Nine months into it and getting ready for the next go-round, I thought it might be beneficial to take a look back and see what progress has been made on the Affordable Care Act.  There are many perspectives from which to evaluate the situation, and many will vary in their assessment. This article attempts to take an unbiased view and make an accurate assessment. First of all, the implementation was a near disaster. Frustrated customers, frustrated carriers, frustrated providers. . . Obamacare couldn’t have generated more frustration if that had been the primary objective. Now that most of the dust has settled, the exchanges are enrolling individuals, and customers are paying their premiums and obtaining coverage with their selected health plan and carrier. I am not aware of any major glitch in this process. It appears that this part of the marketplace is functioning well, even if with implementation bruises. The rate update process for 2015 also appears to be working well. Most health plans are now more comfortable with the system. The oversight of the various insurance commissioners seems to be working better this year. Rates are being approved. And most things seem to be ready for the coming implementation in the fall. For all practical purposes, the ability to offer a benefit program, publicize the rate in the marketplace, purchase it, enroll and make use of the benefits as needed seems to be working well. This is not a major improvement, just a catching up to what had been done before, outside this new marketplace. Yes, the plans are standardized (the metallic levels), and the rates are consistently made (through a combination of oversight and standard ACA age factors), which improve the marketplace and minimize some adverse selection. But for the most part this is just doing business a new way. So, have there be any improvements? Are more people covered? Have inflationary trends gone down? Has coverage become more affordable? The results so far are preliminary, hard to measure and somewhat variable from one market to another. However, based on my experience with carriers and health plans across the country, I have the following observations:

• 2015 rate increases will likely be less than in prior years is many markets;  this is less the result of reductions in underlying healthcare trends and more the result of the lack of any major change in the underlying marketplace.  Moving from a situation of being able to underwrite new members to one where no medical information can be used resulted in many carriers being conservative in their pricing for 2014. Because 2015 is merely an update from the prior year, the actual changes were less. One of the exceptions will be carriers who are phasing in the impact of ending the ACA catastrophic reinsurance program in 2017. I expect that most rate increases in most markets will be less than 10%.
• Pharmacy costs are increasing much more rapidly than previously anticipated. The introduction of Sovaldi for Hep-C patients has significantly affected those programs covering Hep-C patients. Although Sovaldi essentially provides a cure for Hep-C, the treatment cost for patients is about $90,000 over three months and is expected to increase to at least $120,000 as the updated combo drug is introduced later this year. This highly effective, yet costly, drug is one of many hitting the market that are driving up costs. This drug has nothing to do with ACA implementation but will be included in the assessment of ACA effectiveness because it was introduced post-ACA.
• The rolling of some Medicaid beneficiaries into the exchanges and the expansion of Medicaid in many states is having a significant impact for carriers operating in those markets. In one particular market, these changes are leading to severe financial challenges for carriers assuming the financial risk of these members in the exchange and in the managed care Medicaid program offered side by side to the ACA exchange.  Apparent underfunding by the state and much higher-than-expected utilization and costs are leading to serious financial issues. These issues appear to be replicated in many markets nationally.
• The 3Rs (i.e., risk adjustor, risk corridor and reinsurance mechanisms) have yet to be included in financial results of health plans and carriers. Health plans are having to incorporate adjustments into this year’s financial results yet do not really know what the final adjustments will be. Some will have to establish premium deficiency reserves, others accruals for subsidies from ACA or payouts to ACA, adding much uncertainty to their operations. Boards are going to be less aware of financial results than in the past. Audits are going to be harder to complete and audit adjustments more common.
• Underlying inflationary trends do not appear to be lowering as a result of ACA. Unit cost increases appear to be as fast as before, and in some markets more rapid. There is increasing pressure from providers as health plans attempt to negotiate controlled or reduced rates. Health plans are pursuing narrower networks to get the deals they desire, with public pressure to continue to keep maximum choice. The conflict of health plan objectives of controlling costs and consumer pressure to maintain no restrictions is leading to increased costs. Logically, one would assume that there is a point where the consumer might be willing to utilize a more restrictive network at a lower price, but the general reaction is that we aren’t yet at that point. Even though we are experiencing the highest costs on the planet, the average consumer still desires unlimited choice.  These same consumers complain about cost but are not willing to make personal changes to help reduce those costs.
• The numbers of individuals without health plan coverage has reduced slightly but has not yet approached targeted levels. We have not yet achieved coverage for all. In fact, we are not yet on a path to accomplish this.

The bottom line:

• We have made some progress to bring healthcare to the table for discussion.
• We have re-arranged many of the insurance and health plan chairs on the Titanic-like health care system. We have avoided some icebergs this year, but it is not yet clear that we have clear sailing.
• The system is still subject to significant cost factors that are hard to control (such as Sovaldi), anticipate and plan for. These “icebergs” will continue in the future.
• The environment that our health plans are operating in is financially risky for them and will require high levels of cooperation with government oversight bodies (i.e., Medicaid departments, CMS and insurance departments).
• Although rate increases may be tempered somewhat this coming year, there is little evidence of any long-term tempering or reduction in underlying health carecosts or bending of the trend. Many attempts by the carriers (e.g., narrow networks) are not receiving adequate acceptance by the public and regulators.

