In my mind’s eye, I’ve started imagining U.S. health care spending as the Blob from the 1950s horror movie of the same name: the monstrous mass at the edge of town, consuming everything in its path. It’s expanding before our eyes, oozing all over the economy, threatening our future, and no one knows exactly how to stop it.

The other reason the Blob is a good analogy is that we no longer find it scary when there are many more modern, realistic threats (aliens, viruses, nuclear and chemical weapons) that worry us. The citizens in the movie weren’t frightened either, until it started eating them. So, after having a laugh and dismissing the Blob as a harmless story, imagine some ominous music in the background and a green, sticky substance oozing under your front door.

The Blob of health care spending continues to grow whether we acknowledge it or not. Despite recent news that our cost trend has slowed somewhat in recent years^{1 2} and hopes that reform will decrease costs (it won’t; early projections from the exchanges are 25% higher)³, health care spending remains one of the greatest threats to our national security and prosperity.

Unfortunately, there is neither political will nor industry incentive to limit the monster’s appetite. It is up to each of us to stop feeding its seemingly unlimited ability to consume budgets. First, let’s remind ourselves how big this monster has become and examine what we give up as a result.

How Big Is It?
The answer is that health care spending is now bigger than we can comprehend. Literally. The number is three trillion dollars per year⁴. That’s not a number most of us can grasp. One trillion equals one thousand billion. The idea that we are spending many times that number needs examples to understand.

Try this: if you spent $1 million dollars every single day, it would take you over 8,200 years to spend three trillion. Or, if you and 82 friends each spent $1M per day, it would take you collectively 100 years to spend $3 trillion.

Or try this: 3 trillion seconds won’t tick by for over 950 CENTURIES (95,000 years)!

Or: If we blink once every five seconds, it still would take 6,000 people living to 100 years of age to blink 3 trillion times.

More to the point, $3 trillion is almost $10,000 every year for every man, woman and child in the country.

Perhaps the most daunting part is that we spend that much each and every year, and the annual amount has quadrupled since 1990⁵. Plus, health care now supplies one in nine jobs⁶. That means eight people do everything else, in every other job, in every other industry, for every one job in health care. The ratio is 8:1. Where will the ratio stop? 7:1? 6:1? Or will the Blob keep growing?

Compared To What?
From another perspective, let’s compare our health care spending with that of other countries. We spend 1.5 to 2 times as much of our Gross Domestic Product (GDP) (almost 18%) on health care than other industrialized nations, which average under 10%⁷. This means the Blob consumes one in every five dollars we spend on everything; a ratio of 4:1, four on everything else, one on health care. Other countries average 9:1. This means other nations can spend more on important investments, while we feed the monster. Even if we achieve a strong future economy, that disadvantage will be difficult to overcome.

Let’s also compare to spending on other national interests. Public medical spending now exceeds our budget for Social Security or Defense⁸, despite the amazing fact that the U.S. spends more on defense than the next ten highest-spending countries combined⁹.

Reading, Writing Or Ritalin®?
Most disturbing, the amount our government spends on health care has increased eleven times faster than education spending over the last 50 years, and we now spend 33% more on health care than education (8.2% of GDP versus 6%)¹⁰. This hasn’t been a conscious choice to put arrhythmia ahead of arithmetic, but that’s how the Blob works ... a slow advance, gobbling up resources. The trade-off may feed the hungry monster today, but at what cost to our global competitiveness in a future labor market? Remember this represents only public spending on health care, ignoring the 40% paid privately.

Each Of Us Feeds The Health Care Blob
Neither government nor medicine will save us from the extreme financial threat of health care. We have to do it ourselves.

Of course medicine (the so-called Medical-Industrial Complex that IS the Blob) will keep telling the public that they need more and better care; another surgery, another medicine, another exam will make us feel better. And of course that message makes us feel cared for and justified in our continued over-use of over-priced services. While someone else pays, we shrug and get another test, just to be on the safe side.

But the battle against the Blob can’t be won by asking the Blob itself to go on a diet, or asking legislators who are sponsored by the Blob to limit its consumption. And, like in the movie, the public doesn’t perceive the magnitude of the threat; until it may be too late.

What will it take to tame the monster? Each of us asking questions, pushing back on the system, objecting to outrageous pricing, and taking care of ourselves. Do your part: feed the Blob a little less this month.

This article was first posted on Altarum.org.

References

¹ Ryu AJ, Gibson TB, McKellar MR, Chernew ME. The slowdown in health care spending in 2009-11 reflected factors other than the weak economy and thus may persist. Health Aff (Millwood). 2013;32(5):835-40. Epub 2013/05/08.

² Cutler DM, Sahni NR. If slow rate of health care spending growth persists, projections may be off by $770 billion. Health Aff (Millwood). 2013;32(5):841-50. Epub 2013/05/08.

³ Hancock J. Maryland Offers Glimpse At Obamacare Insurance Math. Kaiser Health News [Internet]. 2013 May 20, 2013.

⁴ Munro D. U.S. Healthcare hits $3 trillion. Forbes [Internet]. 2012 May 20, 2013.

⁵ Hartman M, Martin AB, Benson J, Catlin A. National health spending in 2011: Overall growth remains low, but some payers and services show signs of acceleration. Health Aff (Millwood). 2013;32(1):87-99. Epub 2013/01/09.

⁶ Altarum Institute. Health Sector Economic Indicator Briefs 2013 May 20, 2013.

⁷ PBS NewsHour. Health costs: How the U.S. compares with other countries. October 22, 2012.

⁸ Meeker M. A Basic Summary of America's Financial Statements, February 2011. May 20, 2013.

