Insight, analysis & opinion from Joe Paduda

Apr
28

Consumer Directed Health Plans – unintended consequences

Consumer Directed Health Plans, or CDHPs, are the new thing in health insurance – and may have a significant impact on liability and workers comp claims. For those who may not follow the latest trends, these are simply very high deductible health insurance programs, with tax-favored accounts set up to cover most of all of the deductible. Sounds pretty basic, and underneath the marketing hype, that is all there is to CDHP.
Nonetheless, they are getting a good deal of press, are generating high valuations for companies selling them, and are creating a flurry of mergers and acquisitions as companies such as UnitedHealthGroup jump into the fray.
If you are suppressing a yawn, hold on for a moment.
Tom Barrett of Choice Medical Management (a Health Strategy Associates client) has an interesting perspective on CDHPs. His take is they will actually cause an increase in liability and workers comp claims, as participants, faced with high medical bills, seek to have others cover the costs.
Here’s an example. An individual with a $3000 deductible slips on a neighbor’s sidewalk, sprains their ankle, and goes to the ER. After an MRI and soft cast put on by the orthopod, the bill comes to $2200. The individual looks at their CDHP “account” and sees they have only accumulated $300, but the various medical providers want their money now. Like many Americans, the individual does not have an extra $1900 laying around.
Concerned, he talks to his neighbor, finds out they have liability coverage, and tells the neighbor they will have to file a liability claim. It’s nothing personal, just business.
The liability carrier sends a field adjuster out to the site, interviews the individual and the neighbor, prepares a report, and either accepts or rejects the claim. The injured individual either gets paid, gets an attorney, or ponies up the extra $1900 himself.
Far-fetched? I don’t think so. There are plenty of attorneys looking for work, lots of liability, auto, and workers comp coverage out there, and CDHPs are exploding in popularity (despite their rather limited utility).
What does this mean for you?
If you are a property and casualty writer, watch your new claims carefully. You likely won’t see a sudden leap, but rather a steady increase as people figure out to “go where the money is”.
The law of unintended consequences strikes again. Or, more cynically, perhaps the CDHP developers actually considered this potential outcome


Apr
28

Most of the uninsured are employed…

A new study on the uninsured provides a clearer picture of who they are, their employment status, and where they live. Minnesota has the lowest uninsured rate at 8.3%, followed by Hawaii at 9.8% and Delaware at 10.2%. At the other end of the scale, Texas once again claims the top spot for the highest percentage of people without health insurance at 30.7%, with Louisiana at 26.4% and New Mexico at 26%.
The study, released by the Robert Wood Johnson Foundation, also has some interesting statistics on the number of individuals who are employed yet lack coverage. According to Newsday,
“The study found that the states with the lowest rates of uninsured adults with jobs were Minnesota at 6.9% and Hawaii at 8.5%. The states with the highest rates of uninsured adults with jobs were Texas at 26.6%, Louisiana at 22.6% and New Mexico at 22.6%, according to the study


Apr
27

Zenith’s strong results

In another sign that the Workers Comp world has gotten much better as of late, Zenith Insurance announced yesterday that it’s earnings had jumped from $26 million from Q1 2004 to $39 million in Q1 2005. Zenith is primarily a workers comp writer, with both primary and reinsurance lines, both of which showed improvement.
Most striking was the combined ratio, a measure of the ratio of total claims and administrative costs to premium. The latest quarter showed a combined ratio of 84.9% for the primary workers comp line, a stellar result by any measure.
Also notable was the increase in premium written of 29%.
Zenith has long been noted as a carrier that refuses to cut prices to build share, and the results of that intelligent approach are now apparent. Their one gap has been a lack of focus on the managed care side, a situation that appears to be on the mend. If Zenith can bring the same discipline and focus to managing medical expenses that it exemplifies in underwriting, results should improve even more.
What does this mean for you?
While all looks rosy, now is the time to watch warily for signs of cost-cutting and lax underwriting, harbingers of a decline in profitability and potentially a return to a softer market. While Zenith is one of the few carriers to avoid this type of suicidal behavior, do not be surprised if other carriers decide they want more volume, and start cutting prices. Unfortunately, workers comp writers seem quite unable to make a good time last


