Tag Archives: industrial revolution

workers' compensation

Hidden Motives on Workers’ Comp

As legal alternatives to workers’ compensation (WC) grow in number and popularity, employers will save money, and employees will—in aggregate—receive better care. [1] As this market grows, my income will also grow.

Such forthrightness should seem unnecessary from a proponent of the opt-out movement, like me. But a vocal (and boisterous) contingent of the opposition to alternatives avoids the necessary logical inversion by hiding behind other, less relevant motives.

As companies move away from WC, the income for opponents of alternatives will shrink, though they will never acknowledge financial well-being as a motive in opposing the opt-out. Attorneys, judges, cost-containment companies, third-party administrators, industry regulators, the NCCI and a host of other WC stakeholders [2] veil their financial motives by redirecting the argument to “what is fair and just for the employee.” They are being disingenuous.

See Also: The Pretzel Logic on Oklahoma Option

Over time, it becomes easier to expose financially motivated WC stakeholders. But a second component of the opposition is free from poorly hidden financial agendas. This ideological group—which compels me to write this essay—claims to oppose free market alternatives on altruistic grounds. The group’s members—just like their financially motivated brethren—lean quite heavily on the noble ideas that they hope are conveyed in the two-word, nebulous term “grand bargain” and that they treat as sacrosanct.[3]

The U.S. was a little late to the WC party. Pressure had been building on policy makers since the second half of the 19th century, but it was the Pittsburgh Survey by the Russell Sage Foundation that provided the greatest influence in the rapid adoption of WC laws in the U.S. between 1911 and 1920. Anecdotes (e.g., The Jungle) helped, but legislatures needed statistically compelling factual evidence to reform the legal schemes governing workplace accidents. Crystal Eastman stood and delivered. In her seminal study, Work-accidents and the Law (which was part of the Pittsburgh Survey and was published in 1910), Eastman gathered and reported on workplace accident data for a 12-month period between 1906 and 1907 in the small but industrially relevant sample of Allegheny County, PA. She rightly and importantly spent the first 200 pages of her study explaining the devastating effects of workplace accidents on individuals, families and communities.[4] After dozens of case studies concerning widows, orphans and maimed workers, she dove into the problem with aplomb.

The root of the problem was that common law systems couldn’t keep up with changes stemming from the Industrial Revolution—especially those in the U.S. It’s no coincidence many countries that eventually committed to industrialization were also, to some extent, relying on English common law. From the Pittsburgh survey, Eastman summarized the problematic common law system on page 206 as follows:

  1. It is wasteful:
  • The state expends a large amount in fruitless litigation.
  • Employers expend a large amount, as the result of work accidents, only a small part of which is actually paid in settlement of accident claims. 
  • The injured employes [sic] spend nearly half of what they get in settlements and damages to pay the cost of fighting for it.
  1. It is slow; recovery is long delayed, while the need is immediate.
  2. It fosters misunderstanding and bitterness between employer and employees.
  3. It encourages both parties to dishonest methods. 
  4. The institutions which have been resorted to as an escape from its evils, liability insurance and relief associations based upon a contract of release, are often advantageous to employers, but disadvantageous in important respects to employees. 

The irony—over a century later—is too obvious. Eastman’s first four points might as well be the outline for states like Oklahoma, South Carolina and Tennessee when contemplating legal alternatives to their inefficient, caustic, modern WC systems. Granted, there was substantially more urgency for Eastman when she created this list—deaths per 100,000 hours worked were at all-time highs. Today, that statistic is at an all-time low. As significant as our modern occupational accident problems are, they are a different breed from—even if they are similarly described to—what Eastman studied.

Eastman’s study was so powerful that many state legislatures used it to outline their original WC laws. Stakeholders were generally agreeable to this grand bargain, which, 1) prevented employees from suing employers for common law negligence, 2) required employers to pay medical and lost income benefits for employees injured on the job and 3) removed negligence from the conversation by making the entire WC scheme “no fault” in nature.

But there are some important contextual factors that contemporary WC stakeholders forget to mention regarding the grand bargain that gave us WC to begin with. First, most states made these new-fangled WC systems optional. That’s right; of the 45 states that passed WC legislation between 1911 and 1920, 36 allowed employers to choose which system they wished to participate in. The original Texas law—which still stands iconoclastically today—was perfectly ordinary when it was originally enacted in 1913 (it gave private employers the opportunity to subscribe to WC or stick with common law, albeit without three powerful common law defenses). When the grand bargain was being born, options were the norm.

