Sep
12

Florence and work comp

Hurricane Florence will devastate much of North and South Carolina and parts of Virginia as well.

Florence will have some impact on workers’ comp – and in some ways already has.

  • Industry capacity – The work comp insurance market remains soft, and until and unless capital dries up, it is likely to remain soft. Insurance stocks took a hit as investors anticipated major losses, and the catastrophe bond market sunk as well. Total projections for insured losses range from $12 to $20 billion, a range that is well within the financial capacity of the industry.
    If current rainfall and storm surge forecasts prove accurate, projected losses can be absorbed without undue stress. I don’t expect Florence to affect work comp premium rates.
  • Preparing for service delays – In conversations with work comp home health care, PBMs and other work comp patient service providers, I learned that these companies are doing a lot to prepare, including:
    • sending patients additional medications, soft goods and consumables in case mail services are disrupted
    • re-locating patients to facilities in case home health care providers can’t reach patients’ homes, or their homes lose utility services for extended periods
    • testing their backup and business interruption processes to ensure they can stay functional
    • re-scheduling office visits, therapy sessions, IMEs and other services
  • Post-storm cleanup and rebuilding – There will be two employment effects – Storm recovery companies will hire thousands of contract workers to help clean up debris and damage from the storm surge, wind damage, and flooding. Most of this will take place in the next couple of weeks. Rebuilding will – of course – take much longer, and will increase hours and wages in construction, logistics, and other industries.  Hiring and payroll increases won’t be enough to move the national needle, but it will be material in the affected states.
    As many of the clean-up workers will be temps, there will be a localized and very short-term uptick in claims.

The bigger story here is future storms will be larger, more damaging, and perhaps more frequent.

Harvey’s rains were almost 40% more intense due to global warming. Changes to the jet stream associated with changing weather patterns have affected Florence’s path.

What does this mean for you?

The climate is changing; weather will too.  Those who deny this do so at their peril.

 


Aug
28

Asbestos is back!!?

The Trump Administration has loosened rules that will allow broader use of asbestos in manufacturing.  

Here’s how Fast Company put it:

A lengthy report of EPA’s new “framework” for evaluating risk, placed into effect this month, detailed how it would no longer consider the effect or presence of substances in the air, ground, or water in its risk assessments—effectively turning a blind eye to improper disposal, contamination, emissions, and other long-term environmental and health risks associated with chemical products, including those derived from asbestos.

No one knew how dangerous asbestos was until people started dying from exposure to it. How many thousands of dads, brothers, friends, moms and sisters would have been saved if researchers had studied exposure risks and informed the public?  How many tens of billions of dollars would have been saved, not spent on medical care, remediation, lawyers fees?

I don’t think we’ll see any big increase in the use of asbestos – the litigation risk is just astronomical and no insurance company would allow it – so no business will use it (wait, there are unscrupulous business owners that will do anything for profit, so there is some risk…)

But that’s not the point.

The point is that the health risks of any number of substances, compounds, fibers, chemicals will NOT be evaluated before we are exposed to them.

I’m thinking liability insurers are going to be quite concerned by this.

With the EPA abdicating its responsibility to protect the environment and us, the risk of lawsuits and huge awards increases dramatically.

While no insurance company will accept the liability for increased use of asbestos, they may well start re-writing coverage to ensure they aren’t on the hook for tomorrow’s asbestos suits.

What does this mean for you?

Increased health risks over the long term, and increased insurance costs over the near term.


Nov
20

Post vacation update

Back from a much-needed family trip to Sedona AZ where the mountain biking was phenomenal.

(son Cal and son-in-law Keith plus the old guy)

Here’s what happened while I was in the land of the vortices…

WCRI’s annual conference in March 2018 will be kicked off by the former head of the Bureau of Labor Statistics, Dr Erica Groshen.  Always a must-do; sign up soon or risk being wait-listed for the March 22/23 event in Boston.

The latest from the brainiacs from Boston is a report on California’s work comp medical benchmarks.

Colleague and good friend Frank Pennachio of Oceanus Partners will be opining on misaligned incentives in work comp at NWCDC in Vegas next month.  Frank’s terrific delivery, vast experience and deep knowledge of how things really work in work comp will make this one of the most valuable sessions for employers.

Climate change’s effects are being felt everywhere – and the insurance industry may be the industry most affected. An excellent Harvard Business Review article illustrates the major, if not central role P&C Insurance is playing in forcing us to acknowledge the reality of human-caused climate change.

Differential pricing for high-risk areas (we’re talking about you, south Florida, and you, coastal areas) and Catastrophe bonds are just two of the ways the insurance industry is forcing businesses, governments, and individuals to deal with climate change.

Finally, NCCI’s out with it’s assessment of the 2015 decline in work comp medical costs; key takeaways (note California and New York were not included):

  • a drop in utilization of physician services was the key driver
  • inpatient facility costs increased 6 points, driven by a huge increase in very expensive inpatient stays 
  • there was LOTS of intrastate variation…

Good to be back at work – enjoy the short holiday week.


Sep
15

Friday catch-up

Hurricane recovery

Thanks to NCCI for a very timely article by Chief Actuary Kathy Antonello on evaluating construction contractors based on information on experience modification rates.

Key takeaway – “It’s not appropriate to use E-mods to compare the relative safety of employers.”

Very interesting take on efficiency in construction; the Economist notes that the construction industry has become LESS efficient over the last few decades. While this may well be about to change, for those rebuilding in hurricane-ravaged areas, costs will be much higher, reconstruction take longer, and preparation to deal with the obvious impacts of climate change may not keep up with the speed of that change.

Blockchain continues to work its way into the insurance industry. An excellent piece in the Harvard Business Review notes that insurance is especially suited for blockchain. Both are predicated on spreading information, and in the case of insurance, that information deals with risk. Blockchain is uniquely suited to spreading risk as at its core it is a “trust and efficiency engine.”

Key takeaway…

it will require uncomfortable transparency [from established insurers] and price corrections in their business models. This will be toughest on the portions of the industry that are the least differentiated, where consumers often decide based on price: auto, life, and homeowner’s insurance. [emphasis added]

And there’s this telling point, which identifies a key reason insurers should be worried…

trust in business institutions, and the financial services sector in particular, is at an all-time low. While the large banks are at the center of this trust vacuum — with a seemingly steady stream of scandals, such as the recent Wells Fargo account rigging debacle — the erosion of trust is bad for everyone

Ignore at your peril.


Aug
29

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.


Aug
25

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.


Jun
6

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.


May
20

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?

Mar
24

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…


Mar
11

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)