Author: Joe Paduda

Jun
23

Liberty Mutual is NOT exiting workers’ comp

Posted by Joe Paduda on Tuesday, June 23rd, 2015 | Comments

The headline of an article at WorkCompCentral this morning is “Liberty Mutual to Exit Workers’ Compensation.”  That headline is misleading.

UPDATE

WCC revised the headline; it now reads “Liberty Mutual backing away from workers compensation”

While there’s no question the formerly-largest-writer-of-workers’ comp insurance has dramatically cut back, lopping off about a third of its WC premium, it remains the fourth-largest writer, continuing to seek new business in some markets and hold on to existing accounts in many.

Yes, it sold Summit; and its WC business in Argentina; and paid Berkshire to take over several billion dollars in WC legacy claims. Yes the executive ranks are no longer the exclusive domain of former Liberty WC claims handlers and sales folks – far from it.  Yes, personal lines is the future of the company.

None of those changes, dramatic as they are, nor all of those changes together, mean Liberty’s dumping WC entirely.

But what if mother Liberty does bid farewell to work comp?

The WCC article contained a passage that – in my view – is inaccurate at best.

There is worry that Liberty Mutual’s dropping out of workers’ compensation could lead to higher costs for employers and result in companies making cutbacks to injury benefits or challenge claims submitted by workers, Ishida Sengupta, director of workers’ compensation at the National Academy of Social Insurance, told the Globe.

“I certainly think it doesn’t bode well,” Sengupta said.

That is totally nonsensical – companies CANNOT make “cutbacks to injury benefits.”  This is workers’ comp, and benefits are statutorily determined.

In addition, there’s no logical reason the fourth largest WC insurer’s decision to exit work comp would lead to higher cost to employers or encourage those employers to challenge claims.  I’m really surprised that someone from NASI (an organization in which I am a member) said that – if they did.

BTW I asked Liberty’s press people to comment early this am; they haven’t done so as of 4 pm.

 

 

Jun
19

My favorite day of the year

Posted by Joe Paduda on Friday, June 19th, 2015 | Comments

This year Father’s Day and the Summer Solstice fall on the same day – making for a very long day here in upstate NY with lots of daylight so I can loll around while being waited on (well, maybe not that last part).

While I was busy inundating your inbox with posts on the profitability – or lack thereof – of workers’ comp, a bunch of other stuff happened.

Another shot in the subrogation/third party liability battle was fired by Kentucky’s Medicaid program.  According to WorkCompCentral’s Ben Miller, hundreds of letters have been sent to work comp insurers in an attempt to ascertain if specific individuals’ medical care is due to a work comp injury.  The rationale is clear; Medicaid doesn’t want to pay for medical care it doesn’t have to.  As a taxpayer I completely support this.  Where it could get really sticky involves settled claims; if the work comp insurer/employer has settled the claim, my assumption (always dangerous) is the settlement requires the claimant to use those funds to pay for injury-related medical care.

What if the claimant doesn’t have any of the settlement dollars left?  If the claimant doesn’t pay, is the work comp insurer/employer liable? Who’s going to be stuck with the bill; the claimant?  the provider? Medicaid? another insurer?

Oh boy.

A terrific article in Harvard Business Review on what private equity investors do when they buy companies notes three distinct types of “engineering”; financial, governance, and operational.  Lots of insight, data, and examples make this a must read for anyone considering a transaction, or trying to understand how PE firms work.

Activity in the oil patch is slowing down, but claims counts are not going up.  Reuters quotes a Travelers insurance exec who’s a bit surprised about this; I have a call into Travelers to see if we can get more insight into the issue, and will share whatever I learn.

The new, updated Washington Guidelines for Prescribing Opioids for Pain are out; a product of the Agency Medical Directors (AMD), the new guidelines address opioid usage for many different conditions, cover special population issues, and update and expand a variety of treatment- and risk-assessment-related topics.  With five years’ experience under its belt, the AMD have learned a lot, lessons that other jurisdictions would be well-served to consider.

Finally, for many families in Charleston – and elsewhere – this Father’s Day is anything but joyful.  If I may be so bold, I’d suggest we strive to be part of the solution.

