Tag Archives: non-profit

Failing ACA Co-Ops? Not a Surprise

During the congressional deliberations that led to the Patient Protection and Affordable Care Act, strong support emerged for a government-run health plan to compete with private carriers. The “public option” failed but did create political space for the concept of consumer-owned, non-profit, health insurance co-operatives. The co-ops found their way into the ACA, but now, as a group, are in big trouble. Eight of the nation’s 23 health co-ops are going out of business, and more may follow.

The Case for Health Co-ops
Then-Sen. Kent Conrad championed health co-operatives during the healthcare reform debate. He saw them as health plans owned by local residents and businesses, modeled after the electrical co-ops in his home state of North Dakota. They would receive start-up money from the federal government but otherwise would compete against private carriers on a level playing field.

Co-op advocates hoped they would bring competition to markets dominated by too-few private carriers. Advocates also expected these non-profits to provide individual consumers and small businesses additional affordable health insurance choices. With focus on the first goal, health co-ops might be in a better place today. Unfortunately, too often they sprung up in states where competition was already strong.

The ACA set up a roughly $6 billion fund to help get “consumer-operated and -oriented plans” up and running. The long-term financial viability of health co-ops was to flow from premiums paid by those they insured and the “Three Rs“-programs established by the ACA “to assist insurers through the transition period, and to create a stable, competitive and fair market for health insurance.” Specifically these were the ACA’s reinsurance, risk adjustment and risk corridor programs.

It’s Tough Being New

A (not so) funny thing happened on the way to the health co-ops’ solvency. Starting a health insurance plan is difficult and failure always an option. (I know. I was executive vice president at start-up SeeChange Health, an insurer that failed last year.) New carriers, by definition, have no track record and no data concerning pricing, provider reimbursements, claim trends and the like. The first foray into the market is an educated guess. Worse, new plans usually have a small membership base. This provides little cushion against the impact of miscalculations or unwelcome surprises.

A new health plan launching in the midst of the industry’s transition to a post-ACA world faced exponentially greater difficulties. In 2013, when most of the health co-ops launched, no one knew what the market would look like in 2014. Exchanges, metallic plan requirements, guarantee issue of individual coverage and more were all happening at once. Were employers going to stop offering coverage? How were competitors going to price their offerings? Would provider networks be broad or narrow? The questions were endless; the answers at the time scarce. In a speech during the lead-up to 2014, I described the situation as carriers “playing chicken on tractors without headlights in a dark cave while blindfolded — at night.”

This is the world into which ACA-seeded health co-ops were born. That they now face serious financial problems should surprise no one. They saw themselves as “low-cost alternatives” in their markets. If they were going to err in setting prices, it was not going to be by setting premiums too high.

Besides, if they priced too low, they were protected by the risk corridor program. As described by the Centers for Medicare & Medicaid Services, which manages the ACA’s financial safety net, the “risk corridors program provides payments to insurance companies depending on how closely the premiums they charge cover their consumers’ medical costs. Issuers whose premiums exceed claims and other costs by more than a certain amount pay into the program, and insurers whose claims exceed premiums by a certain amount receive payments for their shortfall.”

The majority of the nation’s health co-operatives saw claims exceeding premiums. With the co-ops on the “shortfall” side of the equation, the government was to come to their rescue like the proverbial cavalry with the money needed to keep them going.

Except the cavalry is a no-show. Too few carriers had too little claims surplus to cover the too large losses of too many health plans. Only 12.6 cents on the dollar due under the risk corridor program is expected to make it to plans on the shortfall side of the equation, the Centers for Medicare and Medicaid Services (CMS) announced on Oct. 1.

The Math Always Wins

Several of the health co-ops were in financial trouble before this news. Losing millions of dollars in expected relief doomed more. As of today, the dollars-and-cents have failed to add up for CoOportunity Health (the co-op in Iowa and Nebraska), the Kentucky Health Cooperative (which also served West Virginians), Louisiana Health Cooperative, Health Republic Insurance of New York, Health Republic Insurance of Oregon, the Nevada Health CO-OP, Community Health Alliance (a Tennessee co-op) and the Colorado HealthOP. Just to use the Colorado situation as an example, the Colorado HealthOp needed $16.2 million; it expects to receive $2 million.

Do these failures mean health insurance co-ops are a bad idea? Not necessarily. What they point to is that health co-ops may have been better off focusing on bringing competition to markets where there were too few plans, not joining a pack where there were enough. Even then, the collapse of the risk corridor program may have doomed them, but they’d have stood a better chance.

