Insight, analysis & opinion from Joe Paduda

Jan
7

A wake-up call for the insurance industry

We are stuck in a self-destructive cycle, namely an industry-wide culture that rejects true innovation that leads to a huge talent deficit that prevents innovation.

With few exceptions, there is little in the way of innovation, effective marketing, risk-taking, creativity and substantive investment in systems and technology in the insurance industry. That will be the death of many insurers and healthplans.

As a result, we can’t get enough brilliant, impactful people to work in our business because our culture is anathema to most of them.

So, there’s no innovation.

The most important part of any organization is its people. Yet our industry’s talent deficit is as wide and deep as the Marianas Trench. Sure, there are some very smart folks doing great work – in healthplans, State Funds, private insurers, TPAs, and service companies.

They are the exception, not the rule.

Don’t agree?

How many of your brilliant college classmates chose a career in insurance? In your career, you were blown away by someone’s acumen, insight, brilliance, thinking how many times? How many execs in this business came out of top business or other schools?

Why is this?

I’d suggest it is the very nature of our industry; it isn’t dynamic, doesn’t reward innovation, hates self-reflection, abhors risk-taking, and doesn’t invest near enough in people or technology.

Proof statements, courtesy of The Economist 

  • No insurer ranks among the world’s top 1,000 public companies for R&D investment – yet dozens of insurers are in that top 1000.
  • On average insurers allocate 3.6% of revenue to IT —about half as much as banks.
  • In a study of 500 innovation topics across 250 firms, many insurers are working on the same narrow set of ideas.
  • Many property insurers, whose fortunes rely on forecasting climate-induced losses, are still learning how to use weather information.

Tough to recruit talent to an industry that – for Pete’s sake, invests half what banks do in IT…

  • Or for a property insurer that hasn’t figured out weather is kinda important?
  • Where all your competitors define “innovation” as doing the same stuff you do?
  • That probably spends more on janitorial services than R&D? (Ok, that may be a bit of an exaggeration.)

Many of the big primary insurers in today’s market will be overtaken by the Apples, Amazons, Googles, Beazleys, Trupos, and Slices tomorrow. The names you know are brilliant innovators and have billions upon billions of cash to invest. The names you don’t know have figured out and are diving into markets that the traditional, stodgy, glacially-fast insurers can’t even conceive of – reputational risk, very short-term insurance for specific items, disability coverage for gig workers, and a host of other opportunities.

Oh, and they are doing it without all the paperwork, hassle and nonsense that keeps insurance admin expenses at 20% of premiums while frustrating the bejezus out of potential customers. (having just spent hours on the phone fixing a problem with flood insurance, count me as one)

And no, with rare exceptions health insurers aren’t any better. With structural inflation that guarantees annual growth of 5-8% and an employer customer that has to provide workers with health insurance, plus governmental contracts that pay on a percentage of paid medical, and record profits across the entire industry, there’s every reason to NOT control costs.

Those record profits may well continue till a Cat 5 storm hits the Jersey shore and/or a deep recession hits and/or investment portfolios are crunched by macro factors.

In the meantime, Jeff Bezos will be looking for places to plow some of his hundreds of billions.

Tomorrow – what to do about this.

What does this mean for you?

Critical self-reflection is really hard, and really necessary. This industry is ripe for disruption and it will happen. The question is, what will you – and your company – do?

 

 


Jan
2

Predictions for workers’ comp in 2020, Part 2

My last post covered the first five of my annual prognostications; today we look a bit deeper into the crystal ball…

6. California’s crooked docs will be outed.

With SB 537 signed into law, it looks like we’ll know which docs are the bad actors later this year. Kudos to the behind-the-scenes folks who made this happen; thanks to them we’ll know the name of the PM&R doc in northern California who filed IMR requests resulting in 2,800 IMR letters and 4,441 Medical Decisions.

(while the law doesn’t require this outing to happen before 2024, I’d expect we’ll know the names of the worst offenders in 2020.)

Word of warning – network providers would be well advised to do their own research to identify and remove problematic providers before the list becomes public. Failing to do so will show you’re just a box of contracts.

7.  More effective approaches to chronic pain and opioid abuse disorder are here – and will gain a lot of traction in 2020.

Behaviorally-focused treatment, medication-assisted therapies, long-term clinical support and individual-specific treatment plans are all essential to solving the biggest problem in workers’ comp – chronic opioid use disorder [OUD]. Payers are recognizing that discounted-network approaches to pain and OUD are nothing more than revenue-generators for vendors. Carisk’s Pathways 2 Recovery is getting significant traction; Paradigm is shifting to more of a behavioral approach as well. (Carisk is an HSA consulting client).