⁹ Cory Booker says U.S. military spending is greater than the next 10-12 countries combined. The New Jersey Star-Ledger PolitiFact [Internet]. 2013 May 21, 2013.

¹⁰ Meeker M. A Basic Summary of America's Financial Statements, February 2011. May 20, 2013.

On May 30, the California Senate passed Senate Bill 809 (DeSaulnier) unanimously. This bill has as its primary goal the continued funding of the Controlled Substance Utilization Review and Evaluation System (CURES) in the California Department of Justice. Over the past year, considerable attention has been brought to the issue of abuse of prescription painkillers nationwide and across all benefit systems. Well-publicized research in California by the California Workers' Compensation Institute (CWCI) and multi-state analyses by the National Council on Compensation Insurance, Inc. (NCCI) and the Workers' Compensation Research Institute (WCRI) have quantified the tragic effects of over-prescribing these medications.

SB 809 seeks to do more, however, than simply develop a stable funding source for this program. The recent Senate action, while important, demonstrates that not all issues surrounding the CURES program are likely to be resolved in 2013. As a series of investigative reports done by the Los Angeles Times pointed out, participation in the CURES program by physicians is not mandatory, and there is no adequate mechanism in place to report unusual prescribing patterns by physicians to the Medical Board of California. While the funding legislation for CURES will address the latter problem, there is still no requirement that prescribers access the database before prescribing a Schedule II - IV controlled substance. However, all prescribers and dispensers will be required to register with the CURES system, which in and of itself is an important development for the Department of Justice and the Medical Board in their efforts to identify and investigate abusive prescription patterns and to combat diversion of the medications for illicit purposes.

Also, stripped from the bill was a tax on manufacturers of controlled substances that would have been used for enhanced law enforcement capabilities throughout the state. This was a critical development that policy makers still need to address, either in this legislation or through the budget process.

Even though a targeted tax on manufacturers is not palatable to the Legislature, the need to fund better enforcement of the laws governing illicit sales of prescription drugs remains a high priority. The funding in the current bill will allow the CURES program to be maintained and improved, but law enforcement will still not have what it needs to investigate physicians and pharmacists who are violating the law and bring them to justice.

While California's workers' compensation system does not have the same level of protections against prescription drug abuse as other state workers' compensation systems, there are resources at our disposal to limit the danger of these medications.

The Medical Treatment Utilization Schedule, utilization review, and Independent Medical Review (IMR) recently added by Senate Bill 863 will assist payers in their effort to curb overutilization of these medications while still addressing the very real clinical need for relief from acute pain and management of chronic pain resulting from an occupational injury. The Division of Workers' Compensation is expected to release new guidelines on pain management later this year that should further assist in this process. And the workers' compensation system, like all other healthcare financing programs, will benefit from the enactment of SB 809. It's a good start, but we are a long way away from declaring this problem solved.

The abuse of high powered prescription pain medication is a public health crisis with workers' compensation implications. The path to a solution requires the active participation of the medical and pharmacy communities, drug manufacturers, law enforcement, medical benefit payers — whether public programs, private group health plans or workers' compensation insurers and self-insured employers — and state and federal agencies and boards overseeing the development and use of these medications.

Progress is being made, but more work needs to be done. The goal is not simply for payers to be better able to say "no". The goal is also not simply being able to avoid the costs of these medications and the complications their abuse creates and have those costs be borne somewhere else. The goal is delivering the highest quality treatment for an injured worker. A back injury, for example, doesn't automatically require surgery in all circumstances any more than it requires an injured worker to face the prospect of drug dependency.

If we use the tools at our disposal compassionately and intelligently and if we continue to press policy makers and regulators to take all steps necessary to protect patients from the improper use of these medications, then we will be able to measure success in more than dollars saved. If Governor Brown gets SB 809 on his desk and signs it, it will become effective immediately. That's a good first step, but there will still be much work to do.

This is Part 1 of a two-part series on waiver of premium. Part 2 can be found here.

Insurance actuaries consider waiver of premium (WOP) a neglected liability — a supplemental benefit rider that has yet to be fully evaluated for risk exposure or cost containment, unknowingly costing individual and group life insurance carriers billions in liability every year.

The problem is that many companies don't have accurate claim management systems capable of reporting what's really happening with the life waiver reserves that are sitting on their books. But with a 44 percent increase in disability claims by people formerly in the workplace¹, it's time this largely ignored liability is held up to the light.

Why Companies Need To Pay Attention
Most life insurers aren't fully aware of how much of a liability they're carrying when it comes to their waiver of premium reserves. Moreover, they're even less likely to know critical information such as the number of open life waiver claims, the percentage of approvals and denials, or claims still holding reserves that perhaps maxed out years ago.

Tom Penn-David, Principal of the actuarial consulting firm Ant Re, LLC explains: "There are generally two components to life waiver reserves. The first is active life reserves (for individual insurers only) and the second is disabled life reserves, which is by far the larger of the two. A company that has as few as 1,000 open waiver claims with a face value of $100,000 per policy, may be reserving $25+ million on their balance sheet, depending on the age and terms of the benefits. This is a significant figure when coupled with the fact that many life insurers do not appear to be enforcing their contract provisions and have a higher than necessary claim load. Reserve reductions are both likely and substantial if the proper management systems are in place."

Unfortunately, by not knowing what's broken the situation can't be fixed. Companies need to examine their numbers in order to recognize the level of reserve liability they're carrying, and to see for themselves the significant financial and operational consequences of not paying attention. Furthermore, a company's senior financial management team may be underestimating the actual number of their block of waiver claims, thus downplaying the potential for savings in this area. Typically, the block of existing claims is much larger than new claims added in any given year, and often represents the largest portion of overall liability.

