Tag Archives: insurance company

Why Healthcare Costs Bleed Firms Dry

“It is impossible to prove something to someone whose salary depends on believing the opposite.” – Upton Sinclair

Today’s overpriced healthcare system is hurting American businesses and job creation, eating into profitability and, quite frankly, bleeding companies dry. What’s worse, the lack of cost control and price transparency have created a culture of helplessness and even resignation.

But employers have had enough. Many are rising up and demanding change. They want lower costs and better care for their people and will no longer tolerate the status quo.

In 2007, I made it my mission to put an end to overpriced healthcare when my own companies’ healthcare costs were cutting dangerously into the bottom lines. At the time, I operated numerous healthcare clinics throughout the Phoenix metro area. We found our best hourly employees were leaving us for jobs at larger corporations with better health insurance, and we couldn’t attract replacements with the same level of training. Productivity and efficiency plummeted. It was an absolute mess, and I felt like a failed CEO.

But we discovered a secret that no one else seemed to know – or at least nobody seemed to be saying aloud. It’s a secret we uncovered when we started doing something I had never heard of anyone doing: writing our own checks for our employees’ healthcare.

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It seemed strange that the cost of giving birth at one hospital was $6,000, while the cost at a neighboring hospital was $17,000 – even though the same doctor had attended both births! Strange that an ankle X-ray could cost $1,200 in a hospital emergency room but only $35 at my own clinics. Stranger still that a simple antibiotic could cost $900 at one pharmacy when Walmart sold the exact same drug for only $12.

Those observations helped lead to the secret to not overpaying for healthcare.

Controlling PLACE OF SERVICE is all that really matters

In the vast majority of cases, my employees could receive the right level of care in a setting that provided the same service (with the same or even better quality) at a much lower cost than in another setting.

Of course, sometimes a hospital emergency room visit is absolutely necessary. On occasion, an urgent care is the right option. But qwe saw that many medical expenses were needlessly incurred in hospitals and other expensive settings. MRIs, X-rays, blood tests, specialists consultations and other common procedures were costing my companies five to 20 times more than the exact same services performed across the street in an imaging center, lab or doctor’s office not owned by the hospital.

Why would someone choose to get a $3,600 MRI or $1,200 X-ray at a hospital instead of going to an imaging center across the street for an equally good, $400 MRI or $35 X-ray? Why would anyone get a procedure at one hospital instead of paying 40% less for an identical procedure at another hospital around the corner? It’s not that people don’t care. THEY DO! The answer is that they simply don’t know – and the system is designed so that it is very hard for people to uncover this truth.

It seems crazy, but this sort of thing happens systematically all the time. When employer health plans work well – when prices are transparent and employees are protected and guided away from overpriced services – then common sense prevails and costs stay in check. But if people are part of a health plan that benefits from keeping costs hidden – and most do – business owners and their people simply don’t know they’re being duped.

Why is this is happening? 

  1. Hospitals with the greatest market share negotiate much higher reimbursement rates from insurance companies. A December 2015 study by researchers from Yale, University of Pennsylvania and Carnegie Mellon University analyzed billions of hospital clams paid by commercial insurance companies to hospitals. The study concluded that costs at hospital systems with significant market share were as much as 12 times higher than other, smaller hospitals – with no difference in quality. It was an important and revealing study, yet it failed to evaluate the even bigger differences in price for routine procedures performed at a hospital vs. outside a hospital – procedures that never needed to be done in a hospital in the first place. These price differentials and subsequent overpayments are even more shocking and have the biggest impact on overall healthcare cost.
  2. Hospitals are “buying” doctors so they can fill beds and price excessively. Even though hospitals lose approximately $165,000 each year for every primary care doctor and about $300,000 for each specialist they hire, this strategy has proven effective; it increases market share and allows hospital systems to negotiate higher prices with insurers. What’s more, these doctors are obligated to refer their patients for services or specialty care in an exorbitantly overpriced hospital setting. Of course, emergency procedures are occasionally necessary, and of course hospital infrastructure costs are always higher and will need to be taken into account when assessing fair pricing. But when millions of dollars are used to market elective services that are arbitrarily priced much higher than what is fair – well, this just shouldn’t feel right to the unknowing business owner and employee. After all, they trust the healthcare system to guide and care for them.
  3. Urgent care centers are now owned by hospitals. It’s no surprise, then, that urgent cares are owned by hospitals, providing a perfect entry point for funneling services and profitable patients to hospitals and the doctors who are employed by those hospitals. Following this same line of thinking, urgent cares also help hospital systems gain market share, negotiate higher rates and “mine” the sickest people from among those patients.
  4. There are huge price differentials in prescription drugs. This problem is rampant in the healthcare industry, even extending to runaway prices in common prescriptions. The costs of medications vary dramatically depending on the pharmacy, the insurer and the way the doctor writes the prescription. The cost of a simple generic antibiotic can range from $12 at a grocery store to more than $50 at a widely known national pharmacy – and to more than $900 for the brand name that legally gets substituted when the pharmacy chooses. You might think the answer is obvious – just stop overpaying – but many people simply aren’t aware of the pricing tricks.
  5. High-deductible health plans partner with hospital systems. Often, such plans require that services be performed exclusively at a particular hospital’s health centers or affiliated urgent cares, imaging centers, doctor’s offices, etc. In other words, the hospital system that has negotiated higher rates with insurers now requires health plan participants to use their overpriced services. They say they have negotiated lower prices, but we see that costs are much lower when a patient pays cash outside the hospital.

