is far too much, let’s take a step back and look at the big picture.

First, insurers’ profits are a tiny fraction of our $3.6 trillion healthcare spend – as in >1 percent.

Second, healthplan, insurers, and other payers’ total administrative expenses amount to 8.3% of that $3.6 trillion – roughly $300 billion.

Oh, and a big chunk of most health insurers’ business comes from servicing governmental programs.  Example – 58% of United Healthcare’s revenue is from Medicare, Medicaid, and other governmental programs.

Frankly, given commercial insurers’ demonstrated inability to control costs and improve quality, that $30 billion may be too generous by far. But it’s clear the big problem with healthcare costs is not insurer profits or administrative expense.

It’s the underlying prices of healthcare.

What does this mean for you?

It’s not insurer profits.


Conference overload

For a relatively small industry, there sure are a ton of conferences.

From WCRI to NCCI to AASCIF to CSIA to CLM to PRIMA to NWCDC to SIIA to WCI360 to RIMS to AFERM to the ExecuSummit and dozens of other national events, to state WC events in Montana, California, Georgia and every other state, to payer-sponsored confabs, to provider-centric events you could spend most of the year scheduling, traveling to, preparing for, and attending conferences.

While there’s no doubt a lot can be learned – at some events from some speakers – it’s also pretty clear we’ve got so many conferences it has become impossible to figure out which ones are the most useful, provide the most insight, and are the most efficient use of your time.

On top of the sheer number of events, there are three additional issues; many have become pay-to-present, and the emphasis on drawing specific types of attendees has affected – I would argue negatively – actual learning opportunities.

Lastly, there’s far too much navel-gazing and far too little emphasis on external factors that directly affect workers’ comp.

Allow me to explain.

It is damn near impossible to get a speaking slot at many events unless your employer is a conference sponsor or a very large employer.  That’s not to say some presentations aren’t useful and worthy of your time, and some listeners can’t come away with something useful. Rather it is to call attention to the lack of diversity among presenters, the seemingly repetitive topics, the lack of much of anything new or insightful.

Do we really need another session on return to work or managing cat injuries or heaven forbid, predictive analytics?

Yeah, I get there are always folks new to work comp that find value in learning the basics, but there’s far too much time spent rehashing things that have been hashed to death.

There are innovative, smart, insightful entities and people out there who are pushing the industry to be better, innovate, do stuff smarter. It’s often tough for them to get a slot because they aren’t able to sponsor internet cafes, refreshment breaks, newsletters or buy big exhibit space.

Second, some conferences push to include speakers from types of organizations that potential attendees want to meet, get to know and hopefully do business with. One example is the emphasis on employers, which appears to be based at least in part on the idea that more brokers and consultants will attend.

Ostensibly the point in having an employer talk about an issue, solution, approach or program is so other employers can learn from that. While there’s a kernel of value there, I’d argue that what is relevant for a big airline, a major big-box retailer, a multi-state manufacturer or large healthcare system is not going to be terribly relevant to the other employer types on the list.

I can’t count the number of times I’ve heard “well, if I had a thousand workers in XYZ city I could negotiate with an occ clinic too”, or “how do I apply that to my interstate trucking company” or “yeah that’s not going to fly with my unionized workforce”.

Finally, when was the last time a presentation dove into:

  • the impact of provider consolidation on healthcare delivery and cost;
  • why and how healthcare systems and hospitals are driving up expenses;
  • how recessions impact workers’ comp;
  • the second-order effects of opioids and the dramatic reduction of same on claim reserves, future premiums, and actuarial models; or
  • the changing nature of our economy and how that will affect workers’ comp

I know these topics have seen some daylight, but nowhere near enough, for they are MUCH more important and will have MUCH greater impact than tweaks to RTW or cat injury management ever could.

What does this mean for you?

For conference planners, there’s an opportunity to break out from the usual and differentiate.

For conference attendees, reward those planners – and learn a lot more useful stuff.



The next recession – when will it get here and how bad will it be

When recessions hit, workers’ comp, healthcare, and healthcare delivery systems are deeply affected. Jobs are lost and so are benefits, claims decrease than increase, injured workers don’t have jobs to return to.

There are some indications that we may be on the cusp of a recession today.

