Insight, analysis & opinion from Joe Paduda


Notes on Mr. Greenberg’s departure

Hank Greenberg is gone from AIG; or at least, gone from part of AIG. It is not yet clear what his role will be at CV Starr and other entities that have significant influence over AIG’s operations, executive compensation, and other key matters. My bet is the association will not be long-lived.
His resignation letter is public; it does not say anything surprising (it was, after all, crafted by his attorney). What will be much more interesting is what the Board does after Mr. Greenberg’s departure, and if they adopt the oft-used strategy of blaming everything on the departed.
Not that Mr. Greenberg isn’t primarily responsible for any wrongdoing on his watch; especially in today’s post-Sarbanes-Oxley world he is certainly legally, as well as ethically liable. However, the other Board members also bear responsibility. I would not be in the least surprised if there are additional changes to AIG’s Board in the near future.
Clearly, Greenberg dominated the company through his force of will, intense, brutal management style, brilliance and overwhelming ambition; my few brief meetings with the man did not leave me with any desire to make them a regular event. That said, he built the most successful insurance company on the planet. Those two factors make it both unfair and inappropriate to fault the Board, or anyone else, for their apparent inability or unwillingness to prevent Greenberg from crossing the line into (apparently) unethical or inappropriate stock manipulation.
What does this mean for you?
If you are stockholder, who knows. (I used to be, until last week.) It is all too easy to look back and say should have, would have, but in today’s Spitzer-Sarbanes/Oxley world, all managers may want to re-examine their business practices to ensure they are not even close to, much less over, the ethical/legal line.


HMO enrollment and open access

The backlash against managed care did not reduce HMO enrollment in the late nineties. Although there was a lot of “talk about backlash


AIG’s other challenges

While AIG is publicly wrestling with the big issues of what to do about ex-Chair Hank Greenberg, questionable financial transactions, and its plummeting stock price, it also has a few managed care and claims functions that need to be addressed.
Tops among these is the fallout from consolidation of medical bill processing (for workers comp) from the individual claims offices to two central locations in Georgia and Kansas. While the move has been completed, there appear to be significant issues related to bill processing accuracy and timeliness that have yet to be resolved.
Some of this is to be expected, as moving operations, starting new offices and hiring new staff is bound to create a learning curve. However, it appears that the learning curve is quite a bit longer than providers or regulators are willing to tolerate. A/R issues abound, and sources indicate the centers are inundated with calls from providers seeking information about long-overdue bills. Early reports were that there were problems with the new bill review system’s (implemented last summer) impact on productivity; this is getting better as staff learn the system and fixes are implemented.
AIG has never been known for its claims-paying speed or investments in technology, preferring to focus on underwriting and creativity in identification and exploitation of business niches. It has been the best in the business at the tasks it has chosen to pursue, but will need to direct some of its considerable talent to the basics of bill processing if it is to achieve even average status in that critical area.
What does this mean for you?
Plan transitions carefully, as the old saw goes, “if you don’t have time to do it right in the first place, what makes you think you’ll have time to fix it later”.


Access v. Cost

For consumers, managed care is a choice between limited access to providers and premium costs; the greater the access, the higher the premium; the more limited the choice of providers, the lower the premium. In the late nineties, the so-called “managed care backlash” occurred when cost increases moderated, and consumers demanded access to any provider.
This spawned the “open access” HMO model, tiered benefit plans, and the explosion of PPOs. Now, with costs once more on a double-digit inflation path, there appears to be more willingness on the part of consumers to trade access for lower cost.
The Center for the Study of Health System Change released a national report entitled “More Americans Willing to Limit Physician-Hospital Choice for Lower Medical Costs“.
The Center reported that “Between 2001 and 2003, the proportion of working-age Americans with employer health coverage willing to trade broad choice of providers for lower out-of-pocket costs increased from 55 percent to 59 percent


Medicare drug program to cost states $$

In a posting on, John Rodat has written an excellent summary of the unintended (or perhaps not…) consequences of the Medicare Drug program. Namely, and I quote…
–“Lots of Medicaid clients are also Medicare clients.
–Lots of these “dually eligible” folks are sick and use lots of pharmaceuticals.
This is especially so for those in nursing homes
–So when the Federal government created the new pharmaceutical benefit, it recognized that it would be paying for drugs that were previously being paid for under Medicaid. That would simply have shifted the cost from states to the Federal government
To offset that effect, the new law includes a provision (tenderly called the “clawback”) that establishes a formula by which the states pay the Federal government.”
And, this formula may well cause some states to pay the Feds more than they gain from the Medicare Drug program…
Kudos to Mr. Rodat for his insight.
What does this mean for you?
More supply-fueled demand for drugs means higher total Rx costs.


