Onboarding new groups remains an arduous, cumbersome part of the enrollment process for employee benefits insurers. While proposals are well-automated, and so is policy administration, between the two comes group onboarding. And that area has not been automated, leaving a gap that carriers fill with a hodgepodge of methods.
Complexity lies in the fact that each product—group medical, dental, life, vision and disability—requires different data to be collected. But the data gathered during the rating and proposal process isn’t sufficient. The employee’s gender, date of birth, zip code and perhaps salary aren’t enough to issue policies and pay claims.
Besides additional employee information, the insurer needs corporate information, such as affiliates, federal tax identification numbers and ERISA plan numbers. Many employers have multiple billing divisions that pay premiums separately. How to collect that information has plagued insurers for decades.
Two factors compound urgency. First, because about 80% of group plans renew on Jan. 1, insurers face a big crunch in the fall gathering data from paper forms, emails and the like. Additionally, employers—especially those sponsoring small and medium-sized groups—are changing insurers more often as they try to save every dollar on employee benefits. Groups of 50 to 200 lives often go out to bid annually.
Thus, the costs of onboarding a new client can no longer be amortized over five years. Carriers need more automated, cost-effective ways to onboard groups.
Some insurers have tried using CRM systems and other workarounds to improve efficiency. But those attempts have failed, and the process remains largely a manual one.
Enrollment solutions that address onboarding are, however, being developed. Successful vendors will have to provide the following:
Automated data capture. Manually entering information into the policy administration system results in missing data, errors and time-consuming back and forth. It can make onboarding a three-month process.
Effective importing tools will allow onboarding software to import and map data to system variables for seamless integration and efficiency. Additionally, the solution should include a support portal where human resources administrators can log on and enter data right into the system or use the import function to upload the entire groups.
Data integrity. Employee data must be correct and complete when entered. Built-in rules will enforce quality. For example, if a date of birth is missing or a year is entered incorrectly, the software will flag the error and require the user to fix it. This ensures data integrity and accurate rating.
Security. By eliminating manual data collection and handling, and using portals to enter and store employee information, the onboarding system can provide increased data security. It must comply with privacy regulations regarding personally identifiable information (PII), thereby ensuring a secure way to gather and store employee information.
Flexibility. Integrating onboarding closely with both proposal and policy systems is essential to efficient workflow. Tightly integrating it with your underwriting and proposal system will provide flexibility to easily navigate the sold-case process as changes in the group arise after the policy is sold but before the effective date.
At the WCRI Annual Issues & Research Conference, Dr. Richard Victor, former CEO of WCRI and currently a senior fellow with Sedgwick Institute, discussed his views of workers’ compensation in the future.
The workers’ compensation system was a compromise between labor and business designed to provide no-fault benefits in an environment that gave exclusive remedy protections to employers. Over the years, there have been ebbs and flows to the system in an effort to maintain balance. There is a constant struggle to balance benefits to workers with the costs of the system paid by employers.
In the past, when the workers’ compensation system got out of balance, it was due to actions from those within the system. That is something the system could correct with regulatory change. However, right now, there are things happening outside of the workers’ compensation system that could significantly affect it and cause a rethinking of the grand bargain.
Emerging labor shortages
Retiring baby boomers will cause labor shortages in healthcare and the insurance industry, which will delay claims and medical care. This will ultimately increase claims costs.
In addition, a stronger economy is ultimately going to lead to a severe labor shortage. When you pair the aging workforce and people retiring with a growing job market, you end up with not enough qualified applicants to fill the positions. Employers have to relax their hiring standards. This leads to unqualified applicants being hired. These people will likely have higher accident rates.
Changes in the non-occupational health system
As workers see their out-of-pocket health insurance costs rise, it becomes more attractive to try to shift illness and injury episodes into the workers’ compensation system. Richard feels that this shifting will result in a 25% increase in workers’ compensation claims by 2030. With soft tissue injuries, it would be very easy for the worker to indicate the injury happened at work instead of at home. Disproving that would be very challenging for employers. Higher deductibles will greatly encourage workers to look for these cost-shifting possibilities.
