All over the nation, the question is being asked, "Why is the overall crime rate in the US on the decline?”

We have the answer:  “It’s not.”

In 1930, the FBI was given the task of collecting and publishing crime-rate statistics from across the country, and the UCR (Uniform Crime Reporting) Program was born. This program collects data from across the country, and it is published in several reports, including the often quoted Crime in the United States report. The report separates offenses into two categories: violent crime and property crime. 

These two categories appear to provide an adequate sample of the types of crimes that should be captured to measure the overall crime rate, but the four “property crime” categories fall short. There is a simple reason: They have not changed since the 1920s.^*

For instance, the category of larceny-theft does not include embezzlement, confidence games, forgery, check fraud, etc. Identity theft, which is growing astronomically, is also not included.

According to the two entities within the federal government that measure and report identity theft rates — the Federal Trade Commission’s (FTC) Consumer Sentinel Report and the Bureau of Justice Statistics — identity theft crime rates continue to increase. Identity theft has been ranked as the #1 complaint reported to the FTC for the past 13 years. Of the 2,061,495 complaints captured from a variety of organizations that share data with the FTC, 369,132 were regarding identity theft.

The Bureau of Justice Statistics uses the National Crime Victimization Survey (NCVS) to capture and report its statistics on identity theft.  The last report available captures information from 2005-2010. According to this latest report, approximately 8.6 million households experienced financial identity theft.

The latest statistics available (2012) are from Javelin Strategy & Research Inc., an independent organization not affiliated with the federal government.  Their study concluded that there have been 12.6 million incidents of identity fraud.

Identity theft is increasing faster than property theft crimes are declining, but the public isn’t paying enough attention.  The reasons for apathy include the misconception that one can’t be a victim without a stellar credit rating (i.e., my identity isn’t worthy stealing) and the conspiracy theorist notion that this is all just a scare tactic promoted by industry to entice consumers into buying services that are unnecessary. Both are misguided.

A change in public perception is required. It has been engrained into us that we must take personal responsibility for safeguarding our possessions and our physical wellbeing, so why not our identity?

Most people realize that they cannot guarantee they will never be burglarized.  So they employ tactics to make it harder to break into their home.  When leaving for vacation, they secure doors and windows and activate alarms.  Often, mail is held at the post office and friends are asked to check in on the place.

People must likewise actively guard their identity components (such as passwords and devices).  Taking regular steps to safeguard your identity must become engrained in all of us.  It’s absolutely true that you can do everything right and still become a victim of identity theft – but why not make the thieves work hard?

Ask anyone if they would think twice about wandering into a dark alley, alone, at night, in a dicey neighborhood, and they would say, Absolutely! But consumers think nothing of going to strange websites and entering credit card (or even more personal information) without checking the legitimacy of the site, especially when you can get a screaming deal on that flat-screen TV or tablet.

It is widely recognized that fraud and financial crimes don’t scare or shock people in the same way that violent crimes do.  Unless they rise to the level of Bernie Madoff or Enron, the crimes rarely make headlines.

Additionally, financial crimes are often cited as much harder to accurately measure because of underreporting and lack of consistent reporting methods.^**  Some individuals do not believe that financial crime victims suffer true harm, especially if they are eventually made financially whole, as can happen with some identity-theft victims.  There is a misconception that once an individual has false charges removed from a credit account, or false accounts removed from a credit report, or a false tax return remedied by the IRS, that they are no longer the victim.  The victim label is assigned to the entity that takes the financial hit, such as the credit card issuer/financial institution and the IRS. Regardless, a crime has still been committed. Even if the crimes are difficult to measure and don’t shock, they certainly should be included in our evaluation of crime rates.

The infiltration of technology into our daily lives has not only changed the way we live, it has changed the way crimes are being committed. Much like water, criminal elements will take the path of least resistance.  When law enforcement and society become adept at suppressing scofflaws by making a particular crime more difficult to commit, such as through anti-theft devices on cars, criminals move on to other crimes.

Non-violent crimes rates haven’t decreased; they have just changed. Whereas the criminal of twenty years ago was armed with a knife or a gun, today’s criminal is armed with a keyboard or skimming device. The weapon(s) of choice has changed from tools of violence to tools of technology.  Criminals aren’t committing fewer criminal acts, just different ones. We don’t have fewer criminals, only smarter ones.

^* Upon inquiry, the FBI responded with the historical information to explain how the eight offense classifications known as Part I crimes were chosen as indicators of the overall crime rate in the country.  The first seven offenses were originally chosen in 1929.  Arson, the 8th offense was added in 1979. The 7 original offenses chosen to illustrate the overall crime rate and used in the annual publication Crime in the United States were not altered at that time.  In fact, they have remained mostly unchanged since the 1920s.

^** The FBI has a Financial Crimes Report that is listed under its “Other Reports and Publications” section. Other offense data for fraud and fraud type offenses is captured in the FBI’s NIBRS (National Incident-Based Reporting System); however, identity theft is not one of the incident types captured.

