There is a big PR problem brewing, one receiving very little attention in the media or in industry publications. It's one I think will resonate among those who typically support the politicians who supported the Affordable Care Act. The issue stems from the delay in the 1094/1095 reporting under section 6055 and 6056 of the IRS code specifically created under the Affordable Care Act. In English: This is the reporting requirement for carriers and employers that lets the government know if an offer of coverage was made to a particular employee, if it met certain requirements and if it was “affordable” according to one of several calculations set forth by the bill. If an “applicable large employer” does not report or does not meet the minimum requirements for coverage and affordability, there are serious fines at play. The deadline for the first reports, barring any further delays, is March 31.  (The initial deadline was pushed back because of the burden on employers.) Why is this important? Well, Obamacare established subsidies to help reduce out-of-pocket costs. The subsidy amount is based on household income in relation to the federal poverty level. Your job also must not offer insurance that meets the requirements about the base level of coverage and affordability. Without employer reporting, however, the government has, thus far, relied on individuals' assessments of coverage and affordability. Even if the employer plan meets the affordability test, most people would still call their plans through their employer “unaffordable.” The confusion is compounded by something the industry refers to as the “family glitch.” Let’s say I am offered coverage at my job, and my employer pays 80% of the premium for me. But my employer pays nothing toward the cost of carrying my dependents, an all-too-common scenario. This coverage would likely meet the affordability test for my coverage alone, on the lowest-cost plan my employer offers. If my employer pays nothing toward my family, however, it could easily cost me $1,000 or more per month out of my pay to cover my family. That's clearly not affordable to most Americans, but, because my coverage met the test, the entire household becomes ineligible for a subsidy. You could have hundreds of thousands of people who honestly believed their coverage was not affordable, didn’t think their employers plan met the coverage requirements or outright lied because there appeared to be no one checking. These people received what could amount to significant subsidies they weren't entitled to. Technically, they received an advanced tax credit. If it is determined you were not eligible for that tax credit, you now have a liability, and it is widely believed the IRS will have the right to garnish wages, freeze assets and place liens on property. How much are we talking here? Well, I have seen subsides as big as $1,500 per month. The average is around $2,890 per year, per person (according to the Kaiser Family Foundation). So, if a family of four owes the entire year back at the average subsidy, we are talking more than $10,000 a year plus (most likely) penalties and interest from the IRS. What is the average working person going to do if he gets a demand for $1,000 from the IRS? $10,000?  More? And if the IRS exerts the same force it does on normal tax debts, things such as frozen bank accounts, liens and garnished wages could follow pretty quickly. All in all, this reporting we are now preparing for employers will likely have significant financial impact on many American workers who should not have received the subsidy to begin with. In all likelihood, many did not fully understand that. The timing of all this will largely depend on how quickly the government aggregates the data it is collecting from numerous sources. But get ready for what I believe will be a vocal, angry and desperate group of people with compelling stories facing a very difficult financial situation.

The first three articles in this series by David Toomey and me are here, here and here. Over the last few years, the buzz in the healthcare industry has been about accountable care organizations (ACOs), and the next wave will be the promotion of “value-based contracting.” These are similar approaches, different words. Generally, an ACO is formed around a physician group or a hospital linked to physicians. The basic concept is for the provider system to be accountable for patients, with the providers financially motivated to affect their patient population’s overall costs. Makes sense, right? For the past 25 or so years, physicians have been linked to independent practice associations, medical groups and management services organizations. Many of these provider organizations have had financial incentives tied to performance. Data have been available to assess physician performance. So, what’s different now? Today the Feds are re-emphasizing performance in their physician contracting under the new Medicare Access and CHIP Reauthorization (MACRA), which replaces the current reimbursement formula. Beginning in 2019, the existing incentive programs now used for Medicare physicians will be replaced by a new performance-based model with four components. Those components are 1) quality, 2) resource use, 3) meaningful use of technology and 4) clinical practice improvement. Based on the Medicare physicians’ results, the reimbursements can be decreased by as much as 4% (adjusting to 9% by 2022). The program will have upside incentive for achieving exceptional performance of as much as 12% in 2019. As the largest purchaser, Medicare is striving to establish per-unit cost consistency in every market. Yet Medicare’s 2014 costs vary from $6,631 to $10,610 across markets. Why? Even if the cost per unit of service is standardized, extremely wide variation exists in how patients are treated for given conditions. When wide variation in care plans exists, some are right and some are wrong, as regular readers of Cracking Health Costs know. Some are better, and some are worse. Period. It’ll be interesting to see if the four new performance measures under MACRA will have a better impact than what’s in place today. Self-insured employers don’t need to wait four or five years to see the results. They can leverage their purchasing scale with the providers to drive out both inappropriate care and unit price variations. The time to start is now.

Spear phishers continue to pierce even well-defended networks, causing grave financial wounds. Spear phishers lure a specific individual to click on a viral email attachment or to navigate to a corrupted Web page. Malicious code typically gets embedded on the victim’s computing device, giving control to the attacker. A recent survey of 300 IT decision-makers in the U.S. and the U.K.—commissioned by threat-protection solutions provider Cloudmark—found that a spear-phishing attack penetrated the security defenses of more than 84% of respondents’ organizations. Free resource: Planning ahead to reduce breach expenses Spear phishing continues to turn up time and again as the trigger to massive network breaches, including widely publicized attacks on JPMorgan Chase., eBay, Target, Anthem, Sony Pictures and the U.S. Office of Personnel Management. “Criminals have achieved high success rates with spear-phishing attempts, and that success is breeding even more attempted attacks,” says Angela Knox, Cloudmark’s senior director of engineering and threat research. Angela Knox Respondents to Cloudmark’s survey said that, on average, their organizations lost more than $1.6 million from spear-phishing attacks during the 12 months before the survey. Spear phishers install malware, seek privileged access accounts and scour breached networks for confidential business plans, information about current negotiations and other valuable data. And the attackers are in a position to manipulate, disrupt or destroy systems. Related video: CEO fraud caper nets $450,000 Attacks on banks, credit unions and professional services firms that help conduct financial transactions often focus on persuading employees to wire money to the phishers’ accounts. “Even if the money can be recovered, it takes time and effort to recover it,” Knox says. “In one high-profile incident, a company lost $46.7 million due to email spoofing.” Resist oversharing One reason spear phishing persists is because people reveal a wealth of personal and behavioral data on the Internet. Attackers tap this information to profile victims and create email and social media messages crafted to appear to come from a trusted source—in a context that puts the targeted victim at ease. The end game: Get the person to open a viral email attachment or click to a malicious Web page. “Everyone is now a target, and users can no longer depend on spelling mistakes or random scams,” says Chester Wisniewski, senior security adviser at antimalware vendor Sophos. Peter Cassidy, secretary general of the Anti-Phishing Working Group, an international coalition fighting cyber crime, says spear phishers in recent years have gone to greater depths in focus and planning. Peter Cassidy “These days, it’s not uncommon to see an attack that targets specific personalities for their access within an enterprise and loads a malware payload to execute an exploit that will open a pathway the attackers are waiting for—and will use to gain access to data they prize,” Cassidy says. “Talk about orchestration! Stravinsky and these guys would have a lot to talk about.” Employees part of solution A primary defense is to continually train employees to be vigilant, and a cottage industry of training services and technologies has arisen in recent years to assist companies of all sizes. But even trained employees remain susceptible to sophisticated trickery. Nearly 80% of organizations surveyed by Cloudmark reported using staff training to prevent attacks. Of organizations that test their employees’ responses to spear-phishing attacks, only 3% said that all employees passed. Respondents estimated that 16% of staff members failed their organizations’ most recent spear-phishing tests. “Humans are flawed,” Wisniewski says. “You can never stop spear phishing entirely,” because “it is not a technical problem that can be solved.” It’s human nature for employees who spot something wrong or who believe they may have been tricked to hesitate reporting the incident. Yet quick reporting is a key to remediation. “Accidents happen, but detection and remediation are more successful the less time the criminal has to take advantage of your errors,” Wisniewski says. This post was written by Gary Stoller.