"Life companies are primarily focused on life insurance reserves and not carefully looking at waiver of premium," Oscar Scofield of Factor Re Services U.S. and former CEO of Scottish Re., says. "There could be a significant reserve redundancy or deficiency in disabled life reserves and companies need to pay attention to recognize the impact this has on their bottom line."

To illustrate this point, let's take a quick look at the financial possibilities for a company with even a small block of life waiver claims:

* The above reserve data is based on Statutory Annual Statements.

As you can see, even under the most conservative scenarios, the reserve savings are substantial when a proactive waiver of premium claim management process is put into action.

Industry Challenges
The National Association of Insurance Commissioners (NAIC) requires life companies to report financials that include both the number of policyholders who aren't disabled with life waiver, as well as reserves for those who are currently disabled and utilizing their life waiver benefits. But many items, like the number of new claims or the amount of benefit cost are not reported. Moreover, companies rarely move beyond these life waiver reporting touch-points to effectively monitor their life waiver claim management processes or to identify the impact of contract definitions on their claim costs.

The new and ongoing volume of claim information, manual processing, and the fact that life waiver claims involve months if not years of consistent, close monitoring, is humanly challenging — if not impossible. For example, it's not out of the ordinary to have only a few people assigned to process literally thousands of life waiver claims.

It's unfortunate, but this type of manual claim reporting continues to remain unchanged as claim personnel (working primarily off of three main documents: the attending physician's statement, the employee statement, and the claim form), quickly push claims through the system. The process is such that once these documents are reviewed (and unless there are any questionable red flags), the claim continues to be viewed as eligible, is paid, and then set-up for review another 12-months down the road. As long as the requests continue to come in and the attending physician still classifies the claimant as disabled and incapable of working, there isn't much done to proactively manage and advance the claim investigation.

An equally challenging part of the life waiver claim process is working off the attending physician statement — both when claims are initially processed, as well as when they are recertified. Typically very generic in nature, the statement often only indicates whether or not the claimant is or continues to be unable to work. This problematic approach essentially permits the physician to drive the course of the claim decision away from the management of the insurance company. The insurer, who is now having to rely on the physician's report to fully understand and evaluate the scope of the claimant's medical condition, has little information in which to manage the risk.

For example, did the evaluation accurately assess the claimant's ability to work infrequently or not at all? Are they able to sit, stand, walk, lift, or drive? If so, then what are the specific measurable limitations? Is there potential to transition them back into their previous occupation or into an occupation that requires sedentary or light duty — either now or in the near future? In order for companies to move beyond the face value of what has initially been reported, and to monitor where the claimant is in the process, they need to build better business models.

Closing The Technology Gap
The insurance industry as a whole has always been a slow responder when it comes to technology. But for companies to optimize profitability, closing the gaps in life waiver claim management and operational inefficiencies will require a combination of technology and human intervention. Investing in the right blend of people, processes, and technology with real-time capabilities, can substantially reduce block loads and improve overall risk results.

Constructing a well-defined business model to apply standardized best practices that can support and monitor life waiver claims is critical. The adjudication process must move beyond obvious "low hanging fruit" to consistently evaluate the life of the claim holistically. It means not only examining open claim blocks, but also those that are closed, to better identify learning and coaching opportunities to improve future claim outcomes.

Additionally, segmentation can provide great insight into specific areas within the block, by applying predictive modeling techniques. It can evaluate how claims were originally assessed, the estimated duration, and why a claim has been extended. For example, was there something regarding the claim that occurred to warrant the extension of benefits such as change in diagnosis?

Predictive modeling also looks at how certain diagnoses are trending within the life waiver block, so if anything stands out regarding potential occupational training opportunities, benefit specialists can effectively introduce the appropriate vocational resources at the right time for the insured.

Capabilities to improve outcomes in waiver of premium operations through technology and automation should include these three primary assessments:

• Financial: Companies need to start looking at waiver of premium differently. They need to continually evaluate the declining profit margins on in-force reserves in order to identify the impact on profits. Even if a waiver of premium reserve block is somewhere between 10 and 200 million dollars, potential savings are likely to be 10 to 20%. Better risk management tools can substantially control internal costs and improve reserve balances.
• Operational: Current business models have to move beyond the manual process to steer the claim down the right path from start until liability determination. Standardized automation brings together fragmented, disparate information systematically across multiple platforms, essentially unifying communications between the attending physician and the insurance company. This well-managed infrastructure gathers, updates, and integrates relevant data throughout the life of the claim.
• Availability: A critical way to improve the life waiver claim process is through accurate reporting. By breaking down the silos between the attending physician, case manager, and the insurance company, claim related information can immediately be uploaded and reported in real-time. Proactively enhancing the risk management process to enable companies to consistently receive updated claimant health evaluation and physical limitation reports, is critical for best determining return-to-work employment opportunities.

Three Technology Touch-Points in Waiver of Premium Operations

Front end: Assessment of the initial claim and determining the best possible duration time.

Mid-point: An open claim should be reassessed to determine continued eligibility and to evaluate the direction of the claim if lasting longer than projected-and why.

End-point: The evaluation process continues to ensure claims are being re-evaluated at regular intervals, examining the possibility of getting the claimant back to work.

Why Waiver Of Premium Matters
What's typically happening is that most company's life claim blocks are managed on the same platform and in the same manner as their life claims, so ultimately the life waiver block is improperly managed. Life companies need to recognize that a waiver of premium block is not a life block but a disability block, and needs to be managed differently. For example, older actuarial tables do not reflect the fact that people with disabilities are living longer, potentially leaving companies with under-stated reserve liabilities.