ACA is a work in progress. It has introduced some hope but has yet to produce the results hoped for.

Losses from Sunday’s 6.0-magnitude earthquake near Napa, the largest in California in 25 years, seriously damaged more than 170 structures and injured more than 200 people. Overall earthquake-related losses are expected to exceed $1 billion. Many unreinforced masonry buildings risk being declared a total loss. But even retrofitting doesn’t always ensure earthquake immunity. The charming 1901 stone Goodman Library in downtown Napa was seismically retrofitted at a cost of $1.7 million a few years ago, yet the top of the building toppled over in the earthquake. A nearby historic brick building was retrofitted for $1.2 million after a 2000 Napa earthquake, and it was red-tagged Monday with serious damage, as well. Unfortunately, the repair and rebuilding costs will be the next jolt that rocks the budgets of businesses and homeowners. It’s estimated that less than 12% of homeowners in California have earthquake coverage – a figure that was as high as 22% last year, according to the California Earthquake Authority. CEA underwrites more than 800,000 policies representing 70% of the homeowner earthquake insurance in the state. California has two-thirds of the nation’s earthquake risk, with 2,000 known faults producing 37,000 measurable earthquakes a year. Besides California, the U.S. Geological Survey maps show major earthquake risks in nearly half the U.S. In 1994, after a 6.7-magnitude earthquake hit the Northridge area of Southern California, 93% of homeowner insurance companies restricted or refused to write earthquake insurance policies. In response, the California legislature established the California Earthquake Authority (CEA) in 1995 to provide a reduced-coverage (“no-frills”) earthquake policy for homeowners in the state -- things like swimming pools, decks and detached structures are not included. Insurance carriers in California can offer their own earthquake coverage or be a participating member of the CEA, which made the CEA one of the largest providers of residential earthquake coverage in the world. Currently, 21 major insurance carriers participate in CEA, and its assets total nearly $10 billion. Its A.M. Best rating is A- (excellent). CEA policies are available to homeowners and renters, including for mobile homes and condominiums, if their primary homeowners’ coverage is with one of the CEA insurers. Keep in mind that many condominium communities have common ownership, which means that the condo owners could have joint and several liability for repairs after an earthquake. CEA reports that it uses 83% of the premiums it collects for claims or reinsurance, 14% for broker commissions and 3% for operations/overhead. The likelihood that state or federal disaster relief may be available is a risky proposition for home or business owners. The president needs to declare a disaster before the Federal Emergency Management Agency (FEMA) can grant any limited assistance. States surplus funds for relief, on the other hand, are simply non-existent. So why are people buying less earthquake coverage when the hazards of a potential devastating earthquake are growing? Unlike other natural disasters like hurricanes, tornadoes, and wildfires that are usually covered under homeowners’ insurance policies, earthquake coverage is a separate insurance policy with a deductible of 10% or 15% of the structure’s estimated replacement cost. The average earthquake policy in California in 2013 cost $676 a year, according to the California Department of Insurance. The current average cost of a home in California, according to Zillow, is $429,000. Even with a minimum 10% deductible, a homeowner would be out of pocket $42,900 before earthquake insurance coverage kicks in. Business properties suffer a much larger risk factor considering the additional exposure of damaged inventory, a red-tagged (unusable) building risk and loss of use and income. In contrast, flood insurance is available in most of the country with a $1,000 building and $1,000 contents deductible as part of the property coverage. The Insurance Information Institute reports that the average flood damage claim in 2013 was $26,165 for the 13% of U.S. homeowners who buy the additional flood coverage – sometimes as a condition to their mortgage, if they are located in a flood zone. Low-frequency, high-severity risks like earthquakes represent a bet that few home or business owners can afford to lose. Unfortunately, Californians, who own the nation’s highest-valued properties, also have the most money on the table when the next big shake comes.