See Also: Key Misunderstanding on Oklahoma Option

A second, forgotten characteristic of the grand bargain is how disputes—though rare—were handled. By design, attorney involvement was minimal. One of the primary goals of the grand bargain was to decrease the amount of litigation, not to recategorize and grow it. Eastman’s suggested mechanism (pp. 211-220) for dispute resolution was arbitration, which was embraced by a number of states.[5] However, never count attorneys out. Primal due process ideals eventually compelled them to increase their involvement (and compensation), all in the name of giving clients the day in court to which they are constitutionally entitled. This aberration—attorney involvement—is now sold to the public as part and parcel of the grand bargain.

Opponents will accuse me of misinterpreting Eastman’s time and message. All interested parties are, of course, welcome to read her study [6] and draw their own conclusions.

We invite interested parties to tour the facilities of our opt-out employers and interview employees. They can even search for hidden torture chambers filled with injured workers, but they won’t find them, because they do not exist. Our employees are happy, and our employers are delivering top-notch care to them at a fraction of the cost of WC.

But our opponents won’t accept this reality. “Facts be damned!” they cry. “The employer needs to pay full fare for WC.” That reasoning, again, is understandable from those WC stakeholders who fear they will starve if they can’t slurp from the trough of WC. Inexplicably, however, this attitude is even more pronounced among the opposition’s altruistic contingent, which maintains that employers must continue covering the inflated costs of employee welfare under WC, whether or not that financial burden improves the situation of injured employees.

Medicare presents an interesting litmus test for this ideological perspective. It is obvious to anyone paying attention that our entitlement healthcare program for seniors could—and should—deliver better outcomes at substantially lower costs. This is self-evident to Americans of all political stripes, in large part because we all pay for those costs via taxes. We would all like to see outcomes improve and our tax burden decrease.

In both Texas nonsubscription and the Oklahoma option, we eliminate the vast majority of legal overhead, which allows us to focus on medical outcomes. The same sorts of inefficiencies and abuses that occur within Medicare also infect WC, so it shouldn’t be hard to believe that the free market (given the legal opportunity to do so) can economize them.[7]

Yet, our vocal, altruistic opponents won’t allow their own criticisms of Medicare to influence their opinion about opt-out saving money and improving outcomes. It’s perfectly obvious that Medicare (a healthcare system rife with bureaucratic inefficiencies) could deliver better results at lower costs if it were redesigned. However, when we demonstrate that WC (a healthcare system equally rife with bureaucratic inefficiencies) could—and should—deliver better results at lower costs, they opponent of opt-out close their eyes and cover their ears. “It can’t be done!” they cry.

Somehow, from this perverse perspective, the solution to workplace injuries does not need to make the little guys (the employees) any better off, so long as it does a sufficient job of making the big guys (the employers) pay.

Ah, the joys of spending other people’s money.

This litmus test provided by Medicare shows our altruistic opponents have an unexpected hidden agenda: politics. Is such a desire—to have the employer pay more than necessary—relevant to the welfare of employees? No, it is not.

It is political. It is an impediment. It is stupid.[8]

The grand bargain was about rationalizing what had become out-of-control non-solutions for workplace injuries. Throughout the past century, many WC systems have become burdensome for employees and employers alike. They are now, ironically, non-solutions. The grand bargain wasn’t fundamentally about WC; it was about protecting employees and employers as sensibly and pragmatically as possible. It accomplished that objective with minimal use of attorneys, while generally allowing employers to elect (or subscribe) to a statutory scheme that took the name “workmen’s compensation.”

With slightly different jargon, that sounds eerily similar to what Oklahoma did in 2013. The Sooner State took a critical look at its non-solution for workplace injuries and created an alternative to more efficiently protect employer and employee alike. This statutory scheme has taken the popular name of “the Oklahoma option.”

What’s next for opt-out proponents? First and foremost, Oklahoma must tend to its new creation. After that, we’ll just have to wait and see what other states will do—if anything.

What’s next for our opponents? I suspect they will not advertise their fear of losing income. They will continue to tout the grand bargain as sacrosanct, without examining the historical context from which it emerged. They will try to hide behind arguments that appear noble.

We at WorkersCompensationOptions.com will remain at the cutting edge of this movement and will provide whatever legal occupational accident programs our clients wish to implement. Our results already speak for themselves—and they will continue to do so.

 

[1] If the reader is determined to think of “care” in only post-injury terms, so be it; my claim still stands. However, our idea of “care” starts with motivating employers to create the safest workplaces possible and motivating employees to avoid injuries in the first place. Because “no fault” is a cornerstone of the WC structure, our emphasis on safety is far easier to convey to our opt-out clients than to our WC clients.

