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Legislative Rollback of Temporary Disability Reforms Could Cost Millions

There are cases where extended periods of disability may be warranted, and there are things that the legislature should consider, but an across-the-board increase in the length of disability is simply the wrong answer for California.|

In the seven years since Governor Arnold Schwarzenegger signed the sweeping reforms of Senate Bill 899 (SB 899) into law, the applicant's bar has been actively lobbying to roll them back. Most recently, through Assembly Bill 947 (AB 947) introduced this spring by Assembly Member Jose Solorio (D - Anaheim, Garden Grove, and Santa Ana), applicants' attorneys have targeted SB 899's 104-week cap on total temporary disability (TTD) benefits. Before SB 899 became law, total temporary disability benefits which were intended to provide two-thirds of the average weekly wage could go on indefinitely thanks to legislation signed into law in 1978 by then- and now-Governor Jerry Brown, eliminating the previous 240-week cap. Under SB 899, applicants injured after April 19, 2004 will receive 104 weeks of temporary disability within five years of the date of injury unless they meet one of the exceptions for long-term injury such as severe burns, amputations, or chronic lung disease. Advocates for AB 947 have argued that it often takes longer than two years for an applicant to recover from surgery or obtain necessary medical treatment. AB 947 would require that applicants who need treatment that could not be medically completed within 104 weeks can receive up to 240 weeks (approximately 4.6 years) of total temporary disability benefits within five years of the date of injury. Temporary disability benefits are one of the highest cost drivers for carriers and employers and the maximum rates have expanded considerably from $490 per week in 2002 to $1,010.50 in 2012. According to the Senate Appropriations Committee, which reviewed research from the Commission on Health and Safety Workers' Compensation (CHSWC), in increasing the period of temporary disability, AB 947 could increase per-claim temporary disability benefits by up to $137,000. In total, the legislative analysts have predicted an annual increase of $188 to $238 million in total temporary disability benefits. This does not include the medical evaluation and treatment costs that will be required to justify and sustain applicants for extended periods of total temporary disability. Further, the population of workers on total temporary disability could potentially double as many remain on disability rather than cycle back into an increasingly difficult workforce. The longer injured workers remain off work for even minor injuries, the more difficult it is to go back when disability benefits end, and with California's unemployment rate continuing to hover around 12%, it may be easier to claim extended disability than to embark on a daunting job search. In 1978, the Department of Industrial Relations (DIR) recommended that Governor Brown sign SB 1851 into law removing any cap on temporary disability in order to account for the occasional case that required surgery more than five years after the date of injury. However, the courts interpreted the legislation as allowing unlimited continuous temporary disability. Instances of abuse of unlimited total temporary disability benefits brought about the reforms of SB 899 in 2004. Because of its significant projected impact on an already fragile state budget, the California Department of Finance came out in opposition to AB 947 and on August 15, 2011 the Senate Appropriations Committee placed the bill in its suspense file pending a future vote. Although the stated legislative intent of the AB 947 is to bridge the gap between 104 weeks and when an injured worker is medically eligible to return to the workforce, AB 947 is wide open to abuse by applicants and physicians who will continue to treat applicants as long as possible. Injury claims that are now resolved within 104 weeks could take over two-and-a-half years more to resolve. There are cases where extended periods of disability may be warranted, and there are things that the legislature should consider, but an across-the-board increase in the length of disability is simply the wrong answer for California.

Michael Peabody

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Michael Peabody

Michael D. Peabody received his Juris Doctorate and Certificate in Alternative Dispute Resolution from Pepperdine University School of Law and was admitted to practice law in 2002. He has practiced in the fields of workers compensation and employment law, including workplace discrimination and wrongful termination.