Apr
27

Why the uninsured are important to you

There has been some publicity recently regarding the possibility that there are fewer uninsured people in the US than the usual estimate of 45 million uninsureds. While this may be true, like many other arguments about statistics, if you get caught up in the statistical debate, you can easily forget that the real issue is there are tens of millions of uninsureds.
The argument partially stems from a definitional issue – one survey asks if you were uninsured during the previous twelve months, another asks if individuals were uninsured for the entire previous year. Obviously, there are meaningful differences in the question which will elicit different responses. The problem occurs when we focus on the academic issues rather than the overall problem. To quote Uwe Reinhardt of Princeton University (source LA TIMES); “Instead of addressing the problem, we say we must count the uninsured. It is literally, in my view, like making sure we know how many deck chairs we have on the Titanic”.
Experts questioned about the reasons for the discrepancy alluded to the possibility of undercounting Medicaid recipients, a reluctance on the part of respondents to respond to detailed questions if they answered “yes” to the “did you have insurance


Apr
26

Medicaid Reform, round 4

A number of Governors are considering working together on Medicaid reform in an effort to present a united front to the Bush Administration and Congress. As we have been reporting here, Medicaid reform, a major goal of Bush et al, has been stymied by the refusal of Governors to make major concessions, a refusal backed by their allies in the Senate.
This has led to a stalemate, as States are seeking to preserve the Federal dollars that fund a large part of their Medicaid programs in a time when their own budgets are under pressure. On the other end of the seesaw is the Bush Administration, which has made cutting the Federal deficit a primary goal of the second term.
The Governors in question are evidently circulating a “straw man” memorandum in an effort to gain consenseus and present a united front to the Administration. While the contents of the memorandum are closely held, the following details about the memo have been reported:
–it includes a proposal that would make it more difficult for seniors seeking to qualify for nursing home benefits to transfer their assets to family members or others.
–Another proposal would allow the state to investigate more thoroughly a beneficiary’s finances and seek repayment for government-provided care
— one section floats a “trial balloon” re the establishment or increase of deductibles and copayments for beneficiaries. The idea is this would require beneficiaries to contribute to the cost of the program and discourage overuse and abuse.
–“The proposals also would try to discourage businesses from eliminating retiree health benefits or otherwise shifting employees to Medicaid, by establishing incentives such as tax credits” (Tanner, AP/Long Island Newsday, 4/25).
The good news here is this represents a serious attempt on the part of state legislators to address the Medicaid crisis. It also reflects their power and influence, a strength that the Bush Administration appears to have seriously discounted in their early calculus.
Reforming Medicaid is a critical component of national health reform, and some of these measures make a lot of sense. However, as most states have frozen physician reimbursement levels, and there have been no reports re any increases in their compensation, it is highly likely that there will be fewer docs who will accept Medicaid, thereby reducing access and therefore quality of care.
What does this mean for you?
Freezing MD reimbursement is a blunt instrument, which will have serious consequences not only for the health of Medicaid and Medicaid recipients, but also lead those docs to seek higher reimbursement from commercial payers.
Cost shifting will increase, and so will pressure on commercial loss ratios.