Many drivers are angry. They only drive a little but don't save a lot on their auto insurance. When customers get angry, they start to shop. And when low-mile customers start to shop, they will soon find companies offering new, risk-based policies that reward them with low prices in return for their smaller exposure to claims. That shift will take an awful lot of profitable business away from their current insurance companies. By my count, the total could be $22 billion a year in premiums. The math goes like this: About 25% of vehicles are driven less than 6,000 miles a year -- about half the 12,000 to 13,000 miles that are assumed as the default when insurers calculate premiums. Roughly 30% of vehicles may be considered "low milers," at less than 8,000 miles a year. If the owners of these cars earned the sort of discount they deserve, (an average of about 30%) then at scale close to $22 billion in premiums would evaporate if nothing else happened. The premiums won't disappear right away. For now, California is the only state that mandates the use of mileage in setting premiums. Most companies doing business there use a hodgepodge of miles bands and a tinkling of rate adjustments from low miles to higher miles. The most sophisticated insurer uses dozens of bands with a 500-mile increment. Premium discounts go as low as 50%, with a roughly 2% incline from 500 to 25,000 miles. But the trend toward usage-based pricing has to pick up steam, both because it's possible to measure miles driven very precisely and because so many people are overpaying. Practically every retiree in America drives less than when she worked. If you go out and look for a used car (use Google -- save some gas), you can find many a 15-year-old car with less than 75,000 miles, or five-year-old cars with less than 30,000 miles. Even if an owner of one of those 15-year-old cars received a 30% discount for low miles, he paid for 15 years and only used 10 years' worth of insurance. There are sure to be many counterpoints to the simple argument being made here, but all of the readers who are honest know someone who does not drive much, but who pays the full default rate like everyone else. Let the shopping and savings begin.

Business owners often complain about workers' compensation, and this story from Oregon highlights exactly why. A tree trimming and landscape maintenance business was started by Robert and Jannai Cornett in 1998 with a pickup truck, "a chainsaw and a rake, a little blood and a lot of sweat." R&R Tree Service grew to a 30-employee company with trucks, equipment and an office. At some point, the company switched from a private workers' compensation carrier to SAIF, Oregon's state fund. The company had a program by which volunteers would come out and collect the wood from trees that R&R had cut down to give to the needy for firewood. As in many things in life, trying to do good just results in trouble -- SAIF smelled "underreporting" of payroll. The volunteer program had started long ago, and R&R's prior carrier had no issues with it, but SAIF conducted multiple audits of payroll records from 2007 until 2011. Robert Cornett had kept a daily log of employee hours based on oral reports from each crew at the end of each work day. For each job, Robert would record the person or business being billed, the crew members assigned to the job, the number of hours worked per crew member and whether the work performed was "above ground" or with "boots on the ground." He made this division because SAIF had assigned two risk classification codes to R&R for its non-office and sales staff. Workers doing tree and shrub pruning above ground level were assigned code 0106. Workers doing lawn maintenance performed from the ground level were assigned code 9102. The above-ground (AG) and below-ground (BG) designations were then input into the payroll records on a weekly basis - but there were no other "verifiable" payroll records to support this input. SAIF didn't have an issue with this system during four audits between 2002 and 2007. In fact, one auditor even said R&R had "an excellent system of tracking work and time." But later SAIF assigned a particularly aggressive auditor to review the company's records for years 2007 and 2008, and he took issue with the payroll-tracking methodology. That auditor found R&R's records did not meet the requirements for verifiable records under OAR 836-042-0060. Under OAR 836-042-0060(4), payroll records are "verifiable" if they establish the time worked and duties performed by each employee, and if they are supported by original entries from other records, including time cards, calendars, planners or daily logs prepared by the employee or the employee's direct supervisor or manager. Based on the auditor's findings, SAIF assigned the entire payroll to the highest-rated classification. For the year audited, 2007-2008, this raised the company's premium by more than $67,000. The company objected, and of course this incited further auditing, ultimately resulting in a claim by SAIF of more than $386,000 in additional premiums. R&R went through all of the appellate procedures for contesting the additional assessments and lost all of them all the way to a state appellate court. According to WorkCompCentral's news report on the story, R & R likely will close its doors and terminate all of its employees, putting 30 people on the unemployment rolls. And that's a shame. Sure, some of us up in the ivory tower of workers' compensation insurance compliance will say, "That's the law," or "They should have hired an expert to help" or "Where was their broker in all of this?" Those questions are beside the point. Here we have a well-intentioned, seemingly compliant business taking care of people, putting value into the economy for 15 years, and they're taken out by The System. What's wrong with the picture is that what should be a cooperative relationship turned adversarial. I'm sure SAIF has its own position on the matter, but all officials said to WorkCompCentral was that they were "pleased with the ruling" and the court of appeals' determination that "SAIF followed the correct process and acted appropriately in determining the policyholder's premium." Maybe SAIF was legally correct, and its auditors and employees were doing their jobs. But maybe at some point a senior executive could step in and see the PR mess this kind of case creates and figure out a compromise, and then media relations could proclaim the carrier's great willingness to help small business comply. Instead, as with most large corporate bureaucracies, nobody really cares -- if a customer goes out of business, there will be plenty more in the pipeline to collect premium from.

