Tag Archives: risk mitigation

The Supposed Health Insurer Bailout!

As a professional who spends his entire career on healthcare issues, I get very annoyed when I read articles that put an extremely biased and misleading spin on the emerging healthcare reform activities known as ACA or Obamacare.  Whether one is for or against ACA, it is good to have accurate reporting regarding it to help refine one’s thinking and personal preferences.  Sensational articles add little value and create unnecessary confusion in the marketplace. 

An excellent article written by former associate Bob Laszewski in his Jan. 6, 2014, blog titled “Will There Be an Obamacare Death Spiral in 2015? No” was recently taken completely out of context by the Weekly Standard in a second article released in their blog Jan. 13, 2014, (i.e., “Bailing Out Health Insurers and Helping Obamacare”).  It’s a big disappointment to see this type of questionable journalism.

As part of the transitional plan to implement ACA, carefully crafted, but not perfect, risk-mitigation programs designed to both protect and fairly allocate revenue among the participating health plans were embedded in ACA.  These alliterative risk-mitigation provisions have been called “the 3 R’s.”  They are:

  • Risk Adjustor – sharing of revenue between plans to be sure revenue reasonably matches the spread of risk among the plans.
  • Reinsurance – special protection for plans hit with a higher-than-expected number of catastrophic claims.
  • Risk Corridors – risk-sharing program that reduces excessive profits on some plans and uses that to fund higher-than-expected losses on other plans.

The first one is a program that will continue long into the future.  The latter two are transitional. They will end after three years, when the program is designed to be stabilized.

Because of the high level of uncertainty and risk associated with ACA, the federal government wisely incorporated risk-mitigation programs.  All are designed to minimize material financial obstacles for volunteer participant carriers to be part of ACA.  Without the 3 R’s, it is very likely the number of participating plans/carriers would have been much smaller.  One of the keys to long-term ACA success is high participation by the public and the maintenance of a reasonable competitive market for the public to choose from.  We have yet to see the results of these programs, but they are there to be sure we have a viable marketplace.  This is definitely not a bailout for health plans. Rather this is a carefully crafted plan to mitigate unfortunate implementation risks in an uncertain environment.

Now for a discussion of the controversial blog:

The initial blog did not suggest, despite the accusation in the second article, that Obamacare is almost certain to cause insurance costs to skyrocket.  The blog accurately discussed the risk corridor program and how this mitigates risk in the initial years.

The second article expressed shock “that it will also subsidize those same insurers’ losses.”  ACA, by design, utilizes private insurance companies and health plans to underwrite insurance coverage offered through ACA and the exchanges.  The uncertainty about who will sign up, their health status, the propensity to use healthcare services, etc. makes it nearly impossible for a carrier to predict what it should charge.  ACA has created a logical marketplace with standardized benefits (i.e., Essential Health Benefits) and consistent plan designs (i.e., the metallic plans–Bronze, Silver, Gold and Platinum).  Even with these features, ACA creates uncertainty, and stable premium pricing is required to have a viable and competitive marketplace.  The likelihood of premium rate stability is enhanced if over a transitional period the “big worries” are mitigated.  These include:

  • Selection bias among various carriers.
  • Some assurance that people will sign up.
  • Significant shock losses centralized in a single carrier.
  • Surprising cost of health care for this population.

The long-term risk adjustment process solves the first issue.  The individual and employer mandates help resolve the second.  The transitional reinsurance program and transitional risk corridor protection resolve the third.  The last concern is subject to a two-way risk sharing.  Those carriers that “guessed” too high and overcharged will give up some of their revenue.  Those carriers that “guessed” too low are protected.  This is not a bailout; this is an equitable risk protection to ensure an orderly implementation of ACA.

The second article goes on to say that taxpayers subsidize big companies’ business expenses.  This, again, does not specifically address the real issue.  The transitional reinsurance program provides catastrophic reinsurance protection for all health plans in the exchange marketplace (i.e., initially claims in excess of $60,000 up to $250,000) primarily funded by a $5.25 per month per person charge for all health plans whether or not they are in the exchange marketplace.  Because those in the exchange are receiving a reinsurance benefit, I am not sure this is subsidizing anything.  For those out of the exchange, they are paying a fee and not receiving any benefit.  This could be considered a tax to those carriers.  Most, if not all, carriers are building this fee into their cost structure, so it is being passed on to the public.  However, the government has already proposed an increased reinsurance benefit and is already talking about reducing the premium.

The second article continues: “Insurers don’t have to pay out all of their costs,” suggesting that the risk corridor program is a bailout.  No, this isn’t a bailout. It is a temporary protection to help smooth out the premium rates.  Those carriers overcharging will get less money and those undercharging will receive some subsidy until the cost structures stabilize.  This is a short-term program providing assistance to the carriers as they calibrate costs under ACA.  This is not a bailout.  This is a two-way risk protection mechanism.  It does rely on a balanced marketplace.  To the extent the ACA rollout is flawed and carriers are all on the unfavorable side of the risk curve, the government will have to provide assistance, but the intent of the program is to be balanced.