Ultimately, having a good handle on the life waiver block will prove beneficial for both the carrier and the insured.

Part 2 of this series will discuss specifically how the introduction of process and technology into this manual and asynchronous area can deliver substantial benefits to life carriers.

¹ Social Security Administration, April 2013.

Insurance agents have long understood the need to be social as a part of their sales process: the best agents have always been those who build strong relationships with and educate customers, keep in touch and ask for referrals. But new ways of communicating have resulted in new expectations buyers have, such as being able to Google an agent and check out his or her LinkedIn profile before deciding to proceed. This means that insurers need to rethink the sales process and the tools that they provide to their agents, so agents can take full advantage of the power of social media.

The profile information and status updates that more than one billion people share each day on Facebook, Twitter and LinkedIn offer agents incredible insights into what is happening in the lives of current and potential policyholders. These insights signal to agents what types of insurance are needed by the customer and generally allow the agent to build trust through personal connection and personalized service. As a result, agents can now be smarter about when they contact customers and prospects and more directed in their communications, saving agents time and improving business results. Researching prospects on social media and understanding what's happening in their lives ensures that every call will be warm. In the era of social media, the cold call is dead.

The insurance industry has been an early adopter of social technology. While regulated industries, including financial services and insurance, tend to be cautious because of compliance concerns, a study by International Data Corp. found that the insurance industry has actually blazed the trail with social media. Farmers, Nationwide, Thrivent Financial, Northwestern Mutual and other Fortune 500 insurance organizations have instituted forward-thinking initiatives on Facebook, LinkedIn and Twitter that have demonstrated social success that other industries are attempting to replicate.

But it's time for all insurers to move to the second wave with social. In the first wave, many companies rushed to get as many "likes" as possible on their Facebook pages. But research shows that these "likes" have failed to convert into lasting value and tangible return on investment. In the second wave of social, insurers are realizing that they need to focus on results achieved through true engagement and authentic relationships. Just as it has always been, since long before the digital age, developing long-standing relationships is key to building a successful business in the social era.

For insurers, moving on to the second wave means two main things:

First, insurers need to provide unique and relevant content that agents can use on their Facebook, Twitter and LinkedIn feeds. For an agent, sharing relevant content via social channels builds credibility and helps establish them as a trusted expert that their connections will turn to when they need insurance. Marketing departments already know the type of content that resonates with customers and are typically producing professional content used in other online and offline channels. For example, success stories about the value of insurance or financial planning tools are valuable pieces of content for agents to share socially.

Second, insurers must empower the field. As an example, Thrivent Financial, a Hearsay Social client, has hundreds of agents actively managing their own local Facebook pages. As financial experts, Thrivent Financial representatives share value with their close-knit communities by consistently posting relevant content, like IRA calculators and market analyses. In addition, Thrivent reps share personal updates and plan community events, building an authentic social presence while still appropriately representing brand.

Organizations that empower agents to create their own local social-media presences are many times more effective than when the same messages are shared from a corporate page. While having five million fans wins bragging rights for any brand marketer, from the consumer's perspective, it can be much more powerful to hear the story from a local representative that you know and trust.

Savvy chief marketing officers at insurers have done a great job of making a relatively abstract product tangible by creating some of the most interesting and memorable personas in the history of marketing — Mayhem the Allstate villain, Flo the Progressive Girl, Snoopy representing MetLife and the GEICO gecko. For an industry that sells a product you can't hear, see, smell, taste or touch, this is impressive. And the characters can drive social-media strategies, allowing a company to create a social-media asset for a character (e.g., the Facebook page for Mayhem). Getting consumers to "like" the page can provide yet another entry point into the News Feed, increasing engagement for the brand and driving sales. When your local MetLife agent posts a picture of a sleeping Snoopy with the text "TGIF," how can you not click "like"?

While insurers are off to a great start with social marketing, there is so much more that they can do to leverage the power of social media into sales. By coordinating enterprise-wide social selling programs, insurance companies can empower agents to attract more prospects and build stronger relationships, leading the way by selling socially.

I found myself arguing an extremely silly point with an agency owner at a conference.  Everyone but the agent saw the silliness of his argument.  I explained the point every way imaginable, to no avail.  I could see from the looks on others’ faces, they were tiring of him not getting the point either.  If he had been one of the audience members watching someone else argue, he probably would have seen the errors in his thinking, too.  But, sometimes you just have to be outside looking in to see a point.

As a consultant, I very often find myself facing this type of situation.  The four points below are the most common positions held by agency owners that create immovable and serious roadblocks to their agencies’ success.  If any of these sound familiar to you, take a step outside of the situation and look back in.  You might see your position in a different light.

Other common reasons given are that they are nice guys and that they have never been held accountable so it is unfair to do so now.  That is fair enough.  But to be really fair, if the producers are not held accountable, why hold anyone accountable?  Why hold the customer service representatives (CSRs) accountable?  Why hold new producers accountable?

Another reason given is that by holding them accountable, the ultimate outcome is that they would be fired and the emotional trauma of firing a producer is too much.  That makes sense.  Of course, if you are not going to fire a producer, how can you fire a CSR?  Is their trauma any less?

Then there are the producers that should hold themselves accountable negating the need for management to do so.  How well is that working in your agency?

4.  All agencies have the same value as a multiple of sales or EBITDA.  I am often asked, “How much are agencies worth today?”  This presumes that all agencies are alike, all agencies are commodities and nothing is special about any agency.  Is this correct?  Is there nothing special about your agency?