Sometimes other drivers can make you crazy. Maybe you’ve gestured to boneheaded motorists, safe in the anonymity of your car and the flow of traffic. Perhaps you’ve let your anger at other drivers get the best of you at times because there’s no one else in the car to judge. But State Farm is on the case. It has developed plans to monitor your every move while you’re driving, measure your emotions, detect angry behavior and deliver stimuli such as music to calm you down. The plans, as revealed in a patent application, would combine biometric measurements with automotive data to create a “total impairment score” that could be used to set customized car insurance rates. “Every year, many vehicle accidents are caused by impaired vehicle operation,” State Farm says in its application, recently filed with the U.S. Patent and Trademark Office. “One common kind of impaired vehicle operation is agitated, anxious or aggressive driving.” Are you sweating, yelling or waving your arms while you drive? State Farm’s “emotion management system” would use a variety of sensors and cameras to monitor your biometrics, including:

• Heart rate
• Grip pressure on the steering wheel
• Body temperature
• Arm movement
• Head direction and movement
• Vocal amplitude and pattern
• Respiration rate

The system could use “infrared optical brain imaging data” to get deeper inside your head. State Farm might even know if you’re giving the evil eye to another driver: Measurements include gaze direction and duration, eyelid opening and blink rate. And impaired driving is not confined to angry and aggressive drivers. State Farm also would consider nervousness, distraction and drowsiness. Other sensors would keep track of your vehicle: Are you swerving, accelerating or driving too close to other objects? [Compare car insurance quotes through NerdWallet’s Car Insurance Comparison Tool.] Smell this and calm down If you are “emotionally impaired” – as measured by State Farm, not your spouse – the patent-pending system would select and deliver stimuli to change your behavior. The patent application outlines a variety of options, including relaxing music, a recorded message, sounds of nature, fragrance or a blast of cold air. The system might even suggest you stop at a coffee shop or scenic overlook. Robert Nemerovski, a licensed clinical psychologist in the San Francisco area and an expert on anger management and road rage, was skeptical about State Farm’s patent. He questioned whether an automated system could be sophisticated enough to account for the unique characteristics of individual drivers. “I would be concerned about individual differences: people on medication, the elderly vs. the young,” he said. “Maybe they have PTSD, or they’re in recovery from a heart attack. [State Farm] would need to know nuances of human behavior and human bodies.” In addition, “People don’t want someone patronizing you or telling you to calm down. I’m not sure it would be successful psychologically because it would be rather annoying,” he says. State Farm envisions an “emotion management system” that goes beyond just monitoring behavior. The system would store profiles for each driver so, for example, it would learn which music might reduce your hard braking or persuade you to stop tailing the car in front of you. This might spell an end to your loud music. Each time you end a trip, the State Farm system would analyze the data and update your impairment score, which you could check on your mobile device. Because the purpose of the patent application is only to describe the system, it leaves many unanswered questions, including:

• How much would it cost per vehicle?
• Who would pay?
• How often would you have to refill your fragrance containers?

State Farm, the nation’s largest car insurance provider, declined to comment on specifics of the patent application but provided this statement to NerdWallet: “State Farm is actively innovating in a number of areas that are important to improving how we meet the needs of our customers. The patent  . . . is just one example of State Farm’s innovation. Because of the nature of our innovation work and patent program, we are unable to provide further comments at this time.” Angry about car insurance bills, too? According to the application, State Farm is considering applying the “comprehensive impairment level” to car insurance in several ways, including:

• Adjusting your insurance rate, up or down.
• Requiring you to buy a minimum amount of auto insurance, or limiting how much it will sell you.
• Offering you a discount for using the system.
• Flagging your policy for possible cancellation.

While State Farm’s plans may never be implemented, the carrier clearly has many ambitious ideas about monitoring customer behavior, such as its previously described ideas to price car insurance by the trip and deliver targeted ads based on where you drive. Many consumers aren’t aware that auto insurers are preparing to unleash a tsunami of such services based on telematics, systems that track your car and driving habits. Progressive was the first to enter the space and dominated it for a while with its Snapshot usage-based insurance program. “Other big auto insurers don’t want to be in second or third place again,” says Donald Light, director of North America property/casualty insurance for Celent, a research and consulting firm that focuses on information technology in financial services. “I believe in about five years it will be a standard part of an auto insurance policy,” Light says.  “Insurers will say, ‘If you don’t want to use it that’s fine, too, but we’ll charge you based on not having it.’” Light sees one large hurdle to State Farm’s emotion-management plan: The company will have to convince state insurance regulators that the emotional impairment scores accurately reflect risk. “The key qualifier is that these kinds of data have to make actuarial significant difference in the ‘risk’ of different drivers,” Light says. For example, if State Farm wants to charge more based on driver agitation, the company will have to prove that agitation causes crashes. Nemerovski says State Farm’s emotional management system might appeal to millennials, who are comfortable with the idea of measuring physical and other metrics so they can be improved. “But I don’t think people would want it to be shoved down their throats,” he says.

Please join me for “Path to Transformation,” an event I am putting on May 10 and 11 at the Plug and Play accelerator in Silicon Valley in conjunction with Insurance Thought Leadership. The event will not only explore technological breakthroughs but will explain how companies can test and absorb the technologies, in ways that then lead to startling (and highly profitable) innovation. My son and I have been teaching these events around the world, and I hope to see you in May. You can sign up here. “I don’t care if you have to take drugs, you have to build it in six months,” said my boss, Khurshed Birdie, when I told him that he was on drugs if he thought my team could create a software development tool set in less than three years. This was in 1986 at Credit Suisse First Boston, one of New York City’s top investment banks. We were rebuilding the company’s trade processing systems to run on a client–server model of computing. This technology is common now, but then it was as futuristic as “Star Wars.” My team worked day and night to build a technology that became the foundation of the company’s information systems. It gave Credit Suisse First Boston a competitive edge and led IBM to invest $20 million in a spinoff company that was formed to market the tools we had developed. I was a lowly computer programmer, an analyst when Birdie hired me, a computer geek who didn’t own any three-piece suits, white two-ply cotton shirts or wing-tipped Oxford shoes — the uniform of investment bankers. Yet I was hired on the spot. I had some far-out ideas about how computer systems could be built but didn’t believe for a second that I could implement them. My boss did: He believed in me more than I did, and he bet a $100 million project on my vision. He allowed me to expand my team from four to 54 people and shielded me from criticism by other teams who had to use my tools to build their systems — and who thought I was crazy. There were a lot of problems along the way, and Birdie allowed me to learn from my mistakes. And then he promoted me to vice president of information technology when I achieved success. Birdie was what Sydney Finkelstein, a Dartmouth business professor, in his new book, Superbosses: How Exceptional Leaders Manage the Flow of Talent, calls a “superboss.” As Finkelstein explains, superbosses take chances on unconventional talent. Oracle’s founder, Larry Ellison, hired candidates who had accomplished something genuinely difficult, rather than those with formal qualifications, because he believed they would rise to the technical challenges. Designer Ralph Lauren offered jobs to strangers whom he met while dining in New York City restaurants. Superbosses take raw talent and build self-confidence. They hire for intelligence, creativity and flexibility — and are not afraid of people who may be smarter than they are. Under Finkelstein’s definition of superbosses, Birdie would be categorized as a “glorious bastard”: someone who cares only about winning. Deep down, he had a good heart —  but was ruthless in setting expectations and driving people to work extremely hard. I’ll never forget him telling me that “Christmas was an optional holiday.” These bosses realize that, to get the very best results, they need to drive people to perform beyond what seems reasonable and achievable. Even though I achieved a lot, I hated working for Birdie, because I had to neglect my family for months on end. This isn’t something I would ever do to my employees. My next boss, Gene Bedell, was very different. He left his job as managing director of information technology to found Seer Technologies, the start-up that IBM had funded. Bedell convinced me to leave my high-paying investment-banking job to join him in a No. 2 role, as chief technology officer, at the low-paying, high-risk, start-up. Bedell was what Finkelstein calls a “nurturer”: someone who coaches, inspires and mentors. These superbosses take pride in bringing others along and care deeply about the success of their protégés; they help people accomplish more than they’d ever thought they could. Bedell managed by a method he called “outstanding success possibilities.” He challenged his executives to set ultra-ambitious goals and then find unconventional ways to achieve them. Instead of managing to what was achievable and possible, we shot for the impossible. And then did whatever it took to get there — without worrying about failure or looking back. It is amazing what you can achieve when you have a single-minded focus. We took Seer Technologies from zero to $120 million in annual revenue and an IPO in just five years — faster than any other software company of that era, including Microsoft and Oracle. Superbosses create master–apprentice relationships. They customize their coaching to what each protégé needs and are constant fonts of practical wisdom. Bedell taught me how to sell. A year after the company was formed, he sent me to Tokyo to sell IBM-Japan on an $8.6 million deal to fund the creation of a Japanese version of our product. I didn’t think that a techie like me could do these things; he taught me that selling was an art that could be learned and perfected. I helped our salespeople close more than $200 million in software deals. And that is another skill that superbosses have, building what Finkelstein calls the “cohort effect”: teamwork and competition combined. Lorne Michaels, for example, who created "Saturday Night Live," judged writers and performers by how much of their material actually went to air — but they had to do it with the support of their coworkers, the people they were competing with. A common trait of superbosses is the ability to delegate work and build jobs on the strengths of their subordinates. They trust subordinates to do their jobs and are as supportive as can be. They remain intimately involved in the details of the businesses and build true friendships. Bedell often invited my family to his vacation home near the Outer Banks of North Carolina. He took me to Skip Barber Racing School to learn how to race a Formula Ford and built a gym in his basement so that his executive team could lift weights together. You will find the alumni of our project at Credit Suisse First Boston and Seer Technologies in senior leadership roles now, at companies such as IBM, PayPal, American Express and every one of the top investment banks. Many started their own companies, as I later did. There are literally hundreds of people who built successful careers because of my two superbosses. When I became an academic later in life, I was fortunate to have two superboss deans at Duke’s Pratt School of Engineering, Kristina Johnson and Tom Katsouleas, who nurtured me. Superbosses aren’t just in corporations — they can be found everywhere. Yes, I know that I got lucky in having good bosses; most are jerks who demotivate employees, slow their growth, backstab and take credit for others’ work. You are usually stuck with whomever you get. But there is nothing that stops you from being a superboss. As you begin to achieve success, start helping others and nurturing your colleagues and subordinates. Show the leadership qualities that you’d like your own boss to have. You will gain as much as the people you help — and build a better company. This article first appeared at the Washington Post.

