In making decisions about medical care, everyone should factor in cost -- patients, doctors health insurance companies and government. Consider two alternative procedures, A and B. If for each $1,000 spent on procedure A, patients gain one extra month of life whereas using procedure B costs $2,000 for the same gain, A should be preferred to B. By making the efficient choice, we free up money to meet other health and non-health needs. There remains this problem, however: What if the person who makes the decision about cost is different from the person who realizes the gain? That is what gives rise to charges of “rationing” and “death panels.” Aaron Carroll writes: "Other countries routinely use cost-effectiveness data to make decisions about health coverage. In Britain, the National Institute for Health and Care Excellence, a government agency that gives guidance about which services the National Health Service should cover, has a threshold of 20,000 to 30,000 pounds per QALY [quality-adjusted life year] -- that's about $31,000 to $47,000. The health service doesn’t make decisions on whether to cover therapies based on this number alone, but it is certainly  a factor." And because government healthcare budgets are strained everywhere in the world, you can be sure that the cost-effectiveness criterion is “considered” a lot. According to a 2002 World Health Organization report, 25,000 cancer patients die prematurely in Britain each year — often because of lack of access to drugs generally available in the U.S. and Europe. (See also this 2013 NHS estimate on all causes of premature deaths.) To use an example closer to home, in 1994 Hillary Clinton decided that as part of her own health reform, health plans would provide free mammograms only to women 50 and older — and only at two-year intervals. In contrast, the National Cancer Institute and the American Cancer Society at the time were recommending mammograms for women after 40, either annually or every other year, and yearly mammograms after 50.  Similarly, Clinton hinted that she would relax the usual recommendation of a Pap smear every year for sexually active young women. (Canada, at the time, offered the test every three years.) While these decisions were being made, a review of the literature by Tammy Tengs and her colleagues showed that:

• Annual mammograms for women age 55 to 64 were expected to cost $110,000 for every year of life saved.
• Annual mammograms for women in their 40s were expected to cost $190,000 per year of life saved.

In essence, Clinton decided that the lower number was an acceptable use of money while the higher figure was not. The review of the literature on Pap smears showed that:

• Screening young women for cervical cancer every four years costs less than $12,000 for every year of life saved -- a very good deal in the risk-avoidance business.
• The cost soars to about $220,000 per year of life saved at three-year intervals and $310,000 at two-year intervals.
• Giving Pap smears every year (as opposed to every other year) is really expensive: $1.5 million per year of life saved.

Clearly, Clinton and her advisers thought $1.5 million was way too high. These decisions are said to have turned the general public against Hillary Care and doomed the Clinton health reform effort. But we shouldn’t take the wrong lesson away from that experience. Hillary Clinton was not wrong about the cut-off choices she made. She was wrong in thinking that the White House should make this decision for all the women of America. The tests involved are relatively inexpensive. They can easily be paid for from a health savings account. If not getting a test is keeping someone awake at night, then by all means she should be encouraged to spend the money and get the test. Here are some public policy principles to guide us going forward:

1. Wherever possible, people should make their own decisions about risk -- using money from savings accounts they own and control.
2. Doctors should be encouraged to help patients make sensible decisions based on their own knowledge of the literature on cost effectiveness. That is, doctors should be financial advisers as well as health advisers when their patients have to make choices about medical procedures.
3. Insurance companies should be encouraged (and maybe even required) to reveal what standards they use in making decisions about coverage, and we should encourage an insurance market where people can pay higher premiums for more generous coverage – especially if they are unusually risk-averse.
4. Government health programs should make coverage decisions that are in line with private-sector insurance. And, like private insurance, the government should announce what monetary cut-off standard it is using. But we should encourage a secondary market for “top up” insurance -- for example, providing coverage for expensive cancer drugs the government refuses to cover.

In case you missed it, Chris Conover has applied cost-effective analysis to the entire Obamacare program, based on results from Massachusetts. He writes: “…. even under the most wildly optimistic assumptions possible, Obamacare costs a jaw-dropping $224,000 per QALY. In the worst case, the costs would be as high as $1.3 million per QALY.” He presents this chart (green = low estimate; red = high estimate): Photo credit: Christopher Conover, Duke University

Some claims resolve unremarkably. People heal, they go back to work, they resolve their claim around permanent impairment, if any, and adapt to their post-injury circumstances. We don't focus on those claims. They simply pass through the system, without fuss and without remark. There are no water cooler conversations about the claimant who did what was expected of him or her. This group represents about 80% of our claims, but only about 20% of our resources in loss costs and processing headaches. There's another much smaller group that do attract our time, attention and concern. They are the claims, often with similar injuries to those that heal unremarkably, that fail to resolve, demand disproportionate amounts of time to administer, result in serial disputes and cost significantly more. They cause considerably more wear and tear on claims personnel and demand more time from our dispute resolution systems. They are the 20% who represent 80% of the claims costs, and most of the excess stomach acid for system administrators, claims managers and regulators. The difference is often the development of a secondary condition that focuses claimants on what they have lost, on their symptoms and on their "new identity" as injured (and often disabled) persons. Sometimes, this secondary condition is explicitly claimed as a compensable injury, but, in the U.S., psychological conditions are generally not compensable without a direct causal connection to a discernible traumatic incident. Harm that occurs as a reaction to the experience of the compensation system is often dismissed as malingering, secondary gain behavior or personal weakness, and you may thinking, "We don't compensate that." Think again. To be sure, you may not be using the words, "exacerbation of primary claims due to secondary psychological overlay," but you are still paying for it. The research evidence is now overwhelming. Psychological conditions, whether pre-existing or acquired after a claim arises, affect the physical healing as well as the probability that an injured person will return to his pre-injury life. You are paying for secondary psychological overlay, whether or not your systems are set up to detect and measure this cost driver. It is very likely your largest unmeasured cost driver. All of these conditions are attributable to secondary psychological overlay:

• Unexplained failure to thrive and return to work;
• Functional syndromes that have neither explained cause nor effective treatment;
• Unexplained chronic pain (and all the expensive treatments and addiction problems that go with it); and
• The appearance of secondary physical symptoms that complicate recovery

There are indirect repercussions, as well. Some people seem to develop the attitude that they are entitled to whatever treatment or benefits that they request, or that they deserve special treatment by the system. There is burnout, desensitization and turnover among staff, with the very significant attendant costs of recruitment and training of new personnel. These claims drive (and are driven by) lawyer behavior that enables "victimhood" and doctor behavior that "medicalizes" symptoms and sets inappropriate patient expectations.  The list of cost centers goes on and on. We haven't done a very good job of measuring this cost driver. Partly, that's because our analytics are limited by the data we've collected. If we haven't collected the right data (or haven't even asked the right questions in the first place), then it's hard to directly analyze the phenomenon. Partly, it's a matter of the complexity of the calculation. Factoring personnel costs and systemic behavior changes by lawyers and doctors makes things a lot more complicated. We avoid useful thinking about these claims. In fact, we habitually avoid thinking about anything psychological. Effective treatment is elusive, and we have too many examples of ineffective treatment stretching into lifelong periodic sessions with "the shrink." We can't see the injury associated with these claims, and tend to think that they aren't "real" in the same way as physical injuries. This outmoded approach isn't serving us well, as increasing claims severity in many jurisdictions clearly demonstrates. And there's an element of fear of the unknown -- if we acknowledge those claims, we just might have to learn different approaches to claims management and develop different substantive knowledge that we've needed in the past. Unfortunately, this avoidance of all things psychological is a holdover from "person as a machine" thinking -- the idea that we can fix the broken part, and the mechanism will go back into the production cycle. Alternatively, the thinking may presume that the difficulty with the worker is a disease, for which discovery of the right medication or treatment will restore equilibrium. Either way, it's gotten much harder to maintain these simplistic views of injury and disability, given the overwhelming evidence that people are significantly affected by factors that have to do with their biopsychosocial environment and experience. But that's the trouble. How do we deal with this relatively small cohort of expensive claims without opening the proverbial Pandora's box? On the one hand, acknowledging the biopsychosocial elements of the claims process may open the door to psychological claiming, which in the past has been a nightmare of unending expensive interventions with few or no positive outcomes. (Alternatively, focus on biopsychosocial factors exposes underlying matters about which the claim manager often has little or no control, such as the claimant’s prior history or the nature of the person's off-work relationships.) On the other hand, failure to acknowledge the biopsychosocial elements flies in the face of an avalanche of research findings associating a bewildering and seemingly inconsistent array of factors correlated with good or poor outcomes. So what are you supposed to do? First, quit pretending that the biopsychosocial flagging systems that have flooded the market are going to save you. There has never been a published properly controlled study that could show that the identification of people pursuant to a flagging system and subsequent intervention efforts had any more impact than just providing more personalized attention to claimants generally. Flagging systems have value for predicting outcomes for groups, rather than individuals. They are useful for managing reserves and initiating increased scrutiny of behavior. When misused, they also carry a potential for adverse impact through the mechanism of self-fulfilling prophesy. When you tell a well-intentioned claims manager that certain claimants have “flags,” it’s hard to predict the subtle ways in which the manager will treat the claimant differently, but it’s almost certain that the differences will be there. Identification of a person at risk, without more, has never made anyone recover faster or better. Second, acknowledge that the presence of a secondary psychological overlay is very likely to affect the worker’s physical recovery. The research findings overwhelmingly demonstrate that psychological conditions such as depression and anxiety, a sense that personal control has been transferred to others and individual expectations for recovery have significant physical impact on physical welfare and healing of the claimant and the experience of things like chronic pain. The research shows that even the way that we talk to a patient about pain can have significant impact on the clinical outcome. It’s time to stop blaming the worker or assuming that the person is out to take advantage of the system. Just as the medical profession has acknowledged “iatrogenic” (system-created) injury, the workers’ compensation world would benefit from understanding that our compensation systems actually cause additional harm to the people we are supposed to be helping. Our system design should be more focused on preventing that harm than trying to suppress the costs associated with it. Third, find a way of thinking about secondary psychological overlay to original injury that helps you understand how it all fits together. Such a conceptual model will help you to understand the relationship between findings that aren’t obviously related. For example, understanding the relationship between the positive impact of early intervention programs, the negative impact of lawyer representation and the negative impact of sleeplessness may be difficult without an overarching explanatory framework. There are several models out there, but I suggest that most everyone agrees that a very basic place to start is the understanding that the worker's loss of an internalized sense of control over one’s own life is critical to explaining what’s happening to people in the claiming environment. Finally, whatever your model of secondary psychological harm, find the places that you can control or improve the claims environment. Can you encourage early intervention or other activity that maintains the important sense of identity as a “worker” that is endangered by injury and absence from the workplace? Can you institute mechanisms that reduce the time and stress of dispute resolution and attend to the real personal needs of people in dispute? Can you arrange circumstances so that claimants get their calls returned more quickly to preserve their feeling of being valued, or minimize the repetition of their story, to prevent unnecessary entrenchment of a changed view of self? There are literally dozens of systemic changes that you can control that will have a positive impact on the worker and his recovery. It's a different orientation than mere "cost cutting," but it will have a greater long-term and sustainable impact. The complication of claims because of undiagnosed and unmitigated secondary psychological overlays threatens the integrity of workers' compensation generally. Whether you recognize it or not, it is a very significant underlying cost driver. In the absence of understanding this phenomenon, systemic attempts to control costs have led to the increasing perception of a failure of the underlying quid pro quo that is reflected in recent litigation in Florida and changes in the structure of the Oklahoma system.  Most of us have within our control some aspect of the system can lead to the reduced incidence of secondary psychological complication of a claim.  All of us can insist that our policy makers and regulators open their eyes to this hidden source of complexity and poor outcomes, and that they respond to it in a meaningful way.