  • The inverted yield curve (short term interest rates are lower than long term rates) is one clear sign, 
  • ” weakness in auto sales, industrial production and aggregate hours worked” are also factors, as is
  • the weakening economy (growth fell from 3.1% in the first quarter to 2.1% in the April to June quarter).
  • Job growth has fallen to 140,000 a month, down from 220,000 just a few months ago, signaling employers are being more cautious about expanding
  • The trade war is hammering agriculture and manufacturing, with Goldman Sachs estimating it has cut GDP 0.6% so far. That’s going to get worse when the latest round of tariffs kick in, with some slated to start in 2 weeks.

One of the few positive signs, initial jobless claims, remain stable which argues against a recession.

And this from Forbes:

The New York Fed’s recession probability model is currently warning that there is a 30% probability of a recession in the next 12 months. The last time that recession odds were the same … was just five months before the Great Recession officially started in December 2007.

When the model is updated to use current data, the odds increase to 64%.

How long will it last?

Likely longer than the Great Recession of a decade ago, for a number of reasons:

  • to get the economy moving during a recession, officials lower the Fed funds interest rate, making it cheaper for companies and consumers to borrow money and buy stuff.  This jump-starts the economy. But the Fed funds rate is very low already, so there isn’t much room to lower rates and increase demand.
  • if the Fed can’t lower rates, it can try “quantitative easing”, which is a fancy term for the government buying its own debt. This dumps more dollars into the economy, dollars that – hopefully – are spent on new plants, equipment, houses, and washing machines. The problem with “QE” is that its impact is uncertain at best; it’s unclear if it made much of a difference last time around.
  • Consumer debt is really high right now, at 19% of income. When people lose their jobs, they default on their loans and credit card debt, cut back on purchases, and that will further harm retail, construction, durable goods (think washing machines and cars). It can take a long time for people to dig out of these holes, and when they finally do, they are very wary of spending – and absolutely hate debt.

There’s another factor that’s both difficult to measure and, I’d argue, much more troubling.

The trade war, Trump’s on-again-off-again tariffs, the elimination of area-wide trade agreements all make business extremely nervous. Businesses thrive in stability, and don’t when they can’t predict what’s coming.

Columbia, Neato Robotics, Wolverine, John Deere, and Caterpillar are all hamstrung, unable to predict what their supply chain costs will be, how tariffs will affect the price of their products, and what sales will amount to. As a result, they’re hunkering down; Moody’s estimated 300,000 jobs have already been lost due to Trump’s trade war.

We’ve already seen the Chinese shift agricultural purchases from the US to Brazil. This has hammered Deere and Caterpillar, as well as their local dealers, and the manufacturers that make up their supply chains.

What does this mean for you?

Watch indicators very carefully, be objective and rational, and remember that fortune favors the prepared. 

The good news is those who are clear-eyed and thoughtful can do well; for work comp businesses, remember:

  • claims drop, then increase;
  • duration increases;
  • premiums decline as payroll does.



The coming recession’s impact on workers’ comp

It’s not “if”, it’s when the next will recession hit.  Things were looking iffy a couple months ago, and – if anything – the outlook has worsened since then

And when it does, workers’ comp will be affected – like everything else.

Here’s how recessions affect workers’ comp; tomorrow we’ll discuss why the next recession may well be long, deep, and painful. 

At the early stage of a recession, employees who get hurt are less likely to file a workers’ comp claim. While we don’t know why that happens, research suggests it’s because workers are concerned their bosses will eliminate their job while they are out on disability, and they’ll have no job to return to.

As the recession deepens, frequency tends to bump up as employees realize their jobs are in real jeopardy.  Claims increase as a result, and it is tougher to find re-employment opportunities for workers ready to resume some level of work. This extends to part-time or other limited duty work that is essential to recovery and return to full duty. So, duration increases too.

In the final stages, as the economy recovers frequency appears to accelerate. Employers put older, less-safe equipment back on line, require workers to put in big overtime hours, hire temps who have minimal training on safety, and the pace of work picks up speed. The result – more injuries.

So, that’s what we can expect. The question is, when will the recession arrive, how long will it last and how bad will it be?

That’s for tomorrow.

What does this mean for you?

Fortune favors the prepared.


Quick takes on the week that was

Hope your week was excellent, and the weekend is full of family and fun.

Here’s a few takeaways from this week…

Congratulations to Ken Martino; he’s been named president of MedRisk, a post formerly held by Mike Ryan. Mike remains CEO. Ken’s been an instrumental part of MedRisk’s recent growth, and the promotion is well-deserved. I’ve known Ken for thirty years or so; he’s a consummate professional. (MedRisk is a n HSA consulting client)

Word is CorVel’s recovery from the Ryuk ransomware attack is not yet complete. Reports indicate as of yesterday some handwritten UR reports were still being faxed. Heard confirmation that at least one customer has switched from CorVel to another service provider.’s Jorge Alexandria summarized the attack in a post last week.