Across the U.S., the number of reported events exemplifying the opioid and heroin epidemics continues to skyrocket. U.S. Government Publishing Office data shows that the usage of both prescribed stimulants and prescribed opiates increased by a factor of 19 in just two decades since 1994(1). On Dec. 18, 2015, the U.S. Centers for Disease Control and Prevention (CDC) released a report showing drug overdose deaths reached record highs in 2014, fueled in large part by the abuse of narcotic painkillers and heroin. In 2014, more than 47,000 Americans died from drug overdoses, an increase of more than 14% from 2013. About 61% of those deaths involved the use of opioids. From 2000 to 2014, the report noted that nearly half a million people have died from overdoses in the U.S. In 2014, there were approximately one and a half times more drug overdose deaths than deaths from motor vehicle crashes!(2) A very worrisome statistic and trend… For workers’ compensation insurers, opioid use in treating chronic pain has also exploded over the past two decades. Although there appear to be some signs that opioid use is finally cresting, insurers still have a long way to go in helping to ensure that physicians and the injured workers they treat are fully educated on the pros and cons of using opioids with various types of injuries and pain. As the Risk & Insurance article "Paying for Detox – The Opioid Epidemic Is Addressed by Detoxification Programs" notes, some workers’ compensation insurers have been funding tapering and detoxification programs to help dependent or addicted patients wean themselves off the very medications that were designed to ease their pain(3). Unfortunately, recidivism is common, with experts noting that it can take several attempts to wean someone off narcotics. This article will highlight some of the challenges in front of us and share some innovative ideas on potential ways to help prevent opioid dependency and addiction before the habits requiring tapering and detoxification programs are ever formed. The Challenge in Front of Us In January 2011, USA Today shared a powerful story about David Fridovich, a three-star Green Beret general who has become an advocate for warning soldiers about the epidemic of chronic pain and the use of narcotic pain relievers sweeping through the U.S. military(4). Much like others across the country who have suffered a severe back injury, the general began taking narcotics for chronic pain in 2006. Over time, the general became addicted to narcotics. During one 24-hour period the general took five dozen pain pills. After going through a detoxification program, the general has been helping other soldiers avoid the complications he faced because he was unaware of the addictive nature of the pills he was taking. In a recent book about the opioid and heroin epidemic in the U.S., Dream Land author Sam Quinones shares his research on the history of how we ended up where we are today. From a workers’ compensation perspective, the author shared a story about a prison guard who had injured his back during a fight with an inmate. The doctor, who took the guard off of work for six months, also prescribed opioids to be taken twice a day for 30 days. After becoming severely addicted, the guard said, “It really humbles you. You think you’re doing stuff the way it’s supposed to be done. You’re trusting the doctor. After a while, you realize this isn’t right, but there really isn’t anything you can do about it. You’re stuck. You’re addicted.” Both stories illustrate how the use of painkillers can lead to dependency and addiction without warning. They also highlight the critical role prescribing physicians play in educating patients about the warning signs and addictive nature of opioid prescriptions. As part of this education process, prescribing guidelines and analytics can play an important role in driving better outcomes. Opioid Prescribing Guidelines For workers’ compensation insurers, it is critical to understand the opioid prescribing guidelines that underlie the way physicians are treating injured workers. The more the insurers can help educate physicians on best practices, the better off insurance companies may be in helping to prevent any issues that may arise because of unnecessary or excessive opioid prescribing. The CDC worked with the National Drug Institute, Substance Abuse and Mental Health Services Administration and the Office of the National Coordinator for Health Information Technology to review existing opioid prescribing guidelines for chronic pain. Their review and analysis of eight prescribing guidelines highlighted a number of important provider actions, such as the review of pain history, medical and family history, pregnancy, prescription drug monitoring programs (PDMP), urine drug screening, evaluations of alternatives to opioids, rational documentation, tapering plans, referrals for medication assisted treatment, evidence review, conflicts of interest and more(5). In January, Kentucky Attorney General Andy Beshear announced his support for national guidelines for prescribing opiates for chronic pain, stating: “In Kentucky, we face a crushing epidemic of addiction. One of my core missions as attorney general is to better address the drug problem faced by our Kentucky families and workforce.”(6) In his speech, the attorney general mentions that he is joining other state attorneys general in voicing support for the CDC guidelines for prescribing opiates for chronic pain. California’s "Division of Workers’ Compensation Guideline for the Use of Opioids to Treat Work-Related Injuries" documented treatment protocols for three specific pain categories:

1. Opioids for acute pain (pain lasting as much as four weeks from onset)
2. Opioids for subacute pain (one to three months)
3. Opioids for chronic pain and chronic opioid treatment (three months or more)(7)