Let’s assume some common multiple applied to all agencies.  If one agency is losing 10 percent of its commissions annually and another agency is growing by 10 percent, then they should have the same multiple.  The same goes for the agency that has a 25 percent profit margin versus the agency that has a -5 percent profit margin.  Even the agency that has $1,000,000 of extra cash on its balance sheet versus the agency that has spent $500,000 of trust monies will have the same value. 

The question presupposes such material differences do not exist.  It’s like someone is asking, “What’s the value of a 2005 Ford F-150?”  They expect I can look up the blue book, ask how many miles the agency has on it, the condition of the body, and whether it has any extra features.

Quite often, the agency owners who ask this question have problematic agencies and the reason they ask the question this way is because they do not want their problems taken into consideration in the valuation. 

I do not believe any reader likes the logical result of these incredibly common beliefs and practices.  I’m not going to argue these ideas are wrong.  If you share these beliefs, take a step outside and look back in.  Think through the complete concept and if you still believe in it, then go for it 100 percent!

In the past, I have discussed the need to make employees who are injured on the job aware that they can retain their own doctors at their own expense.

We are now seeing the injured employee's attorney trying to gain medical control by claiming that pursuant to the Labor Code, you did not offer immediate medical treatment or, if it was provided it was not in a timely manner. As such, they are claiming that you (really your carrier) have waived your right to medical control under your Medical Provider Network. As such, applicant's attorneys are now trying to move their client to their medical provider(s) to see just how many new body parts they can add to the claim. So, when you are the first to receive notice of a claim, here is what we recommend you do.

Immediately schedule an appointment for the injured employee with your clinic and provide the employee with a written notice telling them when and where to go. That way, we will have foiled any attempt by the applicant attorney to grab medical control because of our alleged failure to provide treatment.

To help you facilitate the process, I have added language regarding this medical appointment to the "Acknowledgment of a Claim" letter I recommend you use (see below). The goal is to ensure that your injured employee understands that they must go to our doctors for treatment, as well as at the same time telling them that they are free to obtain medical treatment outside of your Medical Provider Network but that it will be at their own expense.

We have already seen this approach work keeping the injured employee treating within our Medical Provider Network. Injured employees are showing your letter to them to their attorney and are asking if they really have to go to our doctor(s). They are also asking if their attorney is going to pay for any treatment by the attorney's directed non-Medical Provider Network doctor. The answer is almost always "No," and we find ourselves retaining medical control with a minimum of effort on our part, which we all know is critical to the timely closure of any claim.

You will note below the revised language I recommend you use. You will also note that it should be on company letterhead and given as soon as you first learn of the claim. A copy should also be sent to the examiner for this claim. This way, no time will be lost and there will be no argument over whether or not you have waived any of your rights to retain and maintain medical control.

I have put the medical appointment language in italics so that you understand that it should only be used when you are the first served with notice of a claim. Otherwise, simply leave this out and only use the language about their ability to obtain their own doctor at their own expense.

(On Company Letterhead)

Name
Address

Re: Recent work related injury - (Date of Injury)

Dear (Employee's first name if possible or Mr/Mrs ...)

We were sorry to learn of your recent on the job injury. We want to take this opportunity to assure you that our workers' compensation insurance company has been notified. They will be in touch with you to discuss your injury and to make sure that you receive all the benefits necessary to help you with a speedy recovery.

We want to be sure that you know your rights under California law (Labor Code 4605) which says:

"You have the right to provide, at your own expense, a consulting physician or attending physician(s)."

We also understand that you probably feel the need to be seen by a doctor as soon as possible. We want you to know that medical treatment is immediately available at (insert your clinic's name here). They are located at (address and phone number).

An appointment has been made for you at (call the clinic and get a specific time for the injured worker to be seen). If this time is not convenient for you, call the clinic and reschedule at your convenience. You will be receiving further information directly from our workers' compensation carrier regarding your claim.

Please do not hesitate to contact (fill in the name of the person) if you have any questions about your injury or benefits.

Again, we wish you a speedy recovery.

Signed.

Cc - Your insurance carrier

Workers' compensation continues to be a challenged line, with historically poor results, a benign interest rate environment, and diminished prior year reserve redundancy. Another issue worth noting is the uncertainty around the potential 2014 extension of the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), which has heightened the focus on aggregation of workers' compensation risk.

Employee Concentration
For years, carriers have monitored workers' compensation exposure aggregations (their cumulative exposures in a geographic area) as a way of assessing the potential impact that an earthquake would have on their book of business. Such analysis has been commonplace in earthquake prone areas, such as California, for many years. However, after the September 11, 2001 terrorist attack, workers' compensation carriers and reinsurers immediately began to focus on employee concentration in large cities which were deemed high risk targets for terrorist events.

Insurance carriers continue to view risks from a concentration perspective — both on an individual accounts basis as well as the aggregate across their portfolio and correlated lines of business. Some carriers will decline a risk outright simply because they are "overlined" in a particular zip code or city. Or, the carrier might impose a surcharge on the premium for the use of their limited capacity for a particularly large workers' compensation risk.

Reinsurers similarly set a maximum amount of capacity they can offer in a particular geographic area and for catastrophic loss scenarios. Insurers purchase this capacity as one way to reduce their potential to incur an outsized catastrophic loss and manage their modeled worst case scenario within their financial risk tolerance.

To that end, catastrophic models have been developed. Catastrophic models allow carriers to gauge their potential exposures in a geographic area under a variety of different event scenarios that are either probabilistic or deterministic in nature. During the last 10 years, carriers have made adjustments to their books of business according to the output of these models to limit their potential exposure to terrorist events — sometimes across multiple product lines.