Return to Work Decisions on a Worker's Comp Claim

The evaluation employers must make regarding an employe's potential return to work under the workers' compensation system is fundamentally different from the reasonable accommodation analysis mandated by the Fair Employment and Housing Act (FEHA). A precedent-setting decision in Cuiellette v. City of Los Angeles reinforces that even when a workers' compensation claim is managed and resolved perfectly, employers may still be at risk for a discrimination lawsuit when they fail to follow the separate Fair Employment and Housing Act process requirements.
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Such Decisions Are Entirely Separate From Your Reasonable Accommodation Process Under Disability Discrimination Laws The evaluation employers must make regarding an employee's potential return to work under the workers' compensation system is fundamentally different from the reasonable accommodation analysis mandated by the Fair Employment and Housing Act (FEHA). A precedent-setting decision in Cuiellette v. City of Los Angeles reinforces that even when a workers' compensation claim is managed and resolved perfectly, employers may still be at risk for a discrimination lawsuit when they fail to follow the separate Fair Employment and Housing Act process requirements. A Los Angeles Police Department officer was injured and placed on disability leave. His workers' compensation claim was resolved with 100% disability rating. He later expressed interest in returning to the police department to work in fugitive warrants unit, where he was uniquely qualified by prior experience. His treating physician wrote that he could perform "permanent light duty — administrative work only." The note did not specify any restrictions. The City assigned him to the court or renditions desk in the fugitive warrants unit. At that time, the City had an "informal" policy and practice of allowing sworn officers to perform "light duty" assignments that did not involve several of the essential functions of a peace officer. The City decided to send him home when a workers' compensation claims examiner advised that the Los Angeles Police Department could not reasonably accommodate an officer who was designated through workers' compensation as "100% disabled." He sued under the Fair Employment and Housing Act, alleging failure to engage in a good faith interactive process and failure to reasonably accommodate. Initially, a judge threw his claim out on summary judgment, but the appeals court overturned because the 100% total permanent disability rating was not, as a matter of law, a legitimate nondiscriminatory reason for the adverse employment action. A jury then awarded him $1,571,500. On an appeal following the verdict, the appellate court again ruled that the 100% disability rating did not absolve the City from its Fair Employment and Housing Act obligations. The Court concluded: "The testimony that no one could recall placing an officer with a 100% disability on 'light duty' is beside the point because workers' compensation and the FEHA require separate inquiries. For the Fair Employment and Housing Act, the question is whether (his) medical restrictions prevented him from performing the essential functions of the position that he held or that he desired to fill. In this case, plaintiff proved that he could." Accordingly, the City should have evaluated whether he could perform the essential job functions of the position in the fugitive warrants division (desk job), and not his duties as a police officer. The Cuiellette case underscores yet again the importance of adopting and consistently enforcing a Structured Return to Work Program The objectives of a structured program are typically to return employees with temporary work restrictions as soon as possible to a transitional assignment that is within their medical restrictions. Transitional work assignments are typically temporary assignments that assist the employee in returning to work from an industrial injury or illness at a level they are physically capable of performing until they have reached maximum medical improvement. Workers released to full duty can return to their regular job. If there are permanent work restrictions, employers must conduct an interactive process with that employee to evaluate whether those restrictions can be reasonably accommodated on a longer term basis. California case law is quite clear that a structured transitional work program, when carefully crafted and consistently enforced, protects against a temporary light duty assignment being converted to permanent modified duty job. By spelling out the terms and conditions of the structured program in writing, it removes ambiguities about the employer's expectations, establishes specific timelines for follow up and avoids the potential that the worker will remain in a transitional position long enough to argue that it is permanent. It is especially helpful to periodically review the effectiveness of the transitional assignment when changed circumstances occur such as adjustments to the worker's restrictions, changes to the mix of essential and marginal job functions, or ongoing business needs. Employers that don't enact and enforce a structured program (or who informally provide light duty to certain employees) risk converting temporary fixes into a permanent accommodation. As the Cuiellette case now makes clear, the principles and practices for a structured return to work program can — and should — be applied to employees with both temporary and more long term (even permanent) work restrictions. Authors Stu Baron collaborated with Patricia S. Eyres in writing this article. Patti Eyres is the Employment Law Partner for Stuart Baron & Associates and CEO/Publisher of Proactive Law Press, LLC. This article is an excerpt from the July 2011 edition of From The Hotline published by Stuart Baron & Associates and Workers' Compensation Claims Control. It is used with permission under the copyright of Stuart Baron & Associates.

Catastrophe Insurance In 2011

Where the risk characteristics limit available carriers (due to restrictions on age, soil, etc.), there will be pressure to get increased rates.|