The guidelines state that, in general, opioids are not indicated for mild injuries such as acute strains, sprains, tendinitis, myofascial pain and repetitive strain injuries. Just as important, the guidelines clearly warn physicians to consider and document relative contraindications (e.g., depression, anxiety, past substance abuse, etc.). The document provides an abbreviated treatment protocol for the three pain categories that address important topics like prescribing a limited supply of opioids, documentation, accessing California’s PDMP, monitoring opioid use, evaluating the use of non-opioid treatments, completing opioid use, educating patients on opioid usage and potential adverse effects, responsibly storing and disposing of opioids, tracking pain level, screening for the risk of addiction, testing urine for drugs and more. At the end of the day, it is important for workers’ compensation insurers and physician employees to clearly understand the opioid prescribing guidelines that help physicians achieve a proper balance between treating workers’ pain and keeping them safe from any adverse impacts of excessive opioid usage. With more insurance companies leveraging early physician peer-to-peer outreach to open a dialogue between the insurance company physician and the treating physician, knowing prescribing guidelines and sharing that knowledge will be more important than ever in improving outcomes and return to work. The Inspiration for Using Analytics For more than a decade, Deloitte Consulting’s Advanced Analytics & Modeling practice has been developing claim predictive solutions designed to help insurance companies, self-insureds and third-party administrators better segment and triage predicted high-severity from low-severity claims, enabling business decisions and actions that can help drive loss cost savings of as much as 10% of an organization’s annual claims spending. (See Claims Magazine articles "Analytics on the Cloud: Transforming the Way Claims Leverages Advanced Analytics "(2011)(8), "Enhancing Workers’ Comp Predictive Modeling With Injury Groupings" (2012)(9), "Reaping the Financial Rewards of End-to-End Claims Analytics" (2014)(10) and "The Challenges of Implementing Advanced Analytics "(2014).(11) A large part of the claims modeling success is attributed to gaining actionable insights as early as first notice of loss before adverse chain reactions can set in, and shortly thereafter with the three-point contact investigation where additional information is learned about the patient’s history and co-morbidities. The authors, having observed the success of predicting claims complexity outcomes early in the claim’s lifecycle, became excited about the application of similar models to help identify early warning signs of future excessive opioid usage by injured workers. With as much as 60% of workers' compensation spending going toward medical costs, one-fifth of that related to prescription drugs(12), we believed the use of predictive models… combined with physician peer-to-peer outreach and proper prescribing guidelines… could help workers' compensation insurers improve the lives of the injured workers while significantly reducing medical expenditures. The following sections explain the analytics journey undertaken to help move the needle on this issue. Defining the Target Variable: Predicting Future Excess An important part of any analytics journey is defining the target variable (i.e., what we are trying to understand and predict). Excessive opiates usage is difficult to ascertain, as higher consumption may indeed be necessary for the most severe injuries. Therefore, various tests on the most appropriate target variables were conducted to probe these hypotheses. Many versions of opioid supply days were tested (i.e., ultimate total supply days across all opiates drugs prescribed to, and consumed by, the injured worker). Variations of opiates prescription counts were also considered (i.e., ultimate count of opiates prescriptions through the lifecycle of the claims). Similarly, supply units were analyzed (i.e., ultimate sum of all individual opiates pills prescribed to, and consumed by, the injured worker from the day of the injury until the claim closure). Figure 1 illustrates the calculation of total supply days for three different opiates that were prescribed to, and consumed by, the injured worker over the duration of his workers’ compensation claim: Figure 1. Supply Day Illustration Methodology and Data Considered Using predictive analytics and data science, a number of algorithms were built, tested, iterated and fine-tuned to better understand those like-injury cohorts (i.e., same injury sustained) that consumed more opiates than their corresponding peers who managed to consume a lower amount. Various thresholds of “excess” were analyzed by injury and venues, thus controlling for differences that affect the prescription base. By testing these algorithms, it was determined that segmentation was similar across the different target variables. However, total supply days seemed to exhibit the most robustness from a modeling perspective and had intuitive interpretability (i.e., number of days an injured worker consumes opioids). The algorithms used more than eight years of lost time workers' compensation claims to accumulate enough data credibility. Claims were selected for various injury groups where opiates were prescribed and consumed for at least one prescription. The data was organized for a longitudinal study observing a claimant over time and quantifying her consumption of opiates. The comparison to this usage to like-injury counterparts over thousands of cases and using hundreds of attributes is what helped the model shed light on claimants who consumed excessive amounts of opioids relative to the entire population. Over the years, Deloitte healthcare practitioners and claims professionals used ICD-9 codes that describe a disease or condition, as well as National Council on Compensation (NCCI) nature of injury and body part codes, to create more than 70 proprietary injury groups that are factored into the model to provide enhanced segmentation within like injury claims.(13) For illustration purposes in this article, we presented results for the injury group representing medium- and high-complexity spinal disorders (e.g., ICD-9 codes 722.0 – displacement of cervical intervertebral disc without myelopathy, 722.10 – displacement of lumbar intervertebral disc without myelopathy, 724.9 – other unspecified back disorders, etc.). We selected medium- and high-complexity spinal disorder claims because they are significantly more severe than the average workers’ compensation claim, and, as expected, these claimants typically have more prescriptions filled by their physicians. In addition, the models aren’t run on just any injury group. For example, an injury group containing low-complexity injuries such as finger cuts and minor open wounds would not be part of our analysis. Claimants with these types of low-complexity injuries do not require opioids, given the nature of injury, so it would not make sense to include these injury groups in the model. Predictive variables The information attributes used to understand excessive consumption were sourced from similar data sources used in developing our claim-severity models. They are large in number and varied in terms of coverage. They include claimant data (e.g., claimant age, gender, job classification, years of employment, wage, claim filing lag, cause and nature of injury, etc.), prior claims data (e.g., prior frequency and type of claims), employer information (e.g., financial characteristics, years in business, etc.), injury circumstance (e.g. location, type, body part injured), three-point contact information (e.g., co-morbidities, early medical services) as well as other standard external third-party data sources (e.g. lifestyle, behavioral, geo-demographic). Modeling Results The lift curves shown in Figure 2 illustrate the segmentation achieved by using multivariate equations to predict total supply days. Each claim below was scored using the model, which generated scores from 1 to 100, with lower scores corresponding to smaller predicted supply days and higher scores corresponding to larger predicted supply days. This score is represented on the x-axis of Figure 2, where each “decile” refers to a group of claims that compose 10% of the data. The actual supply days are tracked and plotted on the y-axis in the appropriate decile. Figure 2. Lift Curve – GLM model As one can see from Figure 2, injured workers studied who are predicted to fall in decile 10 have more than 18 times the supply days as workers predicted to fall in decile 1. Injured workers studied who scored in decile 10 consume, on average, more than three and a half years of opioid supply days! This very large and widespread segmentation suggests that individuals sustaining the same injury can still vary significantly in their future consumption of opioids… and this variation ranges from a couple months to more than three and a half years. In Figure 3, we compare two 24-year-old male claimants with very similar injuries but drastically different predicted outcomes. Figure 3. Similar Injuries, Drastically Different Outcomes As one can see from Figure 3, the claimant scoring in decile 10 has a number of variables that correlate with the potential for excessive opioid use. Given the combination of co-morbidities, worker health, reporting