As noted above, Sen. Conrad modeled the health co-operatives on electrical co-ops found in some rural communities. Where too few customers make it unprofitable for traditional utilities to invest in the infrastructure required, consumers, seeking electricity, not profits, come together to extend the grid.

Those implementing the ACA should have followed this model. Instead of funding 23 health co-operatives, the administration should have offered seed money to fewer co-ops located where they would be the alternative in the market, not just another one. This may have allowed them to extend financial support long enough to at least partially offset the risk corridor shortfall. Then, just maybe, we could have avoided the “surprise” of failing health co-ops.

Better Way to Rate Work Comp Doctors?

USA Today recently published a story about ProPublica, a nonprofit news organization that has developed a metric to score surgeons’ performance, comparing them with their peers. The study is intended as a tool for consumers, but it has generated concern among surgeons, who feel they are being treated unfairly.

What the article neglects to mention is that rating doctors and hospitals is not new in the general health world. Scoring medical providers has been a practice for decades. The Leapfrog Group, which scores hospitals, has been in business much more than 20 years. Doctor Scorecard scores medical doctors, and a Google search will offer more.

What is different about the ProPublica analysis is that it is based entirely on data and singles out surgeons treating the Medicare population. It also uses an adjustment score for the difficulty of cases analyzed called an adjusted complication rate.

The ProPublica study includes 17,000 doctors performing what are called low-risk, elective surgical procedures derived from Medicare data. The adjusted complication rate selects cases that are considered low risk, such as gall bladder removal or hip replacement. The study looks for complications such as infection or blood clots that require post-operative care, in this case re-hospitalization.

The cost of post-operative care requiring hospital readmission amounted to $645 million, which was billed to taxpayers for 66,000 Medicare patients from 2009 to 2013. Logic says that if surgical complications requiring hospitalization are so costly for Medicare patients, the costs must translate to astounding rates in workers’ compensation, as well. However, the study does not directly apply to work comp doctors.

The ProPublica study does not directly translate to workers’ compensation because the study examines Medicare patients only. While some injured workers qualify for Medicare, the majority are healthy, working adults under Medicare age.

What does translate from the study is that evaluating and rating medical doctor performance based on the data is do-able and important. However, it should not be limited to surgeons. The analysis of doctor performance must be comprehensive, accurate and fair.

Rather than using the limited measure of adjusted complication rate following surgery, a broader view of the claim and claimant is appropriate for workers’ compensation. Analysis is not limited to those cases with complications. Instead, all claims are analyzed. Results are adjusted by the claimant’s age, general health (indicated by co-morbidities), and the type and severity of the injury itself. Administrative management analyses are also important in workers’ compensation such as direct medical costs, indemnity costs, return to work, and case duration, among others.

Case complexity, sometimes presented as case mix adjustment, is important to fairness in rating doctors in workers’ compensation. Also, analyzing a broad scope of data elements smoothes the variability, leading to more accuracy. Fortunately, in workers’ compensation, claims have a very wide range of revealing data elements that can be drawn from a payer’s multiple data silos.

The ProPublica study has created pushback from the physician community for several reasons. For one, gall bladder surgery is often performed in an outpatient setting, so re-hospitalization is a meaningless metric. The same is also true for others of the so-called low-risk surgery category. Moreover, the study names names.

Published provider ratings from a national survey caused much of the angst noted in the USA article. Names were even published in local papers, naming physicians well-known in their communities. Doctors cried foul!

Expecting the general population of patients to understand what the ratings mean, regardless of their accuracy, is naive. Ratings listed as 2.5 or 1.6 have obscure meanings to the uninitiated. Fortunately, workers’ compensation providers do not face that level of exposure. Doctor ratings in workers’ compensation are not published for the general public or made available for consumer interpretation.

What to Expect on Management Liability

Gradually, over the last four-plus years, several management liability insurance (MLI) carriers have shifted their underwriting appetite and guidelines nationally, most dramatically in California. These changes have included some combination of:

·         Increased rates
·         Increased retentions
·         Reductions in coverage
·         Reductions in total limits offered
·         Reductions or removal of wage and hour defense cost sub-limits
·         Non-renewal of insureds based on industry, asset size, financial condition or loss experience.

This is quite a change, as for the previous 10-plus years there has been a surplus of capacity and MLI carriers were eager to write accounts at very attractive rates and terms. While there are still numerous MLI carriers with significant capacity, including some new entrants, the marketplace appears to be reaching a point where this capacity will no longer be use to offer the terms and pricing that we had been accustomed to seeing. This raises the question, “Why?”