The Financial Crimes Report(s) differ in format from the violent crime/property crime format in the UCR and are more difficult to decipher.  The data contained in these reports is for cases investigated by the FBI.  It does not include financial crimes cases for local jurisdictions throughout the United States as the UCR does.  The most recent report shows 5 year trends in various categories.  The categories of  Corporate Fraud, Securities and commodities fraud, health care fraud, and mortgage fraud (reported cases) all show increasing numbers. Financial institution fraud, insurance fraud, and money laundering case statistics show a decrease in numbers and mass marketing fraud has stayed relatively flat.

The NIBRS report for 2011 indicates there is data on the following fraud type offenses: Bribery - 293; Counterfeiting/Forgery - 74,131; Embezzlement - 17,000; Extortion - 1217, and Fraud Offenses - 245,301. This a total of over 330,000 known incidents that could be counted in the overall crime rate in the UCR.  Though small in comparison to the other property crime numbers, it is not a statistically irrelevant number.   Identity theft statistics are not captured on this report.  Identity theft statistics are published by another department within the USDOJ (of which the FBI is a part), the Bureau of Justice Statistics.

A Representations and Warranties policy provides coverage for losses incurred as a result of breaches or inaccuracies of the representations and warranties made in business transactions.  A seller typically makes numerous representations to the buyer and warrants to the buyer critical facts about the business.  These attestations are an inducement to the buyer.  While parties both hope that the representations are accurate, disagreements often arise.  Such disputes routinely occur in connection with financial condition, accounts receivable or intellectual property.  Disagreements can also arise over the scope of representations and warranties made, as well as the duration and amount of a seller’s indemnification obligations.

Often, when a transaction is nearly complete, last-minute issues can create an impasse.  It is at this critical juncture that R&W insurance can be utilized to remove obstacles and  facilitate closure.  The preemptive purchase of R&W insurance can remove fears regarding certain representations that might lead to litigation after the deal closes. An R&W policy can also eliminate the need for a buyer to rely on the seller to make continuing indemnification payments—meaning a buyer wouldn’t need to chase down sellers who might be foreign, insolvent or long gone.  In this regard, R&W policies provide both sides of the deal with peace of mind that each party will receive what they believe they bargained for.

HOW are R&W Policies Structured?
Each agreement is unique, and an R&W policy is tailored to meet the specific needs of each deal.  Depending on the client’s needs (whether the buyer or seller), R&W policies can be structured to achieve various things.  These goals might include: (1) increasing the amount of indemnity available, (2) providing a “backstop” to the indemnity already available, (3) extending the expiration of the indemnity, (4) eliminating the need for collateral for contingent liabilities, (5) providing “ground up” coverage to replace an indemnity, or (6) increasing the scope or breadth of an agreed indemnity.

WHEN should parties consider the purchase of an R&W policy?
Most often, R&W policies are purchased in a mergers-and-acquisitions context.  However, R&W policies are also secured in connection with restructurings, insolvencies, liquidations, financings or loans, or in connection with the licensing of intellectual property.  In these situations, an R&W policy adds value as it can eliminate or reduce perceived or identified exposures and can address disagreements on the allocation of legal or financial risk for certain perceived or already identified exposures.  It can also give one buyer a competitive edge over another.

For example, consider a transaction where the buyer requires that a seller retain liability equal to 30% of deal consideration in respect of breaches of representations and warranties, while the seller is only willing to assume liability for up to 10% of deal consideration.  An R&W policy could provide coverage for the buyer for loss resulting from breaches exceeding 10% of deal consideration up to a limit of 30% of deal consideration. 

Or consider a situation where the seller’s weak financial position causes the buyer to require that security be posted for seller liability for breach of any representations and warranties.  An R&W policy could be designed to cover the buyer for loss resulting from breaches only if the seller is unable to meet the liability it has agreed to assume under the sale agreement.

WHO Buys an R&W Policy?
Buy-side policies make up the majority of R&W policies.  A buy-side policy enables the buyer, should a breach occur, to recover losses directly from the insurer without having to make a claim against the seller, often without having to locate and pursue the seller.  Such a policy provides the buyer with assurance that the value of the acquired business will not be reduced by unexpected liability.  Further, buyers can utilize R&W policies to improve their bargaining position by using the coverage to enhance their bid by reducing the indemnity ceiling and required escrow.

A sell-side policy provides indemnification by the insurer for defense costs and loss resulting from claims made by the buyer for inaccuracies in the transaction that are the subject of seller representations and warranties.  Simply put, a sell-side policy also enables the seller to walk away from a closed deal confident that the proceeds it receives in the transaction will not be diminished by subsequent legal claims and claw-back.  A sell-side policy provides a structure so that the seller can make a clean break once the sale has been executed by reducing or eliminating the need for an escrow account.  This is of great value to the seller as the seller can distribute more of the proceeds from the transaction more quickly, thereby expediting shareholder return (and the purchase of the yacht or sports car that the seller has always wanted).