Apr
25

More on drugs in workers’ comp

The Hartford has just released an internal study of the costs of prescription drugs in Workers’ Compensation, and while it only covers the company’s own experience, the report does add a little more depth to the research released by Health Strategy Associates last month.
Key findings include the Hartford’s Rx trend (inflation) rate of 6%. This is about half of the average increase reported by the 24 respondents to HSA’s Survey, and demonstrates what can be accomplished through the vigorous application of intelligent programs.
The report also noted one of the key drivers was the growth in “off-label” use of prescription drugs such as Actiq and Neurontin. The release stated:
“Actiq is a powerful painkiller approved by the FDA for cancer patients with breakthrough pain, but it jumped to number nine from 15 in 2003,” said Dr. Bonner (Medical Director of the Hartford). “The drug is a narcotic that comes in a lollipop or lozenge form and takes just a few minutes to enter the bloodstream. The FDA is concerned about its potential for diversion and abuse. Actiq’s climb up the chart suggests it is being used for a much wider group of patients than those the FDA originally intended.”
Similarly, the drug Neurontin held steady at number two on the list, despite its owner paying more than $430 million to settle state and federal charges relating to the drug’s promotion and marketing to physicians. The FDA approved the drug in 1999 to treat seizures in epilepsy, then approved it in 2002 to treat pain following shingles outbreaks (post-herpetic neuralgia). Even so, the percentage of patients for workers’ compensation injuries being treated for either condition is dramatically smaller than the usage of the drug suggests.”
Not noted in the press release is the name of the entity that is providing pharmacy benefit management services for the Hartford; Tmesys/PMSI. (Sponsor of HSA’s survey).
What does this mean for you?
If you are a WC payer, there is hope. Data-driven programs, applied intelligently and appropriately, can and do reduce prescription drug expenses.


Apr
22

Hartford and Aetna

The Hartford announced this week that they will be using Aetna’s Workers Comp PPO network in Pennsylvania, effective 6/1/05. This is a big step for Aetna, which has been struggling to achieve traction in the WC network business since starting this initiative some two years ago.
On the plus side for Aetna, this is the first large WC payer that has adopted their network, and indications are that Aetna’s analytical capabilities and provider profiling were strong plusses for the Hartford. Also, the press release indicated that Hartford will/may be using the AWCA network in additional states in the future.
On the negative side, after two plus years, and hundreds of thousands of dollars invested, Aetna has one top five carrier accessing their network in one state.
My take is the powers-that-be at Aetna seriously underestimated the amount of effort needed to build a WC network, and overestimated the interest among large payers. As part of their “due diligence” Aetna hired an outside consulting firm (not HSA) to analyze the market, determine key success factors and required capabilities, and estimate the opportunity. The report, which likely cost tens of thousands, was perhaps the weakest, least-informed, and most superficial market assessment I have had the misfortune to read.
Thus, no surprise that success to date is…rather limited.
In addition to the comments on analytics, the press release also notes that AWCA has over 100,000 providers in their currently active states (most of which are actually employer direction states). This reflects a complete lack of understanding of where the WC network business is heading, which is towards smaller networks of expert providers.
While I have a lot of respect for Aetna on the group health side, I wonder what they are thinking re WC.
What does this mean for you?
If you are a group health network contemplating WC, think carefully, study thoroughly, and understand the market before you build a business plan. Yes, there is an opportunity. It simply requires a thorough understanding before making an investment decision.
If you are a WC payer, AWCA’s entry into this space is a good thing; it adds competition from a strong managed care firm, and may actually provide an alternative to First Health et al.


Apr
20

PBMs in Workers

After walking the exhibit halls at the RIMS Conference in Philly for two days, it has become apparent that pharmacy management is the new hot business. Here are a few of the indicators


Apr
18

RIMS results

The RIMS conference in Philly has been quite interesting, especially for those following managed care trends. Conversations with three large insurers have been remarkably similar; all are focusing their efforts these days on so-called “specialty networks”; smaller networks of physicians who have demonstrated their ability to manage WC cases cost-effectively.
We have covered this topic before, both in this blog and in prior articles, but this is the first time I have seen what could loosely be described as a trend in workers comp medical management .
One large payer indicated that although they (the carrier staff) believes in the effectiveness of smaller networks built around docs that are WC experts, many of their customers are “still not there yet”. That is, these policyholders are still wedded to the “percentage of savings” model for buying health care.
Kudos to the carriers for their efforts, and best of luck educating their customers.
What does this mean for you?
If you have yet to understand that the party with the most impact on a WC claim is the treating physician, now’s the time to educate yourself.


Joe Paduda is the principal of Health Strategy Associates

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