Based on our conversations with MLI carriers in this niche, here are a few of the reasons:

·         Poor economic conditions five to seven years, ago leading to a significant spike in the frequency of employment practices liability (EPL) and directors and officers (D&O) related claims

·         Dramatically rising EPL claims expenses (even if a claim is without merit — remember, these policies cover defense costs)

·         Significant and continual increase in the filing of wage and hour claims (wage and hour suits are up 4.7% in the last year and 437% in the last decade)

·         Uptick in D&O claims involving bankruptcy-related allegations, breach of contract, intellectual property, federal agency investigations and judgments, family claims  and restraint of trade

·         The duty-to-defend nature of the policies, forcing carriers to provide a wide expanse of defense coverage for what might be arguably uncovered claims or insureds

What can our current (and new) non-profit and privately held management liability insureds expect as a result of the changes in the marketplace?

Our recommendation is to set expectations as follows:

·         There will be increases in retentions and premiums.

·         Smaller clients will need to absorb bigger percentage increases in premium and retention (as well as possible reductions in coverages), although in many situations the incumbent carrier will still be the best option if the increases are not outrageous.

·         A reasonable degree of competition and capacity will still be available for the larger management liability client. This may help mitigate increases in premium and retention.

·         Increases will be felt by insureds located in major cities (carriers generally still like risks in smaller cities and outside of states such as California, Florida, Illinois, New York and New Jersey).

·         Coverage for the defense of wage and hour claims will be more difficult to obtain and, when available, likely more expensive to purchase and with possibly lower limits or higher retentions.

·         Non-renewals by some carriers, based primarily on class of business or location. Some of these classes of business include:

o    Real estate

o    Healthcare

o    Restaurant/retail

o    Social media

o    Pharmaceuticals

o    Tech/start-ups

·         Carriers are asking for much more underwriting information than they have previously, especially if the insured has challenging financials, the insured is seeking additional funding or the insured has a challenging loss history.

Since 2010, Socius has been advising our clients that the MLI market appeared to be trending toward a hardening, following on the heels of numerous years of softness. As we get deeper into 2015, we continue to believe that this is the case.  The gradual transition that we initially described has, in fact, taken firm hold. We hesitate to pronounce the market as officially “hard” only because we hear rumblings that suggest that market conditions could very well deteriorate further, making what we consider hard today even harder.

For the moment, the watchword to agents and brokers is: “Manage expectations!  Difficult news is coming, so let clients know early – and often.”

Top 10 Mistakes to Avoid as a New Risk Manager

The transition into your first risk management job can be difficult. Whether your boss promotes you into your first risk management job or hires you from another organization, you want to excel at your new position over the long haul. In part, that means avoiding mistakes. We often learn our best lessons when we fail, but some mistakes can seriously hurt your risk management program, harm your reputation or even derail your career. Here are 10 mistakes you can avoid.