Jun
17

Workers’ comp profitability, Part 3

Posted by Joe Paduda on Wednesday, June 17th, 2015 | Comments

We’ve seen that work comp’s “profitability” isn’t very good, whether measured (inappropriately) as operating gain or (appropriately) as return on net worth/return on equity (ROE).

Today we’ll dig deeper into the data; below is a chart provided courtesy of CWCI, it is NAIC’s 2004-2013 Profitability Report, comparing average rates of return on net worth among California and US WC, property & casualty (P&C) insurers and all industries.

2004 2005 2006 2007 2008 2009  2010 2011 2012 2013 04-13Avg
Calif WC 12.6% 14.2% 16.4% 12.1% 7.0% 4.6% 5.2% 7.4% 3.9% 3.0% 8.6%
Calif All Lines 14.8% 14.5% 17.1% 11.9% 6.0% 9.4% 9.7% 8.4% 7.4% 7.6% 10.7%
US WC 10.1% 9.6% 10.0% 9.0% 5.1% 4.2% 3.9% 6.2% 5.9% 7.2% 7.1%
US All Lines 10.0% 5.3% 14.4% 12.5% 2.4% 6.3% 8.0% 4.9% 5.8% 9.0% 7.9%
NAIC P&C 8.0% 8.3% 12.2% 9.7% 2.2% 5.7% 6.0% 3.4% 5.2% 8.0% 6.9%
Fortune All Ind 13.9% 14.9% 15.4% 15.2% 13.1% 10.5% 12.7% 14.3% 13.4% 16.6% 14.0%

First up, look at the last row, Fortune’s All Industry average is higher than the US WC results every year for the last decade.

Over the last decade, WC’s returns have been just half the All Industry average.

Next, kindly allow me to direct your attention to the bolded red numbers – California WC insurers’ return on net worth for 2013 and the national average for the same year.  Fellow WC geeks will recall 2013 was identified by ProPubica/NPR as WC insurers’ “most profitable year in over a decade, bringing in a hefty 18 percent return.”

Oh were it only so.

(We dissected PP/NPR’s interpretation of profitability yesterday)

PP/NPR’s series of “reports” on workers’ comp allege that this “hefty” return is due in large part to reductions in benefits for workers pushed by employers and insurers and “reforms” that have taken away workers’ ability to choose their doctors – among other changes.  The reporters specifically cited big problems in California, where insurers’ doctors “deny” care without seeing the patient, where benefits have been slashed and workers made to suffer due to ill-conceived “reforms”.

This is a classic example of writers looking for “facts” that support their pre-conceived bias.  NAIC’s data shows just how wrong reporters Grabell and Berkes are; if the “reforms” in California were so one-sided, so employee-unfriendly, designed to benefit insurers at the expense of injured workers, those reforms have clearly NOT delivered the intended financial results.

By way of reference, historically the target ROE for US companies is in the 12-15 percent range, making the US WC insurance industry’s 7.1% return over the last decade look shabby indeed.

Remind me again why anyone would want to be a workers comp insurer???

 

 

Jun
16

Workers’ comp profitability, Part 2

Posted by Joe Paduda on Tuesday, June 16th, 2015 | Comments

So, Liberty Mutual is de-emphasizing workers comp, a move that is increasing profits. But ProPublica/NPR reported “in 2013, insurers had their most profitable year in over a decade, bringing in a hefty 18 percent return.”

Just how “profitable” is workers’ comp?  Why is Liberty ratcheting things down while the industry is enjoying its “most profitable year in a decade?”

That’s a difficult question to answer for a number of reasons, but the long and the short of it is; comp is not very profitable.

First, the slide that PP/NPR used to make their 18 percent claim.

Courtesy NCCI
Courtesy NCCI

Let’s parse this out, shall we?

First, there are no perfect measures for calculating WC profitability.

Second, the operating gain is not the same as “profitability”.

Operating gain as a measure has several limitations, not least of which is annual operating gain figures jump around quite a bit for reasons completely unrelated to core financial returns. For example, 2013’s “gain” was significantly increased by one very large carrier’s internal financial transfer, a transfer that, in and of itself, was responsible for several percentage points.

