David Harlow is this bi-week’s host of Health Wonk Review; his edition is both articulate and artistic.
Thanks David!
Mar
20
Insight, analysis & opinion from Joe Paduda
Year: 2009
Mar
20
As I noted earlier, word in the market is AIG is aggressively pursuing P&C business, working very hard to hold onto current customers and aggressively cutting prices to get new ones. This is at least in part the reason premiums in the fourth quarter dropped by 22%.
AIG is the largest writer of workers’ comp, the primary provider of all P&C insurance to the Fortune 500 (97% have at least part of their insurance program with AIG), a major player in transportation where it is the prime insurer for many airlines, shipping, and trucking companies, probably the largest writer of construction wrap-up policies, and a major source of capacity in the excess and catastrophic market.
While I don’t know what the big insurer is doing in all these markets, I do know that they are aggressively slashing prices on both new prospects and renewals in the commercial markets in an effort to hold on to customers and add as many new ones as possible. Anecdotally, this is happening in Florida, Connecticut, Texas and New York; it may well be occurring elsewhere.
This runs counter to a piece in today’s WorkCompCentral. Regulators have been watching AIG for signs of potentially severe price cutting, and according to WCC:
“Orice M. Williams, the GAO’s director of Financial Markets and Community Investment, told the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises on Wednesday that her agency is in the middle of reviewing the AIG financial bailout. The analysis includes investigating how receiving money from the Federal Reserve Bank of New York and the U.S. Treasury Department has affected competitiveness in the commercial property/casualty market.
“According to some of AIG’s competitors, federal assistance to AIG has allowed AIG’s commercial property/casualty insurance companies to offer coverage at prices that are inadequate for the risk involved,” Williams told the panel.
But she said GAO so far has failed to confirm those allegations.
“State insurance regulators, insurance brokers and insurance buyers said that while AIG may be pricing somewhat more aggressively than in the past in order to retain business in light of damage to their parent company’s regulation, they did not see indications that this pricing was inadequate or out of line with previous AIG pricing practices,” she said.”
Brokers I’ve spoken with indicate the price-cutting is taking the form of AIG underwriters aggressively quoting most of the business submitted by brokers. In the past, AIG could be highly selective, using its acknowledged expertise in underwriting to carefully pick the risks it deemed worthwhile, and ignoring the rest.
No more.
Pressed by an urgent need to generate capital, several contacts indicate AIG seems to have all but abandoned underwriting discipline (at least in the commercial markets in the states noted above).
Meanwhile, many of our elected officials are screaming about the payment of bonuses that amount to one-tenth of one percent of all taxpayer investment in AIG. This is political grandstanding at its worst – and most counter-productive. Instead of fighting over who said what when to whom how, they should be watching more closely the business practices of the largest insurer ever to be publicly owned. Instead of calling for the offing of their heads, our politicians should be ensuring AIG continues to operate intelligently – and for the benefit of its shareholders, who are mostly we taxpayers. It is encouraging that Williams and her colleagues are watching this closely, but my sense is the price-cutting is more prevalent than her findings indicate.
What does this mean for you?
AIG may well generate more cash over the short term. And in the worst case, increase the chance that they will fail over the long term; in the best case, reduce the company’s value to future buyers thereby slashing the return we’ll get on our investment.
Mar
18
We’re all furious. You, me, the Feds, pundits and politicians. And that anger is not helping. In fact it is clouding our vision – and may well cause us even more harm.
Every minute we spend screaming about AIG’s bonus plan is a minute not spent on fixing the company up to sell off assets. Every ounce of energy spent on this is wasted.
I don’t know the details of the plan or how execs who left could still be paid or what the restructuring of the plan looks like (other than pushing half the payouts off and subjecting them to performance metrics). I do know the execs primarily responsible for the disaster are long gone and bonuses are being paid to those trying to clean up their mess.
I am quite sure everything possible is being done – within the law – to ensure our dollars are not used unless there is no other option.
Passing punitive legislation, faulting Geithner, citing changes in AIG’s condition, all miss the point. That point is we need to fix AIG so we can sell off AIU holdings, Alico, the auto business, and the rest and thereby recoup taxpayer dollars. To expect a Treasury Secretary dealing with the greatest financial crisis in eighty years to know every detail about the bonus plan at one division at one company is ludicrous. Trying to tax these bonuses when most are paid to people that don’t even live in the US is political grandstanding of the worst kind. Trying to weasel out of the contracts using tenuous arguments will do nothing but tie up AIG in litigation for years, likely extending the time it takes to wind down this operation and get our tax dollars repaid.
As I said Monday night on Nightline, the AIG Financial Products execs should not take the money and their decisions to do so (if in fact they have) are reprehensible. They are being rewarded for a monumental level of incompetence.
I’m disgusted, shocked and dismayed.
I also want my money back and if we have to pay these incompetents to recoup tens of billions of dollars to do that than I’ll suck it up.
Mar
18
Small employers are increasingly dropping health insurance. Premiums are prohibitively expensive and dire economic times are forcing owners to cut costs.
