Tag Archives: self-insured

6 Tips for Reference-Based Pricing

Reference-based pricing, also called metric-based pricing, is an alternative to the traditional PPO model that offers substantial cost saving and benefits for self-funded employers by leveraging fair and transparent practices.

If you aren’t familiar with reference-based pricing, it could seem disruptive to your operations to make a change. However, many self-funded employers are implementing this alternative and reaping the benefits.

How does reference-based pricing compare with the PPO employers are currently offering to their employees?

PPO: The most prevalent form of health insurance, where the annual cost for employers increases year-over-year and high deductibles are a challenge for patients.

Members use a network of hospitals and doctors under a discount to take advantage of pre-negotiated costs. Oftentimes, these discounts vary widely inside the network and result in fluctuating costs. An independent study conducted by Castlight Health, a San Francisco-based healthcare price transparency company, shows PPO allowable amounts for common procedures swing as much as 500% in some regions.

The variable discounts are calculated on variable billed charges from the hospitals’ chargemaster, prices that many times are inflated and fluctuate dramatically between hospitals for the same service. In one example, the California Public Employees’ Retirement System (CalPERS), which manages the largest public employee benefit fund in the U.S, found that facilities throughout the state charged vastly different rates — between $15,000 and $110,000 — for a hip or knee replacement.

Referenced-based pricing: A modern solution for self-funded employers to manage healthcare costs for their business and employees.

Under this model, reimbursements to providers are based on the actual cost to deliver service or Medicare reimbursements. This more level approach starts at the bottom and adds a fair profit margin. Working with a reputable solution provider, self-funded employers can save up to 30% in their first year after switching to reference-based pricing.

See also: Myths on Reference-Based Pricing  

It’s not uncommon for employers to question making the switch from a PPO to a reference-based model. Is it worthwhile to make a change? Will employees understand the change? Does it require a lot of work? Let’s explore six tips for a smooth transition to reference-based pricing without disruption.

1. Do a little homework: Start by finding an experienced provider

Employers should only work with partners that are trusted and experienced with providing successful reference-based pricing solutions.

Look for a provider that has more than five years of experience auditing claims in all 50 states, welcomes reference calls, shares case studies from successful partnerships and retains clients long-term.

2. Schedule face time: Vet your potential provider

Request to see a provider’s operations in person to assess if the provider is financially secure, is equipped with resources and demonstrates a commitment to the success of their clients.

Look for a partner that welcomes site visits and pay particular attention to the size of the customer service team.

3. Commitment counts: Co-fiduciaries are an important consideration

Your reference-based pricing solution provider should be a partner that is 100% invested in your success.

Look for a partner that is willing to sign on as a co-fiduciary because it may be asked to assist in managing the financial assets of your plan.

4. Knowledge is power: Employee education is paramount

When you make a change to a benefits package, clear communication is important to ensure employees understand the new plan.

Look for a partner that will educate, answer questions and serve as a continuing resource to your office for the duration of the partnership.

5. Relationships count: Employers and medical providers must work together

Reference-based pricing is not a one-size-fits-all solution.

Look for a partner that collaborates with health systems (especially solution providers with established partnerships), and demonstrates dedication toward fair provider reimbursement.

See also: Innovation: ‘Where Do We Start?’  

6. Measure the impact: Assess how your plan is working

The partnership doesn’t stop after a plan is in place!

Look for a partner that is results-driven and reports on your cost savings. A provider should also provide a dedicated support specialist and be a continuing, committed resource.

3rd Wave of P2P Insurance

The P2P insurance model promises to change the conflict dynamic between insured and the insurer. From Friendsurance to Guevara and the eagerly anticipated Lemonade, P2P insurance has already evolved two generations in six years. Now, we see the emergence of the next generation of P2P insurance; the self-governing model.

People-to-People Insurance

The jury may be out on the peer-to-peer insurance model, but that hasn’t stopped the steady stream of new entrants who believe in fundamentally changing the dynamic between insured and insurer.

Back in December, I wrote this article on P2P insurance and featured two very different InsurTech start-ups.

First, there was TongJuBao, a Chinese peer-to-peer insurer that provides social risk sharing insurance products. Recently, Tang Loaec, the founder/CEO sent me this announcement of a strategic partnership to distribute the company’s products through Huaxia Finance across Greater China.

See Also: Is P2P a Realistic Alternative?

The second was Guevara, the U.K. motor insurer that was first to take the P2P model beyond a pure distribution play. I must give credit to Paul Andersen, Guevara’s co-founder and CEO, for the term “people-to-people insurance,” which is way more appropriate than peer-to-peer.

Since that article, there has been a stream of announcements from the pseudo-stealth peer-to-peer insurer Lemonade.