BTW is a pretty interesting site; if you are looking to better understand what makes the front-line folks tick, put it on your reading list.

Congratulations to One Call; reports indicate the company made it thru the second quarter without breaching a key financial covenant. However, customer losses including Great American, Broadspire, and Nationwide didn’t hit the financials in Q2. Unless One Call wins a big piece of the Liberty Mutual ancillary services RFP it will be nigh on impossible to make up the lost revenue.

Will keep you posted.

MSA Administrator Ametros has released an app its customers can use to access their settlement funds and track expenditures.  The Massachusetts-based company pretty much owns the MSA Administration business; this is one sector I’m quite surprised there isn’t a lot more activity.

Family is coming in from California and Jackson Hole today – it’s going to be a terrific weekend!



Work comp vs. opioids – how we’re doing

It’s been a decade since work comp payers and PBMs got the big wakeup call, the one that changed the industry.

From looking at drugs just as an expense, the industry began to see how devastating these drugs were to patients, families, employers, and taxpayers. Instead of fighting over the price of each pill, payers started to push PBMs to figure out ways to slow down the spread of these incredibly dangerous drugs.

Today, we’re on a roll. While anyone with any sense of the issue knows opioids will remain a top 3 issue for years to come, we’ve made a lot of progress.

After surveying 30 workers’ comp payers, we’ve learned this:

  • Opioid spend dropped 19.7 percent from 2017 to 2018.
  • For the first time on record, opioid spend represents less than a fifth of total drug spend
  • By a long shot, opioids are not the biggest problem in workers’ comp pharmacy. (3 respondents out of 30 said they are)
  • Payers believe the’ve made more progress dealing with initial opioid scripts vs chronic
  • By far the most important tools have been more internal resources and focus on the opioid issue, followed by new regulations and legislation and payers adopting a comprehensive approach to the issue.

We’ve got work to do, to be sure.

But we should take a minute – or a day – to stand back and revel in what we’ve accomplished. 

The industry has cut opioid usage probably in half, and it’s headed further down. People haven’t died, families haven’t been destroyed, pills haven’t found their way into kids’ hands.

What does this mean for you?

A welcome opportunity to reflect on a very hard job done well.



You can’t handle the truth about healthcare

Which is this:

We want access to the best doctors and hospitals, low insurance premiums that cover every treatment and drug, doctors making shipload of money, we don’t want any rural hospitals shutting their doors, and we don’t want anyone to pay higher taxes.

Oh, and we want to stuff our faces, ignore doctors’ orders to exercise, smoke, not take care of ourselves and then expect someone else to pay the bills for our diabetes, hypertension, cardiovascular disease and cancer.

There’s a reason politicians aren’t being honest with us – we want to have our cake, eat it too, and not get fat.

But there’s plenty of blame to go around; a huge barrier is the power of the healthcare industry – real healthcare reform means doctors, pharma, device manufacturers, most healthcare investors and the rest of us will make a LOT less money.

Did I mention doctors will make a lot less money?

Yes, Medicare for All would allow all of us to see whatever doctor or we want, and deductibles and copays will be a LOT lower.

But the money has to come from somewhere – which means a tax increase, and lower payments to healthcare providers.

Pretty much everyone in the healthcare industry will earn less, likely a good deal less.

How much less depends on how much we raise from taxes.

Please don’t tell me private insurers have the solution – they don’t.  If they did, we wouldn’t be in the mess we are.

As I’ve reported here, the average family with one member in poor health “pays” about $23,500 for healthcare thru direct payments, insurance premiums, what their employer pays for insurance, and taxes for Medicare, Medicaid, and other government healthcare programs.

The good news is about $5,000 of that would be stripped out; that’s my best guess at how much administrative expense would be eliminated if healthcare providers and payers didn’t have tens of thousands of people on payroll fighting each other.

Oh, those tens of thousands of people will lose their jobs.

What does this mean for you?

Fixing healthcare is going to hurt you and me. A lot. There are NO solutions that get around this.

Anyone who tells you different is lying.



Research Roundup

In which I attempt to describe the top takeaways from the latest research and what it may mean for you.