Millions of workers losing health insurance
The number of uninsured workers is expected to decrease significantly as elements of the Affordable Care Act are repealed or weakened. These uninsured workers are also highly encouraged to shift their treatment into the workers’ compensation system. Richard estimates a 15% increase in workers’ compensation claims due to this.
The injury rates for the older workers is higher than for younger workers. As the U.S. workforce ages, we will see higher injury rates across the employee population.
Federal immigration policies and practices
Limiting the flow of immigrants into the U.S. at a time there is a labor shortage will only compound the problem. The only way to grow our workforce to keep up with the demand is with immigrants. All of the growth in the labor force going forward is projected to come from immigrants.
Roughly 15% of all healthcare workers in the U.S. are foreign-born. If we discourage immigration into this country, Richard feels it could cause a labor shortage in the healthcare industry.
It does not even take a change in policy to see a change in immigration flow. After the Brexit vote there was a significant reduction in European nurses registering to work in the U.K. This is even though there had yet to be a policy change in the country.
Taking all of the outside factors into consideration, Richard estimates a 55% increase in the number of workers’ compensation claims by the year 2030. When you add in medical inflation the costs of the workers’ compensation system could triple by 2030 with no change in indemnity benefit levels.
With this significant increase in costs, there will be questions about the continued viability of workers’ compensation. What is the solution? Are there viable options to traditional workers’ compensation? ERISA-style plans like the opt out in Texas have been widely criticized for providing inadequate protections for injured workers. Union carveout plans only apply to a very small sector of the workforce. Could we see workers’ compensation claims organizations become accountable to both employers and workers, with employees having the ability to choose which claims organization they want to use?
In December 2016, the Department of Labor issued final regulations under ERISA governing claims procedures for group disability plans, which became effective Jan. 1, 2018. The new regulations govern employee benefit plans subject to ERISA that offer disability benefits, not just disability plans. ERISA plans must strictly comply with the new regulations for all claims filed on or after Jan. 1, 2018, including any necessary amendments to plan documents and internal claims-handling procedures. However, some parts of the regulation took effect Jan. 18, 2017.
Although the DOL announced on July 20, 2017, that the new regulations might be amended or delayed, they were scheduled to take effect for all claims for disability benefits filed on or after
Jan. 1, 2018. These new disability claims regulations would not apply if a plan does not make the determination of disability, but instead relies on a third party’s determination of disability, such as a determination of disability made by the Social Security Administration or the employer’s long-term disability plan. Further, the new regulations do not apply when parties to a collective bargaining agreement have agreed to use a grievance and arbitration process to adjudicate disability claims.
For claims filed between Jan. 18 and Dec. 31, 2017, the DOL is imposing the following additional standards (as applicable) on denial notices to ensure a full and fair review has occurred.
The notice either needs to provide (i) the specific rule, guideline, etc., that was relied upon in making the adverse determination relied; or (ii) a statement that that such a rule was relied upon and notice that a copy will be provided for free upon request.
If the claim is denied based upon medical necessity, experimental treatment or a similar exclusion or limit, the notice must provide (i) an explanation of the scientific or clinical judgment for the determination, applying the terms of the plan to the claimant’s medical situation; or (ii) a statement that the explanation will be provided for free upon request. (Note: this standard will continue to apply in 2018.)
For claims filed on or after Jan, 1, 2018, these are the new requirements:
Loss of discretionary authority. If a plan violates any of the rules for disability claims, the claim is deemed denied without the
exercise of discretionary authority. This gives the claimant the right to file a lawsuit without further delay and will allow a court to decide the merits of the claim de novo, without any deference to the fiduciary who violated the rules. The only exception to this rule is if the plan’s violation was: (i) minor; (ii) non-prejudicial; (iii) attributable to good cause or matters beyond the plan’s control; (iv) in the context of a continuing good-faith exchange of information; and (v) not reflective of a pattern or practice of non-compliance. In addition, a claimant may request that the plan explain in writing any violation. The plan must respond within 10 days by specifically explaining the violation and why it believes the claimant should not be permitted to file a lawsuit at that time.