In the case of high-deductible plans, it’s employees who get stuck with much of the bill. The premiums are cheaper upfront, but employees and their families are charged for services until their deductibles are met, often paying inflated prices for procedures performed in a hospital or affiliated setting. When they can’t afford to pay the deductible, employees often direct their frustration at their employers for providing this sort of coverage. And, sadly, many low-wage people will decide to forgo needed care.

See Also: Why Healthcare Costs Soar (Part 6)

What if brokers could help their small business clients by providing the negotiated fee schedule with the hospital system employees will be required to use? Or at least educate them about the dangers of using hospital facilities for services that could be performed outside a hospital? This is especially important for people with high deductibles.

Though it’s not common to request the price list – and insurance companies won’t grant the request – it’s certainly common sense. Shouldn’t employees understand the costs before choosing a doctor or facility? Simply providing the fee schedule would at least give them and their doctors a fighting chance to make care decisions based on both quality and value.

Increased transparency in an industry of hidden costs and unexpected medical bills would be a powerful step toward saying “NO” to the overcharging that the biggest healthcare facilities get away with every day.

The Importance of Data

Educating and guiding employees to the best places for service will have a huge impact on moving the cost needle. And, using data to identify the sickest employees and understand where they are getting their healthcare services is a great multiplier that brokers can use to help their business clients achieve more cost savings.

If an insurance company will not agree, in writing, that all of the company’s data belongs to the business owner – regardless of whether they’re certain to renew – the business owner should walk away.

Most traditional insurance companies will tell business owners they can’t give them this data because of privacy laws or HIPAA. The real reason is that they don’t want their clients to share the data with competing insurers and potentially lower their healthcare costs. In reality, business owners can own their data. Nothing in the law says otherwise. (Employers should never directly look at employees’ personal health information. This is just common sense.)

We encourage business owners to push harder and challenge the status quo way of thinking. We want them to demand cost transparency so they can control their own costs and still take great care of their people. Owning their employees’ data will enable the employer and their broker to negotiate fair pricing and educate their people about place of service more effectively. Brokers who rise to this challenge will find great opportunities to grow their business and create undying loyalty among their clients.

Status quo healthcare costs are bloated with unnecessary administration, waste and overpricing, but businesses and brokers who understand how to choose the right place of service can save money and easily fund healthcare. The worst thing we can do is pay more.

Are You Fit Enough for Growth?

When it comes to scrutinizing costs, most insurance companies can say, “Been there, done that. Got the T-shirt.” Managers are familiar with the refrain from above to trim here and cut there. The typical result is flirtation with the latest management trends like lean, outsourcing and offshoring. However, the results tend to be the same. Budgets reflect last year’s spending plus or minus a couple of percent.

Meanwhile, managers attempt to develop strategies to capitalize on the trends reshaping the industry – customer-centricity, analytics, digital platforms and disruptive delivery and distribution models. Yet, after all of the energy companies exert to reduce expenses, there is often little left over to spend on these strategic initiatives.

Why do you need to look at your expense structure?