Work comp pharmacy 

WCRI’s latest report on Interstate variations on Dispensing of Opioids is available; free for members, nominal cost for non-members.

  • The volume of opioids dispensed to work comp patients decreased “substantially” in many of the 27 states studied.
  • 17 states saw average MED reductions greater than 30%.
  • BUT – problems persist as MEDs are highest in Delaware and Louisiana, where MEDs per patient are 3 times greater than the median.
  • There’s been a decrease in the percentage of patients prescribed an opioid, with strong evidence that non-opioid medications have been substituted.

Key takeaway

Using your data to highlight problematic states – and regions within states – is critical to understand what’s driving opioid usage among your patients.  The industry has done a great job reducing opioid usage but can make a LOT more progress by figuring out the commonalities among chronic opioid consumers.

NCCI’s just released a report on the impact of formularies on work comp pharmacy, comparing what happened in Arizona and Tennessee after implementation of a closed formulary to similar states that didn’t adopt a formulary. Note the research was based on data from mid-2017.

Findings included:

  • “N” drug utilization dropped more in the two states than in comparable control states
  • The volume of opioid scripts wasn’t affected by Tennessee’s formulary implementation however it appears that there was a decrease in longer acting and likely more potent varieties.
  • Compounds dropped dramatically in TN compared to similar states

Key takeaway  

Opioids have been the biggest driver of formularies; this report’s finding that in these states there was little change in the patients prescribed opioids is revealing.

I’m not a fan of binary formularies; they are the bluntest of instruments. While they may serve an initial good: they reduce the use of drugs that are usually inappropriately prescribed, they are not disease-state and/or patient-specific. Sure, Y/N formularies are easy to use; so’s a bone saw and ether.

We’ve moved beyond bone saws and ether, and need to do the same with formularies.


More thought-provoking work from NCCI focuses on the impact of enhanced vehicle safety systems and workers comp. Quotes of interest include:

  • NCCI data shows that driving-related classifications account for approximately 25% of all WC payroll and about 50% of WC premium.
  • a forward collision warning system coupled with autobrake can reduce front-to-rear crashes with injuries by 56%
  • a 25% to 75% reduction in the frequency of claims related to MVAs [motor vehicle accidents] could yield an annual WC system savings of between $1 billion and $4 billion.

Key takeaways

With all the talk about autonomous vehicles, we may have missed out on a bigger and nearer-term sea change. Mostly-autonomous vehicles won’t likely be common for some time, but many of today’s car models come with lane-following, collision warning, autobrake and other accident-avoidance technology. 

We need to understand the impact of these “interim” technologies on MVAs and associated claims.

Who costs what?

New research from the Kaiser Family Foundation shows who we should be focusing on helping. Just 1.3% of patients rack up almost 1/5th of all medical costs; 5 percent of patients account for half of all costs.


  • people with persistently high spending (over the three years) spend 40% more on outpatient services than folks who are high spenders for just one year.
  • persistent high spenders spent a lot on drugs – as in 8 times more than one-year high spenders
  • it appears the one-year high spenders were trauma or other one-time issue patients, as they spent a lot more than persistent high-spender on inpatient services.

Key takeaway – the chronic patients cost the most over the long term – and are also likely to have the most modifiable health conditions.


Crisis management 101

Timing is everything.

Taken together, two seemingly-unrelated things that hit my inbox this morning – CorVel’s quarterly results and the daily alert from Harvard Business Review – provide perspective on how to handle a crisis.

Readers of MCM will recall that I reported last week that CorVel suffered some sort of internet/connectivity problem that arose on Sunday, July 21. It apparently took down much of the company’s customer-facing connections. Subsequently I reported the issue may have been a ransomware attack involving the Ryuk worm. Others followed:

From’s Lonce Lamont’s piece on July 27 (last Friday):

[an anonymous informant stated that] “CorVel management said the Ryuk virus was caught before it was active.  It was found during system upgrades.   But this management story has not made sense, because in that case of the virus being caught before going active, the IT technicians should have just been able to remove it.   However, the CorVel professionals seem to be completely replacing servers, so that indicates they were locked out.”

While I have heard from several internal and external sources, despite several attempts to contact CorVel I have not heard directly from the company. Further, CorVel has not, with the exception of today’s earnings release, released a public statement. I have heard from several CorVel customers that Corvel’s CEO and other personnel contacted customers directly to discuss the issue. Kudos to Corvel for doing this promptly. As of Friday, these customers were told things should be back up today.