Impartiality. A plan’s claims procedure must be designed to ensure impartiality. This means that a plan cannot
make hiring, compensation, promotion or termination decisions based on the likelihood that a claim adjudicator or supporting expert will support the denial of disability benefits. This rule also applies to vocational experts, medical consultants and in-house medical reviewers.
Disclosure Requirements. Denial notices must include the following:
Disagreement with Experts. A discussion of the basis for disagreeing with any healthcare professionals treating the claimant or any medical/vocational experts who evaluated the claimant. The discussion must include an explanation of why the plan disagrees with any medical/vocational experts whose advice was obtained in connection with the determination process, regardless of whether the advice was relied on when making the determination (This is designed to prevent “expert shopping”).
Disagreement with SSA. If the Social Security Administration (SSA) has determined the claimant is disabled for Social Security purposes, the plan must discuss why it disagrees with the SSA’s determination. If the plan’s definition of “disabled” is similar to the SSA’s definition, the plan must provide a more detailed justification.
Medical Necessity/Experiment Treatment. If a denial is based on medical necessity or experimental treatment, the notice must include an explanation of the scientific or clinical judgment used for the denial, or a statement that such explanation will be provided free of charge upon request.
Internal Guidelines or Standards. If internal rules, guidelines or standards were relied on in making the plan decision, the plan must provide such rules, guidelines and standards. This disclosure requirement is more onerous than the requirements applicable to group health plans. The claims decision maker must affirmatively provide the rule, guideline or standard (or state that none was relied on). It is not sufficient to simply state that it will be provided upon request.
Relevant Documents. For claim denials, the notice must provide that all documents relevant to the claim denial will be provided upon request. This requirement already exists for appeal denials.
Contractual Limitations for Bringing Suit. All appeal denial notices must describe any time limit for filing suit in court set forth in the plan documents (any contractual limitations), and must include the specific date by which a lawsuit must be filed to be considered timely.
Right to Respond to New Evidence or Rationales. A claimant must be given the right to respond to new evidence or rationales relied on or generated during the pendency of an appeal (even if supportive of the claimant). The plan must provide such evidence and rationales to the claimant as soon as possible and sufficiently in advance of the date on which the plan will reach its determination, so that the claimant has the opportunity to respond prior to the plan’s appeal decision.
Rescissions of Coverage. Rescissions of coverage (the termination of coverage with a retroactive effect) must be treated as a denial of a claim. As such, a participant is entitled to use the plan’s claims procedure to appeal a rescission of coverage. This does not apply to retroactive termination of coverage for failure to pay premiums.
Translation Requirements. If a denial notice is being mailed to a county where 10% or more of the population is literate only in the same non-English language, the denial notice must include a prominent statement in the relevant non-English language about the availability of language services. The plan would also be required to provide an oral customer assistance process (i.e., telephone hotline) in the non-English language and provide written notices in the non-English language upon request.
PLEASE NOTE – On Oct. 6, 2017, the Department of Labor signed a proposed rule “to delay for ninety (90) days – through April 1, 2018 – the applicability of the final rule amending the claims procedure requirements applicable to ERISA-covered employee benefit plans that provide disability benefits.”
There is a 60-day period to submit comments providing data and other relevant information regarding the merits of rescinding, modifying or retaining the final rule. The DOL has received many complaints about the added costs to benefit plans (estimated at 6% to 10% increase in premiums, according to several insurance carriers). In light of these complaints, the DOL believes it is appropriate to seek additional public input and additional reliable data.
I believe there will be some changes to the final rule and do not believe they will just scrap it.
The Employee Retirement Income Security Act (ERISA) has been around since the Ford administration. Most people know the law in relation to retirement benefits, but it’s emerging as an unexpected, yet high-potential, opportunity to drive change in the dysfunctional U.S. healthcare system.
