Category: General Insurance Issues

Feb
20

Iraq’s impact on insurers

Posted by Joe Paduda on Monday, February 20th, 2006 | Comments

The continuing strife in Iraq and Afghanistan and its effect on the insurance and employer communities is the subject of an excellent monograph by Robert Hartwig of the Insurance Information Institute. Hartwig notes as the returning veterans are reintegrated into the working community, employers will face challenges addressing the needs of vets with physical and/or mental health problems resulting from the conflict.
The Americans with Disabilities Act requires employers to make reasonable accommodations for employees with disabilities. And, with over 15,000 servicemen and women injured to date, and about 30% of all troops serving in these areas citizen soldiers – either from the National Guard or Reserves – many will come back to employers who will need to address their unique circumstances.
The impact may well have a significant impact on workers compensation. According to Dr. Hartwig, workplace claims arising from injuries suffered during these conflicts will be covered by workers compensation insurance. Many of the states have shut down their Second Injury Funds, financial pools designed to cover injuries arising from previous claims. Now, with these funds disappearing, the financial liability for claims related to wartime injuries will be the responsibility of workers comp insurers and self-insured employers.
Taking into account the Pentagon’s plans through 2009, present troop levels and injury rates, Hartwig predicts more than 60,000 wounded troops will be returning from Iraq and Afghanistan.
What does this mean for you?
A “hidden tax” on insurers, adding to the total cost of these conflicts.

Feb
17

apologies for the multiple notices

Posted by Joe Paduda on Friday, February 17th, 2006 | Comments

several recent posts have inadvertently been sent out multiple times to subscribers. No, I’m not that persistent – looks like a new software/IE glitch that I just figured out.
Changing over to a new version of the posting software shortly; manual fix in now and the new version should fix it.

Feb
6

Medical Malpractice – crisis, what crisis?

Posted by Joe Paduda on Monday, February 6th, 2006 | Comments

An excellent review of the realities and myth behind medical malpractice is on Kate Steadman’s Health Policy blog. The series of posts are a sort of book report on Tom Baker’s The Medical Malpractice Myth.
I’ve posted on med mal before, as has Ezra Klein – both using the article published in Health Affairs last year as the basis for the posts. But Kate’s is the best rebuttal of the myth I’ve come across.
What does this mean for you?
Medical malpractice insurance is NOT a meaningful contributor to health cost inflation. Medical errors certainly are – remember to distinguish between the two.

Feb
2

AIG, General Re face Federal charges

Posted by Joe Paduda on Thursday, February 2nd, 2006 | Comments

A potential legal blockbuster involving top executives at General Re and AIG was disclosed in today’s New York Times. According to the Times’ report, three former top executives at Berkshire Hathaway’s General Re subsidiary and the former head of AIG’s reinsurance operation are to be charged today with civil and criminal complaints stemming from AIG’s alleged use of improper financial transactions to boost reserves.
The charges have been brewing for months, and are among the most serious offenses that emerged from NY Attorney General Eliot Spitzer’s investigations into AIG. Of note, unlike previous charges which were filed at the state level by Spitzer and other state attorneys general, the complaints will be filed at the Federal level by the US Justice Department and the SEC. The reason is these charges are related to stock manipulation, a Federal issue.
At the risk of way over-simplifying the situation, it appears that AIG and General Re are charged with entering into a financial transaction designed to artificially add $500 million to AIG’s reserves in 2000 and 2001. However, the transaction did not meet the legal test necessary to qualify as an insurance policy, and was actually a loan. Why is that important? Unlike a straight insurance claim that transfers cash based on a legal claim from the insurer to the policyholder (your house burns down, the insurance company sends you a check for $400,000), a loan counts as a liability on the balance sheet (you take out a mortgage on your house for $400,000) (and the cash proceeds count as an asset).
This is not just a one-and-done thing, as it appears AIG and its chairman engaged in an ongoing effort to pump up the balance sheet, smoothing out earnings to keep the stock price heading ever upward.
This particular part of the mess arises out of the allegedly fraudulent accounting for the policy/loan. The deal served to make AIG’s financial statements appear stronger than they actually were. It appears this was an attempt to manipulate AIG’s stock price, a charge that has been levied against Hank Greenberg, the ousted chairman of AIG.
General Re is owned by Berkshire Hathaway, whose chairman Warren Buffett was not aware of the nature of the transaction. There are back and forth claims about what he knew and when he knew it, but the Times article is pretty clear that Buffett’s participation was likely after the fact and did not cross the line into illegal activity.
What does this mean for you?
The insurance scandals just will not go away, and this announcement means they’ll be with us for a while.

