Insight, analysis & opinion from Joe Paduda


Katrina’s costs by individual insurer

Insurance Journal has posted a quick summary of the potential impact of Katrina on insurance. Here are excerpts.
Note that some of the insurers below are reinsurers, who provide insurance to primary insurers who want to protect themselves from excessive claims resulting from disasters like Katrina.
Insurance Journal –
* Vesta Insurance Group Inc. (VTA.N:) said on Sept. 1 it expects the preliminary gross loss from the first landfall of Hurricane Katrina to be in the range of $500,000 to $1.2 million.
* Alfa Corp. (ALFA.O:) said on Sept. 1 preliminary estimates indicate storm losses will be less than $125 million, with no impact on its third quarter earnings. EUROPE
* World’s largest reinsurer, Munich Re (MUVGn.DE:), said on Aug. 30 it may have claims of up to 400 million euros ($488 million), before taxes and before the amount the company can pass on to other reinsurers. It expects the overall insured loss to be $15 billion to $20 billion.
* The Lloyd’s of London insurance market said on Aug. 30 it expects to receive “significant insurance claims,” largely from offshore oil and gas platforms in the Gulf of Mexico, property damage and claims from businesses forced to close. It has asked all the insurers to supply claims estimates by Sept. 12.
* Hannover Re (HNRGn.DE:), the world’s fourth largest reinsurer, said on Aug. 31 it was “extremely unlikely” to hit its 430 million to 470 million euros profit target for 2005 as a result of claims from Katrina. It expects Katrina to be the most costly U.S. storm, topping Hurricane Andrew’s bill of about $21 billion.
* Swiss Re (RUKN.VX:), the world’s second largest reinsurer, said on Aug. 31 it expects claims of about $500 million. It forecast total insured losses of around $20 billion.
* Paris-based reinsurer Scor (SCOR.PA:) said on Sept. 1 Katrina may cost it 25 million to 35 million euros.
* Converium (CHRN.S:), the Zurich-based reinsurance company, said on Sept. 1 it saw claims from the hurricane of between $10 million and $20 million. It put the total bill to the industry as a whole at around $25 billion.
($1=.8197 Euro)
Note that these statements were from yesterday and the days before – the latest news out of New Orleans, Mississippi, Alabama, and other areas indicates that losses from looting, flooding, fires, and other causes may significantly increase total claims. In addition, follow on problems such as hospitals losing electricity, generators failing, and emergency services problems may add to the loss of life and thereby increase claims.
Note – I’m trying to keep this objective and dispassionate. That is incredibly difficult. This is not merely a financial disaster, it is a human tragedy on so many levels. Do not misinterpret the tone of these posts as one that implies lack of concern or awareness of the human impact of Katrina. Thanks.


Another bad broker caught

The latest insurance broker to plead guilty (without actually pleading guilty) is HRH, aka Hilb Rogal &Hobbs, who agreed to pay $30 million into a compensation fund plus a $250,000 fine to settle charges related to rebating, account steering, and broker compensation activities at it’s Connecticut subsidiary.
According to Insurance Journal;
“The state complaint against HRH centered on its dealings with a hospital management company. The state claimed that HRH shared commissions with Women’s Health USA Connecticut and steered clients to preferred brokers to win bigger commissions. State law forbids rebating by brokers to clients. Women’s Health Connecticut has denied it received rebates or shared commissions. The settlement indicates that HRH’s Hartford office disguised the deals