Using a multi-year operating gain (OG) ratio is more meaningful than using a single year as it reduces the effect of one-time financial events.  The average NCCI OG ratio from 1990 to 2013 was 5.8%, with a maximum of 19.9% in 1995 and minimum of -10.0% in 2001. The most recent 5 and 10 year averages were 4.8% and 7.4% respectively.

A couple other factoids – The NCCI OG ratio only includes private carrier results, a subset of the total industry. State funds (which tend to be MUCH less profitable) are excluded from the calculations.  In addition, the NCCI OG ratio is pre-tax. 

Finally,  investment income (one key component of operating gain) can’t be allocated to one specific line of coverage (except if the carrier is a mono-line WC insurer).  Reserves and other funds are put into a single “bucket” and invested by the insurer in a variety of instruments.  Then, when funds are needed to pay claims, they are withdrawn.

So, what metric should be used?

The estimable Bob Hartwig PhD of III, in a piece questioning PP/NPR’s claim of profitability, suggested return on net worth;

According to the National Association of Insurance Commissioners, workers comp return on net worth was just 7.2 percent that year [2013], less than half the figure cited in the article. The average return over the decade from 2004 through 2013 was just 7.1 percent. The returns over that 10-year span ranged from 3.9 percent in 2010 to 10.1 percent in 2004

(PP/NPR’s response is here)

There’s more on the return on net worth discussion at III, in addition to a chart depicting financial returns for other industries. (the metric is also known as return on equity [ROE]).

By way of comparison, you can find representative industry ROE figures from Yahoo.

What’s the net?

Relative to other industries workers’ comp is not terribly financially rewarding.  Many industries deliver much better returns.

 

Jun
15

Workers’ comp’s “profitability”

Posted by Joe Paduda on Monday, June 15th, 2015 | Comments

If workers’ comp is so profitable, why is Liberty Mutual de-emphasizing the business?

Because contrary to what NPR and ProPublica have reported, comp is NOT very profitable.  In fact, over the past decade or so, it’s barely a breakeven proposition.

Today’s Boston Globe reports that the former industry leader (and my former employer and consulting client) has significantly cut back its work comp exposure over the last few years,

  • greatly ramping up personal lines and other business lines,
  • reducing WC premiums by over a third,
  • dropping to the 4th largest underwriter of WC,
  • selling off WC subsidiary Summit Holdings, and
  • paying Berkshire Hathaway $3 billion to take over a big chunk of its exposure for legacy WC and some environmental claims.

These moves have dramatically increased profitability; Liberty’s overall profits increased from $284 million in 2011 to $1.7 billion last year.

(thanks to CompToday’s TJ Allen for the tip)

Yes, the work comp insurer that dominated the industry for decades, consistently leading in market share, is moving away from the work comp business. The reason is simple, work comp just isn’t very profitable.

Or even moderately profitable. 

The “reporting” from ProPublica and NPR on the work comp system and all its ills grossly distorted many things, but perhaps most egregiously the industry’s financial returns, stating:

“In 2013, insurers had their most profitable year in over a decade, bringing in a hefty 18 percent return.”

What utter bullshit.  The reporters took a single NCCI graph way out of context, mislabeling the “finding” and grossly mischaracterizing the slide’s import.

I discussed this at length with NCCI’s Chief Actuary, Kathy Antonello; Ms Antonello was kind enough to send over the graph in question…I’m going to dig into that in detail tomorrow.

For now, ponder why the industry’s dominant player is slashing its work comp business if it’s so darn profitable.

 

 

 

Jun
12

Friday’s here…

Posted by Joe Paduda on Friday, June 12th, 2015 | Comments

at long last.  Here’s a quick review of what happened this week.

Health care costs

Predictions for health care costs indicate a decrease in the rate of increase for those with private insurance, with PwC calling for a 6.5% increase dropping to 4.5% due to higher deductibles and copays.

While costs continue to escalate, one has to wonder what we’re buying for all those trillions.

According to the Commonwealth Fund, not much – when comparing US health outcomes to those enjoyed by other countries, we are well down – if not at the bottom – the “quality” list on indicators such as life expectancy, disease burden, medical errors, avoidable deaths…the list just goes on and on.