Funny: If you ask a doctor if she's overpaid, you'll get a long-winded answer largely around an emphatic "no." The real answer is a much more nuanced "yes" -- and is summarized every year in this one chart: The why of this chart isn't some big mystery. I've written about it very directly here: Med Student Gives Sober Assessment of Future With $500K in Student Debt. Healthcare training takes an incredible amount of time and money, so those who survive as freshly minted docs have a huge debt -- roughly equivalent to a nice home mortgage. Oh, and unlike all other types of financial debt, student debt is not dischargeable through bankruptcy, so it's lifelong until satisfied. None of this is a mystery to U.S. med students. They are exceedingly bright (by necessity) and start planning their career trajectories fairly early. A key component to that planning is the amount of debt they'll have when they graduate -- and the number of remaining years they'll have as high wage earners. The math leads directly to the above graph. If you have a choice at graduation of being a family practitioner or internist (with long, grueling hours, inside exam rooms all day) for $15,000 a month -- or the cushy job of being a radiologist (reading images remotely for eight hours a day) for $30,000 a month -- where's the choice? It's not a choice. It's a no-brainer (for most), which is why we have a severe shortage at all the specialties on the right side of the graph. That's the U.S. (and why our system is dysfunctional from the start). The system we have is optimized around revenue and profits, not safety and quality. France, by contrast, has a different view and (not surprisingly) better health outcomes and cost. France's view is that medical training is an "infrastructure" cost, and the best way to accommodate that is to have med students graduate with $0 debt. Now, in fairness, doctors in France don't have the opportunity at a lavish wage of $400,000 to $500,000 a year (or more), but the French also don't have a shortage of primary care docs. We do -- and it's also a contributing factor to why our system is now a global embarrassment and perpetual national crisis - as represented by this one chart:

The “Internet of Things” is here. According to Cisco, sometime during 2008, the number of things connected to the Internet exceeded the number of people.  Cows, corn, cars, fish, medical devices, appliances, power meters — practically  any item imaginable has been or can be connected. Eventually, we will be able to, for instance,  “sync” an entire home so that its heating system is programmed to adjust to  weather patterns and inhabitants’ activities. Businesses ranging from small start-ups to long-standing conglomerates  are now embedding adaptive “smart” technologies into even mundane products, including  window shades, light bulbs and door locks. While Internet of Things (IOT) devices create obvious value, they also expand risk. In effect, we are creating an  “infrastructure for surveillance” that constantly generates critical, sometimes exceptionally  private, data transmitted for use on servers perhaps thousands of miles away. If an IOT device malfunctions, or if data or software is compromised or lost, individuals and  businesses may suffer devastating losses. Dosages of critical medication might be missed, for instance, or needed medical treatments omitted. In fact, the risks posed by IOT have already attracted the attention of regulatory authorities. The U.S. Food and Drug Administration has surveyed the industry and decided to update its guidance on cybersecurity for IOT medical devices, and the Federal Trade Commission has held a symposium addressing IOT issues. As use of these products continues to expand, such risks will be realized, and manufacturers will look to their insurers for defense and indemnity protection. Coverage for product liability is typically provided under liability policies, which can be written on an occurrence or claims-made basis. Liability of the manufacturer of a malfunctioning fire alarm that fails to alert homeowners of a fire should be covered under such policies, as should bodily injuries or property damage caused by other defective products, including products that are part of the IOT. Injuries from such products may result not only from a device’s failure to work but also from a network’s failure to provide communications as needed. These failures, as well as the more traditional product failures, should continue to be covered if insurance is to continue to serve its function and transfer financial risk. Liability policies generally define the product risk to include all bodily injury and property damage occurring away from premises you own or rent and arising out of your product or your work except:

1. products that are still in your physical possession; or
2. work that has not yet been completed or abandoned.