If I have a client who wants to consider R&W coverage, what information would they need to provide?  Generally, underwriters can prepare a non-binding indication with a minimal amount of key information.  This information would include (1) the draft purchase agreement, (2) the draft disclosure schedules, and 3) the most recent audited or reviewed financials of the target.

Socius has conferred with Ambridge Partners LLC, a leading managing general underwriter of Representations & Warranties Insurance (R&W), to present this article.

While the Patient Protection and Affordable Care Act (PPACA) is sometimes shortened to the “Affordable Care Act” or ACA, the act has few features that will make insurance more affordable.  Government studies and industry experts have indicated that strict coverage mandates, limited premium classifications, community rating, added benefits, single risk pools, and price compression will raise premiums more rapidly than if the ACA had never been passed.

The development of exchanges, both government and private exchanges, are part of an evolution that will change the way insurance is sold and bought.  It is a new way of connecting products with customers.   Government exchanges are likely to be used mainly by those qualifying for a federal subsidy.  The standards and restrictions on government exchanges are likely to attract poor risks and high cost claimants.  The government exchanges will use government paid “navigators” rather than independent licensed agents.  The government exchanges and navigators are not expected to offer supplemental products, life insurance or other products and services.

Private exchanges may be the free market solution to real cost control and lowering the number of uninsureds.  With 40-50 million uninsureds, the traditional agent distribution system for insurance is not working.   About 60% of the uninsured are under age 35.  Studies conducted in Georgia by the Center for Health Transformation Uninsured Working Group showed that 35% of the uninsured could afford insurance but did not know it.  Another 40% needed lower cost options that were not available to them either because insurers emphasized high premium products, or because existing state laws or legislative mandates increased premiums and favored insurers over consumers.

Many uninsureds work for a small businesses that do not offer insurance. They may be self-employed, part-time, or doing contract work.  In most cases, the need is for individual insurance, not group plans.  Selling single policies can be time consuming with little financial rewards for an agent.  Many potential individual sales are halted at the kitchen table when in the process of completing an application issues arise that could cause a declination.   Information derived by an insurer during the underwriting process is typically fed into an industry association called the Medical Information Bureau.  That information is shared across companies and a declined health application could have ramifications for future applications of life insurance, disability coverage and other forms of insurance. 

Private exchanges are developing that will offer individual and group products that emphasize wellness and treatment compliance for those under medical care.  PPACA requires insurers to “community rate” their products.  That is, individuals or small groups will not get direct credit for healthy activities.  New entities are forming that will likely attract healthy individuals and the less healthy members interested in getting better.  Developing private health cooperatives, captive mutual companies, and new insurers may be unencumbered by an existing unhealthy membership or a current business model that limits attracting customers willing to be engaged in healthy behaviors. 

Healthcare consumerism is more likely to emerge through private exchanges than government exchanges.  Private exchanges will provide a transition from employer-based insurance to individual-centered or consumer-centered insurance.  In theory, both large and small employers will be able to purchase health insurance through the private exchanges, and their employees can choose an individual health plan from those offered by participating insurers.

Time will tell.  We are in the beginning stages of a major market revolution.  We already know that government exchanges as originally promised for small groups have been delayed one year until 2015.  As private exchanges come on line, I believe each will be a little different and offer varying levels of products and services.  For awhile it will be a “wild west” show.  Ultimately, the success and failure of each exchange’s product and distribution model will lead to consolidation and better products, services, convenience, help, and information for the consumer.  In the end, more product competition and price transparency will lead to more citizens being insured and lower insurance costs will prevail.  This is the way free markets create successful products and services that consumers want to buy.

The workers' compensation community watched anxiously for months as the U.S. District Court for the Central District of California considered a constitutional challenge to the lien activation fee -- an important component of the 2012 reforms in Senate Bill 863. In the case (Angelotti Chiropractic, et al. v. Christine Baker, et al.), Judge George Wu ruled on Nov. 12 that the fee is indeed unconstitutional based on the Equal Protection provisions of the U.S. Constitution. His reasoning was that there was no rational basis for exempting large institutional lien holders (health care plans, union trusts, etc.) from the activation fee and that all lien claimants should either be in or out when it comes to filing fees.

The injunction against enforcing the lien activation fee took effect on Nov. 19. In anticipation, the Division of Workers’ Compensation notified the community Nov. 15 that it would no longer be requiring the fee be paid for liens filed prior to Jan. 1, 2013.

It is important to note that there are two filing fees enacted in SB 863. The one that applies to liens filed prior to Jan. 1, 2013, is the lien activation fee and is the subject of the federal lawsuit. The other is the lien filing fee, which is not affected by this litigation. In addition, statutory and regulatory changes made in SB 863 and the regulations adopted by the Division of Workers’ Compensation eliminate liens for most service providers that are subject to a fee schedule for dates of service on and after Jan. 1, 2013.