More on Katrina’s impact on insurance costs

New information indicates the impact of Katrina on the insurance industry will likely be greater than originally forecast. Post-storm flooding throughout the area, and related damage to commercial businesses and private property appears likely to drive insured claims for Katrina over $17 billion to perhaps $25 billion.
In addition, the Federally run flood insurance program will take a big hit. The program, which is already underfunded (it had to borrow $300 million last year from the Treasury to cover claims from Ivan et al), provides flood insurance totaling $600 billion to 4.5 million properties, primarily in coastal areas. Expect flood rates to increase significantly and soon.
The higher claims costs and the growing recognition in the insurance community of the potential for another devastating natural or man-caused disaster will drive up insurance costs for all lines of property and casualty coverage. While some uninformed pundits contend that the only cost increases will be borne by those in areas directly affected by the storm, they fail to realize that reinsurance rates industry-wide will increase, and insurers seeking to recoup losses will have to increase prices in other, non-related lines.
What does this mean for you?
The result – the softening in the property and casualty market will likely taper off, prices will stabilize somewhat, and all of us will end up paying for Katrina.
But that’s why they call it insurance.


What’s up with Case’s Revolution Health?

Not much new has come out about Revolution Health, Steve Case’s effort to bring consumerism, education, information, and innovative insurance products to the world of health care. Since the splash of the initial announcement two months ago, the silence has been noticeable, despite the inclusion of such notables as Colin Powell, Jim Barksdale, Steve Wiggins, and Frank Raines.
A front page for a website exists, although it indicates it is coming in 2004. Beyond that, nothing beyond a few brief follow ups to the initial USAToday article.
While it is somewhat of a mystery why there would be such a big splash followed by dead calm, perhaps it is due to the difficulty Case might be having in coming up with a business that actually adds real value. Because all the information to date does not describe a business that is materially different, compelling, or even very interesting.
According to an article on Revolution Health authored by the conservative Heartland Institute;
“RHG plans to acquire controlling interests in promising, innovative health care companies and build them for long-term growth.
Areas to be developed include affordable nurse-provided care at retail locations; health information to help people find a doctor or other health care provider and to learn more about medical issues and conditions; tools for managing health care finances, especially to help small and mid-sized employers help their employees; secure, easy-to-use personal health records; and innovative health coverage offering consumers new choices in how to pay for their health care.
“We will put consumers back in the center of the system by giving them more choice, control, and convenience while building the first comprehensive, consumer-driven health care company,” said Case.”
Leaving aside the obvious error – Definity Health and others have already laid claim to that hype-laden first – let’s deconstruct the business development plan.
1. Nurse provided care at retail locations – sounds like many ER departments, some occ health, company run, and local storefront clinics. Nurse care is almost always under the direction of a physician, and billing usually reflects physician charges. If Case has figured out how to have nurses work differently than they do today there may be something here. Otherwise, nothing new.
2. health information to learn more about conditions – that’s all consumers need, yet another site to go along with the 23 million websites that now offer health information. WebMD, the Centers for Disease Control, Kaiser, Aetna, Intelihealth, and millions of other sources provide detailed information on everything from drug interactions to arthritis medication to cancer survival rates to new treatments for AIDS. That’s not to mention the thousands of web “businesses” based on health information that have failed over the past five years.
3. information to help consumers find a doctor or other health care provider – again, nothing new here – states are building extensive capabilities to report on hospital quality; health plans have long experience in this area; clinics, professional societies, commercial web sites, and the Yellow Pages all have a substantial head start, a customer base, and experience.
4. tools for managing health care finances for use by smaller employers – sounds like a combination of health information and insurance benefit plan design – yawn.
5. secure easy to use personal health records – Many already exist, including, , your personal health record, and And some of these are free, targeted to specific patient populations, and gaining traction. For an excellent summary and more information, see,
6. new innovative health insurance programs – as much as I’d like to see something new and innovative, and as much press as these “consumer directed health plans” (CDHP) have generated, the reality is they are old wine in new bottles.
CDHPs are simply health insurance plans that marry old-line benefit design based on marrying high deductibles and co-pays with newer HMO delivery systems, coupled with a tax-advantaged personal health account. What’s innovative here? Not the cost-sharing, the delivery system, or the tax-advantaged account, nor the combination of all three.
At their core, CDHPs are cost-shifting from employers and other payers to the insureds. I don’t say that as a value judgment but simply state the facts. They are a reaction to employers’ frustration; after twenty years of HMOs, POS plans, capitated programs, closed and open panels, PBMs, PPOs, and the rest of the answers in the form of managed care, employers adopting these programs are throwing up their hands and saying we just can’t afford double digit increases, so employees will have to pay more.
So let’s stop all the hype and nonsense, and call them what they are. CDHPs are simply a way to get employees to pay more for their health care. And given health care trend rates, that’s not necessarily a bad thing.