Is the catastrophe market firming up or not? What will happen to my renewal in November? What did the Japan Earthquake do to the market? Agents and brokers who work in the Catastrophe (CAT) insurance market field these questions every day and give many different answers. I will try and break this down looking at three main variables that may have the greatest impact on pricing with a focus on West Coast Earthquakes (EQ). Losses The fact is that catastrophe losses and their impact on pricing need to be looked at from a global perspective. In other words, even if we have not suffered a major earthquake in California for twenty years, we are subject to changes in the marketplace due to all insurable catastrophe losses worldwide. There are primarily two reasons for this. First, many of the largest carriers and/or their affiliates write business in Asia, South America, and Australia, and the reinsurance treaties purchased by these carriers are also provided by international markets that are exposed to those events. Second, most carriers purchase catastrophe reinsurance treaties on a combined basis that incorporates the perils of Earthquake, Wind and Flood. So a large earthquake in Japan, a flood in Australia, or an earthquake in New Zealand can impact Earthquake pricing in California. Early in 2010, the thought was that it would take insurable loss amounts higher than the 2005 Hurricane Season to "harden" the catastrophe market (estimated insurable losses are at $75 billion for the three largest hurricanes — Katrina, Rita and Wilma). In the last twelve months, total insuranble losses from earthquakes, floods, wind/hail storms, tornadoes, etc. are estimated to be in excess of $85 billion and will likely exceed $100 billion as losses develop Catastrophe Modeling All insurers and reinsurers use some form of Catastrophe modeling to help control aggregates, price amounts, and report information to their respective reinsures and to rating agencies such as A.M. Best. One of the most widely used models is RMS (current version is 11.0) which provides analysis tools for major natural Catastrophes including Earthquake, Wind and Flood. As development of Catastrophe losses takes place, and more information is available to modeling companies regarding how each location, building, construction type, roof type, type of soils, etc. performs in the event, this information is downloaded into the model to further refine its capabilities in predicting future performance in similar events. Why is this important? With every change in the Catastrophe model comes potential change in how the results impact each carrier's existing portfolio, and how they will look at future accounts. There was a major change to the RMS Catastrophe model in 2010 with most carriers adopting these changes by July 1, 2011. The general impact of RMS 11, for example, appears to show carriers that their exposures to Catastrophe Windstorm in most of the Southeastern United States is much greater than what they had thought. With their exposures to loss being higher, the potential to loss of surplus is greater, and the potential need for additional reinsurance (at a higher cost) can have an impact on all pricing. Capacity There is a "finite" amount of Catastrophe capacity in the marketplace at any one time. After major insurable events such as Hurricane Katrina, available Catastrophe capacity can shrink by 50% or more. Some of this is due to loss of surplus but most is due to market "loss of appetite" or taking a less aggressive "post event" as shareholders and Boards take a closer look at company portfolios and return on equity. In the current global economic environment, the investment of capital in the insurance industry still seems relatively strong. Even with the string of global losses, as of July 2011, there has been only a slight reduction in available Catastrophe capacity (that was already high) for most accounts, and any new Catastrophe capacity that enters the market helps to keep rates competitive. These three variables work in conjunction with and against each other, all at the same time. The one variable that does not change is individual risk characteristics of the specific account. Pricing and terms are based on how those specific characteristics are perceived against the changing variables of Losses, Catastrophe Modeling, and Capacity. What does this mean as we head into the fourth quarter of 2011? There seems to be enough available Catastrophe capacity that on accounts where individual risk characteristics drive competition, pricing increases have been held to a minimum. On those accounts where the characteristics limit available carriers or capacity, there may be pressure for increased rates. We will circle back around this subject to check and verify how these variables are working in current market conditions at that time.

Jeff Bianchi

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Jeff Bianchi

Jeff Bianchi has over 17 years' experience in underwriting, marketing and wholesale brokering. He is a Senior Vice President Property Broker at Swett & Crawford and consistently ranks among the top producers nationally at Swett & Crawford. His focus is on large property placements specializing in Catastrophe coverage including Earthquake, Hurricane, and Flood.

What Agents Must Know About The Mechanics Of America's Healthcare Delivery System

The fundamental problem with the American healthcare system is that we hardly spend any money on basic, general care which causes us to spend a whole bunch of money on specialty care. The fact is that five chronic diseases account for 70% of our country's $2.6 trillion annual healthcare expenditures. Those diseases are coronary artery disease, congestive heart failure, diabetes, depression and asthma. The status quo of the way we deliver healthcare is conducive to inadequate management of chronic illness.|