The policies define “your products” to be any property (other than real property) manufactured,  sold, handled, distributed or disposed of by the insured and to include warranties or representations made at any time with respect to the fitness, quality durability, performance or use of your product; and the providing of or failure to provide warnings or instructions. Liabilities for malfunctions of IOT products appear to fit squarely within this definition. There are, however, some complications that insurers might put forward were they interested in denying coverage, and policyholders will need to examine their insurance to avoid the uncertainty and cost of litigation. Coverage for IOT risk is complicated by the fact that the devices add value and efficiency by communicating with each other and distant servers on which data is stored and algorithms run. Indeed, this interoperability is the critical and promoted feature of IOT products. To see how this can complicate the coverage question, let us take a concrete example. Let us imagine a refrigerator — the eFridge — that communicates data concerning the products it holds. When combined with complementary devices — called eShelves — it is able to keep track of all food in the kitchen. The refrigerator also keeps track of its states, including its internal temperature, and transmits its state data and food stocked to a server maintained by smartKitchens at a distant location. On this server, the data is stored and analyzed by an algorithm designed by smartKitchens’ software engineers. The algorithm, based upon eFridge state data and data on stocked food, generates recommended recipes for the week so that all food is used before it spoils. The recommendations sent from the server to the eFridge appear on a screen on the refrigerator’s front door. There are two Internet transport protocols, TCP and UDP. The latter is often used when broadcasting within a network is needed (as it is so that the eShelves can be configured) and can be cheaper to implement, but it is also less reliable because communicating devices receive no notice when UDP datagrams — the electronic containers of transmitted data — are lost or dropped. The eFridge is designed to use UDP, and the software engineers have developed their algorithm to deal with the problem of dropped datagrams as follows: Rather than generating a warning that there is incomplete information, the algorithm assumes that the refrigerator’s state is consistent with the average state maintained over the prior two weeks. This is done to avoid multiple appearances of “error” messages on the eFridge door/screen and to increase customer satisfaction. Now imagine that one week the server fails to receive datagrams regarding the state of the refrigerator on Monday, during which for some unknown reason the temperature inside the refrigerator exceeded room temperature. Unfortunately, as of Monday, the refrigerator contained a pound of mussels, which as a result of the temperature change are spoiled. Data concerning this temperature increase were not received by the server, and therefore the algorithm, having been designed to assume that the temperature was maintained at its average, recommends a recipe for Wednesday of mussels provençale. The consumer sustains a very serious case of food poisoning and seeks compensation from smartKitchens, which demands coverage from its insurer. Is smartKitchens covered? The event appears to be squarely within the sort of product liability coverage that product manufacturers and distributors expect. There is a product away from the insured’s premises that made a “defective” recommendation and caused bodily injury. As such, there should be coverage. But an aggressive insurer could construct an argument to the contrary. It might contend that the injury was caused by the algorithm, not the refrigerator. Insurers might contend that the algorithm constitutes “work that has not been completed or abandoned,” because the engineers have the ability to change the algorithm to address the possibility of spoiled mussels, and that therefore the risk is not within the product’s coverage. Such an argument should ultimately fail. The fact that smartKitchens’ software engineers can update the algorithm does not mean that they have "not completed or abandoned” it for purposes of the insurance policy. Moreover, liability policies generally provide that “work which requires further … correction … because of defect or deficiency, but which is otherwise complete, shall be deemed completed.” In fact, here, smartKitchens let the algorithm run as it was designed to, and it did so. Nonetheless, although the insured should eventually obtain the benefit of coverage, that could very well be only after protracted and expensive litigation, reducing the value of the insurance purchased. There is another argument as well that the insurer might make. Since about 2003, liability policies have generally included an exclusion — exclusion p, on the Insurance Services Office Inc. form — barring coverage for damages arising out of the loss of, loss of use of, damage to, corruption of, inability to access or inability to manipulate electronic data. As used in this exclusion, electronic data means information, facts or programs stored as or on, created or used on, or transmitted to or from computer software, including systems and applications software, hard or floppy disks, CD-ROM[s], tapes, drives, cells, data processing devices or any other media which are used with electronically controlled equipment. An insurer might contend that the problem was created, not by the eFridge, but by the loss of electronic data, when the packets were dropped. The insurer might use this argument to contend that coverage is barred. Again, the insured should prevail were the insurer to make such an argument. The algorithm functioned as it was designed. It did not fail to process data, but processed data exactly as intended. It was merely responding as designed to an unfortunate consequence of the decision to implement the UDP protocol. But here, too, the insured is likely to find itself in an expensive coverage dispute, depriving the insured of the value of the insurance purchased. As always, new technologies create new risks, and new risks create the possibility of coverage disputes. These disputes should be resolved in the insured’s favor, as it is the responsibility of an insurer to draft policy language to clearly and unequivocally exclude risks. This rule has special force where, as in our example, there is an expectation that liability for products would be covered. It should, in other words, be the responsibility of underwriters to understand the products they insure and clearly state if they do not desire to cover an attendant risk. Nonetheless, as the use of IOT devices continues and expands, the past has taught that we can expect to see risks expand and insurers attempt to restrict coverage.

According to a recently published white paper by LexisNexis, data makes all the difference. The article, “More Data, Earlier: The Value of Incorporating Data and Analytics in Claims Handling,” states that carriers can reduce severity payments by as much as 25%. The article further states that “PC carriers have implemented real-time data and analytics to enhance risk management, streamline processes and reduce costs. Yet historically within the claims function, data and analytics have mostly been isolated in the special investigative unit (SIU). LexisNexis believes that carriers should use data and analytics as an operational tool first and an investigatory tool second. We conducted a study to investigate the effect of having more data earlier in the claims process and found that claims with more data are resolved faster, with lower overall costs.” The study is about bodily injury claims, not about workers’ compensation, but the findings can logically be extrapolated. Applying data early and throughout the workers' compensation claims process will result in lower costs, efficiency and improved outcomes. Early data In worker’ compensation, early and comprehensive data is available. The first report of injury (FROI) from the employer and, in many states, the treating physician launch the data-collection process. The claim is set up in the payer’s system and continually fed by additional data. Bills from medical providers and others are streamed through bill-review systems, then to claims systems. Events such as litigation, court dates and bills paid are documented in the claims system. Pharmacy is managed by the PBM (pharmacy benefit management), thereby setting up an additional database for the claim. Most systems also collect data on utilization review and medical case management. The question is not the data, but what is done with the data. How can it be applied? Unfortunately, in workers’ compensation, voluminous data sets often remain in separate silos. The focus in workers’ compensation for the last 25 has been on collecting the data. Now the question is, how to make data an operational tool and achieve the kind of positive results reported in the LexisNexis study. Doing so requires a different approach to data management. Integrating data Making data a useful work-in-progress tool is a matter of first integrating the data. This is not as difficult as is often portrayed by many IT departments. Nevertheless, the request and funding must come from the business units, where data integration is also not usually a priority. Until business managers understand the value of converting data to actionable knowledge, little will be done. Making data useful The data must be analyzed and re-presented to the business units in ways that can be easily accessed, understood and applied. The data is transformed to knowledge: about conditions in claims, approaching benchmarks and performance of vendors. It is the knowledge that is actionable, not the data. To achieve measurable cost savings, continuously monitor the integrated data, analyze it and re-present it to the business units in the form of understandable knowledge, thereby making it actionable. Individuals can be prompted by the system to take specific actions based on the knowledge, thereby creating a structured and powerful approach to claims management with measurably positive results.