Jan
29

HSAs – what’s the point?

Posted by Joe Paduda on Sunday, January 29th, 2006 | Comments

There are several missing points in the ongoing debates about HSAs.
1. Much of the adoption of HSAs has been due to employers eliminating their other plans in favor of CDHP-HSA plans. So, the argument that individuals are jumping on the bandwagon is a little disingenuous.
2. Employers are dumping their regular plans (well, a few are, most are not) because they can’t afford to buy health insurance for their workers any more. And a big part of the reason they can’t is because of cost-shifting from the uninsured to the insured. The uninsured get care, they just don’t pay for it. see https://www.joepaduda.com/archives/000395.html for more on this.
3. The larger employers who are offering HSAs are seeing very low adoption rates. IBM has been offering them for over two years, and less than 3% of eligibles have signed up.
The real issue is how much drag on the US economy is a result of our present funding mechanism for health care. Clearly health care costs play a role in the industrial competitiveness of US companies; the HSA-CDHP debate merely clouds the overall issue – if we don’t get our act together we will get our economic butt kicked.

Jan
25

Immigrant workers issues

Posted by Joe Paduda on Wednesday, January 25th, 2006 | Comments

Friend and colleague Peter Rousmaniere has started a new blog dealing with immigrant worker issues. Peter is a well-known author on all things workers comp, occupational health and safety, and an insightful critic at large.
One of Peter’s more troubling findings is the tendency of alien workers to not report occupational injuries or illnesses. With the large number of immigrants working in the US today, and the well-publicized decline in the occupational injury rate, I’m wondering if there is a relationship between the two.
Are migrant workers replacing citizens, then getting injured and not reporting it, thereby artificially reducing the reported injury rate?
Anyone?

Jan
9

TRIA extension provisions’ impact

Posted by Joe Paduda on Monday, January 9th, 2006 | Comments

The extension of the Terrorism Risk Insurance Act was met with lukewarm enthusiasm by the insurance industry, for good reason. However, it was likely the best that could be obtained given the strong political desire on the part of Congress and the Administration to mitigate the Feds’ risk.
There have been significant changes to TRIA, which will be in place through the end of 2007. Here are a couple of the key provisions and the impact of same.
1. In 2007 the insurance industry’s “deductible” will increase to 20% of direct earned premium from 17.5%. The result – more risk at the insurer level.
2. The share of the risk that the government will take will also decrease from 90% to 85%.
Modeling done by Risk Management Solutions indicates that the World Trade Center attacks, which produced a loss of $32.5 billion, would result in minimal funding through TRIA if they occurred under the 2007 provisions.
The “good news” is RMS predicts there is less than 10% likelihood that any one attack would produce a loss of this size.
What does this mean for you?
There are two components to claims costs – frequency and severity. While all of us fervently hope that no attacks occur, the realists among us are more

Dec
24

Farewell 2005

Posted by Joe Paduda on Saturday, December 24th, 2005 | Comments

I’m on holiday tomorrow thru the end of the year and will be taking a break from blogging till 2006.
Thanks to all who have made this a great year for Managed Care Matters. We’re up to 6000 unique visitors per month and growing 15% each month. We’ve generated a lot of comments, a good bit of controversy, and some enlightened discussion.
Managed Care Matters appears to be one of the few, if not the only, occupant of the blogosphere dedicated to managed care. That’s strange, if not downright wierd. The managed care industry is one of the largest in the US, is growing rapidly internationally, and has tremendous implications for the economic and health status future of the country.
So why aren’t there more blogs on managed care? Lots of possible reasons, but there is clearly a need for more dialogue, discussion, and intelligent perspective.
I would encourage anyone with a bit of time (it doesn’t take much), a knack for writing, and valuable insights to start a blog on managed care. Once you are up and running, let me know and we’ll look at linking to you.
If you are looking for help, advice, and assistance, talk to Julie Ferguson (julie@julieferguson.com) She is the brains behind the tech stuff here; besides being a great writer she is expert in the blog business.
Enjoy the holidays and see you in 2006.