I believe it is very important that agents fully understand the mechanics of America's healthcare delivery system, why it is broken and what it might look like if it's successfully overhauled.The fundamental problem with the American healthcare system is that we hardly spend any money on basic, general care which causes us to spend a whole bunch of money on specialty care. The fact is that five chronic diseases account for 70% of our country's $2.6 trillion annual healthcare expenditures. Those diseases are coronary artery disease, congestive heart failure, diabetes, depression and asthma. The status quo of the way we deliver healthcare is conducive to inadequate management of chronic illness. There's not a lot of money in educating a family on what brings on an asthmatic attack and what to do in case a child suffers from one. But there's a whole lot of money spent when an asthmatic is admitted to the hospital. The lack of proper care and management of diabetes can lead to very expensive care including amputations, dialysis at $10,000 a day and maybe even a new kidney at $250k. Outreach programs to help diabetics methodically check their blood chemistry, see their doctors regularly and gain access to nutritionists are generally poorly funded, if they exist at all. So it's no wonder that diabetes alone accounts for 35% of Medicare expenditures. Shortages in access to primary care due to lack of financial incentives (why be a general practitioner when you can make three times the money being a specialist?) cost our system hundreds of billions of dollars a year. Unless our country does more to encourage chronic disease management, the healthcare cost curve will continue upward and ultimately drive our country off the edge of an economic cliff. Having said this, our system appears to be in the early stages of changing for the better. For example, Congress included within the Patient Protection and Affordability Care Act (PPACA) language to encourage development of Accountable Care Organizations (ACOs) to help save Medicare money. According to Wikipedia, many healthcare leaders define the three core principles for ACOs as follows: 1) Provider-led organizations with a strong base of primary care that are collectively accountable for quality and total per capita costs across the full continuum of care for a population of patients; 2) Payments linked to quality improvements that also reduce overall costs; and, 3) Reliable and progressively more sophisticated performance measurement, to support improvement and provide confidence that savings are achieved through improvements in care. Living examples kind of look like Integrated Delivery Systems such as Kaiser and HealthCare Partners Medical Group. In other words, in this model, hospitals and specialists within an ACO would be rewarded for positive health outcomes even if they never see the patient. While Congress had making Medicare more effective and efficient in mind when they incorporated ACOs into PPACA, my bet is that large employers will be watching the development of this model with a great deal of interest. One of the advantages that large groups have over small groups is the fact that they can realize a return on investment (in the form of lower premiums and higher employee productivity) by incorporating chronic disease management and wellness programs into their employee management regimen. And that's a good step towards lowering the cost of healthcare in our country. But what about small employers? Small employers don't have the advantage that large employers have because of how small group rates are pooled in our markets. An employer with 10 employees who tries to help his employees live healthier lives will not realize a meaningful decrease in his health insurance premiums for his efforts because his company's rates are pooled with thousands of others. But carriers being sensitive to the escalating cost of the delivery system and the threat this poses to the industry via reduced commercial enrollment are likely to take steps to modify their networks to look more like integrated delivery systems, ACO's and , yes, even fully capitated HMO's (remember those?). Further, since the PPACA and its related changes to Medicare and Medicaid became the law of the land, the nature of conversations between providers and insurers appears to have changed for the better. So there is likely to be more productive innovation when it comes to developing future, new health care delivery models. Everyone realizes that unsustainable increases in cost are simply that: unsustainable. Will these initiatives work? I think they will. All of this equates to more optimism that the healthcare delivery system has the potential to change and that the cost curve can begin to change course and begin to trend downward. But how long it takes to turn our system around and empower it to deliver and finance the level of care we expect for ourselves and fellow Americans for the long haul greatly depends on you, the agent. The public needs to understand what we talked about above. The more they know about how the healthcare delivery system works, the more they will embrace and expect positive changes to it. Educating the public can bring you short term dividends, as well. The agent who typically explains away a rate increase by simply stating that this is "trend" is vulnerable to an agent who is on top of his game and can really explain what is behind the increase. In the client's eyes, the agent who knows his stuff and can explain in simple terms the mechanics of our healthcare system will come across as being more credible than the other guy. Increasing your understanding of how our healthcare system works will empower you to become more successful at building and retaining your base of clients. If you would like real case examples of the benefits of managing chronic diseases, let me know by completing the contact form below, and I'll forward you the article. I promise you that it will find it eye-opening and inspirational.

John Nelson

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John Nelson

John Nelson has long been a champion of legislative and educational efforts in the health insurance industry. He is a Chief Executive Officer of Warner Pacific Insurance Services, one of the nation’s largest health insurance general agencies serving over 35,000 small employers with over $1.5 billion of inforce premium.