lags, employer business conditions and additional attributes collected on the individual from external sources (e.g. lifestyle and behavioral data), it is possible for the insurance company to identify and analyze the early drivers that may lead to future excessive opioid the first few days after receiving notice of the claim. With more than 60 predictive variables in the model (e.g., co-morbidities, prior claims history, job classes, injury causes, business characteristics, claim characteristics, etc.), the most influential categories and reason codes driving the score represent “eyeglasses” for the insurance company physician. The model helps the insurance company physician weigh together multiple pieces of information but doesn’t replace his judgement. Analogously, many of us wear eyeglasses to read a dinner menu, but those eyeglasses do not order the food for us. Armed with a plethora of facts and the opioid prescribing guidelines, a physician can open a dialogue with the treating physician to help guide the discussion in a direction that best benefits the injured worker. The physician, using the prediction from the model, can tailor appropriate decisions and actions – from low touch or regular prognosis for the first claimant above, to a much more closely managed case for the second individual. Figure 4 provides a drill-down into the actual versus predicted supply days achieved in the highest-scoring 30% of medium- to high-complexity spinal disorder claims for the train/test data and validation data. Using the train/test/validation approach, the models were trained and enhanced using approximately 70% of the claims data. The validation results shown below were derived from the remaining 30% of the claims data that was held in “cold storage.” Using this kind of blind-test validation data helps ensure that the model’s estimated “lift” (i.e., segmentation power) is true and unbiased. Figure 4. Highest Score Drill-Down Approximately 60% of claims scoring in deciles 8, 9 and 10 exceed one year in supply days. For a quarter of the claims, the injured workers take in excess of four years in supply days of opioids. At the far end of the spectrum, roughly 4% of medium- to high-complexity spinal disorder claims scoring in deciles 8, 9 and 10 will exceed a decade's worth of opioids in supply days. One Last Check In addition to the generalized linear models (GLMs) discussed above, focused on predicting the actual supply days, we also ran a logistic regression model focused on predicting which claimants would take more than a year's supply of opioids. Using classical statistical measures of precision (i.e., how many of the positively classified results are relevant), recall (i.e., how accurate the model is at detecting the positives) and specificity (i.e., how good the model is at avoiding false alarms), we achieved the following results: a precision of 59%, a recall of 64% and a specificity of 72%.(14) As one last test of the logistic regression model’s segmentation power, we calculated the receiver operating characteristic (ROC) curve.  At almost 80%, it represented a good model from a statistical perspective. Although illustrative, we prefer the GLM model presented above. Behavioral Economics and Nudges All across the country, physicians and medical boards are spreading the word about the responsible prescribing of opioids. State and federal agencies are toughening criminal and administrative penalties for doctors and clinics that traffic in prescription drugs. Governors across the country are forming opioid working groups that include senior Health and Human Services professionals, attorneys general, drug courts, hospital professionals, elected officials and more. Research shows that a number of factors can help insurance companies better understand the severity of claims early on in the life cycle of a claim. Two studies by the National Council on Compensation Insurance, Inc. (NCCI) highlight the effect of obesity on workers’ compensation claims. According to "Reserving in the Age of Obesity," a Nov. 1, 2010, NCCI study by Chris Laws and Frank Schmid, the ratio in the medical costs per claim of obese to nonobese claimants deteriorates over time from a ratio of 2.8 at the end of one year, to 4.5 at the end of three years, to 5.3 at the end of five years.(15) In a following study from May 29, 2012, "Indemnity Benefit Duration and Obesity," authors Frank Schmid, Chris Laws and Mathew Montero found the duration of obese claimants is more than five times the duration of nonobese claimants, after controlling for primary International Classification of Diseases (ICD)-9 code, injury year, state, industry, gender and age for temporary total and permanent total indemnity benefit payments.(16) Deloitte’s claim predictive models have shown that the number of medical conditions at the time of injury plays a significant role in determining the ultimate severity and potential for excess opioid usage (e.g., claims with three or more existing medical conditions are 12 times more costly than claims with no existing medical conditions). With energy and momentum building around addressing the opioid epidemic, insurance companies can leverage behavioral economics and data-driven nudges to help treating physicians improve outcomes and return to work. Leveraging prescribing guidelines and the model results and reason codes that help explain the top five drivers behind the model prediction, insurance company physicians can be more strategic in shaping the discussions they have with treating physicians. For the highest-scoring claims, the insurance company may want to use a mix of peer-to-peer contact and data-driven nudges (e.g., “did you know that 95% of physicians we work with follow the state prescribing guidelines and only prescribe 30 days of opioids for this type of claim,” ”for injuries of this type, physicians we work with usually prescribe less than x milligrams of strength,” etc.). For lower-scoring claims, the insurance company may touch base with the treating physician but skip any reference to data-driven nudges. Conclusion In the end, it is important for workers’ compensation insurers and their medical professionals to clearly understand opioid prescribing guidelines and the internal and external factors that could affect the opioid usage and habits of their injured workers. A Business Insurance white paper titled "Opioid Abuse and Workers' Comp – How to Tackle a Growing Problem," described the challenge well: “Monitoring or managing opioid abuse is another key step for workers' comp managers. It’s not enough to simply dive into the data and look for claimants who appear to be using lots of opioids. Nor is preventing doctors from prescribing opioids a desirable action. The goal is to find claimants who are struggling with a problem they never intended to have, and support those claimants in solving that problem.”(17) However, our hope is that through the use of predictive analytics (i.e., the ability to identify, in the first few days of receiving a claim, individuals most likely to become high consumers of opioids), prescribing guidelines and physician peer-to-peer outreach, we can help increase insurers’ and treating physicians’ awareness as they work to help prevent injured workers from struggling with dependency and addiction before the behaviors or habits ever form. As former British Prime Minister Benjamin Disraeli once said, “What we anticipate seldom occurs; what we least expect generally happens.” The science and passion exists today to better anticipate opioid trends and help prevent opioid dependency and addiction before it happens. As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this communication. Copyright © 2016 Deloitte Development LLC. All rights reserved. [1] James W. Harris, PhD, CSO Vatex Explorations LLC, www.gpo.gov [2] http://www.cdc.gov/media/releases/2015/p1218-drug-overdose.html, http://www.cdc.gov/mmwr/preview/mmwrhtml/mm6450a3.htm?s_cid=mm6450a3_w [3] http://www.riskandinsurance.com/paying-detox/ [4] http://usatoday30.usatoday.com/news/military/2011-01-27-1Adruggeneral27_CV_N.htm [5] http://www.cdc.gov/drugoverdose/prescribing/common-elements.html [6] http://harlandaily.com/news/6473/cdc-guidelines-will-help-ky-with-rx-drug-abuse [7] http://www.dir.ca.gov/dwc/ForumDocs/Opioids/OpioidGuidelinesPartA.pdf [8] http://www.propertycasualty360.com/2011/02/22/leveraging-analytics-in-workers-comp-claims-handli [9] http://www.propertycasualty360.com/2012/07/23/enhance-workers-comp-predictive-modeling-with-inju [10] http://www.propertycasualty360.com/2014/02/03/reaping-the-financial-rewards-of-end-to-end-claims [11] http://www.propertycasualty360.com/2014/10/01/the-challenges-of-implementing-advanced-analytics [12] www.ncci.com [13] http://www.propertycasualty360.com/2012/07/23/enhance-workers-comp-predictive-modeling-with-inju [14] Precision measures the ratio of true predicted positives to the ratio of true predictive positives plus false predicted positives. Recall, also referred to as sensitivity, measures the ratio of true predicted positives to the ratio of true predicted positives plus false predicted negatives. Specificity measures the ratio of true predicted negatives to the ratio of true predicted negatives plus false predicted positives. [15] https://www.ncci.com/Articles/Documents//II_research-age-of-obesity.pdf [16] https://www.ncci.com/Articles/Documents/II_Obesity-2012.pdf [17] http://www.businessinsurance.com/article/99999999/WP05/120509952