[2] The panoply of stakeholders in WC (ranging from payroll auditors to WC Medicare Set Aside reporters and from private investigators to coding specialists tasked with maximizing reimbursements) is quite a spectacle. To avoid overwhelming my audience, I generally categorize this excessive cast of characters into the five communities of WC: insurance, medical, legal, employer and employee. Watch the first seven minutes of this video for an explanation of how perverse the incentives are for most of these stakeholders. Regrettably, the employer and employee have become afterthoughts in a system ostensibly designed to meet their needs.

[3] In both form and content, this article borrows heavily from the first 12 pages of John Kenneth Galbraith’s The Affluent Society. In particular, I have modeled my discussion on his examination of “the obsolescence of ideas,” where he explains the danger of leaving “sacrosanct” concepts unexamined as a matter of convenience.

[4] Sensitive readers beware; stories of aching necks are completely ignored by Eastman in favor of gruesome accounts of deaths and dismemberments.

[5] Arbitration was much less formal a century ago. Typically, a disinterested but experienced third party would simply perform a records review and make a determination. Testimony could be heard. For a glimpse of how WC disputes were resolved in the 1920s, see pages 88-194 of Bureau of Labor Statistics Bulletin 301, April 1922. The report by Carl Hookstadt details the various methods of dispute resolution for 21 states and two Canadian provinces. Voluntary resolution between employer and employee was universally sought. In its broadest sense, “arbitration”—in varying layers—successfully prevented litigation in the vast majority of cases (with the California sample offering the singular, glaring exception).

[6] I urge all industry insiders to read Eastman’s survey, as it’s fascinating, historically significant and accessible for free via the link above.

[7] While this argument is esoteric, I remind the reader we have actual results. Texas nonsubscription and the Oklahoma option are not theoretical; they are real.

[8] Reza Aslan delivered one of the greatest uses of the term “stupid” in September 2014, when interviewed on CNN. This nine-minute video is certainly worth watching in its entirety, but, for his thoughtful and appropriate deployment of a term many of us are too cowardly to invoke, watch from 6:20 to 7:00.

The Global Risks Report 2016

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Over the past decade, the Global Risks Report has expanded its scope from analyzing the connected and rapidly evolving nature of global risks to also putting forward solutions and calling for public-private collaboration in strengthening resilience. Now in its 11th edition, the report describes a world in which risks are becoming more imminent and have wide-ranging impact: Tensions between countries affect businesses; unresolved, protracted crises have resulted in the largest number of refugees globally since World War II; terrorist attacks take an increasing toll on human lives and stifle economies; droughts occur in California, and floods happen in South Asia; and rapid advances in technologies are coupled with ever-growing cyber fragilities and persistent unemployment and underemployment.

Implications of sweeping digitization (also termed the “Fourth Industrial Revolution”) – ranging from transformations that are the result of rising cyber connectivity to the potential effects of innovations on socioeconomic equality and global security – remain far from fully understood. At the same time, climate change is unequivocally happening, and there is no turning back time.

The increasing volatility, complexity and ambiguity of the world not only heightens uncertainty around the “which,” “when,” “where” and “who” of addressing global risks but also clouds the solutions space. We need clear thinking about new levers that will enable a wide range of stakeholders to jointly address global risks, which cannot be dealt with in a centralized way.

Taken together, the situation calls for a resilience imperative – an urgent necessity to find new avenues and more opportunities to mitigate, adapt to and build resilience against global risks and threats through collaboration among different stakeholders.

By putting the resilience imperative at its core, this year’s Global Risks Report combines four parts to present an analysis of different aspects of global risks – across both global risks and stakeholders – focused as much on the search for solutions as on the analysis of the risks themselves.

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To download the report, click here.

3 Game Changers — and How to Survive

The follow-the-leader principle works on a trail that has proven to be relatively safe from perils and predators. However, when new frontiers are breached, a new kind of leadership is required for survival.

Insurers have generally been able to just follow the leader for ages, but now a new frontier has been breached. The insurance industry is vulnerable to three game changers that consumers are eager to embrace.

Drawing on remarks I made recently at a keynote for the National Association of Mutual Insurance Companies Annual Conference, here are the game changers:

The first big disrupter is data collection. Insurance is built on the principle of using accurate data and statistics to build underwriting financial models that serve to predict behavior and events from an actuarial or probability standpoint. London’s Edward Lloyd figured this out when he opened his coffee shop in 1688, and people started selling insurance to merchants and ship owners. His motto was fidentia, Latin for confidence. We now refer to “confidence factors” when estimating future losses.

Insurers have been notorious for using forms to collect data. But, today, a person is subjected to more new information in one day than a person in the Middle Ages saw in his entire life. If modern competitors to the insurance industry can obtain more accurate data in a faster and more in-depth manner, they may beat insurers at their own game.