We have written several articles on the topic of baseline testing and demonstrated some substantial results. Today, with more than three years of baseline data, we are still asked the question: Is baseline testing really worth the effort? That's the question we address in this article. First, some background on baseline testing: Often called a bookend solution, it is a non-discriminatory way for an employer to ascertain if a work-related injury arises out of the course and scope of employment (AOECEO). For a baseline test to be valid for musculoskeletal disorders (soft-tissue injuries), it has to assess the specific function of the nerves and muscles of  the spine or other body part in question. In the case of soft-tissue injuries, the test should include electromyography (EMG), range of motion and functional assessment for some of the essential functions of the job. The test should be noninvasive. The baseline test data is stored unread until there is a work-related injury and then compared with a post-incident test to determine a change in condition or AOECOE status. A baseline test is not designed to see if somebody can perform the essential functions of their job and therefore differs from the post-offer, preplacement evaluation (POET). Another major difference between a POET and a baseline test is that baseline testing can be done on the existing workforce. According to the ADA, post-employment medical inquiries and exams can only be done when they are job-related and consistent with business necessity. 42 U.S.C. § 12112(d)(4)(A).  Two recent cases from the Sixth Circuit (Bates v. DuraAuto Systems and Kroll v. White Lake Ambulance Authority) can assist employers with questions. It is our opinion, consistent with Bates, that a medical exam is not prohibited as long as it does not identify or single out a disability. Therefore, baseline testing is permissible, because the data is never evaluated unless a post-loss event occurs and at that time becomes subject to workers’ compensation requirements. At no point does the baseline testing determine or identify disability or an individual's inability to perform their job functions. According to Kroll, an employer that requires medical examination of an employee has to have a reasonable belief, based on objective evidence, that the test will satisfy  a vital function of the business. The keys are objective evidence and vital business function. Accepting AOECOE claims, and getting the employee the best care for the work-related injury, will fulfill this obligation. With recent case law, and a basic understanding of the differences between POET and baseline testing, let's evaluate a case study: A national concrete manufacturer and supplier conducted POETs on all new hires. The employees use heavy equipment, and POET had proven to be a valuable tool to ensure that people could handle the equipment and to increase safety in the workplace. However, in the event of an injury, the POET test could not determine if there was an AOECOE condition and could not assist in identifying better treatment for the condition. To better help employees in the event of a work-related injury, the company decided to do baseline testing for existing employees and new hires. Mr. Smith, a 48-year-old driver who was an existing employee, felt a sharp pain in his back after lifting at work. When he reported the incident, he stated that he  was injured before his EFA baseline evaluation and that even no change from the baseline still meant he had a work-related injury. As part of the  EFA-STM program, he was referred for evaluation and sent for post-injury assessment. Based on the EFA comparisons, chronic unrelated pathology and no acute pathology were noted on both evaluations. Furthermore, no change of condition was noted, and the comparison testing revealed that he was improved on the post-loss test. He subsequently pursued a surgical opinion on his own, without authorization  from the workers’ compensation carrier. The surgeon who evaluated him recommended a lumbar surgery, and this was performed, again without authorization. After the surgery, the court commissioner found the injury to Mr. Smith’s back not to be work-related, based on the EFA-STM results. Therefore, surgery was not compensable. Furthermore, the post-incident EFA testing found surgery wouldn't have been indicated even if there were a change in condition. Mr. Smith has still not been able to return to work following his back surgery. This case demonstrates that the EFA-STM program enables determination of AOECOE conditions. In Mr. Smith’s case, the baseline testing program was not only instrumental in determining there was no AOECOE, nothing OSHA-recordable and no mandatory reporting but, most importantly, was able to determine that Mr. Smith was not a surgical candidate. Thousands of dollars for unnecessary medical care was avoided by the company for an injury that was not work-related, according to an objective determination by the EFA testing. Is baseline testing worth the effort? You be the judge.

The new year already feels well under way. The pressure is on to accelerate progress and increase business impact on all things digital. You’ve locked down the budget, and goals are in place. Now it’s time to reset the results meter and build momentum. If one of your goals is to make digital matter more to employees, customers and shareholders, and you want to shake that feeling of being left out or left behind by the torrid pace of technological change, consider taking on these eight “to-do’s.”

1. Expand your personal presence on social media. As a C-level executive, you carry the flag for your brand and for your company’s reputation. Your authentic and routine presence on social media will have high return on investment (ROI). Being part of the conversation has moved beyond “cool” or “nice-to-have.” It’s a must-do as part of your personal engagement with internal and external audiences. Your personal participation will also help you to internalize the profound impact the medium is having on everyone’s lives.
2. Put mobile first. Feel you may be lagging on web-based development? The good news is you have the opportunity to leapfrog straight to a mobile-first user experience as you execute your digital road map. Invest in responsive design technology to align all screens to a consistent experience. Mobile devices are fast-becoming the “main screen” for an expanding range of purchases, transactions, inquiries and information sharing. If you don’t believe that, observe your own behavior, and you will surely be convinced.
3. Recognize and reward team behaviors that foster innovation. It’s easy to pay lip service to the need for openness, diversity, transparency, creativity, exploration and collaboration and to be able to see failure as learning… all characteristics of an innovation culture. While you may not be able to project the bottom-line impact with anything approaching actuarial precision, increased digital effectiveness will be one of the payoffs of implementing a real plan that recognizes and rewards the people in your organization who live these attributes.
4. Modernize your key metrics. The metrics that have worked really well to measure traditional financial drivers of traditional businesses may fall short in exposing the full impacts of digital. Dedicate the right analytics talent to set up a rigorous but flexible test-and-control framework that allows you to read accurately the cause-and-effect relationships of each digital enhancement.  This is not about perfection; seek sufficient precision to reveal when it makes sense to scale your digital experiments, and to inform business cases for further investments.
5. Discourage “cutting and pasting” digital solutions from the physical world. Your organization has been at digital long enough to know that picking up what worked in the physical world and dropping it online does not even qualify these days as “version 1.0” status. The unique properties of digital experiences and the different results they generate will only be within your reach when products, service delivery, sales and other core processes are re-imagined for digital, not brought to market as re-casts of potentially obsolete approaches.
6. Align your executives’ goals and incentives to drive digital performance. We’ve moved well beyond a world where digital is the domain of IT, the marketing department or a digital head or any other functional or business silo. Digital is everywhere in your company and requires cross-everyone support to implement. Single points of accountability are powerful to get results. But the more significant the changes digital brings to your business, the more important it will be to create “skin in the game” across your team. Digital execution at the required speed will depend more and more on full team alignment to make it happen.
7. If you don’t have a social media command center, this is the year to commit to having one. More and more Fortune 500 companies are implementing command centers. This enterprise-level capability aggregates information from listening, publishing, engagement, analytics and routing tools to enable a comprehensive view and appropriate action on defined topics through a holistic social media lens. This is essential to affect a brand’s social media presence and understand and manage reputation, customer and broader feedback in a borderless public square. Step one is to have a well-articulated social media strategy so that your team can deliver a pragmatic and action-oriented capability, not a “shiny toy” reflecting the latest fad.
8. Leverage open sourcing. Expense pressure won’t abate, including the pressure to manage staffing levels. But it takes talented people to get things done. Expand your talent pool without adding headcount to include people potentially any place in the world willing and able to contribute ideas and answers to business challenges. Companies like Procter & Gamble and IBM pioneered global open-sourcing and co-creation initiatives years ago and have made them integral to how they conduct business. Your approach can be as small as a time-bound contest where you award a prize to graduate students for the best approach to formulating a new model, or a weekend hack-a-thon sponsored by your brand where you can engage outside developers to build apps for your business.