First, the company caught everyone’s attention with a $13 million seed round (which is significantly higher than usually associated with a pre-revenue, no-customer first raise.)

Then, the company announced a list of high profile reinsurers lined up to back the business when it launches later this year. The latest news is the announcement that the company had hired a chief behavioral officer in guru Dan Ariely.

There’s much speculation about what they’re going to do when they go live, but we’ll just have to wait and see on this one.

In the meantime, I’ve been drawn to a new wave of P2P insurers. Some on the blockchain, some using Bitcoin and all based on a self-governing, peer-to-peer network model.

The Next Wave of Peer-to-Peer Insurance is “Self-Governing”

The first wave is based on a distribution model where “friends and family” risk pools self-insured each other’s deductibles to lower premiums.

Then we saw the carrier model, wave 2. Here, the pools are the primary bearers of risk, and they share in any retained premiums not paid out in claims.

Wave 3 is the self-governing model, A back-to-the-future model that takes us further toward a mutual insurance than we’ve seen to-date.

To find out more, I Skyped with Alex Paperno, the co-founder of Teambrella, the Russian InsurTech that uses Bitcoin to hold client money.

This article appeared in The Digital Insurer.

Do Healthcare Costs Shift to Work Comp?

A new study―Do Higher Fee Schedules Increase the Number of Workers’ Compensation Cases?―from the Workers Compensation Research Institute (WCRI) explores to what extent workers’ compensation reimbursement rates influence the decision by the medical provider on whether to classify an injury as work-related.

According to previously published WCRI research, in many states, workers’ compensation pays higher prices for treatment than group health does. For example, one study found that workers’ compensation prices were two to four times higher than group health prices in some states. And, in most states, workers’ compensation systems rely heavily on the treating physician to determine whether a patient’s injury is work-related.

”Physicians may call an injury work-related in order to receive a higher reimbursement for care he or she provides to the patient,” said Dr. Olesya Fomenko, the author of the report and an economist at WCRI.

See Also: Are Your Health Cost Savings an Illusion?

The study found, among other things:

  • If the cause of injury is not straightforward (e.g., soft tissue conditions), case-shifting is more common in the states with higher workers’ compensation reimbursement rates. In particular, the study estimated that a 20% increase in workers’ compensation payments for physician services provided during an office visit increases the number of soft tissue injuries being called work-related by 6%.
  • There was no evidence of case-shifting from group health to workers’ compensation for patients with conditions for which causation is more certain (e.g., fractures, lacerations, and contusions).

This analysis relies principally on workers’ compensation and group health medical data coming from a large commercial database. This database is based on a large national sample of patients where the data were provided by health insurers and self-insured employers. It includes individuals employed by mostly large employers and insured or administered by one of approximately 100 group health plans. The database is unique in that, for a given employee, it shows whether a given medical encounter (visit) was paid for by group health or workers’ compensation.

For more information about this study, visit here.

excess

The State of Workers’ Comp in 2016

Over the last two years, employers and groups that self-insure their workers’ compensation exposures have enjoyed reasonably favorable terms on their excess insurance policies. Both premiums and self-insured retentions (SIRs) have remained relatively stable since 2014. This trend is likely to continue through 2016, but the long-term outlook for this line of coverage is less promising. Changing loss trends, stagnant interest rates, deteriorating reinsurance results and challenging regulatory issues are likely to have a negative impact on excess workers’ compensation insurance in the near future.

Predictions for 2016

Little direct information is available on the excess workers’ compensation marketplace even though written premiums well exceed $1 billion nationwide. Accurately forecasting changes in the marketplace is largely a function of the prevalent conditions of the workers’ compensation, reinsurance and financial marketplaces. But, based on available information, premium rates, retentions and policy limits should remain relatively flat on excess workers’ compensation policies for the balance of the 2016 calendar year. This projected stability is because of four main factors: positive results in the workers’ compensation industry over the last two years, availability of favorable terms in the reinsurance marketplace, an increase in the interest rate by the Federal Reserve at the end of 2015 and continued investment in value-added cost-containment services by excess carriers.

For calendar year 2014, the National Council on Compensation Insurance (NCCI) reported a 98% combined ratio for the workers’ compensation industry nationwide. In 2015, the combined ratio is projected to have improved slightly to 96%. This equates to a 2% underwriting profit for 2014 and a projected 4% underwriting profit for 2015. This is the first time since 2006 that the industry has posted positive results. The results were further bolstered by a downward trend in lost-time claims across the country and improved investment returns.

