The LA Times’ Patrick McGreevy penned a piece on California’s State Fund – one that I contend is highly misleading.

McGreevy – and his editors – did their readers a disservice when “reporting” on executive compensation at the State Compensation Insurance Fund of California, focusing only on complaints about compensation and unsubstantiated claims of nepotism. Fact is, under CEO Vern Steiner, the State Fund has made a remarkable turnaround, one that has literally and figuratively paid dividends for businesses and taxpayers throughout the state.

McGreevy failed to mention anything about the Fund’s 2019 performance ($160 million in dividends paid to policyholders while significantly strengthening reserves) – performance he knew about before he wrote his piece.

Here’s an example of McGreevy’s reporting; an uniformed – at best – comment from one so-called “former industry executive”:

“It’s a very cushy gig…They don’t do much of anything and they get paid a ton.”

[Oh, and the guy who said that worked for a not-for-profit insurer – USAA – that paid it’s CEO 5 times what State Fund CEO Vern Steiner made. And the State Fund had a MUCH better year.]

But about that comment; specifically “they don’t do much of anything”.

I called Steiner to ask how the State Fund has delivered those results. Here’s what he said.

MCM – Talk about the Fund’s financial performance.
VS – ” [We] went into this year knowing that the Fund’s financial strength was exactly where California needed it to be to handle the market no matter what comes. Reserves are very strong; surplus is what we need to withstand any catastrophe; biggest risk is significant negative reserve development from unexpected system changes – we can handle this.”

“For 2019, we planned to break even, instead, investment performance was so strong that we realized $100mm in capital gains due to equity investment performance.”

MCM – What are the factors that drove this?
VS – There have been several transformative initiatives at the Fund, largely driven by claim performance and investment performance.

This could not have happened several years ago. A few years ago the State Legislature authorized additional executive positions at the Fund and allowed the Fund to invest in equity. We hired a Chief Investment Officer, and the equity investments have generated much more in unrealized cap gains. Our state insurance code only allows us to invest 20% of unrestricted surplus in equity; as our equity portfolio increased in value, it exceeded that 20%, so we had to sell off equity to get under 20%. This happened several times in 2019, creating a large capital gain. We didn’t need this money for surplus or reserves and we are not for profit, so we are giving them to our policyholders.

Since we were given the authority to invest in equities we have generated $433.8M in capital gains.

MCM – Has the Fund’s medical management of claims affected results?
VS – “The Chief Medical Officer position was also created by the Legislature. After Dinesh Govindarao came on board we created a comprehensive approach to the opioid epidemic; the work that was started in 2013 is impacting reserves for claims going back to 2008.  About $60 million dividend is from claims improvement…[there] may be as much as several hundred million more in dividends from our opioid initiatives alone.”

“After the Palm Medical case, we had not removed any physicians from our previous network, so we closed it down, rolled out a new network in 2016, and did not include physician offices in our pharmacy network.  That had a massive impact on lowering claim costs and reducing inappropriate compound medicine and opiate prescriptions.”

MCM – Any significant changes to claims handling?

VS – “When the Chief Claims Officer joined at the end of 2015 we redesigned the claim model to move the 1/3 of open claims that were from early 2000s to a dedicated group of adjusters specializing in resolution. We had (received) a million claims over a 5 year period [this happened back when the California work comp system was in crisis and the State Fund had over 50% market share]

In 2015 a third of our open claims inventory was from that period, managing these claims was taking a lot of attention away from focusing on the 20,000 new claims we get every year. We separated the old and new claims, have different people working those and as a result we are closing claims at faster rate than ever and this continues to improve.”

The result of all these people in “cushy jobs not doing much” is a State Fund that’s:

• never been stronger financially,
• returned $160 million to policyholders, and
• one of Forbes’ 500 best mid-sized employers to work for.
  [btw USAA – where that “former exec” worked, the one where the CEO makes five times what Steiner does – didn’t make Forbes’ list.]

What does this mean for you?

Kudos to the State Fund for delivering remarkable results for patients, policyholders, and taxpayers. 

Note – I emailed Mr McGreevy early today asking for an explanation as to his article didn’t include information re the improvements in financial and claim outcomes. If he responds I will keep you posted.

If the insurance industry – and your organization – is going to a) make real progress and b) survive the next hard market its/your leaders must reward those who take risks – not fire them. (this is a follow-up to my last post)

In order to do that, our “leaders” must understand the value of failing.

A C suite exec with decades of success in work comp claims and executive leadership sent me this:

the lack of innovation is as much about penalizing those with ideas as it is anything else.  Whether my own direct experience as an individual contributor or member of a team, or watching others, I’ve seen way too many ideas be dismissed out of hand, ignored, or simply not advanced because of a culture that is just too harsh when it comes to ‘failure’.  The industry has, generally speaking, failed to realize that great innovation often comes from failed innovation.  I can think of multiple executives I’ve worked for where I simply gave up on advancing ideas because of their reaction to suggestions from me and others.

An example.

One of our daughters works for a huge tech firm that does data storage, backup, and a lot of other stuff I don’t pretend to understand. Molly (daughter 2) and her team are responsible for some really big accounts, one a huge business application company. Long story short, the team is always looking for ways to provide increased value, deliver more services, and help the client grow. Her company was working on a new tech platform/capability/service, one which might help Molly’s client speed up its development cycle and improve service delivery.

This was new, not-tested, bleeding-edge stuff. The team debated if they should pitch it to their client, as there was a better than 50/50 chance it would not meet the objectives.

Throwing caution to the winds, they pitched the $15 million+ project to the buyer, telling the buyer that it would likely “fail”.

The client bought it.

She asked why, given it might well fail to deliver, which would mean her client blew $15 million, which might be pretty awkward for the decision maker.

Nope – the client said there was every reason to go forward.

First, it might actually work, which would dramatically improve a couple key metrics;

Second even if the project “failed”, it would be well worth it because the client would:

• gain really valuable experience and insight into new technology;
• improve the client’s ability to implement new and unique technology; and
• help Molly’s company get better faster, increasing her company’s value as a partner.

Yeah, I can hear all the reasons this is fine for tech but not for workers’ comp. But those aren’t reasons – they are excuses – and lame ones at that.

Tech can do this because they have a lot more money than we do.

BS.  The work comp industry is making more money now than it ever has – there’s never been more dollars available for innovation.

We are doing great now, so no need to do anything different (if it ain’t broke…)

BS. The time to prepare for the storm is when the sun is shining, because sure as hell you won’t be able to patch that roof during the inevitable hail storm.

We don’t have the ability/expertise/employees we need to innovate.

And…whose fault is that?

You need to build a culture that rewards smart failure, that values innovation – which by definition includes failure, that is excited about doing stuff better, faster, and more efficiently, that recognizes risk-taking as critically important to growth in revenues and margins.

That’s the single most important change we need to make – and those who do will win.

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.

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.