A unique consideration with workers' compensation over other insurance contracts is workers' compensation policies have statutory coverage (in this case being synonymous with unlimited) rather than a stated limit which could cap a carrier's liability for a certain loss. Given the statutory nature of the coverage, it is difficult for carriers to estimate their maximum exposure to workers' compensation.

The issue of employee aggregation affects any employer with a large number of employees in a single location, but is highlighted in industries such as financial institutions, hospitals, defense contractors, higher education, hotels, professional services, and nuclear.

Impact Of Pending TRIPRA Expiration
Because of the significant financial impact of the September 11 terrorist attacks, Congress created the Federal Terrorism Risk Insurance Act (TRIA) to provide a financial backstop to the insurance industry that would cap losses in the event of another large-scale terrorist event. The Act was initially set to expire at the end of 2005, but because of the ongoing risk of terrorism, and the reliance on it by insurance carriers, it has been extended several times. It is now set to expire on December 31, 2014.

When most people think of TRIA/TRIPRA, they think of the property insurance marketplace. Without this backstop in place, many high-profile properties would not be insurable in the commercial marketplace. However, workers' compensation is also deeply impacted, as there are large amounts of people working in highly concentrated areas.

Although the expiration of the Terrorism Risk Insurance Program Reauthorization Act is almost two years away, the impact of this is already being seen in the marketplace. Employers in certain industries, employers with large employee concentrations, or in certain cities can expect less available capacity with some carriers scaling because of the increased exposure to their balance sheet created by losing some or all of the protections provided under the Federal Terrorism Risk Insurance Act. This trend has the potential to escalate and broaden as we get closer to the TRIPRA expiration date.

In addition, more employers may face increased rates for their workers' compensation coverage because of the combination of less competition and capacity, as well as an increased potential exposure for the carriers. If a policy is being issued that provides coverage beyond the TRIPRA expiration date, and the future of the legislation is not known, carriers will likely price this under the assumption those protections will be allowed to sunset or may be significantly modified.

What To Expect At Renewal
When faced with a potentially challenging renewal and one that may be impacted by this issue, what can you do? We recommend starting the renewal process early, at least 120 days (or more) prior to the policy or program effective date. In the case of Marsh, we will work with you to develop a communications strategy and presentation tactic around all key risk exposures, including modeling and risk analytics in support of your renewal objectives.

For carrier presentations and Q-and-A, insureds must be thoroughly conversant with details of exposures and operations; mergers, acquisitions, and divestitures; loss trends, safety programs, and risk management practices; and future plans, to the extent that they can be shared publicly.

We will help you be familiar with respective insurers' cost of capital and pricing strategy — understanding how carriers evaluate your firm's experience and risk profile, and how they initially develop rates and premiums.

High quality data differentiates employers in the eyes of insurance carriers. In today's environment, it is imperative that organizations provide underwriters with complete, accurate, and thorough data and analysis in order to differentiate their risk profile.

There has already been a significant increase in questions that carriers are asking at renewal that focus on the risks associated with a potential terrorist event. Employers with a large concentration of workers, especially those in major metropolitan areas, should be prepared to provide the following details to carriers:

• Information on employee marital/dependency status.
• Employee telecommuting/hospitality practices and impact on concentration.
• Physical security of the building including information about guards, surveillance cameras, parking areas, HVAC protections.
• How access to the building is controlled.
• Construction of the building and location of the offices.
• Management policies around workplace violence, weapons, and employment screening.
• Employee security procedures.
• Emergency response/crisis management plan.
• Fire/life safety program.
• Security staff.
• Crisis management procedures.

In addition, carriers may wish to send their loss control engineers for a physical inspection of larger facilities and to interview building/facility management.

The Increasing Demand For Better Data
Because both insurance carriers and reinsurers focus on catastrophic models, it is extremely important that employers provide the highest quality of employee accumulation data, as this will ensure they are favorably differentiated by insurance carriers.

If your company has multiple shifts or operates in a campus setting, make sure you report both the total number of employees and the number working during peak shifts — as well as the actual buildings where the employees are located.

The number of employees working during peak shifts is the actual exposure to a terrorist event, not the total number of employees. Also, some businesses have a large percentage of their workforce in the field or telecommuting, rather than the office where their payroll is assigned. Providing this information to carriers significantly reduces the potential exposures associated with employee concentration. In addition, identifying the actual building where employees work on a campus — rather than a single building — helps overcome pitfalls of the catastrophic model. This also better reflects an employer's exposure to catastrophic losses.

As options about future real estate plans are considered (i.e. in terms of consolidation of employees from multiple locations in a city to a single location, or the impact of closing or consolidating satellite locations and relocating employees in major metropolitan areas), it is wise to review and consider the potential impact on workers' compensation pricing and capacity.

Because of the current political and economic climate in the US, renewal of the TRIPRA by Congress is far from certain. Marsh is continuing to monitor this issue closely, and we are working with employers and insurance industry representatives to raise awareness of the important role that TRIPRA plays in the insurance marketplace.

For years, California has been one of the few states with specific, independent pregnancy disability protections. The protections include freedom from discrimination and the right to take time off from work. Further protection was added last year with the mandate to continue employer-paid health care benefits during a pregnancy disability leave of absence.

California's new pregnancy disability regulations recently took effect. If you are responsible for human resources in your organization, you likely already knew. You may have already seen summaries of the new regulations, or even reviewed the entire 28 pages yourself. If not, a brief summary of the notable changes follows. After the summary, we use the complexity of new regulations to show the importance of careful planning and documentation when handling an employee's pregnancy.