The 20th century has been described as the American Century, with solid justification. From modest beginnings (the U.S. did not have one of the world's 15 largest armies before World War I broke out), the U.S. became a virtual unipolar political and military force by the year 2000. As the world evolves, the 21st century is often referred to in its early years as the Asian Century. With more than 40% of global population and rising economic and military power, it's easy to see why forecasters saw things that way. In just the second decade of the century, though, the so-called Asian Miracle has show some slippage. A sharp slowdown in economic growth, most visibly in China but experienced region-wide, has prompted a reassessment of Asia's prospects, certainly including prospects for the insurance industry. Two recent visits to the "Greater China" area have given me some updated insights into the issue. In late January, I spoke at the annual conference of the China Insurance Regulatory Commission and the Insurance Society of China, visiting some major insurers while I was in Beijing. This past week, I spoke at the Asia Insurance CEO Summit in Hong Kong and called on several CEOs there and in Singapore. From both life and non-life perspectives, the comments were basically consistent. China, the Asia Pacific's economic driver, has been growing at near-double-digit rates over the last few years and has lifted the entire region's GDP growth. Now it is clear that China has overbuilt industrial and residential capacity, saddling its bank with enormous leverage and likely huge loan write-offs. Its slowdown has had a ripple effect throughout the region, and for insurance leaders has forced a reexamination of growth prospects. For the Asia countries with mature insurance markets, notably Japan, South Korea and Taiwan, and for materials-export-driven Australia, this deceleration has meant a sharp reduction in revenue growth. For the countries with less-developed insurance markets and low insurance penetration, there is still room for optimism. In China, for instance, a reduction to 6% to 6.5% annual economic growth over the next five years, as anticipated in the newly promulgated government Five Year Plan, would still likely produce annual premium growth for the country of around 15%. Double-digit annual volume growth is also likely for most of the ASEAN Union countries, as the combined effect of economic growth and increased insurance penetration occurs. The key factor, of course, is rising penetration. While the most developed countries of Western Europe and North America tend to have insurance premiums in the range of 8% to 10% of GDP, in most of Asia the figure is less than 3%. In spite of the news headlines about the Asian economic slowdown, whether we are now just experiencing a pause or a long-term slowdown, growth prospects for insurance there are still the best in the world.