Florida’s Workers Comp physician fees

In another sign that meaningful reform initiatives do work, the National Council on Compensation Insurance (NCCI) filed rates for Florida that represent a 4.5% decrease; making the total filed decrease since 2003 22.1%.
These decreases were due to lower medical and indemnity expenses. Think about that – physicians’ fees went up, and medical expenses and total claims costs went down.
That alone drives a major hole in the sales pitch of the large PPO networks, who base their “value” on the discounts they get from providers. Discounts do not drive savings on claims, they drive savings on individual bills. And do nothing to address utilization or frequency.
Back to the results – Florida’s reforms were comprehensive, intelligent, and quite effective. Enacted in SB50A, they included drastic limitations on IMEs, changes to attorney compensation, revised indemnity determination and compensation for injured workers, and most significantly, higher fees for doctors.
While all the moving parts make it quite difficult to assign “effectiveness” to one part of the reforms, it is quite clear that the significant increase in the fee schedule for physicians, coupled with a sharp decrease in the (very rich) hospital fee schedule had two primary effects.
1. More physicians, and evidently more good physicians, are now participating in the WC system. This is a remarkable turnaround, and results from an increase in fees from 83% of Medicare (!) to 114% for primary care docs and 140% for certain specialists.
2. Hospitals have renegotiated their managed care contracts, in many cases decreasing discounts or eliminating them altogether. In turn, this has caused “deep discount” PPOs who make a large part of their income from hospital deals to de-emphasize the state. This de-emphasis means they are spending less time and energy in FL seeking discounts from other providers. My bet is this has, and will, positively impact utilization, as providers’ need to drive utilization to replace lost fees is diminished. A bit of a stretch


Ohio’s Work Comp Scandal – fallout continues

While we were paying attention to the mess uncovered by the Broward County School Board’s workers comp audit , Ohio’s workers comp scandal moved into new territory. A report from a panel appointed by Gov. Bob Taft (R) to review the mess in Ohio noted serious problems with oversight, financial controls, policies and procedures, and outside influences.
The Ohio Bureau of Workers’ Compensation writes all the WC insurance in the state, and its investments, which are reserves for payment of future claims, are overseen by a five member panel, none of whom have any investment expertise. Yikes.
Wait, it gets better.
The governor’s former chief of staff was convicted of failing to report several vacations at a home owned by a top campaign contributor, Tom Noe. Small potatoes? Not really – Noe was the guy who invested $50 million of BWC’s funds in rare coins, some of which were “lost in the mail”.
Taft has not escaped unscathed. According to the Akron Beacon-Journal, “Questions about Noe’s investment of state money led to a scandal that culminated in Gov. Bob Taft’s conviction last week on charges he was treated to numerous golf outings he failed to report, including two with Noe.”
And, this won’t end here. Noe, Taft’s former political ally, is contending that Taft knew about the coin investments way before the scandal hit the news. Taft denies this, claiming he first found out about them in news reports after the fact. Here’s the take from an Ohio TV station:
“In other developments Saturday, the Toledo-area coin dealer who managed the workers’ comp bureau investments in rare coins continued to push for Ohio Governor Bob Taft to retract statements in which he accused Tom Noe of concealing his involvement in the investments. Noe’s lawyer sent a news release that contended at least 16 members of Taft’s senior staff, as well as numerous other officials, knew about the arrangement. He also contends Noe and Taft spoke of the fund in a locker room at Inverness Club in Toledo during a May 13, 2001, golf outing.”
In addition, Federal officials informed the Ohio Attorney General that commissions charged by the BWC’s so-called investment advisers were much too high. However, Attorney General Petro evidently sat on the news, which came after the SEC tried for 16 months to get the BWC to take action. While it is unclear if there are or were any political links between Petro and the investors, given the smell emanating from the entire mess, it is certainly interesting that Petro did not take prompt action.
It looks like the governor’s office was treating the state’s workers comp insurer and its assets as their private playground, investing in wine, coins, and other highly questionable “assets”. So far, their efforts have cost the state over $300 million in losses.
Remember, these funds are set aside for workers who are injured, to cover their medical expenses and lost wages.
As much as I want to move on from this, it’s the proverbial train wreck; you just have to keep looking.