Summary Of New Regulations

Expanded Definition Of "Disabled by Pregnancy"
California law has long stated that a woman is disabled by pregnancy if, in the opinion of her health care provider, she is unable because of pregnancy to perform any essential function of her job or to perform the essential functions without undue risk to herself. The new regulations add a host of specific conditions that could meet the definition of "disabled by pregnancy." One such condition is "bed rest." The regulations go on to state that the list of conditions is non-exclusive and illustrative only. The regulations do provide that lactation, without medical complications, is not a condition requiring pregnancy disability leave, but it may require transfer to a less strenuous or hazardous position or other reasonable accommodation.

Amount Of Pregnancy Disability Leave Allowed
The law allows up to four months of unpaid leave for women who are disabled due to pregnancy. The new regulations change the definition of "four months." The new regulations provide that it is the number of days the employee would normally work within four calendar months (one third of a year equaling 17 1/3 weeks), if the leave is taken continuously, following the date the pregnancy disability leave commences. If an employee's schedule varies from month to month, a monthly average of the hours worked over the four months prior to the beginning of the leave shall be used for calculating the employee's normal work month. Thus, the total amount of leave available will be based on a "one third" year measurement of an employee's normal work schedule. The regulations provide several examples of the calculation.

Intermittent And Reduced Schedule Leave
The law continues to allow an employee who is disabled due to her pregnancy to take her leave in less than four month increments. Under the revised regulations, an employer may account for increments of intermittent leave using an increment no greater than the shortest period of time the employer uses to account for use of other forms of leave, provided it is no greater than one hour.

More Guidance On Reasonable Accommodations And Transfers
The new regulations included detailed provisions on the employer's obligation to provide a pregnant employee with reasonable accommodations and/or transfers to alternative positions. While the regulations should be consulted to guide the handling of a specific situation, the new regulations closely track the employer's obligations under the state and federal disability law to engage in an "interactive process" and provide reasonable accommodations.

Reinstatement Rights And Rules Expanded
Under state and federal family/medical leave law, a returning employee must be reinstated to the same or an equivalent position. The new regulations provide that an employee returning from pregnancy disability leave must be reinstated to her "same" position. The alternative of a "comparable" position is only available if the employer is excused under the regulations from returning the employee to her same position.

The employer must "guarantee" the right of reinstatement in writing upon request of an employee. The guarantee must be honored, whether or not in writing, unless an exception applies.

The new regulations do not contain the previous language that permitted an employer to deny reinstatement if it would undermine the employer's business. Reinstatement must be made within two business days, or if that is not feasible, as soon as possible after the employee notifies the employer of her readiness to return. The new regulations specify that a position is considered "available" for the employee if the position is open on the day of the employee's scheduled return or within 60 calendar days thereafter. The employer has an affirmative duty to provide the employee with notice of available positions.

Perceived Pregnancy Protection Added
The new regulations specify that it is unlawful for an employer to discriminate against an employee or applicant because of "perceived pregnancy." Perceived pregnancy is defined as being regarded or treated by an employer as being pregnant or having related medical conditions.

Employer-Paid Health Benefits
Beginning last year, California employers became obligated to continue paying for health care benefits for employees on pregnancy disability leave at the same level and under the same conditions as if the employee had continued working. The new regulations provide the details on this requirement and its relation to the similar requirement under family and medical leave law.

Notice Requirements Changed
The regulations continue to require employers to provide notice to employees of their pregnancy disability leave rights, but provide more detail on how employers must meet the requirement and the consequences for failing to do so. The standard form notices created by the government have been modified to reflect the changes in the law.

Example Of The Importance Of Careful Planning And Documentation

The regulations state that an employee who takes pregnancy disability leave is "guaranteed a right to return to the same position." They state further that the employer must provide the "guarantee" in writing to the employee if it is requested. After reading or being told of these mandates, an employer with limited time and limited global understanding of the regulations might prepare the following letter and give it to an employee heading out on pregnancy disability leave:

Dear Debbi,

We have received your request to take pregnancy disability leave. We have also received your doctor's certification stating that you will need to be off work for four months. We guarantee that you will be reinstated following your leave.

Sincerely,
Well-Meaning Employer

Well-Meaning Employer has created multiple problems, but we will focus on just one. The new regulations provide that an employee is not entitled to reinstatement if the employee's job would have ended notwithstanding the pregnancy leave. For instance, if the employee's position is eliminated or the employee is included in a layoff for reasons that have nothing to do with the pregnancy or leave. Let's assume that Debbi's position is legitimately eliminated during her leave. She has no right to reinstatement under the regulations.

The regulations, however, also provide that a position is "available" and must be provided to the employee if the employee is entitled to the position by "company policy" or "contract." The letter and the statement "We guarantee that you will be reinstated..." could certainly be interpreted as a contract entitling Debbi to reinstatement, even though her position was eliminated and she has no reinstatement rights under the pregnancy disability law.

The new regulations were designed to provide employers with clarity, and in many cases, they do. Because of the complexity, however, they also create traps for those employers who fail to carefully plan and document pregnancy leaves.

"Audiences in the Washington area have been erupting in whoops, whistles and applause when actress Helen Hunt, playing the single mother of a chronically ill child, denounces HMOs with a string of unprintable epithets," the Washington Post recounts in a story in 1998. "Hunt's character quickly apologizes for the outburst, but actor Harold Ramis, playing a physician, assures her that the apology is unwarranted. 'Actually, I think that's their technical name,' he says."

While most people may not remember this movie, "As Good As It Gets," they certainly are familiar with HMOs — and how unpopular they were with the public in the Clinton era, as embodied by this scene. Today, most purchasers and payers who once championed HMOs as the next great answer to health costs and quality are much more cautious about them: Less than 38 percent of employers offer an HMO benefit to their employees, almost always as one among many plan options.