In an effort to control costs, some are resorting to what can only be characterized as fraud.
I recently returned from a trip to the Sunshine State, where I had the opportunity to meet with two prominent brokers. During the course of conversation one gentleman related the following.
An employer had contacted their cpa firm asking some questions about employee benefit payroll deduction requirements. To date they had paid 100% of premium but wanted to begin to have the employees contribute. This, in part, was the response the client received. Subsequent conversations between my colleague and the CPA firm indicated the broker that had taken the cpa firm down this path was doing it for others. In a separate conversation a my. Olleague had with a representative of another carrier, that person confirmed that this type of stuff was not uncommon. And we wonder why the cost of group is higher and is increasing at a faster rate ……..
Here’s the email the CPA firm received from the fraudulent broker.
“The cost of health insurance is a problem that we all are trying to grasp. We as employers are attempting to take care of our employees but control the ever rising costs. You have the ability to change your health insurance policy to either method the most common is a percentage of the single premium however, some employers use the flat dollar method as well.
I would recommend that you consider the change to HSA plans with the use of individual policies. The company can pay the premium or portion and contribute to or not to the HSA plan. The cost of individually underwritten plans are about half the cost of group plans. You can maintain group policy if you have employees that can not be underwritten as long as you have at least two.
We changed to this method this year including the full funding of the single person HSA and saved $10k. This savings does include the full family premium and HSA deductibles paid for two (XXX and me).
The negatives that you will have is the potential of uninsurable and the initial fear that the employees may have. The employee will have to pay the cost of benefits from the HSA account until the full deductible is meet then thereafter no out of pocket costs. The typical deductibles range from $1250 single to $2500 family. Even if you have not reached your deductible you will only pay the insurance companies costs.
The other negative is maternity benefits for individual plans are very weak (after one year on plan only pays $1500) so if you have any potential mothers this is something that needs to be considered.
I do have a contact if you need that assisted us with United Health Care in the transition. I personally believe that the HSA plans are the way to go.”
This is fraud.
Mar
17
No, they’re not eating cake or fiddling while Rome burns – but that’s the impression you’d get from watching TV or listening to the radio talking heads. I’m referring to the AIG execs currently in the pillory for accepting bonuses after losing $43 billion last year.
This is a rather significant digression from MCM’s headline topic, but one that is so topical that I spent most of yesterday doing television interviews on the subject. Yesterday morning I tried to make the point to Fox Business News viewers that 116,000 AIG employees not working for AIG Financial Products should not be tarred with the same brush used to paint AIGFP’s 450-odd workers. AIGFP lost $43 billion last year, or about a hundred million dollars per employee – likely a record for any erstwhile-profit making enterprise.
On Nightline last night, about fifteen minutes of interview were left on the editing room floor in favor of two sound bites – one of which had me noting that the AIGFP execs should not take their bonuses, as they did not, by any civilized measure, earn them.
Easy for me to say. In fact, this statement came after several minutes of back and forth wherein I described the high-pressure environment, the relentless competition, the brutally stressful world that is AIG senior management – not as a justification for getting bonuses for blowing $40 billion, but rather to show that individuals who survived in that environment very likely felt they had earned their financial rewards. Here’s an earlier post describing the cultural roots of the problems.
At the end of all the hysteria and hand-wringing, the bonuses are due and payable. Not paying them would result in litigation and further delay in cleaning up the mess. To date AIGFP has reportedly closed out fully a quarter of its CDS positions; in all liklihood this would not have happened if the staff was fired/shot/drawn and quartered. As AIG’s owners the faster they fix this the better for us.
Yes, the Obama Administration should do everything it can to limit those bonuses, but not at the expense of successfully winding down AIGFP’s positions. Lets be adults here, and to quote the President, not ‘govern out of anger’ but rather out of intelligence. Sure, it makes great politics, but that doesn’t get we taxpayers a dime of our investment back.
Cool, calculating, careful thought will.
Mar
16
Friend and colleague Peter Rousmaniere sent the following to me; with his permission I’m posting his note in its entirety.
“I want to alert people to a case of criminal fraud by a drug company affecting pretty much every self insured employer and workers compensation, auto and health insurer. If you work for or advise one of them, you should learn about this case and know what to do. [emphasis added]
In 2007 Purdue Pharma pled guilty to criminal charges that it mislead physicians about the risks of addiction to Oxycontin. It paid a large fine to the Federal government. Now, a federal court is in the process of implementing a class action settlement, which enables any party that paid for Oxycontin between 1995 and 2008 to recover some of its payments.
This case is not just about Purdue misleading physicians to promote this drug. It is also about using deception to increase the probability that thousands of patients, many of them injured workers, will become psychologically and physically dependent on pain medication
The settlement is not designed to recompense injured workers whose lives were up-ended by addiction to Oxycontin. That would require another suit on behalf of these workers.
At this moment, is it incumbent on self insured employers and insurers to file by May 19 in order to recover from Purdue some of their Oxycontin outlays. [emphasis added] Go to www.oxycontintppsettlement.com. I’d appreciate your keeping in touch with me on this matter.”