With cloud computing and its infinite data storage/retrieval capability, trillions of bits of information relating to insureds are available. Data sources track things like profile patterns, such as personal Internet searches or satellite surveillance data. Relevant data can be mined and analyzed to build a risk model for every insurable consumer or business peril from property and vehicle insurance to earthquake and weather insurance.

The five biggest data collectors on the planet are Google, Apple, Facebook, Yahoo and Amazon. These high-tech companies have the ability, financial resources and potential desire to foray into the insurance industry. Keep in mind that in 2014 the world’s top 10 insurers received $1.2 trillion in revenue, yet surveys have shown that people around the world have grown to use and trust the products and services provided by the five biggest data collectors.

Accessibility and familiarity are allowing profitable new brands to replace old brands. Consumers also prefer and use third-party validation and independent comparisons found on websites.

What does this spell for the insurance industry? Sadly, consumers have grown more uncomfortable with reliance on and interaction with agent relationships. John Maynard Keynes once said: “The difficulty lies not so much in developing new ideas, as in escaping from old ones.”

The second emerging threat to insurance is botsourcing — the replacement of human jobs by robotics. The robots haven’t just hatched in agriculture or auto assembly plants — they’re expanding in a variety of skills, moving up the corporate ladder, showing awesome productivity and retention rates and increasingly shoving aside their human counterparts.

Google won a patent recently to start building worker robots with personalities. Move over, Siri.

Author and entrepreneur Martin Ford, in his book Rise of the Robots, argues that artificial intelligence (AI) and robotics will soon overhaul our economy. Increasingly, machines will be able to take care of themselves, and fewer jobs will be necessary.

Reassessment of the way we employ our workforce is essential to cope with this new industrial revolution. The lucrative insurance realm of personal and product liability insurance lines and workers’ comp is being tempered as human risk factors — especially in high-risk areas — give way to robotics. The saying goes: “Management is doing things right, but leadership is doing the right things.”

How will the insurance industry react to the accelerating technology of bot-sourcing?

The third emerging threat to the insurance industry that has received enormous attention this past year autonomous vehicles. More than a half-dozen carmakers, as well as Google and Uber, predict that self-driving vehicles will be commonplace on our roads between 2017 and 2020. Tesla Motors CEO and general future-tech proponent Elon Musk has predicted that human drivers could someday be outlawed. Humans cannot outperform an autonomous vehicle, which can assess and react to more than 7,000 driving threats per second. There are no incidents of driver impairment, reckless driving, DUIs, road rage, driver texting, speeding or inattention.

With a plethora of electronic distractions, increased safety can only be achieved when human drivers are removed from the equation. Automakers have employed an incremental approach to safety in their current models. These new technologies are clever and helpful but do not remove the risks. There’s a phenomenon called the Peltzman Effect, based on research from an economist at the University of Chicago who studied auto accidents. He found that, when you introduce more safety features like seatbelts into cars, the number of fatalities and injuries doesn’t drop. The reason is that people compensate for it. When you have a safety net in place, people will naturally take more risks. Today, 35,000 vehicle occupants die in the U.S. because of auto accidents. Autonomous vehicles are expected to cut auto-related deaths and injuries by 80% or more.

One of the biggest revenue sources to insurers is vehicle insurance. As autonomous vehicles take over our roads and highways, you need to address all the numerous unanswered questions relating to the risk playing field. Who will own the vehicles? How can you assess the potential liability of software failure or cyberattacks? Will insurers still have a role? Where will legal liabilities fall? Who will lead the call to sort these issues out?

Clearly, the lucrative auto insurance market will change drastically. Insurance and reinsurance company leadership will be an essential ingredient to address this disruptive technology.

As I told the conference: Count on Insurance Thought Leadership to play a significant role in addressing these and other disruptive technologies facing the insurance industry. A Chinese proverb says: “Not the cry, but the flight of a wild duck, leads the flock to fly and follow.”

Real Reason Health Insurance Is Broken

Healthcare is broken in this country; I don’t think I really have to convince too many people of that. Whether your political leanings are blue or red, whether you’re a senior citizen or a teenager, really whether you’re rich or poor — just about everybody senses that something is wrong with how we manage care. This is not a quality-of-service issue, not so much an access-to-care issue and not really a lack-of-options issue. No, the problem most Americans rightly recognize as being wrong in current system boils down to one word: price.

But how do you fix that? For 20 years now, I have tried to help employers manage their healthcare costs for employees and their families. For at least the first 15 years of my career, that job mostly entailed comparing options from the national and regional carriers, negotiating the lowest rates possible, making suggestions to help lower benefits to offset rising premiums and then preparing spreadsheets of all those options for our CEO, CFO and HR director. Basically, my job was to bring in bad news, but to try to bring in the least bad news. All to get new clients and keep old ones.