I’m a big believer in the power of good, evidence-based research; I’ve mentioned this often in my blog posts. So, I am pleased to start this new series discussing our recent Distribution and Agency Management Survey. It’s the most extensive distribution survey in the insurance industry ever conducted by Accenture Research.  We canvassed top executives at 414 carriers in 20 countries in Europe, North America, Asia Pacific and Latin America. They ranged from marketing chiefs to CIOs, heads of distribution and sales, brokerage executives and chief digital officers—they were all involved in insurance distribution. Many of them, 44%, work in Europe. Nearly all the carriers we surveyed generate premium income of more than $1 billion a year. Forty-five percent were multiline insurers, 28% were property and casualty insurers, and 27% were life insurers. This is, indeed, a very powerful survey. It gives a clear picture of how quickly insurers are deploying digital strategies in the sale and distribution of their products and services. Moreover, it highlights the actions carriers need to take to harness the full potential of digital technologies to transform their distribution model and avoid being left behind by competitors. Digital technology is no longer an adjunct to the businesses of the world’s major insurers. It now dominates the agendas of most of the biggest carriers around the globe. And its influence is fast getting stronger. We’ve entered an era of huge digital disruption. Carriers must move quickly to formalize their digital strategies and shape their future distribution models—one of the main findings of the Distribution and Agency Management Survey. More than 80% of the insurance executives we surveyed intend to fully digitize their sales processes in the next few years. This is a huge shift from just two years ago, when only a minority of carriers had such plans. In Europe, 27% of insurers have already implemented end-to-end digital sales processes, and a further 30% plan to follow suit in the next three years. This is in line with trends from the rest of the world. New highly personalized digital channels will enable insurers to build intimate customer relationships that can be leveraged by physical channels to sell further products and services. They’ll also offer new business opportunities. Nearly 60% of all the insurers we surveyed are prioritizing a shift to more customer-centric distribution models, while 48% have, or plan to have, a customer-centric hub that allows them to use customer data to improve the service experience. Raising the quality of the customer’s digital experience is a major priority among insurers in Europe and the rest of the world. Carriers across the globe are preparing a host of new digital services and products. Competition will be fierce. In the midst of growing change and uncertainty, it’s vital insurers cultivate business agility and act decisively in selecting and implementing their digital strategies. In my next blog post, I’ll examine, in more detail, the digital disruption that’s taking place in the distribution channels of major insurers around the world. For more information about Accenture’s Distribution and Agency Management Survey, click here.

I welcome and applaud the federal government’s interest in the regulation of our nation’s insurance industries and markets. In response to the Federal Insurance Office’s request for comments on the “gaps” in state regulation, I appreciate this opportunity to present my views. Indeed, your request, Director McRaith, for comments upon such “gaps” seems to reveal what a keen, yet heretofore unpublicized, good sense of humor you must have. To very briefly introduce myself, I am an economist, a CFA and a life insurance agent of more than 20 years who has worked with scores of life insurers. My views have been published by the Journal of Insurance Regulation, the American Council on Consumer Interests and various other industry trade publications. My positions are based on my extensive experiences with our nation’s profoundly problematic state-based insurance regulatory system, problems that those who have not been intimately involved with in the marketplace might find inconceivable. State insurance regulators have never required the proper disclosure of cash value life insurance policies. Markets do not work properly without adequately informed consumers. While life insurance is, conceptually, a simple product, without the proper conceptual understanding of and the necessary relevant information, consumers cannot effectively search for good value. “The Life Insurance Buyer’s Guide,” published by regulators and mandatorily distributed with policies by insurers and their agents, is not just a little deficient—it is misleading, seriously incomplete and defective. And, it, in all of its various state editions, has been that way for almost 40 years. Professor Joseph Belth has written about this national problem for more than 40 years. In 1979, the Federal Trade Commission issued a scathing report on the life insurance industry’s cash value products. Cash value policies are composed of insurance and savings components, and consumers need appropriate information about both. This specifically requires appropriate disclosure of these policies’ annual compounding rates on consumers' savings element as well as annual costs regarding their insurance element. Both Professor Belth and I have separately developed very similar disclosure approaches. (More information about my approach and its comparative conceptual and marketplace tested-advantages is available on my website or upon request.) The exceptional nature of this regulatory failure can be grasped by specifically contrasting the states’ regulatory track record on cash value policy disclosures with those of other financial regulators’ actions. Investment product disclosures have been mandated since the 1930s. Truth in Lending was enacted in 1969. And yet, while a consumer’s potential risks in making a poor life insurance purchase can arguably be shown to be greater than those in purchasing a poor investment or obtaining an unattractive loan, Truth in Insurance or Truth in Life Insurance legislation has never been promulgated by any state. A second insightful perspective, and one with much more tangible consequences on its harmful impacts on consumers, can be grasped by reviewing a few basic facts about the current life insurance marketplace. Three Facts Fact No. 1: The life insurance marketplace is awash with misinformation; this should hardly be surprising. Life insurers actually run misleading advertisements and conduct training in deceptive sales practices. Evidence of such has been repeatedly submitted to state regulators. Moreover, given the industry’s commission-driven sales practices (commissions that can make those of mortgage brokers, now notorious for their own misrepresentations, look tiny), sales misconduct is pervasive. The harmful consequences of such agent misrepresentations are manifested every day, both directly and indirectly, in unwise purchases or other costly life insurance mistakes by American families. These misrepresentations go unrecognized because of consumers’ inadequate financial grasp of a product’s true conceptual framework, and these go unpunished because, as a past president of the national largest agent organization has written in widely quoted published articles, state laws prohibiting deceptive life insurance sales practices have virtually never been enforced. Fact No. 2: Cash value life insurance policies that are sold to be lifelong products have extraordinary high lapse rates. Data shows that over an eight-year period, approximately 40% of all the cash value policies of many life insurers are discontinued. It is true there are many possible causes for consumers to discontinue coverage, but age-old evidence of consumer dissatisfaction has been a virtual five-alarm that state regulators have ignored for more than 40 years. Such lapses are especially financially painful to consumers, as the typically sold cash value policy has huge front-end sales loads (sales loads regarding which agents are trained to make misrepresentations). It is very important that all readers fully understand that, contrary to pervasive misconceptions and misrepresentations, cash value policies do not avoid the increasing costs of annual mortality charges as a policyholder ages. The fundamental advantages of cash value life insurance products come from the product’s tax privileges. Tax privileges, however, are essentially a free, non-proprietary input. In a competitive marketplace, firms cannot charge consumers or extract value for a free, non-proprietary input. No one pays thousands of dollars in sales costs to set up an IRA. Cost disclosure will enable consumers to evaluate cash value policies by the policies’ price competitiveness and, as such, will drive the excessive sales loads out of cash value policies. The heart of the battle over disclosure is that disclosure threatens to—and, in fact, will—undermine the industry’s traditional sales compensation practices. For example, over the past five years, Northwestern Mutual, the nation’s largest insurer, with $1.2 trillion of individual coverage in force, paid $4.5 billion in agent life insurance commissions and other agent compensation, while its mortality costs for its death claims were only $3.5 billion. (Northwestern paid more than $12 billion to policyholders surrendering their coverage during the same five years.) Agents, naturally, do not like the idea of reduced compensation, but their arguments are not compelling. Insurers believe little life insurance would be sold without such agent compensation; that is, that the large and undisclosed agent compensation cash value policies typically provide is, 1) necessary to compensate agents for their sales efforts and yet, 2) could not be obtained from an informed consumer. My position is that good disclosure on life insurance will drive the excessive and unjustified sales loads out of cash value policies, making them price competitive with pure-term policies, thereby enabling consumers to truly benefit from the product’s tax privileges. Also, product cost disclosure is an essential component of any fair business transaction (and, as all readers properly educated about life insurance know, a cash value policy’s premium and annual cost are different.) Fact No. 3: It is undeniable that the sales approaches used today are not effective. Unbiased experts have, for decades, demonstrated that Americans have insufficient life insurance. In August 2010, the Wall Street Journal's Leslie Scism reported that levels of coverage have plummeted to all-time lows. Contrast that with data showing consumers’ ever-increasing voluntary purchases of additional coverage via their employers’ group life insurance plans. Marketing research shows that fear making a mistake is the primary reason consumers avoid or postpone purchases and financial decisions. Inadequate disclosure on life insurance policies not only prevents consumers from being appropriately informed; it is also a main factor in their avoidance of the very product they so often need. I predict publicity of appropriate disclosure will lead to: unprecedented sales growth, policyholder persistency, different levels of coverage, positive impacts on all other measurements of satisfaction regarding consumers’ future life insurance purchases and life insurance agents becoming trusted and esteemed professionals. Admittedly, appropriate disclosure could lead to litigation over agents’ and insurers’ prior misrepresentations. As I think you may now understand, inadequate life insurance policy disclosure is a regulatory "gap" that is virtually the size and age of an intergalactic asteroid. Other Gaps As it is currently marketed, long-term care insurance (LTCI) constitutes another serious problem. While, theoretically, LTCI can make sense, the devil is in the details. Essentially, LTCI is a contingent deferred annuity, yet one where insurers retain an option to increase the premiums for entire “classes of insureds” and where consumers must confront post-purchase price risks without the information necessary to assess alternatives. Furthermore, consumers cannot transfer their coverage to a new insurer without forfeiting the value they’ve previously paid. Defective LTCI policies have let consumers be shot like fish in a barrel; in fact, the policies' inherent unfairness makes loan sharks envious. Appropriate disclosure on LTCI would bring consumers drastically superior value and understanding. Regulation of life insurance agent licensing is incredibly deficient. Agents should truly be financial doctors. However, states' agent licensing requirements fail to make sure consumers are served by financially knowledgeable professionals; licensing exams are a joke. While there are many competent agents, it is quite possible that the overwhelming majority of agents—many of whom are new and inexperienced, as more than four out of five recruits fail in the commission-based environment within the first few years—do not possess the basic knowledge necessary to accurately assess a consumer’s needs or to properly evaluate different companies’ policies. There is virtually no state regulation of fee-only advisers who charge for providing advice about life insurance industry products. Such individuals can cause harm to consumers in multiple ways: improperly assessing needs and evaluating policies and recommending policy terminations or other actions (beneficiary or ownership changes, inappropriate policy loans, etc.) that lead to policies being mismanaged. To my knowledge, the only state that actually requires licensing for fee-only advisers is New Hampshire. A cursory review of public records, however, reveals shocking omissions in New Hampshire’s enforcement of such rules. One of the state’s former insurance commissioners, who for years has operated a prominent website providing and charging for advice on life insurance, has never been licensed. Agent continuing education (CE) requirements are problematic. Outdated courses are still deemed acceptable, similar courses can be submitted virtually indefinitely to fulfill bi-annual CE requirements, and many courses are so devoid of meaningful information that they are vacuous. While the potential merits of CE are undeniable, only serious testing and recordings provide the means of monitoring the true effectiveness of instruction and learning. Another area for improved regulation concerns the insurer-agent relationship. This is not to suggest draconian involvement by the government, rather to recognize the legitimate public interests in properly structuring such relationships—just as is done in relationships between pilots and airlines, construction workers and contractors, nurses and hospitals. The contracts between insurers and agents show unequal bargaining power. Insurers have not only exercised their power unfairly but have—possibly illegally—prohibited certain agent conduct, while requiring other, on matters clearly outside the boundaries of the contract. Attorneys specializing in franchise law have stated that the typical agent’s contract is the most one-sided arrangement they have ever seen. Over the past 20 years, I have written many articles and submitted extensive documentation of sales and managerial fraud in the life insurance marketplace, yet no one with any marketplace authority or power has ever taken any effective action. Nonetheless, my commitment to reform the life insurance industry and marketplace remains. In fact, while federal regulatory action and any other private assistance would be greatly appreciated, all that is needed for the transformation of the age-old, dysfunctional life insurance industry is the dissemination—the genuine and effective mass market dissemination—of the type of life insurance policy disclosure information that is available on my web site, BreadwinnersInsurance.com. [The full version of this letter is available on the site.]