The law sets fiduciary standards for using funds for self-insured health plans, which is how more than 100 million Americans receive health benefits. Health plans for wise companies with more than 100 employees are self-funded because they are generally less costly to administer. As a result, more than $1 trillion in annual healthcare spending is under ERISA plans or out-of-pocket by ERISA plan participants. While it’s roughly one-third of healthcare spending, employer/union-provided health benefits likely represent more than two-thirds of industry profits as they wildly overpay for healthcare services because of the misperception that PPOs help save them money. In reality, PPO networks cost employers/unions dearly.
This overpayment makes ERISA plans an attractive target for operational efficiencies. Healthcare is the last major bucket of operational expenses that most companies haven’t actively optimized (they’ve already optimized operations, sales, marketing, etc.). For those that don’t get on top of this, it could also be a source of significant potential liability for companies and plan trustees. We are already aware of the ripple effect on benefits departments — one entire benefits department (with the exception of one person) was fired when the board realized the lack of proper management.
ERISA requires plan trustees to prudently manage health plan assets. Yet very few plans have the functional equivalent of an ERISA retirement plan administrator who actively manages and drives effective allocation of plan investments. This person (or team) would have deep actuarial and healthcare expertise to enable them to deeply understand and negotiate potential high-cost areas of care, something traditional human resource departments lack.
At the same time, it’s broadly estimated that there is enormous waste throughout the healthcare system. The Economist has reported that fraudulent healthcare claims alone consume $272 billion of spending each year across both private plans and public programs like Medicare and Medicaid. The Institute of Medicine conducted a study on waste in the U.S. healthcare system and concluded that $750 billion, or 25% of all spending, is waste. PwC went so far as to say that more than half of all spending adds no value. It’s impossible to imagine any CEO/board allowing this in any other area of their company.
Increased outside scrutiny on how ERISA-regulated health plans spend their dollars could create immense potential liability for both company directors and health insurers across the country. Nationally prominent lawyers, auditors and others are catching on to this and are taking action to get ahead of it or are advancing potential new categories of litigation that could result in hundreds of billions in damages.
In just the last couple of months, we at the Health Rosetta Institute — a nonprofit focused on scaling adoption of practical, nonpartisan fixes to our healthcare system — have learned of some key events that will likely further increase scrutiny on ERISA fiduciary duties.
First, two Big Four accounting firms have refused to sign off on audits that don’t have allowances for ERISA fiduciary risk. A senior risk management practice leader at one of those firms told a room of healthcare entrepreneurs and experts that ERISA fiduciary risk was the largest undisclosed risk they’d seen in their career. As more accounting firms start to require this, it will change how employers manage ERISA health plan dollars.
Second, independent directors have quietly sounded the alarm to three company auditors about this growing issue, recognizing the potential for personal financial liability that director and officer insurance policies may not cover. We expect to see more of them focusing on this issue, given that healthcare spending is roughly 20% of payroll spending for most companies.
Third, attorneys are building litigation strategies around employers filing suits against their ERISA plan co-trustees (the plan administrators who actively manage the plan’s health dollars) alleging they breached their ERISA fiduciary duties by turning a blind eye to fraudulent claims. We expect the first of these cases to be brought this year and expect to see significantly more in the next couple years. One firm we’re aware of is working on cultivating dozens of these cases.
The implications of this third trend could be enormous. If boards and plan trustees know fraud could exist and don’t take action to rectify the issues, they could open themselves to liability from shareholders and plan beneficiaries. The scale of damages just for fraudulent claims could be on the magnitude of lawsuits over asbestos and tobacco. A very conservative estimate of what percentage of claims are fraudulent is 5% (many believe 10-15% is more accurate). Employers spend more than $1 trillion per year on healthcare. If you take the low-end estimate (5%) and extrapolate over the statutory lookback period for ERISA (six years), that would be $300 billion.
Employers use a variety of approaches, but most are relatively straightforward and focus on proven benefits-design solutions that make poor care decisions more costly and better care decisions less costly to encourage the right behavior. Most importantly, they don’t focus on shifting costs to employees. This cost-shift to the middle class has devastated the American Dream and was the backdrop for the populist campaigns that were badly misreported (in terms of their root cause).