8.  Don’t expect any meaningful state legislation/regulatory changes.

Significant change doesn’t happen unless there is a lot of pressure to make that change. And there isn’t – With workers’ comp anything but a problem for employers and insurers, constituents aren’t pressuring legislators to take action and regulatory activity will be mostly clean-up stuff.

Word of warning – beware of folks hyping relatively minor stuff like medical marijuana. Compared to the California crisis and Illinois’ past work comp disaster these issues are pretty insignificant.

9. Benefit adequacy will gain some traction.

I’ll admit this is much more of a hope than an actual prediction.

As reported by NASI, worker benefits have declined dramatically over the last two decades. Sure, some of this is due to the drop in frequency, but workers are getting less in benefits than they have in the past – and that’s bad by any measure.  It’s great that employers’ costs are declining, but that shouldn’t be at the expense of injured workers and their families.

With employers’ work comp costs at an all-time low, it’s long past time we focused on making injured workers whole.

This does NOT mean I support the self-described “worker advocates” who make their living off injured workers. If anything these leeches do more harm than good.

10. Conferences will continue to struggle

look familiar?

The work comp conference industry is suffering from over-supply; as a result many conferences are seeing drops in attendance, revenues, and exhibitors.

For some conference planners, the fix is pay-to-play.

While a possibly-useful short-term fix [pay-to-play generates much-needed revenue and profit] the long-term impact will be to further reduce the value of conferences.

Another “solution” is to require each session include an employer, ostensibly to provide real-world examples that other employers can use to improve their programs. The problem with this is obvious; while it will drive more attendance from brokers, TPAs and insurers, it doesn’t deliver much value for other employers. Here’s what I said back in August..

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”.

That said, conferences put on by CWCI, NCCI, WCRI and those focused on self-insureds are content-rich and well worth your time.

That’s it for this year – may you do well by doing good.


Dec
30

Predictions for workers’ comp in 2020

Well, proving once again that I can’t/won’t learn from past mistakes, here are five of my predictions for 2020.

  1.  The work comp insurance market will stay soft.


    As in mushy, pillowy, baby rabbit fur soft.
    Multiple factors make a strong argument for a continued soft market. (that’s a market where prices decline and it’s very easy to get insurance)
    First, insurance rates and prices continue to drop in pretty much every state. Second, outside of California self-insureds I haven’t seen any significant uptick in – or even leveling off of – claim frequency.
    Third, see prediction #2.
  2. Work comp medical trend will remain flat.

    Trend has been flat for several years now; as a result, medical severity (that’s a financial term, not a clinical one) remains well under control as well.
    The biggest factor may well be the industry’s ongoing success in reducing inappropriate opioid usage.  Also, frequency declines will likely continue, helping drive down medical costs.
    But…
  3. Facility costs will gain a lot more attention.

    This is the biggest cost problem payers are facing; hospitals and health systems have figured out work comp payers are a very soft target, and are hoovering dollars out of payers’ pockets.
    We’ll see more payers take specific actions to address facility costs; payment integrity will gain significant traction among payers and service providers. (PI firm Equian is an HSA consulting client)
  4. Consolidation in the work comp services industry will continue, with more of the big players merging/acquiring each other.
    A few years ago there were ten or a dozen PBMs, now there are 4 with any measurable share. Paradigm and Genex have consolidated the case management sector. There are now a handful of bill review application vendors; that could decrease if Conduent’s Stratacare/ware goes up for sale early in 2020. Same thing has happened in the TPA space driven primarily by Sedgwick.
    The consolidation has been both horizontal, that is across different sectors (e.g. Paradigm buying CM and network companies) and vertical (TPAs buying other TPAs); as there are fewer assets for sale
    Sure there is a proliferation of start-ups and smaller players but it is going to take a while for these to break thru and gain major share in one of the verticals.
  5. OneCall will be sold. 

    And possibly broken up by the buyer. After KKR and GSO’s takeover of the near-bankrupt company two months ago, not much has been heard from Jacksonville HQ.  After the balance sheet clean-up and Polaris review are completed, expect the new owners to put it up for sale. KKR and GSO will turn a handsome and quick profit, prior debtholders won’t have to write off their entire portfolio.
    No word on whether employees will get something back as well; that would require action by the current owners as “old” stock is essentially worthless.Next time – the next five.


Dec
19

The ACA is ruled un-Constitutional, which means….what?

Two Republican-appointed judges on a Federal appeals court struck down a key provision of the ACA.  So what?

Well, if you or a family member are a bit heavy, have high blood pressure, are pre-diabetic, had a bout of cancer, may need long-term care, make less than $103,000, are pregnant, pay attention.