Dec
21

Case’s strategy for Revolution Health

Posted by Joe Paduda on Wednesday, December 21st, 2005 | Comments

There is an excellent interview with Revolution Health’s Steve Case in Fortune that sheds light on Case’s ideas, plans, goals, and thinking about health care. His motivations are classically entrepreneurial – personal experience with a sibling wrestling with cancer, a desire to get back into a meaningful work after several years of volunteer work and “shuttling five kids to soccer practice in his Lincoln Navigator”, and the perception that the health care system is broken and he can fix it, and make money doing so.
Loyal readers know I have been less than impressed with Case’s strategy, team, and acquisitions to date. While I admire the audacity, I question the judgment. Take the business plan. According to Fortune;
“John Pleasants, whom Case installed as chief executive of the health group in September, says selling subscriptions to consumers and ad space to companies will be two big revenue streams. But Revolution also hopes to make money by doing everything from reselling health insurance policies offered by other companies to charging consumers for online doctor visits.”
Hmmm. WebMD, MedScape, Aetna, Anthem, and about a hundred other companies are already providing lots of medical and health-related content, mostly for free. And selling ad space too.
There are lots of companies selling insurance policies (we in the industry don’t call it “reselling”, it is actually acting as a “broker”) from your neighborhood agent to Allstate to AARP to UnitedHealthGroup to Blues Plans. Tough competitors too.
On-line doctor visits could theoretically be a revenue stream, if the doctor is a member of a network contracted with the payer, and if there is some mechanism to bill, pay, transfer funds, and adjudicate the “claim” quickly efficiently and accurately. Certainly this can be done, but a very large, Kong-size hurdle will be to convince physicians that they should participate in such a scheme with a tiny player like Revolution. This is theoretically possible, but when Anthem, Pacificare, and other large payers struggle to get docs to use their electronic systems, it makes it difficult to see how Revolution will succeed.
Again, I admire his vision, but the naivete can be breathtaking. For example, Case is quoted as saying “The healthcare system will be fundamentally different. It has to be. It’s not working.”
Steve, it has not been working for decades, and just because it is so obviously broken does not mean it will get fixed any time soon. See Africa’s economies, the Middle East, the World Health Organizations’ efforts on AIDS, polio, and river blindness, drug addiction – all very big problems that are very difficult to solve that have blunted the lances of all who have attempted to date.
Thousands of very smart people with lots of cash have tried to change the health care system (see Bill Clinton), and some are actually starting to have some verifiable success (see Kaiser for their work on electronic medical records, Aetna for educating insureds on procedure costs and premium expenses specific to their conditions). The difference is these change agents enter the fray with a deep and broad understanding of health care, providers, cost drivers and outcomes. They know health care financing and the root causes of health care inflation and patient satisfaction. They have large footprints and strong brands. And resources that make Case’s $250 million look like chump change (Kaiser has already invested several billion dollars in its electronic medical record initiative alone

Dec
6

Employer-based health insurance

Posted by Joe Paduda on Tuesday, December 6th, 2005 | Comments

There continues to be an ongoing discussion in this country regarding who or what entity should be responsible for providing health insurance. The ends of the spectrum are the strong conservatives/libertarians who are in favor of total individual responsibility for paying health care costs; at the other end are the strong liberals who favor single payer, universal coverage funded and mandated by the government.
In reality we have a “hybrid” system, or perhaps more accurately a mish-mash of individual coverage, employer-based insurance, governmental programs and tax-payer and employer-subsidized care for the uninsured (although this takes the form of a hidden tax).
The reality is we have universal coverage funded by individuals, employers, tax-payers, and providers. Everyone has access to care, although some do not have access to the same level of care or the same providers.
For working age Americans, most insurance coverage is provided through their employers. Although there has been a trend towards fewer employers offering coverage (60% in 2005, down from 69% in 2000), in general larger employers and those with average annual employee earnings above $21,000 tend to offer health insurance.
And the latest information is that this is not likely to change anytime soon. While national health insurance provided by the government would certainly help manufacturing companies such as GM and Ford, there does not appear to by any traction for other funding mechanisms.
An article in the New York Times on employer-based health insurance focused on this issue, and is well worth reading. One passage reads:
“What is also clear, though, is that there are no clear alternatives. Corporate executives and many others are leery of a government solution, but no one has come up with a private-sector option that has gained significant support. Because individuals who buy private insurance on their own pay much higher prices than the group rates employers get, many people could probably not afford health insurance if their employers were not buying it for them.”
The present political climate makes it unlikely that any nationalized system will emerge in the near term. Until and unless large employers, and the middle class, feels pain, there will be no change. That said, my sense is we are approaching that point. With the percentage of employers offering health insurance declining by nine points in five years, more and more soccer moms will soon be directly impacted by this trend. This is a powerful and vocal demographic that will make its presence felt.
What does this mean for you?
Change is coming; the next Congressional election will indicate how soon and provide some hints as to the direction of the health care debate.