Ogilvie: The Good, The Bad & The Ugly

The First District Court of Appeal’s opinion muddies the waters and inspires litigation. Applicants have no clear path for rebutting the scheduled diminished future earning capacity, but this case — by giving applicants three vague methods — certainly should inspire the California Applicants' Attorneys Association to believe a rebuttal can be accomplished. The defense, on the other hand, is not left without weapons and defenses — but California's employers are rightly more interested in consistency, uniformity and objectivity than expensive trial tactics. Rosa Moran was sworn-in as the Administrative Director of the Division of Workers' Compensation on July 25th. The entire industry should wish Ms. Moran good luck and God's speed as she takes on the task creating a new and improved Permanent Disability Rating Schedule that stops the permanent disability litigation craze called Ogilvie.

Don Barthel

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Don Barthel

Donald Barthel is a founding partner of Bradford & Barthel, LLP, an industry leader in the aggressive defense of Workers' Compensation, Subrogation, and Employment, and Labor matters. His entire legal career has been dedicated to the defense of employers' rights in the arenas of labor law, employment law, and workers' compensation.

Building A High Reliability Organization

How high do the stakes have to get for us to shift into a higher mode of clarity and preparedness? As business leaders, we are the ones who get to make that decision.|

Recently I was reading about the challenging environment of a nuclear aircraft carrier. Here are some of the characteristics:
  • Manned by a bunch of 20-year olds
  • Deadly jet engines that can suck a person into the jet intake if too close
  • Jet exhausts that can severely burn a man or blow him overboard
  • Jet fighter take-offs that reach 150 mph in 2 seconds
  • Landings that essentially are controlled crashes
  • Fueling aircraft with engines running
  • Handling of explosive materials
Yet, for all the hazards, accidents on flight decks are surprisingly rare. Because so many things could go wrong but almost never do, experts consider this a "high reliability organization." The clarity about responsibility for one's performance as well as interfacing with team members is astounding. The communication and heads-up performance is crucial for success. Success is dependent on each person understanding what is expected of him, and understanding how what he does complements the work of the rest of the team. Makes sense, right? Many of us have participated in this level of preparation and attention to detail when the stakes have been high for the specific project we have been involved with. But think of what is needed to enable this level of performance every day! Okay, let's shift gears. First, I have to admit I have not seen the level of high reliability performance you find on a flight deck of an aircraft carrier in very many midmarket businesses. I have seen small units in a business that had really embraced continuous improvement make some fantastic improvements. Let's face it. For businesses, the stakes are not as high as they are on a flight deck. But, the principle is there for us to apply — clarity and preparedness escalates the predictability of success. Look at your business organization. Think about this outline of preparedness for each business unit:
  1. Prepare the description of the 3-5 most important functions of each business unit (that contribute to key results for success).
  2. What is necessary for each function to be performed optimally?
  3. What should the measured results be for each results area (success criteria)?
  4. What processes should be used to assure timely, accurate, high quality performance?
  5. How will customer satisfaction (internal & external) and targeted results be measured and achieved?
How high do the stakes have to get for us to shift into a higher mode of clarity and preparedness? As business leaders, we are the ones who get to make that decision. If this is an area of leadership you would like to read more about, please contact me, and I will send you my white paper on Performance Management - Accountability Based Job Performance (Best Practice Summary). What a great time to concentrate on building high reliability into your organization. Authors Kurt Glassman collaborated with Hal Johnson in writing this article. Hal Johnson has been CEO of eight different companies in the US and the UK. His primary focus has been building management teams to produce outstanding performance.

Kurt Glassman

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Kurt Glassman

Over his 30+ year career, Kurt has started, acquired, and provided counsel to a variety of businesses and owners. He has built and led international and professional service organizations; created, through acquisition, a $50 million building materials operating entity; and developed multimillion-dollar real estate projects.

Make Your Prescription Benefit Manager Work for You

The majority of large employers today do not have the necessary tools at their disposal to decipher and use to their advantage the key relationship between the actual Prescription Benefit Manager (PBM) claims pricing received and the contract language that supports those claims.|