Three high-potential areas for improvement include actively managing high-cost care to move it to high-quality, lower-cost care settings; directly addressing drug costs; and creating incentives for wise care decisions. Here are a few repercussions these changes may have for companies and investors:
As more procedures move from expensive hospital settings to lower-cost independent ambulatory surgery centers, this means lower margins at for-profit hospitals, threatening return assumptions on hospital revenue bonds and growth potential for ambulatory care categories.
More active management of healthcare, self-insurance and lower costs by employers reduce revenue and margins at public insurance companies, threatening core revenue streams. This is compounded by self-insured employers moving to independent plan administrators not tied to traditional insurers.
Surprisingly, the most sustainable and high-impact of these approaches will benefit employees, as well. Most wasted spending in healthcare that directly affected patients is the result of overuse, misdiagnosis and sub-optimal treatment.
Time and again, we’ve found that the best way to slash costs is to improve health benefits.
And isn’t better healthcare at a lower cost the best outcome for all of us?
This article was also written by Sean Schantzen, who was previously a securities attorney involved in representing boards, directors, officers, and companies in securities litigation and other matters including some of the largest securities cases in U.S. history.
An earlier version of this article was also published on MarketWatch.
The fog of war can be an excellent metaphor for the CFO in today’s rapidly changing business environment. Nowhere is change more frantic than trying to manage multiple financial battlefronts: profit margins, SG&A, FP&A, EBITDA and free cash flow. One of the largest battles in business today is the war between organizations and the healthcare supply chain that their employees and team members access for medical treatment.
Investing millions of dollars in accessing the healthcare supply chain without actually knowing in advance the cost of almost all the services might as well be war, because it darn sure kills the income statements of companies and the standard of living for employees and families across America.
The recently released book titled “Extreme Ownership” delivers a how-to on managing multiple simultaneous risks across the organization. The lessons in the book provide a strategy outline on how to execute and eliminate risk when you have leaders and team members operating in hostile environments.
For instance, ask your internal healthcare manager what the mission of your healthcare program is and see if it matches your goals and intentions. Have you communicated to the healthcare manager and his operations team the “why” of the investment in healthcare, or is health care just OpEx?
As hard as it is to believe, some organizations allow non-P&L managers, or worse, operations-level administrators to dictate policy and strategy, and their decision supersedes the mission.
The annual renewal process can be very reactive, and not enough effort is applied to identifying priorities. The result is the equivalent of friendly fire because the tactical plan focuses on the wrong targets and has minor impact. The enemy, the healthcare supply chain, reverse-engineers every government regulation change and cost-shifts to private employers. Not understanding this fundamental principle loses you the war in the long run and the battle every renewal.
CFOs need to make sure they are not in a position where they are merely informed and not actually involved in healthcare strategy, because they will have limited situational awareness. Is there a formal process in place that requires the operations level staff to report all strategic and tactical options up to the C-suite and not just cherry pick what is disclosed? Is innovation preached but status quo and incrementalism actually reinforced? Are rate increases tolerated because they are lower than budgeted increases? CFOs need to honestly assess whether they abdicate their leadership role by avoiding the forced execution of strategic healthcare options, instead choosing to take the path of least resistance and defaulting to the ground forces that you pay to handle the details.
After all that, is the question ever asked, “What is the best way to execute the mission?”
Failed execution and badly supervised risk management can lose an organization millions of dollars, and now CFOs risk personal liability by not knowing the best way to execute the mission. There is a consequence for gambling with employee contributions in an ERISA plan, and not knowing with certainty that the organization’s healthcare claims will go down this year is the proof.
CFOs have limited situational awareness of the unnecessary risks and poorly performing strategies being deployed by the people they believe they are paying to manage their healthcare investment. The C-suite must gain a new situational awareness of the healthcare budget risks, and ERISA compliance exposure facing the organization and potentially themselves individually.
My book notes that soldiers died because of mistakes. In business, healthcare strategy mistakes crush the employees’ standard of living, waste millions in lost profits and expose the CFO to fiduciary risk because of a lack of situational awareness, the conviction of forced execution and extreme ownership.