This is a headline in an LA Times article: "Why 'Wellness' Program Scams Cost Employers and Harm Employees." The article, written by Michael Hiltzik, is yet another major mainstream media hit on corporate-sponsored wellness. Hiltzik writes, “Perhaps the most popular fad at large today in the employee health benefit world is the ‘wellness’ program.” Doubts about the efficacy of wellness are popping up left and right. “Now there’s more evidence that the programs don’t save companies money….” Hiltzik says,  “Despite these emerging data, the Kaiser Family Foundation has calculated that more than half of all companies with more than 200 workers offer health screening programs; 8% of those offer an incentive to participate or a penalty for refusing.” Wellness can even backfire and harm employees through false positives, etc. Corporate sponsors of wellness had the noblest of intentions. However, now it’s high time for corporations to take a good, hard, steely-eyed look at their wellness programs. This is my mea culpa. In my career in managing benefits for large companies, I implemented programs that looked promising but didn’t work. When the facts showed they didn’t work, though, I simply stopped them. The only thing worse than implementing a flawed program is keeping it around when the facts show it is a failure.

It’s the dawn of a new day. If there was ever a business sector ripe for disruption in 2015, insurance and risk management is it. Vulnerabilities can become opportunities for those with vision and imagination. Insurance is a borderless enterprise that needs to transform to address a digital world. Customer loyalties are now drawn to the Amazons, Apples and Googles of the world – disrupter companies that not only modify or accelerate industries but redefine them. The choice is clear: Become a disrupter or be disrupted. From its beginnings in a London coffee house in 1688, Edward Lloyd pioneered an industry that has morphed into a multitrillion-dollar worldwide industry that is a complicated security hedge against the risk of contingent, uncertain losses. A simple signed slip of paper agreeing to loss and indemnity terms has turned into a highly complex mélange of legal definitions, terms and conditions, exclusions, endorsements, amendments, etc. Have we made progress? The languid pace of change in insurance has not kept up with social media and other industries. Regulatory compliance and cultural habits are challenges that inhibit transformation, and disruptive effects of technology are affecting all areas of the insurance delivery chain, from distribution to underwriting to claims. And consumer frustrations coupled with inefficiencies and distrust kills consumer confidence. If current insurance leaders fail to embrace innovation, new entrants to the insurance market will redefine customer experience through on-line market accessibility and simplicity. In addition, burgeoning consumer data and predictive analytics will drive competitiveness. In the future, we envision insurers collecting data from mobile devices and wearables that will feed into a dynamic ecosystem that will develop and refine value-added data metrics about consumer behavior, health needs and other risk factors. With large-scale cognitive computing, artificial intelligence can be used to convey insights into new ways to solve issues and accomplish objectives we’ve failed to achieve. There will be many potential avenues for monetization to those who know the most about consumer lifestyle. Thought leadership is the visionary authority that delivers pertinent answers to the biggest questions and concerns on the minds of insurance practitioners and consumers. ITL’s 360-plus diverse thought leaders serve to build the framework for our profession’s future. ITL, in turn, serves our thought leaders and subscribers by providing an accessible, independent, intellectual digital publishing platform that serves as a launch pad for new ideas and concepts. In 2015, ITL will be achieving new milestones through expanded topics, unique online training opportunities, conversation, business conclaves and conferences. I have the privilege of serving as ITL’s chief imagination officer. Think outside the box. Imagine what things could change or be revolutionized in 2015 and beyond. Be a part of the future and join our journey. Be part of the conversation. I want to hear your thoughts. “Think left and think right and think low and think high. Oh, the thinks you can think up if only you try!” -- Dr. Seuss