That is not to say that the injunction against enforcement of the activation fee is inconsequential, for it most certainly is not. In the last two calendar quarters of 2012 alone, more than 800,000 liens were filed. Of those, almost two-thirds are in Los Angeles County. Most of these have not moved through the system, undoubtedly because some lien claimants were waiting to see whether the activation fee was going to be upheld. It is assumed that many of these liens were never going to be filed because of the activation fee. As such, many liens would have expired by operation of law on Jan. 1, 2014. That, too, is now part of the unknown that comes from the Court’s decision.

Obviously, the Department of Industrial Relations and claims administrators are not happy with this ruling. To a certain extent, neither are the plaintiffs in the case, who saw two of their three claims summarily dismissed by the court. Whether these issue now go up to the Ninth Circuit U.S. Court of Appeals remains to be seen. Plaintiffs, and indeed all lien claimants regardless of whether they were parties, have secured the relief they sought – enjoining the activation fee—but that could be put at risk if there is an appeal. Conversely, while the Department of Industrial Relations disagrees with the finding that the activation fee is unconstitutional, the fact that Judge Wu dismissed the claim that the activation fee constituting a “taking” of private property is a big win for proponents of SB 863 – for the taking argument has much broader implications than does the Equal Protection argument that Judge Wu found persuasive.

Because the Jan. 1, 2014, dismissal by operation of law date on old liens has been enjoined, it is not automatic that there will be a flood of activity on liens filed before Jan. 1, 2013, at the Appeals Board before year end. It is a fair observation, however, that liens many in the community thought would be extinguished by operation law won’t be. Whether those liens are going to be the subject of Appeals Board hearings and ultimately paid, however, remains uncertain. And uncertainty is a chronic symptom of our oft-ill but rarely cured workers’ compensation system.

And in case no one noticed, on Nov. 14 a new federal lawsuit was filed challenging both the lien activation fee and the lien filing fee. The plaintiff, who is seeking class action certification, is also demanding disgorgement of fees paid and reinstatement of any lien dismissed for failure to pay the appropriate fee. That case is Kancilia v. Brown, et al. and was filed in a different federal district court than Angelotti.

The transition from one set of rules to another on the heels of major legislative changes is never easy, regardless of the subject matter. In time, because of the other changes wrought by SB 863, the disruption caused by these suits will work its way through the system. Relief from the costs associated with the lien process will be delayed, and the income the fees provide to the Division of Workers’ Compensation will be less than anticipated, but ultimately the lien problem will be solved – just later than most had hoped.

The Obama administration has said that the Patient Protection and Affordable Care Act, enacted into law in 2010 and scheduled to take effect on Jan. 1, will reduce workers’ comp claims because so many additional people will be covered under personal insurance policies. But there is reason to think otherwise.

The first issue is that so many companies are reducing the insurance they offer employees or are cutting employees’ hours so much that they fall below the law’s threshold, so employees don’t have to be covered at all. Employees who aren’t covered under corporate policies or who are underinsured are more likely to make workers’ comp claims.

Here are just a few examples from National Review Online:

SeaWorld used to let part-time employees work as many as 32 hours per week, but the company is dropping the limit to 28 hours to keep them under the 30-hour threshold at which it would be required to provide health insurance under Obamacare. More than 80 percent of the company’s thousands of employees are part-time or seasonal.

Carnegie Museum in Pennsylvania scaled back the hours of 48 of its 600 part-time employees to less than 30 hours a week to sidestep the mandate to provide health-care coverage

Virginia Gov. Bob McDonnell decided to limit the state’s part-time employees to 29 hours per week.

Brevard County, Florida told a local television station that the county’s 300-plus part-time employees will be “capped at something less than 30” hours to save the county about $10,000 per employee in health insurance.

Fatburger  announced that franchises had begun making efforts to keep employees under the 30-hour threshold, including some franchises’ engaging in “job sharing.”

As more companies shift to shorter work weeks, you can expect claims under workers’ comp to keep climbing.

Proponents of Obamare still say it will decrease workers’ compensation costs in several ways, including through the elimination of lifetime caps on medical insurance coverage. The argument is that these caps on employees’ private policies pushed them to file workers’ compensation claims. Really? Many of the leading cost drivers for work-related injuries are Musculoskeletal Disorders (MSD), better known as soft tissue injuries.  According to the Bureau of Labor Statistics (BLS), soft tissue injuries (sprains and strains) accounted for 40% of all work-related injuries that resulted in lost days of work. I do not believe that these types of injuries would affect the lifetime maximum for health insurance, which is typically $1 million.