On Friday, February 26, 2016, the Oklahoma Workers’ Compensation Commission (WCC) offered one of the most bizarre decisions in the history of any such tribunal in the world. The agency, which sits within the executive branch of the state’s government, resorted to a tactic traditionally reserved for the judiciary by pronouncing portions of a state statute unconstitutional—a move that has sent shock waves throughout the workers’ compensation (WC) industry nationwide. This essay is provided to explain how and why such an unprecedented and unexpected event took place. Although scheduling constraints required the publication of this piece before we at WorkersCompensationOptions.com could incorporate the feedback of Attorney Mark Blongewicz (of Hall-Estill), Mark’s insights are so valuable that we have inserted them in text boxes throughout this updated version of the essay (which first appeared in Insurance Thought Leadership, without such text boxes, on 2/29/16). What Does a WCC Do? The Oklahoma WCC was born in February, 2014. It employs dozens of people and performs numerous governmental agency tasks, but when its three commissioners hear appeals of occupational injury cases, they are referred to as sitting en banc. To our knowledge, all states, territories and the federal government have similar tribunals. Over the past two years, the Oklahoma commissioners sitting en banc have heard dozens of appeals. All of those cases—up until last week—were of the fact-based WC variety.[i] Prior to last Wednesday’s hearing,[ii] the WCC was never in the business of offering opinions on the constitutionality of any laws; it simply, methodically and impressively played an administrative (rather than an interpretive) role. Vasquez v. Dillard’s: Background In September of 2014, Jonnie Yvonne Vasquez claimed that she had injured her shoulder and neck while moving boxes as an employee in the Dillard’s shoe department in Shawnee, Oklahoma. Ultimately, Dillard’s denied the claim, pointing to evidence of a pre-existing medical condition. The commissioners en banc routinely review such disputes to determine whether a denial should be upheld or overturned. Under traditional WC in Oklahoma, Vasquez’ appeal would have gone first to an administrative law judge (ALJ), next to the WCC en banc and finally, if necessary, to the Oklahoma Supreme Court. However, because Dillard’s had, prior to the claimed occurrence, become a Qualified Employer per the Oklahoma Employee Injury Benefit Act (OEIBA—think Oklahoma option), the process for appealing this denial followed a different path. One of the hallmarks of opt-out is to avoid litigation,[i] and to that end Dillard’s provided Vasquez an appeals committee—which is similar to what happens across the country in disputes regarding ERISA-governed benefits (e.g., major medical, long-term disability, etc.). The denial of Vasquez’ claim was upheld through the appeals committee process. Section 211 of the OEIBA stipulates that the next forums for appeal after the appeals committee are the WCC en banc followed by the Oklahoma Supreme Court (mirroring the second and third steps of the appeals process under WC).[ii] Hence, Vasquez appealed to the commissioners en banc. Dillard’s, however, relying on an ERISA argument which has long been promulgated by Bill Minick of PartnerSource,[iii] attempted to remove the case to the federal level (as ERISA is a federal law). In September, 2015, Judge Stephen Friot of the U.S. District Court for the Western District of Oklahoma remanded the case back to the WCC in no uncertain terms: The court concludes that the [OEIBA] is part of Oklahoma’s statutory scheme governing occupational injuries and workplace liability; in other words, the OEIBA is part of Oklahoma’s statutory scheme governing workmen’s compensation.[iv] Since this was the second of two cases that the federal court system drop kicked back to the state level, it seemed to put the argument concerning ERISA’s governance of occupational accidents under the Oklahoma option on the back burner for the foreseeable future. So after this high-profile and unnecessary federal detour, the case came back to the Oklahoma state agency known as the WCC. The WCC Hearing When the commissioners took on the Vasquez case, they presumably had no predisposition to offer rulings on the constitutionality of the OEIBA, since their duties do not ordinarily require them to tackle such issues. ^[i] Additionally, Vasquez’ counsel stated that ERISA (a federal law) had no applicability to Vasquez’ claim under the Oklahoma option (attempting to appear consistent with the two federal judges who had declined to exercise jurisdiction over such matters). The Vasquez camp did not even believe the WCC had the authority to rule on the constitutionality of the OEIBA (a reasonable position on its face).[ii] Dillard’s disagreed on both counts, arguing not only that ERISA governed the Vasquez claim, but that the WCC was transformed—for the purposes of this OEIBA case—into the state court of competent jurisdiction under ERISA (29 U.S.C. §1132(d)(1)) with the power to deem statutes constitutional or unconstitutional. This argument may well have caught the commissioners off guard, as it was completely unprecedented for the WCC. I attended the hearing and estimate that over 90% of the time was spent on esoteric legal concepts mostly unrelated to the matter of whether Ms. Vasquez really did have a pre-existing medical condition that justified the denial of her claim. This was all new territory for this state agency. As described in more detail below, the WCC granted Dillard’s a hard-fought victory when it ruled, astonishingly, that ERISA applied to Vasquez’ claim. “By golly,” Minick can finally gloat, “we now clearly have case law demonstrating that ERISA applies to the occupational accident aspects of the Oklahoma option!” But I doubt that Dillard’s bargained for what happened next. A Pyrrhic Victory The commissioners accepted the powers Dillard’s argued they had and then used them to rule the OEIBA unconstitutional, simultaneously remanding the Vasquez case to an ALJ to hear within a traditional WC framework and stripping Dillard’s of the perceived advantages of leaving traditional WC to begin with. The commissioners accomplished this with an unexpected interpretation of Section 211 of the OEIBA. That section spells out the role of the commissioners en banc when hearing appeals. This point is extremely nuanced, so please bear with me as I provide some historical context. In 2012, the Oklahoma legislature did not pass HB 2155—a bill co-authored by Minick and clearly drafted with the intent to have ERISA as a guiding force. In fact, HB 2155 was littered with the “ERISA” acronym, creating easy fodder for opponents, who used epithets such as “Obamacomp” to strike fear into a very Republican electorate. A year later, the attitude on the Oklahoma option had consolidated: no ERISA. SB 1062 passed with flying colors without one usage of the acronym for the federal law. That cake (SB 1062) baked by the legislature in 2013 was free of any ERISA ingredients—save for one sprinkle on top. The sole remaining vestige[i] that directly points to ERISA is found in Section 211.B.5.: If any part of an adverse benefit determination is upheld by the committee, the claimant may then file a petition for review with the Commission sitting en banc within one (1) year after the date the claimant receives notice that the adverse benefit determination, or part thereof, was upheld. The Commission en banc shall act as the court of competent jurisdiction under 29 U.S.C.A. Section 1132(e)(1), and shall possess adjudicative authority to render decisions in individual proceedings by claimants to recover benefits due to the claimant under the terms of the claimant’s plan, to enforce the claimant’s rights under the terms of the plan, or to clarify the claimant’s rights to future benefits under the terms of the plan. [Emphasis added.]  ERISA includes 29 U.S.C.A. Section 1132. Even so, the instructions of this subsection might appear to restrict the commissioners to focus merely on the facts of such cases and not on the constitutionality of the statutes governing the cases. However, the commissioners—feeling their oats as a temporarily recognized court of competent jurisdiction—reasoned that Vasquez’ claims for benefits were “inextricably intertwined” with constitutional challenges, and, hence, that they must address those issues in order to determine Vasquez’ rights. Effectively, the commissioners accepted the ERISA arguments advanced by Dillard’s, analyzed them, and then stuffed them into a missile so that they could fire a very loud—even if potentially feckless—shot across the bow of opt-out proponents. I do not interpret this shot as being fired from a group innately opposed to opt-out. I interpret it as a warning: “Get your $*!# together!” For at least three reasons, I’m grateful to the WCC for the timing and meaning of this challenge to the Oklahoma option. First and foremost, as someone who doesn’t belong to the Oklahoma option-ERISA camp, I appreciate the implication that if opt-out proponents continue to rely on ERISA in Oklahoma, they will set themselves back several years by destroying the only viable alternative to WC in the country aside from Texas nonsubscription.[i] Second, the Dillard’s legal team now has time to step back, take a deep breath, and reconsider its strategy before making its case to the Oklahoma Supreme Court. Third, if the in-session legislature so chooses, the law itself can easily be improved upon. The option works, and it is not a sign of weakness but of adaptability to acknowledge that modifications are necessary (as the WCC’s order clearly indicates). [i] Of course, ERISA is key in Texas nonsubscription. My goal is to craft the best alternatives to traditional WC programs legally possible. More and more, PartnerSource appears to share that goal only if ERISA is involved. Although Dillard’s appealed this decision on March 17th, we hazard no guess as to what trajectory that appeal will take. As a reminder, I am not an attorney and nothing in this essay—including the remarks of Mark Blongewicz, who has generously agreed to share his expertise for educational (rather than legal) purposes—should be mistaken for legal advice. I should also mention that I do not speak for any associations or lobbyists. Finally, I am compelled to point out once more that when WC was initially being enacted a century ago, our society was riddled with equal protection, special law and due process concerns. I suspect the Oklahoma option will take less time than WC did in maturing and adequately addressing these issues—if that is what the people of Oklahoma want. [1] As an example of a fact-based claim, consider the case of a truck driver who lives in one state, is employed by a company with facilities (including payroll) in another and is injured in yet a third while driving on a route. All three states have different WC systems, and an argument could be made for the claim to be handled in any of the three venues. A tribunal such as the Oklahoma WCC would simply focus on the facts of the case to establish some basis to determine which is the correct and best venue. [2] On Wednesday, Feb. 24, 2016, the WCC en banc was scheduled to hear two appeals: Vasquez v. Dillard’s at 1:30pm, and Pilkington v. Dillard’s at 2pm. The fact that all parties agreed (just six minutes into the session) to combine both cases into a single protracted hearing was only one of many head-scratching developments. All told, the event took about one hour and 45 minutes. [3] This hallmark is also the call to arms for attorneys, judges and support staff of all stripes who are stakeholders in traditional WC. [4] We suspect that Dillard’s used a plan from PartnerSource that calls for an employer-designated appeals committee followed by an external appeals committee. Such a two-tiered approach might be well and good in Texas nonsubscription, but it is unproven in Oklahoma. Further, we assert that reliance on any employer-designated appeals committee is unwise based on the opinions of at least two Oklahoma Supreme Court Justices (Coates v. Fallin). I am scheduled to obtain details from the WCC on Feb. 29, 2016,  and confirm the exact procedures of the Dillard’s plan. [5] There was some ambiguity between the original law (SB 1062) and the original rules set forth by the WCC regarding the post-appeals committee process. That process clearly and statutorily changed for all occurrences after Nov. 1, 2015, thanks to the passage of SB 767—last year’s “clean up” bill. Currently, the next steps for appeal—post-appeals committee—are ALJ, followed by the commissioners en banc and, if necessary, concluded with the Oklahoma Supreme Court (mirroring all three steps from traditional WC). While this complication is relegated to footnote status in this essay, SB 767’s due process improvements are noteworthy on a going-forward basis and a reminder of the legislature’s power to improve/modify the law where appropriate. [6] Specifically, see pp 67-72 of The Oklahoma Option: Free Market Competition for the Benefit of Injured Workers and Employers. [7] For details, see our more thorough analysis, An Open Postscript from Daryl Davis and Mark Blongewicz Regarding the Applicability of ERISA to the Oklahoma Option. In that article, we deliberately did not address any circuit split issues between the 5^th and 10^th Federal Circuits, but will be happy to help explain them to readers who are interested in alternatives to traditional WC. [8] This is not to diminish the fact that Bob Burke, counsel for Vasquez, “raised several constitutional issues” and during the hearing spent well over 20 minutes ranting about the unconstitutionality of the OEIBA as a matter of habit. The irony of this outcome is accentuated by Burke’s remark when asked if he thought the WCC could rule on the constitutionality of the OEIBA: “No, I don’t think you can. But I wish you could, because I’ve got a number of constitutionality cases in front of the Supreme Court, and I wish I could bring them to you to decide.” To be clear, it was the Dillard’s defense team that insisted the commissioners had such powers. [9] In its order, the commissioners substantiated those powers with the case of Dow Jones & Co v. State ex rel Okla. Tax Commission. [10] Some may argue that “plans” and “appeals committees” are inextricably linked to each other and to ERISA. In fact, to read some of Minick’s prose on plans, one would think that any plan ever written is governed by ERISA. University of Oklahoma football coach Bob Stoops, when writing down his game “plan” against Texas next season might consider calling PartnerSource for advice on ERISA compliance. Even industry insiders are often shocked to learn that ERISA never explicitly addresses appeals committees. The reality is that ERISA incorporates several good ideas. The still-maturing OEIBA has demonstrated that it is not at all reluctant to revise, improve upon or incorporate older ideas. [11] Of course, ERISA is key in Texas nonsubscription. My goal is to craft the best alternatives to traditional WC programs legally possible. More and more, PartnerSource appears to share that goal only if ERISA is involved. [12] We at WokersCompensationOptions.com apologize if, in releasing this essay the first business day after the WCC’s unexpected ruling, we haven’t quite lived up to the research and editorial standards our readers have come to expect from us. We look forward to posting a better, more thoroughly vetted and substantiated version of this piece as soon as we possibly can.