Tis the season for reflections on the past and predictions for the future. As we kick off 2015, here are my thoughts on the workers' compensation issues to watch this year. What Does TRIA’s Non-Renewal Mean for Workers’ Compensation? Thanks to congressional inaction, a last-minute rewrite added this subject to the issues for this year. I’m not about to predict what Congress will do with TRIA legislation in 2015, as there are no sure things in the legislative process. We have already seen the reaction from the marketplace. Back in February 2014, carriers started issuing policies that contemplated coverage without the TRIA backstops. We saw some carriers pull back from certain geographic locations, and we also saw some carriers change the terms of their policies and only bind coverage through the end of the year, giving themselves the flexibility to renegotiate terms or terminate coverage if TRIA wasn't renewed. But while some carriers pulled back in certain locations, others stepped up to take their place. While some carriers tied their policy expiration to the expiration of TRIA, other carriers did not.  Going forward, some employers may see fewer carrier choices and higher prices without the TRIA backstop, but ultimately most employers will still be able to obtain workers’ compensation coverage in the private marketplace. Those that cannot will have to turn to the State Fund or assigned risk pool. Rising Generic Drug Prices The opioid epidemic, physician dispensing and the increased use of compound drugs are issues the industry has faced for years. While these issues continue to be a problem, I want to focus on something that is getting less attention. Have you noticed that the costs for generic prescription drugs are increasing, sometimes significantly? In the past, the focus was on substituting generic drugs for brand names, which provided the same therapeutic benefit at a fraction of the costs.  But now the rising costs of these generic medications will drive costs in 2015. These price increases are being investigated by the Federal Drug Administration (FDA) and Congress, but I do not expect this trend to change soon. Medical Treatment Guidelines Another issue to watch on the medical side is the continued development of medical treatment guidelines and drug formularies in states around the country. This is a very positive trend and one that our industry should be pushing for. There is no reason that the same diagnosis under workers’ comp should result in more treatment and longer disability than the same condition under group health. One troubling issue that I see here is the politics that come into play. Sorry, but I do not accept that human anatomy is different in California or Florida than in other states. I feel the focus should be on adopting universally accepted treatment guidelines, such as Official Disability Guidelines, or “ODG,” rather than trying to develop state-specific guides. The ODG have been developed by leading experts and are updated frequently. State-based guidelines often are influenced by politics instead of evidence-based medicine, and they are usually not updated in a timely manner. How Advances in Medical Treatment Can Increase Workers’ Comp Costs There is one area in which advances in medicine are actually having an adverse impact on workers’ compensation costs, and that is in the area of catastrophic injury claims. Specifically, I’m referring to things such as brain injuries, spinal cord injuries and severe burns. Back in 1995, Christopher Reeve suffered a spinal cord injury that left him a quadriplegic. He received the best care money could buy from experts around the world, and he died less than 10 years after his injury.  But as medicine advances, we are now seeing that a quadriplegic can live close to normal life expectancy if complications can be avoided. Injuries that used to be fatal are now survivable. That's great news. The downside for those paying the bills is that surviving these injuries is very costly. The cost of catastrophic medical claims used to top off around $5 million, with a $10 million claim being a rarity. Now, that $10 million price tag is becoming more the norm. The Evolving Healthcare Model For years, workers’ comp medical networks focused on two things: discount and penetration.  Sign up as many physicians as you can as long as they will agree to accept a discount below fee schedule for their services. I’m happy to say that we are slowly, finally, evolving away from that model. Payers are realizing that a better medical outcome for the injured worker results in lower overall workers’ compensation costs, even if that means paying a little more on a per-visit basis. We are now seeing larger employers developing outcome-based networks, not only for workers’ compensation, but for their group health, as well. Employers are also starting to embrace less traditional approaches such as telemedicine. Finally, more and more employers are recognizing the importance that mental health plays in the overall wellness of their workforce. In the end, we are slowly starting to see is a wellness revolution. The Need for Integrated Disability Management The evolving healthcare model is tied directly to an evolving viewpoint on disability management. More employers are realizing the importance of managing all disability, not just that associated with workers’ compensation claims. Employees are a valued asset to the company, and their absence, for any reason, decreases productivity and increases costs. I feel this integrated disability management model is the future of claims administration. Employers who retain risk on the workers’ comp side usually do the same thing with non-occupational disability. These employers are looking for third-party administrators (TPAs) that can manage their integrated disability management programs. And make no mistake: Having an integrated disability management program is essential for employers. Human resource issues such as the Americans With Disabilities Act (ADA) and the Family and Medical Leave Act (FMLA) cross over into the workers’ compensation realm. The same interactive process required on non-occupational disability is required in workers’ compensation. Employers must be consistent with how they handle any type of disability management, regardless of whether the cause is a workers’ compensation injury or non-occupational. Will We See a Push for 'Opt Out' in Other States? Most people know that non-subscription, or opt out, has been allowed in Texas for many years. The Oklahoma Option that started last year is viewed as a much more exportable version of opt out. Under this system, employers can opt out of workers’ compensation, but they must replace it with a benefit plan that provides the same (or better) benefits available under traditional workers’ compensation. While some view the Oklahoma Option as the start of an opt-out revolution, it is just too early to tell what impact it will ultimately have. But, make no mistake, discussions about opting out are spreading to other states. A group called the Association for Responsible Alternatives to Workers' Compensation is currently investigating the possibility of bringing opt out to other states. I expect to see opt-out legislation in a handful of other states in the next three to five years. Marijuana Marijuana legislation is a very hot topic these days.  In national polls, the majority of Americans favors legalization of marijuana in some form.  Recreational use of marijuana is now legal in four states (Colorado, Washington, Oregon and Alaska), and 23 states allow medical marijuana. When it comes to workers’ compensation, much of the attention has been focused on medical marijuana as a treatment option for workers’ comp because a judge in New Mexico allowed this last year. My concern is around employment practices. Employment policies around marijuana have been centered on the fact that it is illegal, so any trace in the system is unacceptable. That is going to change. I fully expect the government to reclassify marijuana from Schedule I to Schedule II in the next few years. When that happens, zero-tolerance policies in the workplace will no longer be valid. Instead, the focus will have to be like it currently is with alcohol: whether the person is impaired. The Next Pandemic Another hot topic these days is Ebola. While the threat from this particular disease seems to be subsiding, the concerns about Ebola last year showed we are not ready for that next pandemic. People who were exposed to the disease were allowed to interact with the general population and even use commercial travel. Government agencies debated whether travel to certain countries should be limited. The problem is, diseases don’t wait for a bureaucracy to make decisions. While this threat didn’t materialize, you can see how easily it could have. With work forces that travel around the globe, the threat of a global pandemic is very real. You know where you send your workers as part of their job, but do you know where they go on vacation? As an employer, are you allowed to ask about what employees do during their personal time? Are you allowed to quarantine an employee who traveled to an infected country during vacation? These are very complex legal questions that I cannot answer, but these are discussions we need to be having. How do we protect our employees from the next pandemic? Rates and Market Cycle You cannot have a discussion around issues to watch without talking about insurance premium rates in workers’ compensation. After several years of increasing rates around the country, the National Council on Compensation Insurance (NCCI) is projecting that, in 2014, workers' compensation combined ratios were below 100% for the first time since 2006. This means that, as an industry, writing workers’ compensation is profitable again. So what should buyers expect in 2015? Well, it depends. California continues to be a very challenging state for workers’ compensation costs. New York is challenging, as well. Given the percentage of the U.S. workforce in those two states, they have significant influence on the entire industry. Some employers will see rate reductions this year, and some will not. In the end, your individual loss experiences will determine what happens with your premiums. That seems to be the one constant when it comes to pricing. Employers with favorable loss experiences get lower rates, so it pays to stay diligent in the areas of loss prevention and claims management. Will We See More Constitutional Challenges Similar to Padgett in Florida? While I don’t think the Padgett case will be upheld on appeal, I am concerned that the case is the first of many similar ones we could see around the country. Look at the main arguments in Padgett: The workers’ compensation system is a grand bargain between injured workers and employers. Workers gave up their constitutional right to sue in civil courts in exchange for statutorily guaranteed, no-fault benefits. Over the last 20 years, many workers’ comp reform efforts around the country have focused on lowering employer costs. Standards of compensability have been tightened. Caps have been put on benefits. The judge in Padgett looked at these law changes and ruled that workers’ compensation benefits in Florida had been eroded to the point where it was no longer a grand bargain for injured workers. He ruled that the workers’ compensation statutes were unconstitutional on their merits because the benefits provided are no longer an adequate replacement for the right to sue in civil court that that the workers gave up. Attorneys tend to mimic what succeeds in other courts, so I expect we are going to be seeing more constitutional arguments in the future. Impact of the Evolving Workforce One of the biggest issues I see affecting workers’ compensation in 2015 and beyond is the evolving workforce. This takes many forms. First, we are seeing technology replace workers more and more. When was the last time you went to a bank instead of an ATM? I have seen both fast food and sit-down restaurants using ordering kiosks. Also, we are seeing more use of part-time vs. full-time workers. Some of this is driven by concerns around the Affordable Care Act. But part-time workers also have fewer human resource issues, and their use allows employers to easily vary their workforce based on business needs. Unfortunately, part-time workers are also less-trained, which could lead to higher injury frequency. Finally, the mobile work force is also creating concerns around workers’ compensation. Where is the line between work and personal life when you are using a company cell phone, tablet or computer to check e-mails any place, any time? Where do you draw the line for someone who works from home regularly? There have been numerous court cases around the nation trying to determine where that line is. This is a very complex and evolving issue. To view a webinar that goes into these topics in more detail, click here: https://www.safetynational.com/webinars.html