A good part of that is due to the lousy-to-nonexistent care for the poor, exacerbated by states that have refused to expand Medicaid.  Kansas is but one example; the stories of people with jobs and no health insurance bankrupted, disabled, and suffering due to this short-sighted and cruel decision are all the more heart-wrenching because they didn’t have to happen.

You’ll note that many of the individuals dying from lack of insurance are now or have been employed – but don’t have insurance thru their employer.

This is NOT because they aren’t hard working solid citizens.  These are NOT lazy, shiftless, burdens on society.  These ARE people victimized by unaffordable health insurance and politicians who value demagoguery over compassion.

American exceptionalism indeed.

The jump in drug prices, specifically in generics continues to amaze, with the latest a huge increase in oxycodone/acetaminophen 10/325; from $1.29 up to $3.55. Thanks to a colleague for this tip; notably this is a Redbook AWP price; AWP is the basis for essentially all work comp drug fee schedules.

Workers’ comp

Had a conversation with two Concentra execs looking to provide a bit more perspective on the company’s plans.  The focus is on growing their work comp business via acquisition and by taking share from other providers.  Parenthetically, I also spoke with a colleague very knowledgeable about occ med in the northeast; he noted many health systems and hospitals are shutting down their occ med clinics as they focus on accountable care and other ACA, Medicare, and Medicaid – related priorities.

Sounds like a good opportunity for Concentra and other pure-play occ med enterprises. Expect to see Concentra somewhat less interested in urgent care opportunities; I don’t see the company doing anything that isn’t primarily occupational medicine.

The execs did note that prior owner Humana had split off the primary care operations from Concentra’s occ med operations some time ago.  The health plan’s strategy and implementation thereof evolved considerably over the five years it owned Concentra; it doesn’t appear that Humana took full advantage of Concentra’s in-house M&A expertise early on, choosing instead to develop its own capability. This may (emphasize MAY) have been one reason the acquisition didn’t evolve quite the way Humana wanted.

There is a lot going on in the worker’s comp bill review world:

  • Coventry has yet to announce the winner in the bidding process to handle their clients’ bill review needs; word is it is between Mitchell and Xerox/Stratacare with Mitchell rumored to be in the lead
  • A major municipality in California is in the bid process; several other large payers are as well
  • Mitchell is said to be increasing its focus on work comp as execs look to the long term future of auto claims and see a rather steep decline in future claims due to automated vehicles.

AIG’s implementation of Medata’s work comp bill review application is said to be all but complete.  Word is the switch from Coventry’s BR 4.0 system, although not flawless, is going well. While Medata CEO Cy King would not comment, other vendors indicated the Medata application and support thereof is particularly good at maintaining and applying fee schedules.

I’ve also heard reports that Medata is all but consumed with the new client, but I’m thinking this may be competitor carping as a major specialty network is said to have recently decided to use Medata’s application.

[note – Medata is not a client]

Finally, look for more news next week on the ongoing PT coding clustermess. While on the surface things seem to have quieted down considerably, that quiet is misleading. There are several ongoing audits/reviews/investigations in process, involving both payers and treating providers.

Jun
11

Another one of workers’ comp’s good people

Posted by Joe Paduda on Thursday, June 11th, 2015 | Comments

Welcome to the second in an ongoing, occasional series about the good people in work comp; Bruce Wood led off the series and today’s exemplar of all that is good in workers’ comp is Medata’s Todd Brown.

Todd’s been in the business since, well, since forever.  He is expert – and I mean really knowledgeable, completely locked-in, unbelievably well-connected in the dense, complex, convoluted world of workers’ comp regulatory affairs.

Formerly Executive Director of the Texas Workers’ Compensation Commission, Todd has been tracking and reporting on changes in legislation and regulation in all fifty states for years.  Not only that, but he’s been good enough to share that with key stakeholders, an invaluable service that has made Todd perhaps the nation’s leading expert on the subject of WC regulatory and legislative changes. If something is happening, he knows about it; understands the implications, can relate the history of similar changes, and forecast the likelihood of adoption or passage.