Any time a business owner would ask me, “Why are our premiums rising so much?” I’d turn the question around a bit and ask what she thought the causes were. Inevitably, I’d hear the same three things. First, those “staggering profits of the insurance companies.” Closely behind that is America’s notorious “increase in obesity.” Then third — every once in a while — someone would actually get closer to the truth and say the reason is that “medical costs are rising.” And all of these are true, no doubt, to one degree or another. But none explains how health insurance premiums have historically risen at a rate five times or more beyond normal inflation.

When pressed for an answer on higher premiums, I’d explain how we receive very little information from carriers (especially in the fully insured market), but you’ve got a higher-than-desirable loss ratio — or I might mention the aging employee population, declining overall health, new taxes and regulations perhaps related to the Affordable Care Act. Again, all those reasons, to some degree or another, have a real impact.

The one that kept coming closest to the truth, at least from an insurance insider’s perspective, is the steady rise in costs. Or, unfortunately, as most consumers see it, the outlandish profiteering manufactured from the suffering, confusion and fear of others.

To truly find a more meaningful answer — something consumers and advocates and carriers and even legislatures could theoretically one day use to craft a lasting solution — I started to look at the actual unit cost of medical care. That’s vital, because it strips away taxes, fees, insurance profits and many other considerations like America’s decreasing health, or the continued drop in smoking. It clears all that fog and gives you a hard-number comparison. And what I discovered was that we as a nation spend more per unit of care than the next seven most-expensive countries COMBINED.

That deserves repeating. Not only do we as a nation maintain the world’s most expensive healthcare system as a whole, but at the individual level you are likely to be billed more for the same procedure than similar patients in China, France, Germany, Canada, Malaysia, India and the U.K. if all their bills were rolled into one.

Comparisons

To put things in better perspective, I looked at other common costs we incur going back as far as before the Industrial Revolution. And what I found was that the price of a car has not wildly changed in all those years. Nor do gas prices rise against inflation. Meanwhile, prices of computers and technology have historically gone down. So how then do healthcare premiums justify such leaps?

Housing is a great example. Since 1970, housing costs have only gone up 15% — 15% in 45 years. In that same time period, medical care costs have jumped 1,800% — 18 times greater since 1970. How about since 1935? According to Federal Bureau of Labor Statistics, costs have risen 4,200% in that time.

When further comparing health insurance and healthcare itself against any other goods and services we might buy, I realized that Americans, in general, tend to apply common sense and rational thinking to many other purchases, but that much of that practice somehow goes out the window when it comes to medical care.

We’ve become very good at consuming health insurance, but does that mean we’re actually good consumers? The executives at businesses do what they’re supposed to: compare costs, co-pays and deductibles presented by their broker/consultant each year. And when these executives do decide which plans to roll out to their employees, they are good shoppers. They compare their employers’ costs with their spouses’ employers, compare against the Obamacare exchanges (or individual plans pre-ACA) and consider other important factors — your out-of-pockets, your deductible, your premiums….

The goal is to control overall healthcare costs. But look at other types of insurance.

Many of us likely will shop out our car insurance every few years. After all, 15 minutes could save us 15%, right? Yet we know that any savings only apply to the insurance. We don’t expect shopping around for our car insurance to actually affect the price of the car. But the price of the car does affect insurance: A higher price tag means more expensive insurance.

The same is true in healthcare. We CANNOT lower our healthcare costs by shopping our insurance. Our healthcare costs are not at all affected by our insurance costs. This has been proven with the “consumer-driven” model of insurance (which has had limited to no impact on premiums long term). Yet our health insurance costs are almost fully driven by our actual healthcare costs. As a matter of fact, a provision of the Affordable Care Act known as “medical loss ratios” practically guarantees this.

Imagine that your teenager just got his driver’s license. After some good old-fashioned consternation and badgering, you’ve agreed to let him take out the car out unsupervised for the very first time, only to go to the corner store to get some much-needed milk. You hand over the keys and try not to stress too much. Of course, less than 15 minutes later, you get the dreaded phone call: He’s been in an accident.

Rushing to the scene, you’re relieved to discover it’s only a fender bender. The other driver, seemingly a reasonable person, agrees to accept your offer to not file an insurance claim, and instead pay him directly for what appears to be, let’s say, $1,000 of damage. After all, you’ve got a $500 deductible, and a claim filed by your teenager just weeks after getting his license could jack your rates up much more than the difference. Or, worse, your carrier could drop you, jeopardizing your freedom completely! So paying out of pocket makes sense, right?

But would we do ever this with our healthcare? Can you imagine anyone walking into a cardiologist appointment, especially with a co-pay plan, and saying, “I don’t want my insurance company knowing I may have heart disease, so let me just pay the $500 charge instead of submitting the claim and paying the co-pay”?