Reinsurance costs and availability play a significant role in the overall cost of excess workers’ compensation coverage. On an individual policy, reinsurance can make up 25% or more of the total cost. Excess workers’ compensation carriers, like most insurance carriers, purchase reinsurance coverages to spread risk and minimize volatility generated by catastrophic claims and adverse loss development. Reinsurers have benefited from underwriting gains and improved investment returns over the last three years. These results have helped to stabilize their costs and terms, which have directly benefited the excess workers’ compensation carriers and, ultimately, the policyholders that purchase excess coverage.

According to NCCI, the workers’ compensation industry has only posted underwriting profits in four of the last 25 years. This includes the two most recent calendar years. To generate an ultimate net profit and for the industry to remain viable on a long-term basis, workers’ compensation carriers rely heavily on investment income to offset the losses in most policy years. For the first time since 2006, the Federal Reserve increased target fund rates at the end of 2015. Although the increase was marginal, it has a measurable impact on the long-term investment portfolios held by workers’ compensation and excess workers’ compensation carriers. Workers’ compensation has a very long lag between the time a claim occurs and the date it is ultimately closed. This lag time is known as a “tail.” The tail on an excess workers’ compensation policy year can be 15, 20 and even as much as 30 years. An additional 0.25% investment return on funds held in reserve over a 20-plus-year period can translate into significant additional revenue for a carrier.

Excess workers’ compensation carriers have moved away from the traditional model of providing only commodity-based insurance coverage over the last 10 years. Most have instead developed various value-added cost-containment services that are provided within the cost of the excess policies they issue. Initially, these services were used to differentiate individual carriers from their competitors but have since evolved to have a meaningful impact on the cost of claims for both the policyholder and the carrier. These services include safety and loss control consultation to prevent claims from occurring, predictive analytics to help identify problematic claims for early intervention and benchmarking tools that help employers target specific areas for improvement. These value-added services not only reduce the frequency and severity of the claims experience for the policyholder, but excess carriers, as well.

Long Term Challenges

The results over the last two years have been relatively favorable for the workers’ compensation industry, but there are a number of long-term challenges and issues. These factors will likely lead to increasing premiums or increases in the self-insured retentions (SIRs) available under excess workers’ compensation policies.

Loss Trends: Workers’ compensation claims frequency, especially lost-time frequency, has steadily declined on a national level over the last 10 years, but the average cost of lost-time claims is increasing. These two diverging trends could ultimately result in a general increase in lost-time (indemnity) costs. Further, advances in medical technology, treatments and medications (especially opioids) are pushing the medical cost component of workers’ compensation claims higher, and, on average, medical costs make up 60% to 70% of most workers’ compensation claims.

Interest Rates: While the Federal Reserve did increase interest rates by 0.25 percentage point in late December, many financial analysts say that further increases are unlikely in the foreseeable future. Ten- year T-bill rates have been steadily declining over the last 25 years, and the current 10-year Treasury rate remains at a historically low level. A lack of meaningful returns on long-term investments will necessitate future premium increases, likely coupled with increases in policy retentions to offset increasing losses in future years.

Reinsurance: According to a recent study published by Ernst & Young, the property/casualty reinsurance marketplace has enjoyed three consecutive years of positive underwriting results, but each successive year since 2013 has produced a smaller underwriting profit than the last. In 2013, reinsurers generated a 3% underwriting profit followed by a 2% profit in 2014 and finally an underwriting profit of less than 1% in 2015. Like most insurance carriers, reinsurers utilize investment income to offset underwriting losses. As the long-term outlook for investments languishes, reinsurance carriers are likely to move their premiums and retentions upward to generate additional revenue, thus increasing the cost of underlying policies, including excess insurance.

Regulatory Matters: Workers’ compensation rules and regulations are fairly well-established in most states, but a number of recent developments at the federal and state levels may hurt workers’ compensation programs nationwide. The federal government continues to seek cost-shifting options under the Affordable Care Act (ACA) to state workers’ compensation programs. Later this year, state Medicaid programs will be permitted to recover entire liability settlements from state workers’ compensation plans – as opposed to just the amount related to the medical portion of the settlement. At the state level, there are an increasing number of challenges to the “exclusive remedy” provision of most workers’ compensation systems. Florida’s Supreme Court is currently deliberating such a challenge. Should the court rule in favor of the plaintiffs, Florida employers could be exposed to increased litigation from injured workers. A ruling against exclusive remedy could possibly set precedent for plaintiff attorneys to bring similar litigation in other states. Lastly, allowing injured workers to seek remedies outside of the workers’ compensation system would strip carriers and employers of many cost-containment options.

How Bureaucracy Drives WC Costs

Workers’ compensation is one of the most highly regulated lines of insurance. Every form filed and every payment transaction is an opportunity for a penalty. Claims can stay open for 30 years or longer, leading to thousands of transactions on a single claim. Each state presents different sets of compliance rules for payers to follow. This bureaucracy is adding significant cost to the workers’ compensation system, but is it improving the delivery of benefits to injured workers?