In summary, we need more accurate reporting of the actual situation.  There are some concerns about the implementation of ACA, and they are real; they aren’t fabricated.  Fortunately, the 3 R’s are going to help mitigate some of these issues.  Without the 3 R’s there would be more serious issues than there will be with them.  If the program failed, if no carriers participated, if no one signed up, there would likely be a major government takeover.  That would be a serious issue with a federalization of the health insurance marketplace.  That did not happen and will likely not happen. 

Perhaps reflection as to why ACA emerged might be helpful.  Health costs and healthcare premiums were escalating far faster than we can afford.  They continue to increase much faster than the rest of the economy, which cannot continue without some type of intervention.  One hopes that ACA will be able to help resolve some of the concerns and issues.  Without some long-term improvement in the economics of healthcare we, as individuals and a nation, are faced with exceptional long-term economic challenges. 

Maybe we should be talking about this!

Copper Theft Solution Reduces Claims For Construction Sites

Copper theft presents a significant challenge for loss control.

Unlike other property crimes where “recovery” goes a long way toward mitigating the loss, such as the recovery of a stolen car in an auto theft, the recovery of the stolen copper seldom impacts the size of the claim.

Copper theft is different because the damage done to a building stealing a few hundred dollars' worth of copper can cost insurers tens of thousands of dollars to repair. The typical copper theft claim involves the damage done ripping wires and plumbing out of walls or the coils from a rooftop HVAC system. In vacant buildings, thieves target water lines and sprinkler systems as well as the electrical wiring. Once a vacant property has been hit, thousands of dollars must be spent to bring it back up to code before it can be occupied. It is this “collateral damage” that makes copper theft claims so expensive to an insurance company.

The key to reducing copper theft claims is prompt police response. The faster law enforcement arrives, the less time thieves have to damage the property. Faster police response is what wireless video alarms deliver and why they are a valuable tool for loss control against copper theft.

Copper theft has impacted insurance companies across North America, becoming a mainstream problem covered by television news. The following reports from television news underscore much of what this article is attempting to communicate — a new paradigm to mitigate risk and reduce claims impacting the real world from Virginia to Arizona.

Construction crime is a close cousin to copper theft and has been a black hole for risk management with few affordable solutions. The nature of construction risk is temporary and this means that wired surveillance cameras and alarm systems are simply too expensive and cumbersome to install to make them cost-effective.

The technology challenges are significant: in addition to limited budgets there is often no power, no phone lines, and no easy access to internet. Policy holders do not want to spend large amounts of money for temporary infrastructure that has no value after the job is done. For construction, human guarding is the most obvious approach, but it is beyond the budgets of many job sites. With guarding cost prohibitive, from a loss control perspective there have been very few affordable options for mainstream policy holders to protect their projects. Construction remains a problem child for many insurers who are forced to raise deductibles and implement exclusions to make construction profitable.

The following newscast from Buffalo, New York describes the challenges of securing a construction site and successes found with wireless video alarm systems.

While human guards have become too expensive and unreliable for many sites, technology is improving and loss control has a new tool to secure construction sites. Portable wireless video alarms give loss control professionals an affordable tool to deliver police response to a job site before the damage occurs. These new wireless camera/detectors (called MotionViewers) sense an intruder and send a short video clip of the incident over the cell network to a central monitoring station for immediate review and police dispatch and priority police response.

The immediate review/response with a monitored video alarm has proven more effective than human guards as the sensor/cameras are installed in multiple points across the job site to detect and report any activity. The crucial factor in reducing claims for copper theft is immediate police response, and video verified alarms make all the difference — the monitoring central station operator is a virtual eyewitness to the crime.

Police treat a video verified alarm as a crime-in-progress — they respond faster and they make arrests. Case studies on video verified alarms have arrest rates of over 50%. One construction site in Arizona had 40 arrests over four months on a single site. Arrests make a difference because one arrest prevents an additional 30 crimes — copper theft is typically done by habitual thieves who target construction sites or vacant property.

To be affordable and effective, the camera/sensors must be easy to install, without the cost of trenching cables and running wires. Power is a challenge as many construction sites have only temporary power provided by generators during working hours. Many vacant building have no power at all.

The wireless Videofied alarm systems need no infrastructure to secure a site. They operate for months or even years on batteries, communicating over the cell network to the central station. These portable MotionViewers are more effective than fixed cameras because they can be moved to protect the assets on a job site as the project evolves. Portability is important because construction theft is often an inside job by a subcontractor familiar with the delivery and location of expensive materials or assets — and they know the locations of fixed cameras and how to avoid them. In contrast, magnetic mounts on the wireless MotionViewers enable the job supervisor to move the cameras, placing them on steel studs and tool cribs at the end of the day to protect what is most at risk.

Wireless video verified alarms for outdoor applications mean that loss control professionals have an effective tool to fight copper theft that is affordable enough for implementation by their policy holders. For more information visit www.videofied.com.