Katrina’s impact on insurance costs

Katrina will have a significant impact on the world insurance markets, and the impact will be felt quickly in the form of higher prices for many property and casualty insurance lines. Here’s how this works.
Insurers price their coverage based on statistical models that take into account the probability of claims occurring and the potential expense of those claims. In those years where few natural disasters occur, insurers do quite well. In bad years, they get hammered, either by one big event or a number of smaller events or, in the worst case, several big events.
Most primary insurers buy “excess” insurance from another firm, such as Lloyd’s of London. This excess, or re-insurance, allows the primary insurer to spread the risk, so catastrophic events such as Katrina don’t bankrupt them. However, Lloyd’s, General Re, Swiss Re, and the other reinsurers end up with significant exposure to this type of event.
Early reports indicate that Katrina’s devastation is not nearly as bad as it could have been. This is due to two factors – the storm did not directly hit New Orleans and its intensity was reduced appreciably before it made landfall. Damage to the refineries and platforms appears to be minimal, or at least less than expected. However, estimates are that Katrina will cost insurance companies between $9 and $16 billion. While the upper end of this range is higher than the most expensive hurricane in history, it is well under early predictions of $30 billion.
According to Forbes “The 2004 US hurricane season was the most destructive on record, causing insurance losses of 22.835 bln usd, according to the III.(Insurance Information Institute) The single most destructive hurricane to date is hurricane Andrew, one of only two Category Five hurricanes to hit the US mainland, which left insurers facing claims of 15.5 bln usd in 1992.
The changes in Katrina’s direction and intensity were good news for the insurance world, as most properties carry insurance that covers not only the cost of repairing them, but also the income lost when the facilities are out of operation, and any environmental damage resulting from their destruction.
Personal insurance lines losses will likely be quite high, especially in the property and auto lines. Business interruption and property are likely to take a substantial hit as well.
What does this mean for you?
Expect to see insurance prices spike. Reinsurers will have to cover their losses by charging more for excess coverage, driving up primary insurance costs. Primary insurers will have to not only increase prices to pay the higher reinsurance premiums, but to cover their losses as well.

This will be felt across all insurance lines, from workers compensation to homeowners to small business to directors and officers


CHOICE Awards for Workers Compensation

I’ve been hard pressed to keep up with the blog; seven days in Florida starting at the Florida Workers Comp Institute annual conference followed by a three day audit of a managed care firm is to blame. One of the biggest events at the conference was the third annual CHOICE Awards for excellence in workers compensation.
These awards are presented to physicians who exemplify the highest standard of care and demonstrate thorough understanding of workers comp and return to work while communicating clearly and effectively with all parties in the process.
Physicians are the key to effective workers comp and other medical programs.
They diagnose the condition, assess the patient, develop the treatment plan, write the scripts, schedule the imaging, refer for surgery, deal with managed care’s questions and requests for information, monitor progress, and remove obstacles.
In workers comp, docs also identify limits and restrictions, develop return to work programs, recommend job accomodations, coordinate with employers, assess relatedness, and cajole, badger, encourage, and push injured workers back to work.
Many docs do this despite the request from insurers that they perform these services for a “discount” below their list price or fee schedule.
The unfortunate thing is the CHOICE awards are one of the few efforts by payers to publicly recognize those physicians that outperform their peers. And it is not a few docs getting a black plastic award and handshake from an insurance company exec. Over 200 nominations were received, a rigorous judging process was conducted, and all finalists were invited to the banquet. (disclosure – CHOICE is a client).
The keynote speech was given by University of Miami president and former Secretary of HHS Donna Shalala. The sit down dinner was attended by 400+. The band played for each recipient and for all the guests before and after the awards.
And the award recipients deserved all of it.
What does this mean for you?
If you have yet to figure out that physicians are the most important contributors to the success of managed care programs, get with the program.