Another judge will decide if the entire ACA or parts of the very broad law are struck down. Among the provisions at risk are:

  • guaranteed coverage for pre-existing medical conditions
  • guaranteed healthcare for your kids up to age 26
  • long-term care benefits for you and your parents.
  • no lifetime caps on medical benefits
  • reduced premiums for families that make less than $103,000
  • financial support for small business’ healthcare premiums
  • coverage for prescription drugs and behavioral health
  • limits on what insurers can charge older folks
  • Medicaid expansion in two-thirds of the states

SOME of the pre-existing health conditions that would not be covered if the ACA goes away…

This would have different effects in different areas… click here to get an interactive map.

What’s puzzling is the Republicans who want to blow up those protections have no plan to deal with the consequences. The end of all or some of the ACA will have huge effects on families, and there’s NO plan to help families when this happens.

What does this mean for you?

Check the list up top.

More on potential implications here.

A detailed discussion of the lawsuit and where things stand is here.


Dec
18

2019 work comp predictions – How’d I do?

In which I publicly fess up to miscalls and things I actually got right.

Each year I make predictions about what the work comp world will do in the coming dozen months. Here’s how that went in 2019… (spoiler alert..the ball was a bit cloudy last January…)

1. The work comp insurance market will harden – a little.

Nope. The seemingly endless soft market continues – and there’s nothing on the horizon to indicate it’s going to end.

2.  A very big external event/issue/mess will affect the economy – and thus workers’ comp

Nope. Despite more launches by “Rocket Man”, a bunch of trade wars, tariffs that continue to crush agriculture, increasing catastrophes due to global warming, softening economies in Asia and Europe, and an impeachment, the economy continues on autopilot.  Sure, one could argue that these and other crises would be a huge story in any other year, but the sheer size and number of daily crises has killed our ability to consider anything short of a collision with the moon as newsworthy.

3. There will be significantly fewer M&A deals in work comp services – and those deals will be either pretty small or really big

Yes.

The Sedgwick/York deal and the OneCall creditor takeover were the big ones. Not much else of size or significance happened…

4. Facility costs will be the new focus for payers and service companies

This is a push; it’s starting to happen – but not fast enough. Every other payer is fighting back, but far too many work comp insurers and TPAs aren’t paying attention.

5.  New business models for Pharmacy Benefit Management will gain traction

Yes – transparent pricing is gaining traction, driven in part by the Ohio BWC/Optum litigation and what we’ve learned from it.

6.  The “advocacy” claims model will gain a lot more traction,

Among the self-insured employers I’ve been talking with, the answer is yes. While different names are used, there’s definitely a push to get away from the “you’re a claimant” approach and move to a “how can we help”? ethos.

7.  “Opt-Out” will not gain traction.

True that.

8.   Service companies that deliver best-in-class customer service – and build that into their branding messaging – will win. 

Yes. MedRisk has won the PT wars by delivering stellar service (btw the people in the office pictures on their site are real actual humans who work at MedRisk), PBM service leader myMatrixx is landing new customers (EMC, Koch, Qual-Lynx), HomeCare Connect is as well (Zenith Insurance, Great American, Broadspire, Chubb, State of North Carolina). (MedRisk and myMatrixx are HSA consulting clients)

9. More success in reducing long-term opioid usage by more payers.

Yes – but lots more progress is needed.

10. Payers will implement business models and processes using Artificial Intelligence  

Yes – Ohio BWC’s work on using AI to code incoming work comp claims looks to be an impressive success. The Hartford is using AI to identify claims for intervention, and legal departments are using AI to scan documents for key words to support discovery and legal issues.

So, 7 right, 2 wrong, 1 a push.  To be fair, the two I got wrong are big ones.

Coming up, predictions for 2020.


Dec
17

Drug prices aren’t fixable

The House of Representatives just passed landmark legislation intended to reduce the cost of drugs for seniors.

The bill won’t go anywhere, because the Senate won’t consider it – and if it does, President Trump has said he will veto it (despite campaign promises to reduce drug costs).

Unfortunately, a bill advanced by Republican Senator Chuck Grassley that would cap Medicare drug price increases will be opposed by Senate Majority Leader McConnell (R).

Given the public’s focus on healthcare, and seniors’ voting power and high level of interest in drug prices, the lack of GOP support is puzzling.  It appears the main objection is reducing what you pay for drugs may result in the development of 8-15 fewer drugs. Over the next decade.

If the House bill became law, Medicare would save $345 billion over six years.

So, seniors would pay less for drugs, taxpayers would save hundreds of billions of dollars, and we may not get one new drug per year.

Only in a government ruled by pharma lobbying would this make sense.

What does this mean for you?

Once again, big business wins, and you lose.

 

 

 


Dec
16

US health care kills a quarter million of us every year.

