November 10, 2015
What Is the Business of Workers’ Comp?
Most workers' comp executives think they're in the insurance business, but they are not. History shows the perils of that misunderstanding.
At the risk of alienating most people within the workers’ comp world, here’s how things look from my desk:
Most workers’ comp executives – C-suite residents included – do not understand the business they are in. They think they are in the insurance business – and they are not. They are in the medical and disability management business, with medical listed first in order of priority.
That statement is bound to lead more than a few readers to conclude I’m the one who doesn’t know what I’m doing. For those willing to hear me out, press on – for the rest, see you in bankruptcy court.
Twenty-five years ago, the health insurance business was dominated by indemnity insurers and Blues plans; big insurers like Aetna, Travelers, Great West Life, Met Life and Connecticut General and smaller ones including Liberty Life, Home Life, Jefferson Pilot, Time and UnionMutual. Where are those indemnity insurers today?
With the exception of Aetna, none is in the business; the only reason Aetna survived is it took over USHealthcare, or, more accurately, USHealthcare took over Aetna. The Blues that became HMO-driven flourished, as did the then-tiny HMOs – Kaiser, UnitedHealthcare, Coventry. Why were these provider-centric models successful while the insurers were not? Simple: The health plans understood they were in the business of providing affordable medical care to members, while insurers thought they were in the business of protecting insureds from the financial consequences of ill health.
The parallels between the old indemnity insurers and most of today’s workers’ comp insurers are frightening. Senior management misunderstands their core deliverable; they think it is providing financial protection from industrial accidents, when in reality it is preventing losses and delivering quality medical care designed to return injured workers to maximum function.
That lack of understanding is no surprise, as most of the senior folks in top positions grew up in an industry where medical was a small piece of the claims dollar. Medical costs were considered a line item on a claim file or number on a loss run, and not “manageable” – not driven by process, outcomes, quality.
Think I’m wrong?
Then why is the industry focused almost entirely on buying medical care through huge discount-based networks populated by every doc capable of fogging a mirror (and some who can’t)? Even with those huge networks, why is network penetration barely above 60% nationally? Why has adoption of outcome-based networks been a dismal failure? Why do so few workers’ comp payers employ expert medical directors, and, among those who do, why don’t those payers give those medical directors real authority? Why do non-medical people approve drugs, hospitalizations, surgeries, often overriding medical experts who know more and better?
Because senior management does not understand that success in their business is based on delivering high-quality medical care to injured workers.
At some point, some smart investor is going to figure this out, buy a book of business and a great third-party administrator (TPA) for several hundred million dollars, install management who understand this business is medically driven and proceed to make a very healthy profit. Alas, the current execs who don’t get it will be retired long before their companies crater, leaving their mess behind for someone else to clean up.