Proponents also note that a healthcare insurer can no longer refuse to provide coverage because of preexisting conditions, conditions they claim were often not covered by private healthcare and thus encouraged employees to seek coverage under workers’ compensation. While this is a good point, the National Review’s examples show that many people are losing healthcare coverage or will see it reduced, meaning that there will be a greater likelihood of workers’ compensation claims. Yes, there are penalties for not securing healthcare coverage, but they are modest, especially in the early years of Obamacare, and there is no real mechanism for enforcement. The IRS has the responsibility for collecting penalties but has no true powers to do so.

How are people supposed to afford care if their hours have been cut?  You guessed it: workers’ compensation.

President Obama’s announcement during a Nov. 14 press conference that he would like to see insurance carriers extend non-complying health coverage after Jan. 1 may be the event that unravels the Affordable Care Act (ACA).  Carriers and health plans have worked hard for several years, have spent millions of dollars complying with ACA, have fought with insurance department regulators getting policies approved and, in many cases, have notified consumers of the need to terminate non-compliant policies. Now, carriers and health plans have a new wrinkle thrown their way.  What is going to happen next?

Some of the key principles of ACA are:

• Clear definition of Essential Health Benefits (i.e., EHB)
• Clear definition of metallic or metal level plans based upon the actuarial value of the benefit plan
• Restrictions on premium format and methods to derive premium rates
• Rigorous rate review and approval process coordinated by a combination of state insurance departments and federal oversight
• Mandates for participation in some type of health coverage
• Large number of taxes and fees to help fund ACA
• Assumption that there would be a reasonable risk pool so carriers could appropriately price and predict future costs of care

Minimum loss ratio requirements to ensure that a reasonable portion of the premium rate goes toward the payment of claims

Carriers have worked hard to comply with the new regulations, which for many have involved significant shifts in the methods used to conduct business.  The rate development process for a typical carrier follows this process:

• Review of prior claims experience and profitability
• Determination of what rate increase will be required to maintain a profitable product offering
• Development of proposed rate for various rate cohorts with competitive comparisons
• Potential benefit redesign to meet regulatory changes or competitive pressures in the marketplace
• Obtaining independent actuarial certification regarding proposed rates as a reasonableness test (e.g., Section 1163 required in California)
• Filing of rates with regulators for approval and follow-up with regulators until rates are formally approved
• Communication of rates to those insured, and implementation of the new rates

This process can require four to six months to complete.  It is actuarially complex and requires careful analysis of many factors and variables. 

As ACA emerged, carriers had to adjust benefits covered in prior products where they failed to meet the minimum EHB required.  In some cases, products were terminated because they did not meet either the EHB or the minimum actuarial value of 60%.  Carriers worked hard to develop replacement products, filed these with regulators and started to present these to their customers. 

It was obvious that some customers would be concerned about the impact of rate changes associated with ACA-approved benefit programs.  Rates would increase for a variety of reasons:

• Health care inflation continues
• Mandated benefits required broader coverage than previously purchased
• Elimination of gender rating generally increased rates for insured males
• Minimum Actuarial Values (i.e., > 60% AV) raised benefits for some insureds
• Assumed average risk score for the individual market was higher than in the past because medical underwriting is no longer appropriate, and, in some cases, carriers raised the average assumed health status built into the rates to reflect the enrollment of additional Medicaid- or Medicaid-like lives.
• Age rating was affected, requiring higher rates at younger ages to offset some of the reductions at the older ages (i.e., 3:1 limits on age rating curve).

The concerns expressed by the public on higher rates, the concerns expressed about policy cancellations, the delays caused by website challenges, the continued frustrations about ACA all combined into a situation where a large portion of public were frustrated with ACA.  The president’s announcement was a response to many of these concerns and frustrations.

However, there are several complications facing the carrier community as a result of this suggestion or proposal to the insurance departments and affected carriers.

• Rates for terminated programs were not updated for 2014.  Rates can’t be extended without adjustment because rates were established for a previous time period, and there has been inflation.  Updating would require a minimum of 4 – 6 months.  The software implemented by the federal government and used at the local insurance department level is built around the new ACA requirements and would likely reject restored versions of terminated policies.
• The risk pool for all of the ACA-approved rates will be changed significantly if individuals are able to continue their prior programs.  Selection bias issues would be significant.
• The individual mandate for credible health coverage would be compromised if individuals continued their prior, non-compliant coverage.  The anticipated tax base would be jeopardized with the continued offering of non-compliant coverage if penalties were forgiven.
• The disruption to the insurance industry involved in the exchanges would be significant and potentially would permanently damage the risk pool.
• More importantly, the public’s perception of the benefit of ACA to them will be affected as changes were required, then they weren’t, then they will be, etc.

Although there are many features of ACA that potentially provide value to the public, the flawed rollout, the delays in implementation and now radical changes to the structure of the ACA program very likely start to unravel the viability of the program.  Only time will tell.