Blog News

In response to inquiries and questions re “what does this mean to me and my job/company/business?” I’ll be adding a “what does this mean to you” statement at the end of some postings.
I recognize that “you” may not (and will not) apply to all readers, but I simply don’t have the time to respond to all individual inquiries re “so, what are the implications of pharma pricing/California managed care laws/Medicaid/CorVel financials/etc. for my company/business plan/employee benefits plan/future costs?”
Feel free to continue to send questions etc and I’ll get to them as time allows. If I don’t respond with a lengthy message, don’t interpret that as a lack of interest.


Taxation of health benefits

The Presidential Panel on Federal Tax Reform heard testimony from two economists that “federal tax subsidies to employers and employees for health insurance, flexible spending accounts and new health savings accounts do not promote the expansion of basic health coverage and increase the number of uninsured residents.” (source California HealthLine)
The Panel, chaired by ret. US Sen John Breaux (LA) is working to assess the impact of the Federal tax deduction for health care benefits, which amounts to a $188 billion subsidy today and will reach $250 billion “in several years.”
The reasoning behind the testimony and hearings lies in the apparent disconnect between the subsidy and it’s impact on the uninsured. Simply put, higher income individuals benefit from the subsidy, while lower-income people are more often uninsured as their employers do not offer the benefit, they are marginally employed, or cannot afford their employer-sponsored coverage.
To address this disconnect, one of the economists testifying recommended “limited subsidies for health insurance in combination with refundable tax credits to help low-income and uninsured residents purchase coverage.”
Why is this important to you?
The President has promised to halve the Federal deficit over the next four years, and huge subsidies for health insurance are likely to be a leading target. The perception in Washington is that the subsidy works to minimize individuals’ concern about and focus on managing their health care; think “ownership society”.
If Bush is truly committed to deficit reduction and the ownership society, health insurance tax benefits are a likely target.


Medicaid Round Four

The Senate and House have very different ideas of what to do with Medicaid in coming years; this difference of opinion may deadlock the two bodies on overall budget negotiations.
Briefly, the Senate passed a budget with no cuts in Medicaid funding; the House version has $20 billion in budget reductions. The latest news indicates the Senate may be willing to compromise, but conservatives in the House appear to be less interested in restoring the funding the Bush Administration has axed from Medicaid.
As reported in California HealthLine;


Prescription Drugs in Workers’ Comp

HSA has completed the Second Annual Survey of Prescription Drug Management in Workers’ Compensation.
Respondents represented a wide range of payers, with annual prescription drug spends ranging from $772,000 to $156 million. Total estimated drug costs provided by the respondents amounted to $645 million, approximately 18% of the annual total workers’ compensation drug spend. Together, the carriers participating in the survey represent 35% of all private-payer workers’ compensation insurance in the United States.
If anything, awareness of this problem has grown significantly over the last year. In fact, 20% of respondents, mostly from larger payers, indicated that prescription drug costs were “much more” significant than other medical cost issues.
The results of this survey indicate a significant awareness of the importance of prescription drug costs in workers’ compensation, a focus on PBMs as the primary solution, but a lack of distinction among the PBMs themselves. Clearly, the workers’ compensation industry is looking for solutions that emphasize customer service, utilization control, seamless processes and assistance in working with and educating payer staff and their customers.
There is also a rapidly growing recognition that the treating physician is central to addressing this issue. This recognition has grown dramatically over the last year and although there is not consensus on how to address the issue, there is no mistaking the level of interest in doing so.
Copies of the Survey Report may be obtained by emailing me at


Vioxx lawsuits

Merck announced last week that almost 1400 lawsuits have been filed related to Vioxx to date. Many of these have been consolidated in US District Court in New Orleans, including over a hundred that are class-action suits.
Over 20 million Americans have taken Vioxx, and Merck expects the volume of lawsuits to increase substantially.
In comparison, Wyeth Labs’ “Fen-phen” diet drug has resulted in over 60,000 lawsuits as the company has reserved over $21 billion to cover the litigation.
Source Insurance Journal

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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