Yet the basic principles behind HMOs remain appealing to employers. They can realign payment systems to incentivize prevention. If a procedure appears unnecessary, they don't pay for it — or they can require clinical evidence that it is indeed necessary. They can pivot services around the needs of the patient and coordinate care.

Employer reliance on HMOs has receded, but the problems HMOs were designed to address have only grown exponentially larger in recent years. Health costs exploded since "As Good As It Gets" debuted, and the persistent problems of fragmented services, inadequate prevention and unnecessary care waste at least a third of all money spent on healthcare, according to the Institute of Medicine (IOM). But consumers hated HMO restrictions on choice and resented interference with the doctor-patient decisio-nmaking, and that doomed HMOs, however good their intentions may have been.

So purchasers moved in a new direction, aiming to uphold the original principles behind HMOs without interfering with patients' choices. Instead of tightly managing the services provided to employees, purchasers would take a hands-off approach and give consumers more information so they could make their own decisions about the right care at the right price. Instead of managed care, we'd have manage-your-own-care. The manage-your-own-care philosophy ultimately led to the accelerated growth of high deductible health plans, now the fastest-growing form of health insurance, in which employees and dependents enjoy a high level of choice of doctor and procedure but pay for much of it out of their own pocket. This gives consumers the incentive to "shop" for the best provider, search out the right prices, and make sure that the procedure and the costs are warranted.

In line with this development is a trend among purchasers to call for price transparency, including a demand for plans and individual providers to publicly report on how much employees must pay for services they seek. I support price transparency, with an important caveat: Price reporting must be interwoven with quality reporting, in all venues, every time. By contrast, price reporting decoupled from quality reporting could inspire the same backlash HMOs did. Here's how:

• Your costs will grow. Anyone who has worked in healthcare knows that the current pricing and chargemaster scheme are nonsensical and are in no way correlated to the quality of care. What that means is you can't predict the quality by the price. But consumers don't understand that, and studies show that given the pricing options, they will select the highest priced provider — assuming that's automatically the highest quality provider. When you only show pricing, without coupling the dollar figures with an easily comprehended indicator of quality, consumers will head toward the highest priced option, especially after they have already satisfied the deductible and it's the purchaser's dime (i.e. during an inpatient stay). If a purchaser or plan tries to restrict choice of hospital, it will be perceived as a cynical effort to cut costs at the expense of patient quality — since the employee does not see for themselves that price is unrelated to quality.
• Your company CEO will appear as the villainous businessman sweating on 60 Minutes. Employees will accuse their companies of choosing "cheaper" providers rather than the "best" providers, without any information on whether the less-expensive options are actually lower in quality. Comparing pricing information with quality information allows employers to make informed choices, and in turn, inform employees, too.
• Your health plan will be treated as evildoer. If your employees continue to shop services by price alone, they will not appreciate any efforts by health plans to restrict choices of hospitals or otherwise make demands on hospitals. Health plans that try to do this on behalf of purchasers or as part of the exchanges will be subject to Helen Hunt-style vitriol for sacrificing quality as soon as the employee exhausts the deductible.

In the new movement away from managed care and toward manage-your-own-care, purchasers and payers are at a crossroads. They must take steps to educate their employees on how to select the best provider, including the weirdness of a market in which price tells you nothing about quality or vice-versa. Only by assuring full transparency of both quality and pricing — always coupled together — will the public learn the strange truth about getting the best care for themselves and their families. Purchasers and payers deserve credit for pushing for higher quality care, so they should insist on giving employees what they need to work toward that same goal. Don't be cast as the villain again.

Or do high profits create the opportunity for a safe workplace?

The success of Paul O'Neill as CEO of Alcoa Corporation has resurfaced in the book, The Power of Habit: Why We Do What We Do in Life and Business, by Charles Duhiggs.

Prior to becoming US Treasury Secretary in the Bush Administration, O'Neill took on the task of turning a "tired" and "floundering" company into a highly profitable and efficient organization. To simplify his formula for success, he created and led a new mindset of safety in the workplace no matter the cost. Employee safety became the main goal of Alcoa.

Critics emerged from everywhere questioning O'Neill's belief that a goal of zero workplace injuries would result in high corporate earnings. The facts proved the critics were wrong, and history continues to show continuous financial growth after O'Neill retired from the company.

From 1987 to 1991, the employee injury rate decreased 50%. Because of the culture O'Neill created, the injury rates continued to decrease even after he retired from Alcoa and continue to do so today.

During his leadership, company sales increased 15% each year, and the earnings per share increased seven times the level when he joined Alcoa.

Obviously, most employers are not the size and financial stature of Alcoa. But, what can all organizations gain from the "O'Neill Formula for Financial Success?"

No one can argue that making sure employees leave work for home as healthy as they arrive at work is a bad idea. Let's face it — creating a safe work environment should always be the top priority for any organization. Most employers believe safety is important, but they feel they don't have the time or resources to adequately address all issues. The solution to the employer's dilemma is to align themselves with a risk insurance advisor who can help an employer plan, implement and lead their organization through a consistent process to achieve measurable results of improvement.

If an employer's risk insurance advisor relationship does not have the interest, resources, knowledge and experience to be a coach and leader for a program like this, it should be time to find a new relationship. Keeping valuable assets safe, like employees, and helping to keep an organization financially sound are of the utmost importance.

Financial success can be achieved at different levels — the O'Neill approach will rally all stakeholders and result in outcomes that you could not have imagined. Certainly, O'Neill's detractors felt that way until they saw the results.

What has your risk insurance advisor done for you lately to help you achieve your financial goals?