Who needs nonprofit directors and officers (D&O) coverage when you have volunteer immunity and homeowners insurance? Not so fast. It is possible to find some coverage, or form of immunity, under your homeowner’s policy, and there are attorneys that find ways to wedge things into coverage when there are no other remedies available.  However, that doesn’t mean you should ignore the availability of the proper insurance. Rather than hope to fit a round peg into a square hole, buyers should look to purchase coverage for any exposure that keeps them up at night.

There are people who wrongly believe that if they are performing charity work they can’t be sued, won’t be sued, or have some form of mythical immunity or free insurance somewhere to protect them. Let’s explore those theories in more detail.

Isn't there a federal law that grants immunity?
In 1997, our government passed the federal Volunteer Protection Act (VPA) to promote volunteerism for nonprofit organizations. There is more to the act than can be summarized in this article, and any legal advice should come from an attorney, but it’s important to know that there is a federal law designed to provide protection to volunteers. Also, note that the immunity applies to volunteers, and not necessarily the nonprofit organization or compensated employees/executives. With that knowledge, it’s important to be aware of other limitations of the act.

Exceptions from the federal law include:

• Acts of violence
• Acts of international terrorism
• Hate crimes
• Sexual offenses
• Civil rights violations
• Claims involving use of alcohol or drugs

In the absence of a definition of “Civil Rights” in the act, all sorts of common problems could be exempt. Three instances that immediately come to mind are discrimination, sexual harassment and privacy rights. Those are common allegations in claims we see made against volunteers, nonprofit organizations and their leaders.

Volunteers may also lose their potential immunity in these situations if:

• the volunteer is acting outside the scope of his or her responsibilities to the organization
• the volunteer was unlicensed if required or appropriate
• the harm was caused by gross negligence rather than ordinary or simple negligence
• the harm was a result of operating a vehicle, vessel or aircraft that requires a license or insurance
• the volunteer receives compensation or anything other than compensation that is worth over $500
• the charity loses its nonprofit status

The VPA has provisions indicating that immunity provided by the act cannot be reduced by state laws, but can be broadened by state law. The federal law will apply to volunteers unless a state opts out of the law, which is permitted.  New Hampshire, for example, opted out in instances where everyone involved is a state resident and a New Hampshire state court is used.

Can we find immunity provided by state laws?
Many states do have immunity laws available to volunteers providing services to nonprofits. Every state has its own advantages and limitations. Again, seeking the advice of an attorney licensed in the relevant state is appropriate. When seeking the advice of counsel as to the immunity provided by state law, there are some questions to ask:

• Does the state law only protect volunteers, D&O or both?
• Will the state law prevail if the plaintiffs are from a different state?
• What material limitations exist?
• How is immunity impacted by willful or negligent activities?
• Is the nonprofit organization immune from vicarious liability arising from the conduct of the volunteers?
• Can an organization subrogate against a volunteer for costs associated with vicarious liability?

Will a personal homeowner's insurance or personal umbrella policy protect me?
The easy answer is that an insured might find some coverage, but not for all situations. Not all homeowners policies are the same and some may have special D&O enhancements. If you review what is generally covered, you will see coverage for bodily injury and property damage on those policies. It is also important to keep in mind that these are personal policies and any coverage provided would not be shared with the nonprofit organization or any other person affiliated with the organization. So if a homeowners policy or personal umbrella is designed to only cover bodily injury or property damage and is limited to protecting only one individual, is this the best solution for a nonprofit organization and all its leaders, employees and volunteers? That’s easy – no.

How about buying the proper insurance?
There is a policy specifically designed to protect the directors, officers, employees, trustees, volunteers, committee members, interns, domestic partners and the organizational entity.  Note that the coverage isn’t limited to just the directors and officers. Those other individuals are also protected by this insurance.  A typical D&O policy pays on behalf of the nonprofit organization when that organization is obligated to indemnify the individuals for their actions on behalf of the organization, as outlined in the organization’s bylaws.  The organization itself is also generally covered for alleged wrongful acts. D&O policies are broadly written to cover claims alleging any error, act or omission arising from activities on behalf of a nonprofit organization. The policy won’t cover bodily injury, property damage, pollution, workers’ compensation or issues arising from the administration of benefit plans. Those items should be covered on other policies specifically designed for those exposures.  You should also find coverage for the individuals and entity for things like discrimination, harassment, wrongful termination and other personal injury violations such as invasion of privacy, wrongful imprisonment and, in some cases, copyright violations.

Similar to personal lines policies, no two D&O policies are the same. Each one needs to be closely reviewed to identify limitations as well as unique coverage enhancements. Some limitations to avoid are antitrust exclusions, third party discrimination exclusions, or overly broad insured versus insured exclusions. There are enhancements to negotiate such as coverage for immigration claims, wage and hour claims, lifetime personal extended reporting provisions, publishers liability, public relations expense coverage, priority of payments, punitive damages coverage, where insurable, and more.

Considering the relatively low cost for a properly constructed D&O policy for a nonprofit organization, it makes a lot more sense to buy the coverage than try to hide behind limited immunity or wedge coverage into the wrong insurance policy.