Individual life insurance ownership in U.S. has been decreasing over the past decade, and the figures are even more depressing when we look at the figures over the past 50 years. Life insurance ownership (both group and individual) among U.S. adults has dropped from 70% of individuals in 1960 to 59% in 2010. The number of individual policies owned by U.S. adults has dropped from 59% in 1960 to 36% in 2010, according to the Life Insurance and Market Research Association (LIMRA). The world has seen accelerated change over the past several decades, and, as entire industries transform, even leading and innovative companies can get trampled. The life insurance industry is no exception. The figures clearly demonstrate the slowing demand for life insurance. Are we seeing the "death" of life insurance, or is this just a temporary "blip" as the industry re-designs itself for changing demographics? Are there innovative business models that can change the situation? The Case for Big Data and Analytics The life insurance industry needs to innovate and needs to innovate fast. Innovation has to come from understanding end consumer needs better, reducing distribution costs in addressing these needs and developing products that are less complex to purchase. By leveraging new technologies, particularly new sources of data and new analytics techniques, insurers will be able to foresee some of these changes and prepare for disruptive change. There are at least two distinct ways in which new sources of data and analytics can help in the life insurance sector.

• Underwriting: Identifying prospects who can be sold life insurance without medical underwriting (preferably instantaneously) and speeding up the process for those who do require medical underwriting
• New non-standard classes: Identifying and pricing prospects who have certain types of pre-existing conditions, e.g., cancer, HIV and diabetes.

Predictive Modeling in Underwriting A predictive model essentially predicts a dependent variable from a number of independent variables using historically available data and the correlations between the independent variables and the dependent variable. This type of modeling is not new to life insurance underwriters as they have always predicted mortality risk for an individual, based on variables of historical data, such as age, gender or blood pressure. With the availability of additional data about consumers, including pharmacy or prescription data, credit data, motor vehicle records (MVR), credit card purchase data and fitness monitoring device data, life insurers have potentially a lot of data that can be used in the new business process. Because of privacy and confidentiality considerations, most insurers are cautious in using personally identifiable data. However, there are a number of personally non-identifiable data (e.g., healthy living index computed by zip code) or household level balance sheet data that can be used to accelerate or "jet-underwrite" certain classes of life insurance. Some insurance companies are already using new sources of sensor data and applying analytics to personalize the underwriting process and are reaping huge benefits. For example, an insurer in South Africa is using analytics to underwrite policies based on vitality age, which takes into account exercise, dietary and lifestyle behaviors, instead of calendar age. The insurer combines traditional health check-ups with diet and fitness checks, and exercise tracking devices to provide incentives for healthy behavior. Life insurance premiums change on a yearly basis. The company has successfully managed to change the value proposition of life insurance from death and living benefits to "well-being benefits," attracting a relatively healthier and younger demographic. This new approach has helped this company progressively build significant market share over the past decade and exceed growth expectations in the last fiscal year, increasing profits by 18% and showing new-business increases of 13%. Pricing Non-Standard Risk Classes In the past, life insurers have excluded life insurance cover for certain types of conditions, like AIDS, cancer and stroke. With the advances in medical care and sensors that monitor vital signs of people with these conditions on a 24x7 basis, there is an opportunity to price non-standard risk classes. Websites that capture a variety of statistics on patients with specific ailments are emerging. Medical insurers and big pharmaceutical companies are leveraging this information to understand disease progress, drug interaction, drug delivery, patient drug compliance and a number of other factors to understand morbidity and mortality risks. Life insurers can tap into these new sources of data to underwrite life insurance for narrower or specialized pool of people. For example, a life insurance company in South Africa is using this approach to underwrite life insurance for HIV or AIDS patients. They use extensive data and research on their HIV patients to determine mortality and morbidity risks, combine their offering with other managed care programs to offer non-standard HIV life insurance policies. They have been operating over the past four years and are branching out into new classes of risk including cancer, stroke and diabetes. Surviving and Thriving in the World of Big Data The examples we have provided are just scratching the surface of what is likely to come in the future. Insurers that want to leverage such opportunities should change their mindset and address the challenges facing the life insurance sector. Specifically, they should take the following actions:

• Start from key business decisions or questions
• Identify new sources of data that can better inform the decision-making process
• Use new analytic techniques to generate insights
• Demonstrate value through pilots before scaling
• Fail forward -- institute a culture of test-and-learn
• Overcome gut instinct to become a truly data-driven culture

In summary, life insurance needs to innovate to be a relevant product category to the younger and healthier generation. Using new sources of big data and new analytic techniques, life insurers can innovate with both products and processes to bring down the cost of acquisition and also open up new growth opportunities. What cycle-time improvements have you been able to achieve in the life new-business process? How well are you exploiting new data and analytic techniques to innovate in the life insurance space?

We thank Ron Goetzel, representing Truven Health and Johns Hopkins, for posting on Insurance Thought Leadership a rebuttal to our viral November posting, "Workplace Wellness Shows No Savings." Paradoxically, while he conceived and produced the posting, we are happy to publicize it for him. If you’ve heard that song before, think Mike Dukakis’s tank ride during his disastrous 1988 presidential campaign. Goetzel's rebuttal, “The Value of Workplace Wellness Programs,” raises at least 11 questions that he has been declining to answer. We hope he will respond here on ITL. And, of course, we are happy to answer any specific questions he would ask us, as we think we are already doing in the case of the point he raises about wellness-sensitive medical events. (We offer, for the third time, to have a straight-up debate and hope that he reconsiders his previous refusals.) Ron: (1)    How can you say you are not familiar with measuring wellness-sensitive medical events (WSMEs), like heart attacks? Your exact words are: “What are these events? Where have they been published? Who has peer-reviewed them?” Didn’t you yourself just review an article on that very topic, a study that we ourselves had hyperlinked as an example of peer-reviewed WSMEs in the exact article of ours that you are rebutting now? WSMEs are the events that should decline because of a wellness program. Example: If you institute a wellness program aimed at avoiding heart attacks, you’d measure the change in the number of heart attacks across your population as a “plausibility test” to see if the program worked, just like you’d measure the impact of a campaign to avoid teenage pregnancies by observing the change in the rate of teenage pregnancies. We're not sure why you think that simple concept of testing plausibility using WSMEs needs peer review. Indeed, we don’t know how else one would measure impact of either program, which is why the esteemed Validation Institute recognizes only that methodology. (In any event, you did already review WMSEs in your own article.) We certainly concur with your related view that randomized controlled trials are impractical in workplace settings (and can’t blame you for avoiding them, given that your colleague Michael O’Donnell’s journal published a meta-analysis showing RCTs have negative ROIs). (2)    How do you reconcile your role as Highmark’s consultant for the notoriously humiliating, unpopular and counterproductive Penn State wellness program with your current position that employees need to be treated with “respect and dignity”? Exactly what about Penn State’s required monthly testicle check and $1,200 fine on female employees for not disclosing their pregnancy plans respected the dignity of employees? (3)    Which of your programs adhere to U.S. Preventive Services Task Force (USPSTF) screening guidelines and intervals that you now claim to embrace? Once again, we cite the Penn State example, because it is in the public domain -- almost nothing about that program was USPSTF-compliant, starting with the aforementioned testicle checks. (4)    Your posting mentions “peer review” nine times. If peer review is so important to wellness true believers,  how come none of your colleagues editing the three wellness promotional journals (JOEM, AJPM and AJHP) has ever asked either of us to peer-review a single article, despite the fact that we’ve amply demonstrated our prowess at peer review by exposing two dozen fraudulent claims on They Said What?, including exposés of four companies represented on your Koop Award committee (Staywell, Mercer, Milliman and Wellsteps) along with three fraudulent claims in Koop Award-winning programs? (5)    Perhaps the most popular slide used in support of wellness-industry ROI actually shows the reverse -- that motivation, rather than the wellness programs themselves, drives the health spending differential between participants and non-participants. How do we know that? Because on that Eastman Chemical-Health Fitness Corp. slide (reproduced below), significant savings accrued and were counted for 2005 – the year before the wellness program was implemented. Now you say 2005 was “unfortunately mislabeled” on that slide. Unless this mislabeling was an act of God, please use the active voice: Who mislabeled this slide for five years; where is the person's apology; and why didn’t any of the analytical luminaries on your committee disclose this mislabeling even after they knew it was mislabeled? The problem was noted in both Surviving Workplace Wellness and the trade-bestselling, award-winning Why Nobody Believes the Numbers, which we know you’ve read because you copied pages from it before Wiley & Sons demanded you stop? Was it because HFC sponsors your committee, or was it because Koop Committee members lack the basic error identification skills taught in courses on outcomes analysis that no committee member has ever passed? (6)    Why doesn’t anyone on the Koop Committee notice any of these “unfortunate mislabelings” until several years after we point out that they are in plain view? (7)    Why is it that every time HFC admits lying, the penalty that you assess -- as president of the Koop Award Committee -- is to anoint their programs as “best practices” in health promotion? (See Eastman Chemical and Nebraska in the list below.) Doesn’t that send a signal that Dr. Koop might have objected to? (8)    Whenever HFC publishes lengthy press releases announcing that its customers received the “prestigious” Koop Award, it always forgets to mention that it sponsors the awards. With your post’s emphasis on “the spirit of full disclosure” and “transparency,” why haven’t you insisted HFC disclose that it finances the award (sort of like when Nero used to win the Olympics because he ran them)? (9)    Speaking of “best practices” and Koop Award winners, HFC’s admitted lies about saving the lives of 514 cancer victims in its award-winning Nebraska program are technically a violation of the state’s anti-fraud statute, because HFC accepted state money and then misrepresented outcomes. Which is it: Is HFC a best practice, or should it be prosecuted for fraud? (10)    RAND Corp.’s wellness guru Soeren Mattke, who also disputes wellness ROIs, has observed that every time one of the wellness industry’s unsupportable claims gets disproven, wellness defenders say they didn’t really mean it, and they really meant something else altogether. Isn’t this exactly what you are doing here, with the “mislabeled” slide, with your sudden epiphany about following USPSTF guidelines and respecting employee dignity and with your new position that ROI doesn’t matter any more, now that most ROI claims have been invalidated? (11)    Why are you still quoting Katherine Baicker’s five-year-old meta-analysis claiming 3.27-to-1 savings from wellness in (roughly) 16-year-old studies, even though you must be fully aware that she herself has repeatedly disowned it and now says: “There are very few studies that have reliable data on the costs and benefits”? We have offered to compliment wellness defenders for telling the truth in every instance in which they acknowledge all her backpedaling whenever they cite her study. We look forward to being able to compliment you on truthfulness when you admit this. This offer, if you accept it, is an improvement over our current Groundhog Day-type cycle where you cite her study, we point out that she’s walked it back four times, and you somehow never notice her recantations and then continue to cite the meta-analysis as though it’s beyond reproach. To end on a positive note, while we see many differences between your words and your deeds, let us give you the benefit of the doubt and assume you mean what you say and not what you do. In that case, we invite you to join us in writing an open letter to Penn State, the Business Roundtable, Honeywell, Highmark and every other organization (including Vik Khanna’s wife’s employer) that forces employees to choose between forfeiting large sums of money and maintaining their dignity and privacy. We could collectively advise them to do exactly what you now say: Instead of playing doctor with “pry, poke, prod and punish” programs, we would encourage employers to adhere to USPSTF screening guidelines and frequencies and otherwise stay out of employees’ personal medical affairs unless they ask for help, because overdoctoring produces neither positive ROIs nor even healthier employers. And we need to emphasize that it’s OK if there is no ROI because ROI doesn’t matter. As a gesture to mend fences, we will offer a 50% discount to all Koop Committee members for the Critical Outcomes Report Analysis course and certification, which is also recognized by the Validation Institute. This course will help your committee members learn how to avoid the embarrassing mistakes they consistently otherwise make and (assuming you institute conflict-of-interest rules as well to require disclosure of sponsorships) ensure that worthy candidates win your awards.