Every year a quarter-million of us are killed by medical error.

That makes medical errors the third leading cause of death in the US.

Medical errors kill more of us than motor vehicle accidents, firearms, AND opioid overdoses – added together.

Efforts to fix this problem are woefully under-funded, poorly co-ordinated, and often ignored by stakeholders. That’s likely due to poor reporting and tabulation of medical errors and the repercussions thereof.

It is stunning indeed that a $3.4 billion industry whose sole focus is to preserve and protect our health kills a quarter million people a year – and we didn’t know this until a few weeks ago.

What’s even more disturbing is this story has been all but ignored by mainstream media.

What does this mean for you?

Ask questions, demand answers, be forceful, and don’t accept platitudes. And hold doctors, hospitals, and caregivers accountable.


Dec
12

Proof – health insurance saves lives

Having health insurance reduces your risk of dying.

Intuitively, this makes sense; you get cancer diagnoses and treatment, colon cancer screening, access to drugs and behavioral health treatment and flu shots.

You can read the details here, but the net is individuals who received a letter from CMS telling them they’d paid a penalty for not enrolling in health insurance were more likely to sign up than a control group that did not get a letter.

And, those who signed up had a lower mortality rate.

From NYTimes:

gaining coverage was associated with a 12 percent decline in mortality over the two-year study period (the first months of coverage seemed to be most important, presumably because people could get caught up on various appointments and treatments they might have been missing). [emphasis added]

This is the first conclusive, unequivocal research showing health insurance impacts your chance of dying.

From the Treasury Department’s study; the control group did NOT get the letter:

Two things of note.

  1.  The Trump Administration has cut the healthcare outreach budget by 72 percent.
  2. Republicans killed the individual mandate which forced people to get health insurance or pay a penalty.

What does this mean for you?

One can argue whether it is government’s role to provide or ensure coverage, one cannot argue this: more people will die due to this Administration’s policies.


Dec
11

Americans can’t afford healthcare

Gallup just reported a quarter of Americans have put off treatment for serious medical conditions because they can’t afford it.

They can’t afford it because:

  • US physicians make twice what docs in other countries do
  • Drug costs are much higher here than elsewhere
  • Hospitals are making bank
  • Administrative costs are twice what they are in other developed countries.

Data from Commonwealth Fund

Average physician income by specialty from FierceHealthcare.

US life expectancy is now 43rd in the world.

We pay twice as much as other developed countries for healthcare, and our outcomes are measurably worse.

What does this mean for you?

Until and unless we fix healthcare, your family and friends will face increasing costs and declining access; it’s highly likely some aren’t getting the medications, surgeries, tests, or therapies they desperately need.


Dec
10

in which I cover newsworthy stuff that happened this week…

Uh…that’s why you buy insurance

From Politico we hear CMS Administrator Seema Verna asked us taxpayers to pay for $47,000 worth of jewelry and other stuff stolen “during a work-related trip.” Among the valuables gone missing – that she wanted us to pay for were a $325 moisturizer (!!!) and $349 for noice-canceling headphones – plus a $5,900 Ivanka Trump pendant.

Yep, the person who runs the biggest insurance entities in the world wants the government to bail her out because she decided to NOT buy insurance. (update – good news, we aren’t paying for Ms Verma’s bling)

Physical therapy in workers comp

MedRisk released its third annual report on PT in WC earlier this week.  560,000 work comp patients were served by MedRisk so far this year; the average duration of care has shrunk to 11.2 visits over 48 days.  Better news – 98.1% patient satisfaction rate and 97.7% of providers agree with MedRisk’s clinical recommendations.

There’s an old business meme that comes to mind – “stick to your knitting.”

At a time when other service companies were seeking to become everything to everyone, Shelley Boyce, Mike Ryan and their colleagues at MedRisk went the other direction, focusing narrowly on work comp physical medicine. Along with the best management team in the business, they executed the plan to perfection. (While MedRisk is an HSA consulting client, all the credit goes to those folks).

Meanwhile all the caterwauling about drug prices turns out to be much ado about nothing (I’m looking at you, AARP) . This from the estimable Adam Fein PhD’s discussion of CMS’ review of healthcare costs:

    • For 2018, spending on outpatient prescription drugs grew by 2.5%—below the spending growth rate on hospitals, physician services, and overall national healthcare costs.
    • CMS significantly lowered its previously reported drug spending figures by billions after incorporating new data on manufacturers’ rebates.

More news showing hospital consolidation raises your healthcare costs.

From NIHCM comes a terrific slideshow – my favorite is this one – key takeaway is prices ALWAYS GO UP after mergers.

 

 


Joe Paduda is the principal of Health Strategy Associates

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