Does your Prescription Benefit Manager contract deliver the actual pricing printed on its pages? Can you verify the actual pricing? If you can't accurately benchmark your pricing, how can you competitively analyze your program or implement any meaningful predictive strategies? The majority of large employers today do not have the necessary tools at their disposal to decipher and use to their advantage the key relationship between the actual Prescription Benefit Manager (PBM) claims pricing received and the contract language that supports those claims. It is all well and good to negotiate an average wholesale price (AWP) less 72% for a certain tier of drugs from your Prescription Benefit Manager, but how do you verify that is in fact what you are getting? Your contract may back up and document that discoun,t but does that mean you are receiving it? It is critical for the purchaser of prescription benefits to understand that what they believe they agreed to in contract negotiations and what appears to be supported by the Prescription Benefit Manager contract is not necessarily what they are receiving. In fact, discounts are often inflated making contracts look great on paper but not so good in reality. The distractions of the Prescription Benefit Manager procurement process sidetrack most employers, which shifts their focus in the wrong direction giving way to perception and not reality. Terms like pass-through, transparency, rebates and average wholesale price, combined with the presentations of the competing Prescription Benefit Managers, leave most employers with more questions then when they began. Even Prescription Benefit Manager executives become confused when comparing their own proposal to that of a competitor. Your primary concern should be to understand the discounts you are receiving or what you are actually paying. You must evaluate all Prescription Benefit Manager pricing with specific criteria that eliminates individual Prescription Benefit Manager discount methodology. This precise methodology language must be embedded into the contract so you are playing by your rules and not the rules of the Prescription Benefit Manager. Your discounts can then be validated to ensure that you are getting what you pay for. With specific pricing criteria, you can take the mystery out of prescription pricing, and by understanding the true cost of your drugs, you are in a better position to evaluate ancillary programs that Prescription Benefit Managers may offer. In addition, it is just as important to audit and validate the pricing on an annual basis to police the pricing accuracy. All Prescription Benefit Managers have their own approach to managing costs — some are better than others and may or may not be in your best interest. When you are spending millions of dollars a year on prescription drugs, you have to take a sound business approach and protect yourself through your Prescription Benefit Manager contract. Only when you really understand the costs of your drugs and true discounts you receive can you begin to evaluate the overall value that a Prescription Benefit Manager can bring to you.

Scott Martin

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Scott Martin

Scott Martin is the founder, CEO and chairman of Remedy Analytics, a healthcare data analytics technology company that partners with employers to protect their prescription benefit interests. Martin is a three-time entrepreneur dedicated to making healthcare easily comprehensible and affordable for patients and providers.

Will the Outlook Get Worse?

Just as most of us thought things were improving and as the Dow was seemingly stabilizing with all of us hoping for a strong recovery, it happened. The elongated and painful negotiations regarding the debt limit, the downgrading of the US credit, and then a tumultuous stock market drop. What's next? The recent Health Affairs article from the CMS Office of the Actuary suggests that we are now faced with higher than average health care cost increases. One of the "hoped for" outcomes of health care reform, known as PPACA or Obamacare, was reduced health care trends and more controlled healthcare costs. Although filled with controversy, the general understanding of the overarching and primary objective for reform was the goal of achieving health care cost savings. The forecasts are not encouraging. The impact of rising health care costs on the federal budget and deficit is concerning at best, when at the same time the value of Treasury securities is declining in the financial markets. Perhaps one of the most disappointing predictions is the table below. The authors suggest that PPACA has significantly increased the costs of all of the key sectors related to health care. Other than the projected increase in government administration, the two most significantly increasing categories were prescription drugs and net cost of health insurance. These increases are concerning and something that we cannot afford. The biggest increase occurs in 2014 when a major part of the program is implemented. So what should we do? What steps should be taken to be sure we achieve some control on the rapidly escalating health care costs? I propose a three step plan, one that will reduce costs no matter what happens with health care reform. We need to take action and action that is effective! The three steps are:
  • Stronger focus on eliminating potentially avoidable health care services. We need to be sure we need to do what is being done. Ongoing studies show that as much as 50% of what is done in the hospital today is potentially avoidable. There are considerable opportunities to reduce length of stay without negatively impacting the quality of health care. Complementary information shows that as much as 35% of what physicians do in the ambulatory setting is potentially avoidable. Until we eliminate true medical "waste" we have no hope of reducing the cost of care.
  • Continue to negotiate additional discounts in reimbursement for health care services to be sure that we avoid paying for more than needed. Ideally it would be better to move to an all-payer system where health care providers are paid a common fee for their services no matter who is the payer (i.e., public or private). Studies show that the private sector has more than a 16% cost shift from public payers that are unwilling to pay their fair portion.
  • Introduce incentives that work to motivate everyone to reduce health care costs. This includes incentives to providers to limit services to those necessary, to patients to live healthier lifestyles, and employers/plan sponsors to consider appropriate plan designs that minimize over consumption of services.
Although the CMS actuaries are only projecting health care costs, the concerns they raise are important and need to be carefully considered. Our economy is fragile and it cannot survive continued surprises. Hopefully we will take the steps to avoid further problems. It is a time for action.