From the "you can't make this stuff up" department: A beauty pageant contestant in California has been arrested and charged with workers' compensation fraud after participating in two beauty pageants while collecting workers' comp for an injury that prevented her from performing her job. The 22-year-old woman was charged with three felony counts of defrauding an insurance company. She is apparently out of jail on $5,000 bail. Her family is vehemently denying the allegations, with her father quoted as saying of the charges, "All we're going to say is it is absolute crap." While the absolute crap defense has been tried with limited success in previous fraud cases, it remains to be seen how effective it will be for this particular case. This young "beauty queen to be" had worked for Stater Brothers market as a clerk, where she had filed a claim saying she had broken her toe on the job. She maintained that the injury was too painful to allow her to return to work and that wearing shoes for any length of time (coincidentally like a work shift) was not possible with the injury. Her physician provided her with orthopedic shoes and crutches to use until her injury healed. Investigators allege they found video and images on her social media sites showing she participated in two pageants during this same period, and did so wearing and walking in high heels. The pageant where the video was shot was the Miss Toyota Long Beach Grand Prix pageant. Not so surprisingly, Stater says she is no longer employed there. If only she had worn the orthopedics and used the crutches at the pageant. They might not have helped her be crowned Miss Prius, but they would certainly bolster the absolute crap defense she and her legal team are planning. Additionally, for the talent portion she could have performed a magic act, with the main illusion being that of making her job disappear. Mighty fine job on that. If convicted, she could face as much as a year in county jail plus three years of probation. She may also be held responsible for as much as $24,000 in restitution. Of course, in addition to making her position vanish as part of the talent portion of the pageant competition, she also made her benefits disappear. The real trick will be getting them to reappear. That is always part of the act an illusionist must remember and, as our young beauty may find out, the most difficult to perform. There is no word on whether she had those orthopedic shoes on for her perp walk. That is another thing that might have bolstered the strategic absolute crap defense.

Today’s exercise focuses on the best concepts you can dream up so your organization can thrive in the future. You’ll then need to perform a reality test on those ideas, using research you’ve developed. This article follows up on my first, in which I argue that now is the time to prepare for what I call “Agency 2020.” In other words, you need to prepare your organization for the leap that will be required for future prosperity. In that first article, I asked dozens of questions to help define the current reality of 2014. We searched for the knowns – and the known unknowns – of today. This time around, almost every question will be about a discovery in the “unknown unknowns.” Your challenge is about asking the right questions – and then stretching yourself beyond your comfort zone to find good answers for tomorrow. Use a flood light on the dark horizon of tomorrow. It’s premature to focus with laser-like intensity. Pursue this process with enthusiasm and childlike curiosity. Forget what you know and believe. Ask “what if?” Don’t try to define “what isn’t.” My intent is to broaden your horizon, stimulate imaginative thought, encourage you to focus and help you act as you develop your new organization for 2020. To keep the process simple and open-ended, we’ll focus on four issues:

• people
• technology
• the global economy
• innovation

PEOPLE: The overriding challenge and opportunity in 2020 will be people: who they are,  their values, the cultures they will create and their wants and needs in their own world. Do their worlds and your world overlap? Is there some common interest and opportunity? How do you communicate with many … as well as with a niche of one? Research the generational mix in 2020. What percentage of the population will be Gen C, Millennials, Gen X and Boomers? Will the Greatest Generation be gone? What will be the influence of each group in the decision-making process as consumers, managers, leaders, etc.? If they are clients or prospects, what products and services can you offer to meet their wants and needs? How do you profitably deliver this at a price they are willing to pay? What message, media, metrics are necessary to ensure you maintain intimacy continually with each person and affinity, as well as with their population (generation) – however they define it? Where and how can your interests align – whether as employers, employees, collaborators, competitors, decision makers, policy leaders, educators, friends or social media group members, etc.? Who is now – or who will be – in your world tomorrow, in 2020? Consider the following as you try to put your arms around a new digital universe that will see the LAGgards (Last Analog Generation) leaving the scene and new Gen C – digital natives – begin to assert their influence before they finish high school. (Before you roll your eyes, have you ever had to ask a teenager to show you how to use your device du jour?) John Naisbitt painted the picture of this phenomenon in his book Megatrends when he talked about “balancing high tech and high touch.” If you are unwilling or unable to accept the new world, demographics and diversity, enjoy your retirement. TECHNOLOGY: Decades ago, the scholar and organizational consultant Warren Bennis observed: “The factory of the future will have two employees, a man and a dog. The man is there to feed the dog, and the dog is there to keep the man away from the machinery.” Could he be right? To provide perspective, remember that in 2003 the BlackBerry was considered state-of–the-art technology. Some believed this device owned the future of social connection. There was no iPhone, iPad, Facebook, Twitter, etc. By 2012, BlackBerry’s parent – then known as Research in Motion – was teetering on the edge of bankruptcy, and “i” technology, smart devices and social media were out-of-control adolescents. Today, conversations are focusing on the Internet of Things, or IoT, where inanimate objects – smart watches, “intelligent” cars, home appliances, etc. – communicate without the intervention of people. In 2020, will technology work for us, or will we work for technology? Will we know more and communicate better than Siri, or will artificial intelligence be the trusted advisers for most consumers? Will facial recognition technology allow your iPhone to read the mood of your clients better than you can, when you’re each sitting at the City Club texting each other over lunch? Is this ridiculous? Can you afford to be wrong? THE GLOBAL ECONOMY: Time and place are gone. The lights are always on, and the door is never locked in any place of business. That’s the good news: You can live on Main Street and still compete in Dublin, Dubai or Duson, La. The bad news is that your competitor and many hackers are on Main Street, peering into your shop. You can be a David in a world of Goliaths. But if you’re a Goliath, you’re more vulnerable than ever to a world of Davids. If your company is bureaucratic, you’re just a slower Goliath. My best suggestion is to “capture population” and become the portal of choice for members of that universe. Don’t worry about selling products. Instead, focus on needs and solutions to problems. Facilitate the “buying,” or capture, of each individual in the group. Remember: If you control a large enough population, you can “insure” needs of the group – without the cost of issuing individual policies. INNOVATION (the new power plays and power players): In a presentation on change in 1993, I declared: “Today GM, Sears and IBM are the kings of their respective jungles. In our lifetime, one of these companies will fail.” The audience shook their heads in disbelief. I was right, and in the long term I may win the trifecta. From the Affordable Care Act, to Facebook, Amazon, Twitter, apps, artificial intelligence and IoT, the marketplace is being redesigned by the people who shop there. In other words, the deck is being reshuffled. Opportunities have never been greater, the stakes higher or the risks greater. That the world will be different is a fact. Remember Einstein’s admonition: “Insanity is to continue to do what you’ve always done and expect a different result.” Don’t be insane. Be prepared.  It can work. As I noted in my first article, we’ve already walked on the moon! With forethought, an organizational purpose, principles, a vision, a commitment and a plan that ropes you to that commitment, you can and will prevail.  Don’t try to conquer the world. Just identify and prevail in your part of that world. Be bold and wise in your research and positioning for 2020. Today’s world includes unlimited data, much less useable information and less still actionable knowledge. By 2020 – if you’re willing to try – you’ll be able to take the actionable knowledge, shape it to the wants and needs of a specific group, align your offerings (helping them buy) and innovate your processes to ensure you can deliver at a price they are willing to pay. Align your message, media, meaning, etc. to each specific group. Test the concept. And then act – meaning experiment. Remember, wisdom exists at the intersection of knowledge and experimentation. When you fall down, stand back up. As business management columnist Dale Dauten states: “Different isn’t always better, but better is always different.” Be better in 2020. Differentiate yourself from the sameness of today and tomorrow!  Take the giant leap of discovery for yourself … and all of mankind!