You can reach Peter at pfr@rousmaniere.com.
Mar
13
Brevity is Jason Shafrin’s approach. go see his review of the best in risk blogging.
Mar
13
Frank Pennachio is one of the smartest people in workers comp. His piece on the complicity of employers in screwing up their own claims published in Risk and Insurance is just terrific.
TPAs are making a lot of money on managed care. At least in part, that’s because employers are hammering them on claims handling costs. There is just no way that a TPA can effectively adjudicate a lost time claim for $1200 for the life of the claim/contract.
So, they have to make up the margin somewhere, and managed care is that ‘somewhere’.
Here’s Frank’s summary:
“Claims administration contracts between employers and their insurance companies or third-party administrators have created a cycle of misaligned incentives and unintended consequences.
Many employers have lost sight of what a workers’ compensation program is supposed to do, and vendors have created products and services that often drive costs up instead of down.”
Mar
13
One of the more successful reforms in work comp over the last decade was in Florida. But there are two major issues getting lots of attention that may well overturn much of the good achieved in the Sunshine State.
Dennis Ross, one of the primary authors of the reform plan that became law in 2003, has written an excellent article summarizing these two problems. In brief –
Litigation expense was slashed dramatically under reform. That happy result looks to be in serious trouble, and legal costs may once gain skyrocket.
Before reform, attorneys would litigate anything, no matter how minor, because they would get paid their hourly rate for all work on the claimant’s case. As a result there was litigation around ‘underpayments’ of a few dollars, where the legal fees would be ten times the actual ‘underpayment’. Now, due to a recent court decision, some parts of the reform look to be in jeopardy – the very parts that eliminated the incentive to litigate everything all the time.
The specific case I’m referring to is Murray v Mariners Health/ACE USA. As things stand now, we can expect litigation costs to increase dramatically, and we’ll likely see a big upsurge in medical utilization as attorneys will once again be incentivized to push claimants to get as much care as possible.
Ok, that’s bad. What’s going to happen with hospital costs may even be worse.
Medical costs came down dramatically as well, thanks to changes in the fee schedule that actually increased reimbursement for physicians and should have cut facility costs (but apparently didn’t). As a result, more docs participated in comp, and the ones that did were doing good work (amazing how that happens when you pay docs a fair rate…) But the decision by the three member panel to fundamentally change facility reimbursement will likely add several hundred million dollars to employer’s work comp claim costs.
I’ve posted on this before – here’s the net. The proposed change to the Fee Schedule would link the “usual and customary” payment standard for outpatient hospital claims contained in Fl. St. § 440.13(12) to the ratio between what Florida hospitals charge Medicare and what Medicare actually pays. The net result would be a dramatic increase in the reimbursement for outpatient services billed by hospitals. There are four issues here.
First, methodology will increase costs – today – by 181% for surgeries and 330% for other hospital outpatient services.
Second, the annual inflation rate for charges in FL is 14%. So today’s high costs will be tomorrow’s even higher costs and the day after will bring really really high costs…
Third, the location of services will likely change dramatically to the higher cost hospital location. Thus procedures which were being done in offices will now be billed – at the much higher rates – by hospitals.
Fourth, as a result, surgeries which were done on an outpatient basis will likely shift to inpatient to take advantage of the much higher reimbursement.
What does this mean for you?
Work comp costs in Florida are going to go up – a lot.
Mar
12
Yesterday I posted on the hiring of a former state trooper as head of North Dakota’s Workforce Safety and Insurance (WSI) entity – the state’s sole work comp agency. For those unfamiliar with ND, they are one of the few states where the state is the exclusive provider of workers comp insurance – they, and Ohio and Washington, are ‘monopolistic’ states.
A bit of googling brought up a bit more information about the new boss – Bryan Klipfel. His background is law enforcement, he does not appear to have any comp experience, and was actively involved in the investigation of the former head of the agency, Charles Blunt. Blunt was terminated after an investigation into an alleged theft of state funds. Blunt was subsequently convicted by a jury of one felony charge of misappropriating state funds.
A quick google of the Blunt case raises more questions than answers. After watching the fiasco at the Ohio fund brought on by a few criminals in the executive suite, I was prepared for another orgy of self-dealing at the public trough.
Apparently not. In fact there aren’t any charges that Blunt took money himself, but rather authorized sick leave for an executive that may not have been ill, and, according to a news report, used somewhere around $26,000 of “WSI funds to pay for employee meals and drinks and buying illegal gifts and trinkets for staff…”.
Ok, so Blunt made a few bad decisions and/or didn’t follow all the rules by the book. But a felony conviction for a sick leave authorization and some apparently inexpensive ‘gifts’?
Boy those Dakotans are brutal. But even if they are, I can’t imagine Blunt was the only exec in the entire history of WSI to run afoul of the employee handbook. So, why the big expensive investigation?
I’m really curious. The investigator who has no experience in work comp and no P and L experience (never ran a business) is the head of a big comp insurer after helping convict the former occupant of his new office of using state funds to pay for meals, sick leave, and gifts?