And let’s look at how oddly blind we are to the actual quality of healthcare we receive. For instance, in an operating room, a strong argument can be made that the anesthesiologist is the second most important person on the surgical team. After all, when you’re under general anesthesia, it’s her job to control the machines that keep you breathing. She also controls how “under” you go. She makes sure you don’t go so deep that you slip into a coma, but, equally important, makes sure you don’t wake up mid-procedure. Yet, with all that responsibility in her hands, who among us has even known who the anesthesiologist would be until five minutes prior to being knocked out? After all, for such an important role, wouldn’t it be nice to develop a relationship with this doctor, and maybe even have her be the one who administers sedatives for future surgeries? Maybe you’d just like to know if she only graduated medical school last week? That might be pertinent, too.

Instead, we juggle our healthcare purchases like nothing else we buy. Imagine if we consumed hotel stays like we do healthcare. We might have a high-deductible “hotel” plan. Say we had a $500 deductible before our plan covered stays at 100%. So if I’m only staying one night, I might look into cost and quality, maybe compare rooms on Trivago. But what if I needed a hotel room for a week, or a year, and I knew I’d be hitting that $500 threshold no matter where I stayed, from the most rat-infested hotel to a five-star resort? Wouldn’t I be inclined to stay at the Ritz Carlton in a $1,000-a-night because I know I’m hitting my deductible either way.

One of the pushbacks I get is that we, as patients, are not doctors and must rely on the pros. After all, when faced with a major medical condition, we’re usually not in the best frame of mind to make intelligent decisions. “I should just trust my doctor” is a common reaction, maybe the most common. And a very understandable one. But I’d argue that dealing with a major medical condition is the exact time to be most involved. Most aware. Most informed. The stakes couldn’t be higher, and yet our awareness is disturbingly low.

If we bought houses as we buy healthcare, it’d be like finding a reputable real estate agent and then asking him to go ahead and pick out a neighborhood, a house and the price we’ll pay. We’ll just meet him at the closing. Sounds crazy, right?

Where Insurance Is to Blame

Please know that I’m not holding insurance companies blameless. I do, for instance, blame the insurance industry for a major shift in our overall thinking. I hold the industry responsible for creating an environment in which the cost of care, and therefore the quality of care, becomes irrelevant. This was mainly born out of HMOs, of course, which, you’ll recall, lowered costs tremendously at first, and were hailed as the cure to all that ails our system, before things went so horribly wrong.

Here again, comparison can be useful. A while back, I was in a meeting with service department workers at a car dealership. I asked if they’d agree that most people, when paying for their own repair, would care about both the cost and quality. Everyone nodded — of course they would. I asked how that differed from a customer whose car was still under warranty. In that situation, they told me, the customers generally don’t care at all about cost, and, in fact, will likely come to a dealership on a warranty job specifically BECAUSE it’s the most expensive. After all, someone else is paying, right?

What most people are unaware of — mainly because they don’t ask — is that you can get warranty work done at many non-dealer repair shops.

Most people think of their health insurance a lot like they do a car warranty. The total cost, the competitively and fairly priced service, and, to a large extent, how good the work is just doesn’t matter so much when we’re not reaching into our pockets.

Doesn’t that tell us precisely why the “consumer driven” model hasn’t worked?

The idea was that if our plans have us paying higher deductible and co-pays, we’ll care more about the overall cost. Yet in 2015, the highest out- of-pocket allowed by the Affordable Care Act is just $6,600. If I’m going in for a procedure that may range in cost from $25,000 to $125,000, what exactly is my incentive to go looking for a deal? Or even ask questions? Not when I know I’ll be hitting my $6,600 threshold regardless of where I go.

And we inherently associate higher costs with greater quality of care. Is that a fair assumption? Not with the system we have. Actually, the opposite generally proves true.

Transparency

All of these things keep coming back to a singular issue for me: transparency. We simply don’t have the information we need to make wise decisions. Like finding out how good a specific hospital is at replacing hips, or how much it actually charges compared with another facility.

However, I believe the reason this information is not systematically available is the same reason why, if it suddenly were available overnight, with the wave of my magic wand, there would still be little impact. What is that reason? Because today, under the system and mentality we have, there’s simply no consumer demand for it.

Let’s look at it from the pharmaceutical side. The cost at a retail pharmacy for the generic Lipitor can vary from $16 to almost $80, depending on where you go to. But if you have a $10 co-pay, or have already reached your 100% coverage, how can I convince someone to go three miles out of his way to get the lower-cost prescription? How do I get him to even ask the question?

Another argument I hear frequently when I ask customers to identify the problems with healthcare: “Isn’t it the insurance company’s job to control cost? Don’t companies set up networks for this very purpose?”