David Axene

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David Axene

David Axene started Axene Health Partners in 2003 after a successful career at Ernst & Young and Milliman & Robertson. He is an internationally recognized health consultant and is recognized as a strategist and thought leader in the insurance industry.

The California Partnership For Long Term Care Insurance

Nationwide about half of all nursing home residents are on Medicaid. In California, we call it Medi‐Cal and the percentage of nursing home residents on Medi‐Cal is closer to 60%! Let's keep in mind what this means. In order for one to qualify for Medi‐Cal you have to spend down all your "countable" assets down to as little as $2,000. In other words, 60% of people in California who are in nursing homes have spent down all their assets. For most that means decades of savings have been spent down in a matter of months. In 1995 California decided to become a pioneer State in offering a "hybrid" product that would encourage more people to purchase long term care insurance (LTCI). It's called The Partnership for Long Term Care Insurance. In researching why people buy or don't buy this important coverage they found that most people have two major concerns with this type of insurance. The first is that most plans are limited in nature, meaning that they tend to pay for care in periods of time such as 3 years or 5 years of care. Considering the statistics that the average length of care is around 3 years and that 90% of people don't exceed 5 years of care, these plans do tend to protect you against the odds. However, most people still view the insurance as "catastrophic" protection and they voiced concerns of having such a policy that is not good for an unlimited amount of time. This is a valid point since the very definition of an accident involves an unanticipated event which can have long term effects for an undetermined amount of time. The second concern most people expressed involved having a claim when one is elderly and incapacitated and the challenge of dealing with an insurance company in this condition. So the Partnership with the State set about creating a product that would provide people with additional benefits to add incentives to taking out this kind of protection. Let's look at these two incentives: The Asset Guarantee The first benefit is the asset guarantee. The idea of this benefit is to allow one to buy less coverage which means a lower premium but, to have the peace of mind that the whole reason you are taking out this coverage, which is to protect your assets from having to be spent down due to a catastrophic health problem, is guaranteed to be achieved. That's a mouthful, so let's break it down to the specifics. The greatest percentage of people who would suffer the most from a long term care situation is the Middle‐Class. The poor don't really have anything to protect and they would quickly qualify for Medi‐Cal. The rich can often absorb the impact of long term care costs. So it’s the Middle‐Class who are the hardest hit when they have a stroke and suddenly have to fork out $6,000 per month for care (the average cost of full‐time care in California). When you take out a Long Term Care Insurance plan, you can either get limited or unlimited coverage. Most people cannot afford the latter, so most end up being able to afford a 3 year or a 5 year plan. With most plans on the market, if the benefits are exhausted, you then have to spend‐down your assets to Medi‐Cal levels (as low as $2,000). But, if you qualify for one of the five Partnership plans, then the State of California guarantees that if your plan runs out, you are able to protect an amount of assets equal to what was paid in benefits. So in other words, if your plan paid out $250,000 and then ran out, the State of California gives you an entitlement that guarantees that you can protect $250,000 from Medi‐Cal spend down. Once again, this allows most middle‐class people to buy less coverage with a lower, more affordable premium. But you have the peace of mind to know that the whole reason you're taking out this protection, which is to protect your assets, is guaranteed to be achieved. Care Management The second benefit the State provides as an incentive is Care Management. What this means is that when you have a claim, the State requires the insurance company to hire a local 3rd party company in your community who will work with you and your family to help file the claim, find care, set the care up and monitor the care on an ongoing basis. This takes tremendous burden off the family when they often have never been through a long term care situation before. In Conclusion When the Partnership was first made available in California, it was to be a 10 year experimental program. It was so successful that Governor Arnold Schwarzenegger signed it into permanent law in 2005. Then in 2006 Congress passed the Deficit Reduction Act which called for the creation of the National Partnership Program. Now all States either have or are in the process of creating a Partnership program modeled after our program here in California. At the most recent Long Term Care Industry Conference which was sponsored by The American Association for Long Term Care Insurance in November 2009 in Kansas City, Missouri, The National Partnership was the most talked about topic at the conference. It is the future of long term care protection in America.