Here’s what CorVel said in today’s earnings release:

After the end of the quarter, the Company discovered a security incident which impacted online systems and forced the Company to take those affected systems offline for a period of time. The Company discovered the threat in the early stages of the security incident which allowed for immediate initiation of their incident response plan and aided in the containment and eradication of the threat. Systems were largely offline for the week of July 22nd and at the time of this release [Tue July 30, 2019 6:15 AM] the Company’s systems are incrementally coming back online.

[Side note – sources indicate as of last night scheduling and billing for some ancillary services were back on line; certain bill review functions were not. Suffice it to say that each customer will have been affected differently.]

Which brings me to the HBR piece authored by former Defense Secretary Ash Carter entitled “Managing High Stakes Situations; 5 Lessons from the Pentagon”.

The top Lesson from Secretary Carter was this:

Say something: Feed the beast with whatever you know for sure. The “beast” is the natural demand by news media and others for more facts when there is an appearance of danger or wrong. Leaders facing a crisis need to speak and act quickly even when they don’t know all the facts — it’s part of the job. If you stay silent, you leave a void that may be filled by statements from people who may be well-meaning but ill-informed, or, worse, from rivals or adversaries.

Carter went on to say:

While you must say something, stick to the facts you can verify, however scanty they may be. Don’t speculate or offer guesses that may turn out to be incorrect later… list the key questions you are investigating — What happened? Who was involved? What causes can be identified? What policies and practices apply to the situation? — and provide any specific, accurate answers that are available at the time.

Here’s where I believe CorVel could have done better.

It is highly likely CorVel leadership knew the cause of the problem very soon after it occurred. If the multiple reports about ransomware are correct, the company should have said so.

Be more clear and transparent about the problem and steps being taken to address it. Replacing servers can be a much bigger task than removing a virus from software/databases/applications; acknowledging this up front would have given CorVel some breathing room if it took a bit longer than expected to get everything back up and running.

Make a public statement. Without one, you lose control of the message and likely can’t get it back. Credibility is critical and once damaged is very difficult to regain. This is especially important in our industry: insurance people are genetically risk-averse and highly risk-conscious. “Skeptical” is too tame a word, “Cynical” is probably more accurate.

If and when I hear from Corvel I will update this post.

What does this mean for you?

From Carter:

The pitfalls are to stonewall, deflect, hedge, or use weasel words. But in war, hairsplitting won’t fly. Nor will it in cases when your brand or business is at stake. By speaking plainly and acting directly, you should be able to emerge with your reputation — and that of your organization — intact, and maybe even improved.



CorVel’s problem may be ransomware

Update on yesterday’s post.

Spoken with several CorVel customers today and late yesterday; all spoke well of CorVel’s response and communications about the systems issue.

Still haven’t’ seen a public statement.

I’ve been told by multiple sources that CorVel’s systems problems appear to be due to the Ryuk ransomware worm; workers in at least two CorVel offices were recently informed of the worm. This worm is linked to attacks on several cities as well, including Stuart FL.

According to CrowdStrike, the worm has been attributed to:

GRIM SPIDER, a sophisticated eCrime group that has been using the Ryuk ransomware since August 2018, targeting large organizations for a high-ransom return. This methodology known as “big game hunting” signals a shift in operations for WIZARD SPIDER, a criminal enterprise of which GRIM SPIDER appears to be a cell. The WIZARD SPIDER threat group, known as the Russia-based operator of the TrickBot banking malware, had focused primarily on wire fraud in the past.

CorVel has been telling customers it hopes to be back up and running Monday (three days from today); on average other Ryuk victims have taken 9 days to recover fully. The company has told customers it discovered the issue early, and this may help reduce the time lag.

In addition to CrowdStrike, companies including Coveware and Malwarebytes advertise services that ostensibly protect systems from Ryuk and other ransomware attacks.

CrowdStrike indicates the worm has been associated with about $3.7 million in ransom payments in recent months; the graph below was developed by Coveware. Please note that there is no indication CorVel has paid or intends to pay the ransom.

Research indicates even those entities that paid the ransomware may have had difficulty restoring files and operations; from Coveware:

Ryuk Ransomware has a low data recovery-success rate after a ransom payment is made. Relative to other types of ransomware, the decryptor tool is very labor intensive and prone to failure.

The worm’s name comes from a character in a Japanese manga novel; he’s not exactly a picture of your kindly uncle…

Joe Paduda is the principal of Health Strategy Associates




A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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