Simply put, Todd’s a wealth of knowledge.

All that’s well and good, but what really sets Todd apart is he is one of the nicest, most approachable, decent people one could ever meet.  Patient and incredibly generous with his time and expertise, he’s one of those people everyone likes and respects.

I’ve been fortunate to count Todd as a friend and colleague for several years now; kudos to Medata for recognizing his talents and bringing him on board.

Jun
10

Health care cost drivers, or, Here’s where you’re getting screwed

Posted by Joe Paduda on Wednesday, June 10th, 2015 | Comments

Forgive the vulgarity, but it seems apt when considering two articles just published in the venerable journal Health Affairs.

First, as physician practices consolidate, markets become more concentrated.   A study indicates orthopedic fees paid by private insurers are measurably higher in those markets with higher concentration.  As “Physician groups are growing larger in size and fewer in number”, expect this trend will affect other, currently-less-concentrated markets, thereby driving up the price of orthopedic services.

While the research by Alex Sun and Laurence Baker focused narrowly on knee arthroplasty, it’s likely an examination of other orthopedic procedures would yield the same finding.

A couple key quotes that should resonate among workers’ comp payers:

  • Our results suggest that the potential for reduced costs [due to larger physician groups] may be outweighed by providers’ ability to negotiate higher physician fees.
  • the ACA encourages further concentration to some degree by incentivizing physician groups to form ACOs to provide care. Again, our results suggest that the potential benefits of the formation of ACOs must be balanced against the potential for these organizations to negotiate higher physician fees.

I’d suggest that if private insurers are paying higher rates, workers comp payers are likely paying way higher rates.

Which is an excellent segue to the companion article on hospital markups (hat tip to Richard Krasner for getting to this a day before I did). The authors identified the 50 hospitals with the highest charge to cost ratios; this is a simple analysis comparing their chargemaster, or published price list, to Medicare’s assessment of their allowable costs. Here are a couple enlightening excerpts:

While most public and private health insurers do not use hospital charges to set their payment rates, uninsured patients are commonly asked to pay the full charges, and out-of-network patients and casualty and workers’ compensation insurers are often expected to pay a large portion of the full charges [emphasis added]

forty-nine (98 percent) are for profit, compared to 30 percent in the overall sample; one for-profit hospital system (Community Health Systems) operates half of the fifty hospitals with the highest markups (Exhibit 3). Hospital Corporation of America operates more than one-quarter of them.

Florida has 20 of the fifty hospitals with the highest markups; this is also a state with a fee schedule based on a percentage of “usual and customary” charges.

A notable finding; “markup varies substantially across medical services in the same hospital, and an overall hospital-level charge-to-cost ratio might not reflect the extent of markup for a specific patient. For example, among the fifty hospitals analyzed in this study, the average charge-to-cost ratio for anesthesiology is 112, for diagnostic radiology it is 15, and for nursery it is 3.”

What does this mean for you?

External forces are dramatically reshaping the health care delivery landscape; winners will be those payers who successfully adapt to those changes, not those who ignore them.

Jun
8

WC Rx Survey – early results are in…

Posted by Joe Paduda on Monday, June 8th, 2015 | Comments

We’ve finished collecting the data for CompPharma’s 12th (!) Annual Survey of Prescription Drug Management in Workers’ Comp;  working on compiling and analyzing the data now and expect to get the report out next week.

The survey uses both quantitative and qualitative questions; this enables us to track changes over time to key metrics including network penetration, mail order usage, generic efficiency, and compound drug growth.

The qualitative responses are really helpful in gaining an understanding of what’s keeping payers up at night, where they are seeing success, and how they view key issues.

Here are a few initial findings…

  • Drug management is viewed as more or much more important than other medical issues by 80% of respondents
  • 75% said drug costs will become more important over the next year
  • 2/3rds indicated compounds are the most concerning new issue in WC pharmacy

There’s a lot more analysis to be done as we dig into the qualitative responses. One key area will be the cost and quality control programs payers have implemented over the last 18 months and the results of those programs.

Once the final report is done and proofed, I’ll put up a link.

Public versions of the previous surveys are available free for download (no registration required) here.