Stephen Elliott

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Stephen Elliott

Stephen Elliott is the #1 Long Term Care agent in the nation. He has more clients and more in-force premium than any other agent in the country. Steve is also a national speaker on long-term care issues and appeared on the cover of Senior Market Advisor Magazine when he was awarded Senior Market Advisor of the Year Finalist in 2006.

Healthcare Underwriting And Rating Under the Affordable Care Act

The Patient Protection and Affordable Care Act has significantly changed the way health plans do business and will do business. This creates considerable uncertainty and risk for the health plans. Since health plan costs have increased far more rapidly than anyone wishes, any further influence to increase health care costs is unwanted by most. Very recent reports suggest that US health care will exceed 20% of GDP in the very near future. How much more
can we absorb? No one really knows, but we are so close to that point that other changes are needed to help stop the rise.|

The health care reform act, known as the Patient Protection and Affordable Care Act (PPACA), was quickly passed and unfortunately includes many inconsistent and incomplete provisions. Major fix-ups are being incorporated to make it possible to actually enforce (e.g., loss ratio definitions, loss ratio oversight, integration with insurance departments, etc.). Some new provisions are being included, for example, the August 2011 addition of copay free contraceptives. Although the country is politically polarized regarding the Patient Protection and Affordable Care Act, it actually does include some significant improvements and benefits over what we have today. The Patient Protection and Affordable Care Act introduced several benefit changes including:
  • No copays, deductibles or limits on preventive services
  • Basic definitions of benefit levels (i.e., bronze, silver, gold, platinum)
  • New benefit requirements (i.e., maximum child age, contraceptives, etc.)
The Patient Protection and Affordable Care Act also formally introduced comparative effectiveness and value based benefits to improve the cost of care. As time passes, we anticipate other additions. Most of the changes increased near term costs. The Patient Protection and Affordable Care Act introduced restrictions on several aspects of underwriting and rating:
  • Medical underwriting for the purpose of setting rates (i.e., no more medical questionnaires)
  • Use of ancillary information to set rates (i.e., prior pharmacy use)
  • Rejecting coverage for prior medical reasons
  • Gender-specific premium rates or premium rating factors, even though females generally have greater costs than males.
  • Breadth of rate differences (i.e., ratio between high and low)
For at least the near term, the Patient Protection and Affordable Care Act permits other rating practices that are in place:
  • Age rating (i.e., use of age based rate differences)
  • Group experience rating (i.e., use of prior creditable experience to set rates as long as they aren’t based upon specific experience of individuals)
  • Standardized rate tables for use in exchanges
  • Use of 2-tier rating structure (i.e., single vs Family coverage). The regulation appears to outlaw the very typical 3-tier rates (i.e., single, 2Party, Family).
On the horizon we expect additional market movement to Value Based Benefit design. These have been used to somewhat of a limited extent to date, but the Patient Protection and Affordable Care Act encourages the use of these as an attempt to reduce health care costs and to “bend the trend downward. There is limited evidence these programs accomplish this, but there is great hope that it will. Groups continue to explore whether or not there are advantages by paying the penalty and terminating their benefit programs. Many have concluded that in this economy they have no choice. Exchanges are increasing in popularity and the use of private exchanges to compete with the public ones is emerging in more markets. Many experts believe that the individual mandate to purchase health insurance will be tossed out, although this is still up in the air. One of the big items impacting the health care system for the older and less fortunate individuals in the country is the Medicare professional payment levels. Medicare regulations provide the government with an opportunity to reduce payments (i.e., currently estimated at more than 30%). This adjustment has been deferred for several years, primarily from political fallout reasons and a desire to not disrupt the system. The fiscal challenges facing the government right now likely increase the probability that some adjustment such as this will occur. This will have a significant impact on the health care system with the likely result of increasing charge levels for everyone else. In addition to the financial impact of raised fees, it will likely impact the ability to access providers. The Patient Protection and Affordable Care Act has significantly changed the way health plans do business and will do business. This creates considerable uncertainty and risk for the health plans. Since health plan costs have increased far more rapidly than anyone wishes, any further influence to increase health care costs is unwanted by most. Very recent reports suggest that US health care will exceed 20% of GDP in the very near future. How much more can we absorb? No one really knows, but we are so close to that point that other changes are needed to help stop the rise.

David Axene

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David Axene

David Axene started Axene Health Partners in 2003 after a successful career at Ernst & Young and Milliman & Robertson. He is an internationally recognized health consultant and is recognized as a strategist and thought leader in the insurance industry.