Lack of Uniformity

Workers’ compensation is regulated at the state level, which means every state has its own set of laws and rules governing the delivery of indemnity and medical benefits to injured workers. This state-by-state variation also exists in the behind-the-scenes reporting of data. Most states now require some level of electronic data interchange (EDI) from the payers (carriers or self-insured employers). There is no common template between the states; therefore carriers must set up separate data feeds for each state. This is made even more complex when you factor in the multiple sources from which payers must gather this data for their EDI reporting. Data sources include employers, bill review and utilization review vendors. The data from all these vendors must be combined into a single data feed to the states. If states change the data reporting fields, each of the vendors in the chain must also make changes to their feeds.

Variation also exists in the forms that must be filed and notices that must be posted in the workplaces. This means that payers must constantly monitor and update the various state requirements to ensure they stay in full compliance with the regulations.

Unnecessary Burden

Much of the workers’ compensation compliance efforts focus on the collection of data, which is ultimately transmitted to the states. The states want this information to monitor the system and ensure it is operating correctly, but is all this data necessary? Some states provide significant analytical reports on their workers’ compensation systems, but many do little with the data that they collect. In a world concerned about cyber risk, collecting and transmitting claims data creates a significant risk of a breach. If the data is not being used by the states, the risk associated with collecting and transmitting it seems unnecessary.

Another complication is that there are multiple regulators involved in the system for oversight in each jurisdiction. Too often, this means payers have to provide the same information to multiple parties because information sent to the state Department of Insurance is not shared with the state Division of Workers’ Compensation and vice versa.

Some regulation is also outdated based on current technology. Certain states require the physical claims files to be handled within that state. However, with many payers now going paperless, there are no physical claims files to provide. Other states require checks to be issued from a bank within those states. Electronic banking makes this requirement obsolete.

How Is This Driving Costs?

All payers have a significant amount of staffing and other resources devoted to compliance efforts. From designing systems to gathering and entering data, this is a very labor-intensive process. There have not been any studies on the actual costs to the system from these compliance efforts, but they easily equate to millions of dollars each year.

States also impose penalties for a variety of things, including late filing of forms and late and improper payment of benefits. The EDI process makes it possible for these penalties to be automated, but that issue raises the question of the purpose of the penalties altogether. These penalties are issued on a strict liability basis. In other words, either the form was filed in a timely manner or it was not. A payer could be 99% compliant on one million records, but they would be automatically penalized for the 1% of records that were incorrect. In this scenario, are the penalties encouraging compliance, or are they simply a source of revenue for the state? A fairer system would acknowledge where compliance efforts are being made. Rather than penalize every payer for every error, use the penalties for those that fall below certain compliance thresholds (say, 80% or 90% compliance).

The laws themselves can be vague and open to interpretation, which leads to unnecessary litigation expenses. Terms such as “reasonable” and “usual and customary” are intentionally vague, and often states will not provide further definition of these terms.

How Can We Improve?

One of the goals of workers’ compensation regulations is to ensure that injured workers are paid benefits in a timely manner at the correct rate and that they have access to appropriate medical treatment. There was a time when payers had offices located in most states, with adjusters handling only that state. Now, with most payers utilizing multi-state adjusters, payers must be constantly training and educating their adjusters to ensure that they understand all of the nuisances of the different states that they handle.

The ability to give input to regulators is also invaluable, and payers should seek opportunities to engage with organizations to create positive change. Groups such as the International Association of Industrial Accident Boards and Commissions (IAIABC) and the Southern Association of Workers’ Compensation Administrators (SAWCA) provide the opportunity for workers’ compensation stakeholders to interact with regulators on important issues and also provides the opportunity to seek uniformity where it makes sense (EDI, for example).

There needs to be better transparency and communication between all parties in the rule-making process so that regulators have a better understanding of the impact these rules have on payers and the effort required to achieve compliance.

Developing standards in technology would be helpful for both the payers and the states. If your systems cannot effectively communicate with the other systems, you cannot be efficient. Upgrading technology across the industry, particularly on the regulatory side, has to become a priority.

Finally, we need to give any statutory reforms time to make an impact before changing them again because the constant change adds to confusion and drives costs. In the last 10 years, there have been more than 9,000 bills introduced in various jurisdictions related to workers’ compensation. Of those, about 1,000 have actually been turned into law. People expect that these reforms will produce the desired results immediately, when in reality these things often take time to reach their full impact.

These issues were discussed in depth during an “Out Front Ideas With Kimberly and Mark” webinar on Feb. 9, 2016. View the archived webinar at http://www.outfrontideas.com/archives/.