Yes, they certainly do. But look at what really matters. Walmart started a list of $4 prescriptions. Many other pharmacies quickly followed suit. Try showing your insurance ID card for one of those drugs next time you go. In most cases, you’ll find the insurance company would pay a significantly higher price. Why? Because you have much more power than the insurance company does. Having you be willing to spend your money at a store is far more compelling to the business than anything an insurance company can negotiate.

We treat our own health like a discount haircut. We basically know as much about the professionals and facilities charged with saving our lives as we do with the stylists at Supercuts. It’s an insanely ill-informed way to manage the most important thing we have.

What can I leave you with in terms of possible solutions? They do exist, even though the Affordable Care Act limits some options.

What needs to happen is we have to encourage patients to care about the quality AND costs of the care they receive.

I envision a day when I can go on my smartphone and, using a basic app, find all the suitable places for replacing my hip, how well they’re rated, how often they do the operation and, of course, how much they charge. How many of us would walk into a new restaurant without the benefit of any word-of-mouth or knowing anything about the specialties, pick from a menu but only find out the price when you get your check? We do that every day with sprained wrists, broken bones, personal addictions, genetic illnesses, respiratory issues and even open-heart surgery,

The bigger picture here is really using our consumer dollars to force providers — meaning hospitals, doctors, drug manufacturers, pharmacies, etc. – to compete on the cost and quality of the services they provide, like nearly every other provider of any products or service we buy.

We’ve seen it work: In areas of healthcare that insurance typically doesn’t cover, like laser eye surgery or even cosmetic surgery, the change is already happening. The costs in those areas have gone down considerably while the quality has increased.

Naturally, I recognize that making the comparisons available and getting consumers to use them would be a huge challenge. What can we do in the meantime?

Well, some tools do exist. There is an online service called MediBid that allows hospitals and providers to actually bid on your medical care. When providers respond, patients can compare costs and quality among those providers.

Another possible solution: Instead of an annual deductible of, say, $2,500, we could have a monthly resettable deductible of something like $200. How would that help? Well, it would give us, as consumers, a little skin in the game year-round. It would encourage us to participate in lowering overall costs by not applying the car dealership model to an already bloated and wasteful system.

Another push, an indirect result of the ACA, is more self-insured products. Many times, these are appropriate for smaller businesses. Not only does the self-insured employer have significantly more transparency on costs but also, more importantly, has real incentive to control those costs.

Some employers negotiate reasonable pricing and, if they use a service like MediBid and it results in a significant savings, may offer to pay the employee’s deductible and even cover any travel expenses.

One innovative carrier has actually tied physical activity to a patient’s out-of-pocket cost. Any adult on the plan can opt-in to wear a step tracker, like a Fitbit. If certain goals are met, people can earn as much as $4 a day, or $1,000 a year, off their deductible and out-of-pocket.

Which brings up the topic of wellness, which has become a real buzzword in the last five years or so. While I do agree that getting “well” can translate into consuming less care, wellness programs don’t address the fact that nearly all people will consume care at some point in their lives and that many diseases are completely unrelated to lifestyle. My approach, the one I believe in: More transparency on the healthcare process and a community of well-informed consumers can help lower costs and improve quality on all care.

Conclusion

I believe that 90% of our problems would right themselves fairly quickly if only patients had the right incentives. If only information were made readily accessible. If only patients were allowed to be consumers, to shop for based on quality AND cost, just as we do with nearly everything else we buy.

This change would naturally force providers to improve their quality and lower their costs at a far more rapid pace. The pattern of unnecessary and duplicate testing would go down. Prices would quickly become far more competitive, as they should be.

And I believe Americans would start to see a more direct link between their financial picture and the decisions they make about their own health. If all this happened, if we had the transparency we need, then that dollar menu at McDonald’s might not seem so affordable once we understand the health and cost impact a double-cheeseburger really has down the road.

The Coming Renaissance

Insurance has been around for a long time … dating back to ancient times. The first written insurance policy was carved into a Babylonian obelisk; the “Hammurabi Code” offered basic insurance for individuals if a personal catastrophe made it impossible to pay back a debt. Insurance continued to grow and evolve across centuries and continents. The guilds in Europe supported master craftsman with a type of group coverage to subsidize them and their families upon injury, disability or death. Deals made in London coffee houses to cover maritime risks were the beginnings of the London Market. These efforts met a universal and timeless need to stabilize individuals and the economy against risk.

The evolution of insurance often followed emerging developments such as the agricultural revolution, the industrial revolution and the information revolution. Each of these revolutions created and reshaped businesses, including insurance. Insurance evolved with each revolution to meet changing needs and to adapt to new developments or technologies that changed businesses, markets and risk. Each revolution required a re-thinking and re-alignment. It required business leaders to shed sacred notions and wake up to the possibilities of rebuilding on a new foundation while maintaining the old structure long enough to move out safely.