Aetna’s quality ranking of physicians

Aetna announced they will be offering a new health plan network option in northern California and the Central Valley that ranks specialists by several cost and quality indicators. The program, which goes by the unfortunate name of Aexcel, will only include those specialists that meet the Aexcel standards, and will be offered to larger self insured employers.
According to California HealthLine,
“Aetna evaluates them on factors including:
Number of hospital readmissions within 30 days;
Adverse events;
Adherence to clinical guidelines; and
Cost of care — adjusted for the severity of a patient’s illness — relative to the geographic area.
The health plan considers Aexcel specialists to be the top-performing in an area with regard to cost and quality. Employers can include Aexcel in Aetna’s non-HMO health plans, either as an option or a requirement.”
Kudos to Aetna for their courage – physicians who do not meet their criteria will undoubtedly protest, and some may have valid points. But the key is to start somewhere, and this is a great start. The best physicians deserve more business, and docs who underperform deserve less.
What does this mean for you?
More incentive to differentiate your health plan, or select a health plan, based not on a spreadsheet but on the value they deliver, defined as the plan’s ability to help you improve outcomes and costs.


Drug problems in workers comp

I spent most of Sunday and yesterday speaking at several sessions at the Florida Workers’ Comp Educational Conference in Orlando. Nothing like Orlando in August. Also on the panels were several physicians from Florida, Gerry Sander, a PharmD from Express Scripts, George Furlong of Choice Medical Management (a client), and Nancy Brennan of SRS.
Here are a few takeaways.
1. There are a relatively few physicians – my guess is less than 15% – who are problem prescribers. These are the ones who write scripts for Actiq (a narcotic that is only approved for break through cancer pain), Oxycontin in the first month of an injury, and massive doses of other opioids and narcotics. Most of the physicians in the audience were appalled at this prescribing behavior. One physician, Dr. Richard Dolsey of Miami, noted that of the many physicians in his group, and the thousands of patients seen each year, he could not recall a single script for either of these drugs.
2. Although their numbers are small, these “bad prescribing” physicians have an impact on cost that is disproportionally high – Oxycontin and similar pharmaceuticals are the most costly drugs in WC (they account for more dollars spent than any others.)
3. One of the biggest problems with these drugs is their potential for addiction. Once addicted, the addiction treatment becomes the financial and legal responsibility of the WC payer. Detox can be extremely expensive, is quite difficult, to say nothing of the human toll on the individual and their family. One of the physicians on the Sunday panel is a pain management doc – a Dr. Silverman – he recommended a relatively new detox therapy, suboxone, administered in a physician’s office that appears to work quite well with minimal side effects.
4. Physician education is seen as a long term solution or means of addressing drug costs in WC. However, I have my doubts – the entire drug spend in WC is about $3 billion this year, which is less than what drug companies spend on direct-to-consumer advertising. Significance? Hard to penetrate the consumer or physician mind when our resources are so limited.
5. That said, the industry can adopt data mining techniques to identify potentially problematic physicians, patients, or pharmacies and adopt educational approaches targeting specific problems. These should be educational and not confrontational in approach.
The gratifying thing about the two days was the dialogue, recognition of the extent of the problem, and willingness on the part of physicians and payers to address the issues.
What does this mean for you?
Drug costs are the fastest growing part of the WC medical dollar – and perhaps the hardest to address. Start by educating yourself on the problem, and realize that many physicians are doing the right thing, and only a few are problematic.
For articles specific to drugs in WC click here.

Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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