A variety of pressures have led carriers to improve their cost structures. In all parts of the market, low interest rates and investment returns are forcing carriers to scrutinize costs to improve return on capital, or even to maintain profitability to stay in business.

After all of the energy that companies exert to reduce expenses, there is often little energy left over to spend on strategic initiatives.

P&C carriers with lower-cost distribution models have been able to channel investments into advertising and take share, forcing competitors to reduce costs to defend their positions. Consolidation in the health, group and reinsurance sectors have forced smaller insurers to either a) explore more scalable cost structures or b) put themselves up for sale. For life and retirement companies, lower interest rates have taken a toll on the competitiveness of investment-based products.

This spells trouble for companies that have not adequately sorted out their expense structure. And a shrinking insurance company sooner or later will run afoul of regulators, ratings agencies, distributors and customers. Even if expenses are shrinking, if revenue is declining more quickly then the downward spiral will accelerate. It is virtually impossible to maintain profitability without growth. Expenses increase with inflation, tick upward with each additional regulatory requirement and can spike dramatically when attempting to meet customer and distributor demands for improved experiences and value-added services.

The reality is that companies have to grow, and that’s difficult in a mature market, especially in times when “the market” isn’t helping. What’s the key to success, then? In short, growth comes from better capabilities, service, customer-focus and products – all of which require continuing investment in capabilities.

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The math doesn’t work unless you’re finding ways to spend less in unimportant areas and allocate those savings to more important ones. If your answer to any of the following questions is “no,” then it’s important that you look at your allocation of resources for capital, assets and spending:

  • Are you making your desired return on capital?
  • Are your growth levels acceptable?
  • Do you have an expense structure that lets you compete at scale?

The transformation of insurers from clerk-intensive, army-sized bureaucracies to highly automated financial and service operations has been a decades-long process. The industry has invested heavily enough in standardization and automation that one would expect it to be a well-oiled machine. However, when we look under the covers, we see an industry with a considerable amount of customization and one-offs. In other words, the industry behaves more like cottage industry than an industrial, scalable enterprise.

We know that expenses are difficult to measure, let alone control. But why are they so intractable?

The industry’s poorly kept secret is that insurers, even larger ones, have sold many permutations of products with many different features. All of these have risk, service, compensation, accounting and reporting expenses, as well as coverage tails so long the company can’t help but operate below scale.

Why are expenses so intractable? The issue is scale.

What defines operating at scale for you? A straightforward way to answer this question is to consider whether you’re operating at a level of efficiency on par with or better than the best in the marketplace. Where do you draw the line? The top 10% to 15%? The top 20% to 25%? Next, ask yourself if you, in fact, are operating at scale. Remove large policies and reinsurance that disguise operating results, then sort out how many differentiated service models you are supporting. Are you in the bottom half of performers? Are you in the top 50% but not the top quartile? Are you in the top quartile but not the top decile?

Every insurer needs a more versatile and flexible expense structure to fully operate at scale and be more competitive.

Competition is changing

Customers now have access to a wealth of information and are increasingly using it to make more informed choices. New market entrants are establishing a foothold in direct and lightly assisted distribution models that make wealth management services more affordable for more market segments. Name brands are establishing customer mind-share with extensive advertising. FinTech is shifting the way we think about adding capabilities and creating capabilities in near real time. Outsourcers are increasingly proficient and are investing in new technologies and capabilities that only the largest companies can afford to do at scale.

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The competitive landscape will continue to change. More products will be commoditized – after all, consumers prefer an easy-to-understand product at a readily comparable price. As they do now, stronger companies will go after competitors with less name recognition and scale and lower ratings. Customer research and behavioral analytics will more accurately discern life-long customer behavior and buying patterns for most lifestyles and socio-demographic groups. The role of advisers will change, but customers of all ages will still like at least occasional advice, especially when their needs – and the products they purchase to meet them – are complex.

Table stakes are greater each year and now include internal and external digital platforms, data-derived service (and self-service) models, omni-channel distribution models and extensive use of advanced analytics. The need to improve time-to-market has never been more important. Scale matters. Because they can increase scale, partners also matter even more than in the past. If they have truly complementary capabilities, new partners can help you improve your cost curve because you can leverage their scale to improve yours (and vice-versa).

In conclusion, all companies – regardless of scale – need to ensure that their capital and operating spending aligns with their strategy and capabilities and the ways they choose to differentiate themselves in the market. In this transformative time, the ones that can’t or won’t do this will fall increasingly behind the market leaders.