Healthcare reform is certainly receiving its share of abuse. Whether the conversation is local or national, private or public, one is sure to hear how Obamacare is nothing but bad news -- job destruction and the end of one’s ability to direct personal healthcare. Rarely do you hear a positive comment. Until now, that is. Read on to learn more about a market development that actually looks consistent with Obamacare’s objective of making healthcare delivery more efficient and less expensive. Quality One of the changes found in the voluminous law is the requirement for the government to begin considering the quality of care when making reimbursements under its insurance program, Medicare. A section of the law creates incentives for providers to pay more attention to the quality of their care, to receive a greater payment for their services. These incentives encourage what has become known as accountable care organizations, or ACOs. ACOs are not necessarily new legal entities, but rather are descriptions of healthcare delivery systems that place an emphasis on quality of care to reduce expense. Seems like a reasonably good idea, but how do these same quality efforts work in the private commercial market? Not so well. First, how can the initiatives be tracked when the patients are insured by third-party carriers? Who is rewarded when a provider does a good job, limiting readmissions and health costs? Who even knows when they do a good job? Second, how does community rating distinguish between those providers applying quality low-cost care and those running up the tab to enrich their bottom line? Fast answer: Quality-care incentives being encouraged by Medicare are largely lost, and certainly not encouraged, when patients are covered by a fully insured or fixed-cost insurer. What about high-deductible plans that match with the providers’ quality, efficiency and health efforts? No, these, too, are limited by rules imposed by Obamacare on the fixed-cost insurance market. Community health plans If the door is shut on providers trying to apply ACO strategies to the fixed-cost commercial market, what can be done? After all, if providers have reworked their businesses to focus on quality and efficiency, it seems illogical to apply these efforts in only the Medicare reimbursement market. Fortunately, innovation is finding its way to provider systems, under the name of "community health plan." A community health plan is a network, established by a regional medical provider, offering members of its community superior and affordable healthcare through a plan using only that provider or other like-minded regional providers. These new community health plans overcome the obstacles found in the fixed-cost insurer market and enable all the quality-care efficiencies to be applied in the commercial market. Think about it: Community health plans were first developed because providers wanted traction with their local communities. They wanted local patients and buyers to call and buy from them first. That’s why many have already adopted a community health plan or at least looked into one years ago. What providers found, however, was mountain-sized red tape, inconsistent application to their objectives and new rules related to Obamacare that made the idea of a community health plan a bad one. Enter the stop loss group captive, or "medical captive." A medical captive is a reinsurance vehicle that pools a layer of self-funded health benefit risk.  The medical captive solution enables providers to offer their community a health plan immediately. No regulatory red tape. Provider have a commercial market health plan where quality-care initiatives can be objectively monitored so cost savings and efficiency is not a guess or lost to a third-party insurer. Cost-saving rewards arising from quality and efficiency can be measured quarterly if not monthly under the medical captive approach. A provider’s cost-saving ideas receive real-time feedback. The medical captive is built on a self-funded chassis that also delivers benefits over the traditional market. The post-Obamacare insurance environment includes community rating and restricted plan designs, but self–funded insurance programs avoid these potholes. Put another way, a self-funded insurance program fits nicely with the provider’s ACO efforts and allows most of the Medicare-inspired initiatives to be realized in the commercial market. So long as the medical captive is the financing vehicle being used by the provider’s community health plan, the disconnect between Obamacare’s quality initiatives and the commercial insurance market are resolved. Who? Hospitals are attracted to the medical captive as a form of community health plan for several reasons. First, the narrow network is gaining ground as a viable solution for keeping medical expenses under control. Employers and employees are now receptive to limiting choice to the local provider in exchange for a lower price. This is good news for the hospital without an existing health plan that is looking for traction with its local employers. The hospital-sponsored narrow network is an approach that is simple to implement with the medical captive. In addition, hospitals with existing community health plans of the fixed-cost variety now are looking to add the medical captive as another choice. Frequently, the hospital’s investment in claim paying services, network and, of course, ACO strategies seamlessly integrate into the medical captive. Larger physician practices find themselves in a place similar to that of many hospitals in their quest to retain and grow their customer base. Offering a health plan with a capitated physician service component (with a set fee per person, no matter what care they need) is easily accomplished with a medical captive. Physician practices can quickly distinguish their practices from the rush of hospitalists with a health plan that incorporates much of their treatment philosophies, including ACO solutions. The flexibility of the medical captive built on a self-funded platform enables creativity in plan design and buyer incentives that mesh nicely with efforts by physician practice efforts directed at reducing high-cost diseases. Hospital services can then be delivered to the buyers through the health plan on a contracted basis. Measuring the effectiveness of the physician practice efforts at cost control is readily verified by reference to the medical captive underwriting results. It's not hard to understand why larger physician practices are quickly moving to the medical captive as part of the solution for reinventing healthcare delivery. Shared objectives Everyone agrees with the objective of lowering the cost of healthcare. Not everyone, however, agrees with or understands what goes into the cost of healthcare. The cost and purchase of healthcare is more complicated than buying a pair of shoes, unfortunately. Most consumers do not see what it actually costs to receive a medical procedure or purchase a medicine. This is because many do not directly pay or see the cost of the care, but rather the buyers pay a fixed cost or premium and then enter a buffet of healthcare providers. Cost efficiency is a low priority and only mentioned at renewal time or when the overall price trend for the fixed cost interferes with the buyer’s budget. Looking at Obamacare, we should be encouraged that healthcare providers are growing closer to the financing of care. If the law is encouraging the formation of new healthcare financing mechanisms that offer objective and immediate feedback on quality, cost-saving solutions, we are starting to reach our shared objective.  When buyers and sellers take even one step closer to achieving the same goal, healthcare starts looking more like buying a new pair of shoes.