Historically, the “do more, bill more” fee-for-service model of healthcare measured success by increased billings. In the fee-for-value era, we need a new framework for assessing healthcare results. Quality indicators are logical, but they are mostly geared toward measuring actions taken. We can borrow a concept from the energy sector for an additional metric.  We need a concept for removing waste and unnecessary care that could be inspired by a concept from the energy sector described in this blurb from Wikipedia for something called Negawatts.

Negawatt power  is a theoretical unit of power representing an amount of energy (measured in watts) saved. The energy saved is a direct result of energy conservation or increased energy efficiency. The term was coined by the chief scientist of the Rocky Mountain Institute and environmentalist Amory Lovins in 1989, arguing that utility customers don’t want kilowatt-hours of electricity; they want energy services such as hot showers, cold beer, lit rooms, and spinning shafts, which can come more cheaply if electricity is used more efficiently. Lovins felt an international behavioral change was necessary in order to decrease countries’ dependence on excessive amounts of energy. The concept of a negawatt could influence a behavioral change in consumers by encouraging them to think about the energy that they spend.

The healthcare parallel would be a “Negaclaim™” — i.e., an unnecessary claim avoided. This isn’t about simply denying care. Just as consumers aren’t interested in kilowatt hours, patients aren’t interested in claims — they want health restored and diseases prevented, which can be done more efficiently and effectively. When individuals are fully educated on the trade-offs associated with interventions, they generally choose the less invasive approach. A nice byproduct is that the invasive approaches are frequently more costly and medically unnecessary. The following are a few of many examples of how unnecessary care can be eliminated while improving the patient experience:

• Day-to-day and chronic disease care: One of the key reasons Direct Primary Care (DPC) has proven itself to be the Triple Aim  leader is that a proper primary care relationship involves time spent with patients to explain trade-offs of various medical options.  Without incentives to push for “more,” DPC providers have demonstrated that they can reduce unnecessary utilization by 40-80%. By contrast, “hamster wheel” primary care has effectively turned primary care into 7-minute, drive-by appointments that leave little time to do anything but direct patients toward additional costly items, whether it’s ordering a prescription, test, hospitalization or specialist visit. In many cases, those could be avoided with a robust primary care relationship.
• High Cost Procedures: Leah Binder wrote about what major employers such as Walmart, Loews, Pepsico and others are doing to reduce risk to their employees while also saving money, in What We Can Learn From Walmart: How Our Healthcare System Can Save Lives and Dollars. Employees found that 40% of the transplants that were recommended by local hospitals were deemed medically unnecessary by top physicians at the Mayo Clinic and other nationally renowned facilities. Employees were thrilled to avoid risky (and expensive) procedures. It also sent a great message to employees that their employer valued them enough to send them to the best medical centers in the world for second opinions.
• End of Life: Quality of life is affected dramatically by the end-of-life decisions we make. This was outlined in How Not to Die. The system is oriented to do more even if it is at odds with quality of life. Doctors themselves recognize this when they are the patient, as described in Why Doctors Die Differently. While quality of life is the driving factor for patients and families, there is a second-order benefit that the procedures that reduce quality of life are typically very expensive.

The problem in healthcare has been that providers have incentives to do stuff because of the flawed reimbursement models that dominate our present healthcare system. Respected studies such as from the Institute of Medicine demonstrate that there is more than $750 billion in waste. PwC stated that more than half of healthcare spending is waste. Incentives have driven providers to encourage more interventions, and consumers have been led to believe that more is better even though, in many cases, less is more.

That has added a challenge for health insurers. The general perception is that health insurers reflexively deny claims (sometimes getting in trouble for that). This has resulted in health insurers having the lowest Net Promoter Score of any industry. Consumers have clearly decided that health insurers aren’t doing this for consumer benefit. Fair or not, they have concluded it’s simply for the financial health of the insurer. Clearly, health insurers need a different approach if they want to improve their image and the health of their customers while ensuring their financial viability.

One incentive that has changed revolves around the Medical Loss Ratio (see Aetna’s explanation here).  In contrast to “customer service” reps focused on claims, an investment in patient engagement can have the same or greater effect on reducing claims while qualifying as a healthcare expense. Enter patient engagement.

Patient Engagement Is the Blockbuster Drug of the Century
Leonard Kish made the case that if patient engagement was a drug, it would eclipse all blockbuster drugs before it. Kish cited results of studies showing benefit when patients were successfully engaged in their health.

Compared to those not enrolled in the study, coordinated care “patients have an 88 percent reduced risk of dying of a cardiac-related cause when enrolled within 90 days of a heart attack, compared to those not in the program.” And, clinical care teams reduced overall mortality by 76 percent and cardiac mortality by 73 percent.

Rather than reflexively denying claims and building up a mountain of ill will, insurance companies should invest resources in helping their customers get engaged in their health. Their customers would, in effect, “self-deny” their own claims.