Erasing the notion of moderate change

Our industry is waking up and finding itself in the midst of seismic shifts. A revolution is underway: the digital revolution. This revolution is different because of the complexity, breadth and depth of converging factors and global changes. Our industry, steeped in centuries of tradition, must erase the idea that we can ease our organizations into the new era with minor adjustments.

Think of how the digital revolution is going to reinvent your business model. Insurers are moving from product-driven to customer-driven strategies; from limited distribution channels (such as agents) to an array of channels based on customer choice; from line-of-business silos to customer-centricity and customer experience for all products across all lines; from simply containing risk to actively providing personal risk management; and from siloed solutions focused on transactions to a platform portfolio that brings together real-time interaction for all products and services for customers, giving them an Amazon-like experience. Whew! It stretches our minds to consider it all at once.

The rebirth of real opportunity

These influencers of change are challenging traditional insurance models, resulting in declining customers, loyalty and premiums. Whether it is the demand for mobile channels in addition to agents; or declining life insurance or personal auto and home insurance because of demographic changes; or declining premiums for products like auto insurance because of the emergence of technologies like crash avoidance, connected cars and autonomous vehicles, these influencers of change demand we have a re-imagination and a rebirth of insurance.

The promise of the digital revolution is that we can. Traditionally damaging business factors no longer have to be met with traditional business adjustments.

Insurers must look to reinvent the business model, not unlike how Uber reinvented the taxi model. Increasingly, insurance CEOs are speaking out about the coming disruption of insurance and the need for insurance to aggressively rethink the business model.

On May 27, 2015, Generali’s CEO, Mario Greco, commented in the Financial Times that insurers will disappear unless they embrace sweeping technological change. He went on to say that the insurance sector is “on the verge of a revolution and has been lagging behind every other industry — it has been paralyzed.”

On June 30, 2015, Lloyd’s CEO, Inga Beale, stated in the Financial Times that insurers are in danger of being “uberized” as technology allows companies from other sectors to undermine insurance sectors role to manage risk.

So how do insurers move forward? First they need to keep their current business viable and growing to fund the future. This requires transformation of the existing business by leveraging a platform of integrated solutions — laying the groundwork for a renaissance of insurance.

Insurers may enhance auto or life insurance policies, processes and customer interaction. Foundational transformations can also be used to reinvent insurance such as by offering a “family or lifecycle policy” that offers a single bundle to meet the broad risk of individual or family needs instead of individual policies for each of the needs. Alternatively, insurers could offer new risk mitigation or value-added services that leverage technology from the connected home and connected auto … all creating a new customer experience and engagement model.

In recent UK consumer research published by Majesco, one in every three customers feel that insurers are failing on minimum service expectations. Even the highest customer satisfaction score in the insurance industry — 69%, reached by motor insurance providers — compares unfavorably with world-class companies such as Amazon, which scores 87% based on the UK Customer satisfaction Index for January 2015. Furthermore, more than 70% of the market indicates they want a “family” product, combining motor, home, travel and pet in a single insurance policy. Nearly 42% would buy a family product tomorrow, while 30% were unsure but did not rule out the option – highlighting that a significant majority (72%) of the market expects access to a product that is not available today.

While some insurers will dismiss the findings as not relevant to them, they should instead see a warning signal that policy bundling is growing in demand. The Internet has created a market with “no borders” because customers research online to seek out offerings and options to meet their needs. In today’s digital world, what happens in one region does not stay in one region. Rather, these new developments from products to services, new channels and new approaches to risk are rapidly rippling to other regions.

The examples are many. John Hancock’s new life product uses South Africa’s Vitality concept. Google’s Compare site was the result of a UK acquisition. Direct-to-consumer models cropped up first and most strongly in Australia and the UK. Any one of a hundred multi-national insurers can send an idea rippling across continents at the speed of an e-mail. Meeting the digital revolution with real transformation is going to require an acceptance that everything we have known about insurance was good for yesterday. The only thing we can count on is the necessity of insurance that has held true from the Hammurabi Code until today.

So as you attend industry events and read articles, blogs and reports, put the topic of business transformation into strategic perspective. Is business transformation helping you move from legacy software solutions to modern, configurable solutions that will handle the unexpected future? Are you providing a foundation to change traditional business assumptions and business models to provide an enhanced customer experience and value? Will you be the traditional retailer or an Amazon? Will you be the traditional taxi or Uber? Your answer will influence your strategic direction and relevance in an industry that is on the precipice of disruption. Will you be disrupted or be the disruptor? Majesco is focused on transformation as a path to renaissance. Are you?