Implications: Leave no stone unturned

  • Managing expenses is a job that is never finished. Even if you’ve already looked at expenses, it doesn’t mean that you get a pass from scrutinizing them afresh. You will always have to keep rolling that particular boulder up the hill. Acknowledging that you could always manage expenses better is the first step to doing it well.
  • Identify and commit to the cost curves that get you to scale. This may require new thinking about sourcing partners and which evolving capabilities hold the most promise for the future of the company. How transformative do your digital platforms need to be? Can the cloud help you operate more efficiently and economically? How constraining is your culture, management and governance?
  • Every company needs to invest. Every company needs to be “fit for growth.” You will need to increase expenses where it helps you compete and decrease it where it doesn’t. Admittedly, this is hard to do, but the companies that don’t do it successfully will be left by the wayside.
auto insurance industry

$60 Billion Elephant in the Room

Research has found that one in four car crashes is caused by phone-related distracted driving. However, a recent LifeSaver study of agents suggests this figure to be a vast understatement. More than 60% of agents responded that half or more of all claims are now related to distracted driving.

It’s downright scary to think about the injuries, property damage and loss of life that results from distracted driving.

If our survey bears out on a national scale, the full cost could be north of $60 billion a year. And, of course, this cost is passed on to drivers in the form of increased premiums. In fact, we’re already seeing some major insurers (GEICOAllstate and Zurich) publicly conceding that they are feeling the pain from this fast-growing epidemic.

Assuming the annual cost to insurance companies ranges from $30 billion (if one in four accidents stems from phone-related distracted driving) to $60 billion (using the numbers from our research), a mere 10% reduction in distracted driving accidents would save insurance carriers and their customers several billion dollars annually, in addition to saving lives and drastically reducing injuries.

The infographic below highlights the cost of distracted driving to the insurance industry. It also offers some insight into the minds of insurance agents receiving these claims, as well as the habits of today’s distracted drivers. Take a look and let us know your thoughts in the comments below.

info

How to Choose the Right CRM Package

Perhaps the most important thing an insurer can do to keep clients and brokers happy is to implement the right kind of customer relationship management system and process. CRM lets the insurer anticipate needs and communicate effectively. The most obvious benefits of a good CRM system are:

  • Accessible client information, with the ability to view it in multiple dimensions
  • An automated tool for reminders
  • The ability to document prospect and broker files

But those are just the baseline benefits. With a more comprehensive system, you get usability that exceeds these minimal expectations. It can bring an insurer to a whole new technological landscape that improves retention levels and increases efficiency.

Choosing the Right CRM

Before selecting CRM software, determine who’s considered a customer, because that will dictate the features the CRM software must have. Prospects and policyholders are certainly customers, but many insurers miss out when they neglect to recognize that brokers are customers, too. The CRM software chosen needs to serve them, as well.

For maximum efficiency, choose a CRM that has certain integration functions. It should connect with other sales technology systems that you and your brokers use often, because service is the key differentiator.

To take sales and service to the next level, the CRM system should allow for data to be entered once and then pushed out to other systems, including quoting and underwriting. Distribution channel and prospect information can then be populated into a sales and underwriting system. Not only is this a more streamlined way to conduct business, it also helps the process feel more personal and customized for each user. Every sales representative can have all her information immediately. It also provides for more effective self-service on the web.

One-time entry also makes selling much easier for brokers and sales offices of the insurance company, which will always have access to updated information. This, in turn, makes your products more accessible and appealing. An advanced CRM system will also make reporting and reviewing analytics easier, allowing insurers to identify issues more easily and respond to them more quickly.

Activity tracking is also an important feature. Having an accurate record of changes and updates is important in both relationship management and regulatory compliance. Regulators increasingly demand insurers be able to document compliance.

Finally, you want to make sure your CRM software has configuration options that will maximize its utility for your company and brokers. Every company is unique, and CRM software that forces you into its box isn’t useful. You should be able to tailor a CRM system to make it work more efficiently for you, not have to work around it.

CRM software isn’t just about tracking and storing information—it’s about creating a collaborative environment among product managers, brokers, carriers and clients. Let the data flow—in a well-organized, transparent way that treats every person as a distinct individual with her own needs and expectations.