Your company's financial performance is below plan. You need to act! The most common response is to cut costs to improve the bottom line or fire or reassign a senior executive to create a sense of urgency. But these actions create disruption and distraction at a time when the organization needs to be aligned and focused. There’s another approach: Empower your employees to find the solution. Step back and let them take the lead. Invest them with the power to effect change. There are three basic approaches:

1. Create a cross-functional team to focus on the problem. Early in my career, I was summoned to the office of the CEO of a major carrier along with two other people from different departments. The CEO told us that one of our smaller divisions was not doing well. He said everyone in the group was working hard, but no one had any solutions. He asked us to come up with a plan within a week to improve the division’s performance. He said there were “no sacred cows.”  We should not concern ourselves with whether our solutions were politically correct. We came up with a plan that adopted an open-architecture product approach, where the company’s product was just one of many that our insurance salespeople could offer. Broadening customer selection highlighted the benefits of our product offering, and sales increased markedly.
2. Empower your front-line employees to find the solution. Zappos, the online shoe website, empowers its customer service representatives (CSRs)to control the customer experience. Most call centers evaluate performance based on the length of a call. Calls that last beyond a certain time hurt the CSR’s performance reviews. Early on at Zappos, the CSRs reported that callers had a lot of questions and that the calls could last 10, 15 even 30-plus minutes. They suggested that Zappos not evaluate their performance based on the time a call lasted. Zappos adopted this policy and allows its CSRs to stay on the line as long as needed with a customer. This has translated into pricing power for the company. Zappos’ customer loyalty is so high, it enables the company to charge full retail for its shoes.
3. Show your employees they come before you. In the March 22, 2014, Corner Office column in the New York Times, Don Knauss, the CEO of Clorox, recounted one of his first leadership lessons while in the Marines. After a hard day of drills in the field, the commanding officer had arranged for a special meal for the soldiers. Hungry, Knauss, a lieutenant, walked to the front of the line to get dinner. A gunnery sergeant tapped him on the shoulder and said, "In the field, the men always eat first. You can have some if there is any left." As Knauss recounted, "It’s all about your people; it’s not about you. And if you’re going to lead these people, you’d better demonstrate that you care more about them than you care about yourself."

Companies with CEOs who empower their employees perform better. In a study led by University of Chicago Booth School of Business Professor Steven N. Kaplan, titled, “Which CEO Characteristics and Abilities Matter?” to be published in the Journal of Finance, performance characteristics of approximately 400 CEOs were evaluated. There was a direct correlation between company performance and whether the CEO was “open to criticism” -- another way of describing CEOs willing to empower others. Technology and the Great Recession have reduced the number of management layers between the CEO and front-line employees. This creates an opportunity for more engagement and collaboration. CEOs must spend more time focusing on how they create a culture of engagement -- in other words, a two-way conversation.