  1. Don’t rush in with all the answers. You may arrive wanting to form your own alliances and acquire your own team, but avoid making hasty decisions. Give current employees a chance to prove themselves before you transfer them or hire your own team. The same applies to vendor relationships. You can lose a great deal of knowledge about loss history and coverage negotiation if you immediately decide to switch insurance brokers. “Changing brokers can be a great way to create significant coverage gaps or an errors and omissions claim for your friend the new broker,” according to one Atlanta broker. Some vendor alliances, such as relationships with contractors and body shops, may be long-standing, especially in a small town. Rushing in and making changes can cause big ripples in a little pond.
  2. Don’t try to do everything at once. In my teens, I read a book called Ringolevio, about a kid named Emmett Groan growing up in the streets of New York City. One of his compatriots frequently warned Emmett when he was about to rush headlong into a decision, “Take it easy, greasy, you’ve got a long way to slide.” I found that advice very applicable in risk management. If you inherit a big job, you will be faced with hundreds of decisions, some big, some small. Take your time. While you may feel overwhelmed at first, chip away at the organization’s most pressing problems. Put out fires as they arise. Then schedule time for you and your advisers — your brokers, your attorneys, your actuaries and your managers – to develop sound strategies and plans.
  3. Don’t use a shotgun, use a rifle. If the organization is experiencing too many injuries, for example, don’t jump to an obvious solution like using more personal protective equipment. Talk with front-line supervisors, study historical loss data and consider several options before you throw money at a problem. Once in the door, interview employees, talk with other managers, meet with your vendors and set a few important priorities for your first six months in the job. Using a rifle approach means you’ll have to say “No” to some people. This can cause problems. When possible, explain why you’re declining to act on the problems or the specific issues others may present to you. The more transparently you operate, the less criticism you will face. Openness reduces speculation and helps avoid resentment.
  4. Don’t job hop. Most people can be very ambitious early in their careers. Yet too much ambition can hurt your career. Think long and hard before changing jobs. Bad bosses rarely outlast their employees. Deciding to change jobs because of a conflict with a supervisor is often short-sighted. The grass might seem greener on the other side, but sometimes that’s because of a septic tank (to paraphrase a famous comedian). These questions may help you avoid rash decisions.
    • Am I making the change solely to earn more money or for a more prestigious title? If so, will this change “pay for” what I will lose?
    • Am I making the change because I’m feeling unchallenged or bored? If so, what steps can I take to make my current job more challenging? For example, would becoming more active in a trade association, offering expertise to a local nonprofit or mentoring an up-and-coming risk management professional add challenge and interest?
    • How will this affect my retirement financially? Will I be changing retirement systems, or will I lose significant bonuses or vacation because of the change? Always factor those figures into the salary decision. This question becomes more important as retirement age nears.
    • How will this change affect my family and my coworkers? Our coworkers can turn even a challenging job into an appealing one. Do you really want to leave your coworkers? As for family, what ages are your children? Disrupting school-aged children can have negative, long-term consequences.
    • What are the odds I will regret this decision? Go ahead, we’re numbers people. Put a percentage to your decision, then ask yourself if you’re really ready to take that gamble.

    It takes months to settle into a new job. It’s often a year or more before we feel comfortable. Some studies show that many people who change jobs would have done much better if they had stayed put longer. Change for the sake of change frequently is not positive.

  5. Don’t entertain gossip about your predecessors. Some at your new organization may try to build an alliance with you at the expense of your predecessor. Short-circuit these conversations whenever possible. Tactfully turn the conversation to another subject or excuse yourself from the conversation. Try not to make an enemy of the person who is trying to get into your good graces.
  6. Don’t revisit your predecessor’s decisions. Especially when working with unions, you may find people lined up at your door asking you to revisit your predecessor’s judgments. Unless your predecessor’s conclusions hurt your overall program, don’t rush into undoing the decisions and the work he or she completed. You may not be operating under the same set of facts or with the same long-term vision that the former risk manager had at his or her disposal.
  7. Don’t believe your own PR. Never pretend you know more than you know, and don’t start believing your own “press.” While others may soon invite you to participate on panels and present at conferences, remain humble and teachable. It’s terribly painful to learn humility through humiliation.
  8. Don’t fail to communicate. A lack of communication is one of the most damaging mistakes a risk manager can make. A risk manager must have the ear of employees across the organization, from line supervisors to senior management. According to Don Donaldson, president of LA Group, a Texas-based risk management consulting group, “A risk manager needs to be an excellent communicator and facilitate his or her message across the entire organization. In my mind, that requires getting out of the office and pressing the flesh; seeing and being seen and listening, really listening, to determine what is going on in the organization.” Management by walking around is one strong tool in a new risk manager’s tool bag. Once people see that you’re willing to leave your office to discover what is happening, whether it’s on the shop floor or on the sewer line, they’ll more readily accept your expertise and counsel.
  9. Don’t get discouraged. “New risk managers may make the mistake of thinking that risk management is as important to others in the organization as it is to them,” according to Harriette J. Leibovitz, a senior insurance business analyst with Yodil. “It takes time, and more time for some than others, to figure out that you're more than an irritation to the folks who believe they drive all the revenue.” Over time, you will prove your value to the organization many times over. Until that day, quietly do your job and find encouragement from your risk management peers.
  10. Don’t forget to laugh. You will be privy to the peculiarities of human nature both at its finest and at its worst, so don’t forget to find the lighter side of situations when you can. A robust sense of humor will help you through the rough spots and build bonds with your coworkers.

While these are just a few tips to help you in your new role as a risk manager, your peers probably can offer many more ways to ensure success. Over my career in risk management, I have found my fellow risk management professionals to be some of the most generous people in my life, always willing to share their expertise and provide me with a helping hand. Develop and lean on your network. If this is your first job as a risk manager, you’re in for a wonderful experience. Take time along the way to enjoy the experiences, appreciate the great people you will meet and appreciate the lighter side of risk management.