Note that when I describe patient engagement, I’m including family members and caregivers. Did you know that families provide care valued at more than $450 billion per year  – more than our total spending on Medicare! Thus, much of what is outlined below speaks to caregivers (particularly with elderly patients), not just the patient. Having more resources/tools as a caregiver would be welcomed, as most of us have no clinical background and are thrown into a caregiving role virtually overnight.

[Disclosure: My patient relationship management company is one of the organizations providing patient engagement tools to healthcare providers, which is why I'm familiar with these examples.]

Just about every myth has been debunked about how patients of all types supposedly won’t get engaged in their health, whether it’s low-income diabetes patients, native American populations or the elderly. However, providers are largely failing in their efforts at engaging patients as they haven’t had the incentives, tools or training.  Provider-patient communications guru Stephen Wilkins points this out clearly in a few pieces.

Despite less than stellar results that Wilkins highlights, the initial attempts by providers at engaging patients are welcomed just as a muddy puddle of water in the Sahara Desert is welcomed. However, much more can be done.

Catalyzing Patient Engagement in Health Plans’ Best Interests
A wave of new requirements and challenges have crashed on top of providers. Insurers could help if they focus in the right areas and are mindful of the challenges. JAMA recently wrote a piece highlighting one facet of patient engagement — shared decision-making (SDM). Physicians aren’t going to magically take on this challenge without a change.

The brevity of visits constrains the opportunities to address these elements of SDM. Furthermore, clinicians are not adequately trained to facilitate SDM, especially eliciting patient values and preferences for treatment.

[Note: Resources to train clinicians on patient engagement are emerging. One would expect that a host of continuing education courses will emerge. One example is HIMSS (the professional association for healthIT), which released a seminal book on patient engagement.]

In the places where providers have successfully achieved the Triple Aim objectives with challenging patient populations, they have had payment aligned with outcomes. Teams were unleashed, led by doctors, to get creative about how to tackle the challenges. While doctors are vital, they use non-physicians for a substantial part of the interaction with patients. It turns out, for example, that doctors and even nurses can be less effective at effecting behavioral change in patients than non-typical care team members. Rather than being relegated to low-level tasks, medical assistants and health coaches play a vital role in the successful models. Once again, while the goal is an improved health outcome, there is a second-order benefit that being more effective lowers costs by avoiding complications, and the medical assistants and health coaches are generally paid less than doctors and nurses. Unfortunately, in a typical fee-for-service reimbursement model, these types of services typically aren’t compensated despite their impressive results.

Dr. Rob Lamberts described this problem in detail in Washington, We Have a Problem. He summarizes the conflict between people’s desires and healthcare’s flawed reimbursement framework.

This is why, I believe, any system that profits more from people with “problems” than those without is destined to collapse. Our system is opposed to the goal of every person I see: to stay healthy and stay on as few drugs, have as few procedures, and avoid as many doctors (and drug companies) as possible.

Health insurers have implicitly viewed their customers as adversaries by creating a claim-denying framework as the default. The smart health plans will figure out how to harness the consumer goals. This isn’t some fanciful dream as it has been demonstrated (profitably, I might add) by the physician-entrepreneur organizations outlined in The Hot Spotters Sequel: Population Health Heroes.

This isn’t about minor tweaks to a fundamentally flawed model. Rather, as one physician-entrepreneur put it, too many models are “putting wings on cars and calling them airplanes.” Rather, it’s supporting proven models where they have rethought care delivery – here’s how one physician-entrepreneur describes rethinking care delivery from the ground up (video).

While financial rewards are important, most physicians are not motivated primarily by money but by autonomy, mastery and purpose. In the successful models, the physician-entrepreneurs created their own autonomy and recognized that the focus of their mastery and purpose had to fundamentally shift. A nice byproduct was the growth of “Negaclaims” as the educated and empowered patients better understood the significant risks of overtreatment and errors.

Too frequently, health plans have tried to micromanage clinical processes. With proper financial incentives combined with a move toward enabling clinical teams to become masters at driving patient engagement, the health plan is much more likely to achieve the desired outcomes. As the Stephen Wilkins pieces referenced above illustrate, clinicians haven’t been trained or rewarded directly or indirectly for encouraging patient engagement. It should be no surprise that most haven’t achieved mastery in helping their patients achieve patient engagement. Instead, the language of medicine has been punitive and demeaning, talking about “non-compliant” patients as though they were petulant criminals. That doesn’t further the partnership between patients and their care teams, which is necessary for optimal outcomes.

Previously, I outlined the strong business case for patient engagement. Those who have understood that business case have moved on to practice the 7 habits of highly patient-centric providers. It’s clear that past efforts by health plans to reduce claims have fallen short and created ill will and sub-optimal health outcomes. Putting the patient/member at the center need not be a marketing gimmick. Rather, it’s central to the notion of “Negaclaims” and to a winning strategy in the fee-for-value era.