Lt. Col. Rusteberg, May 1944, London

West Point 1934

Two Silver Stars, One Bronze Star, Presidential Unit Citation (Battle of Hatten), Purple Heart. American hero.

The McAllen Independent School District recently switched insurance consultants after a lengthy seven month Request for Qualifications process. The Board initiall decided to terminate their contract with a McAllen based consultant in favor of a San Antonio based consulting firm. But, that decision was subsequently overruled and instead a Houston firm was appointed the Consultant of Record.

Within three weeks of hire, the new consulting firm put the district out to bid for their self-funded health plan, giving vendors three weeks in which to respond.

A seasoned investigative reporter, Molly Mulebrier, predicts that the McAllen ISD will change insurance vendors. HealthSmart, the current third party administrator/PPO network provider, is in jeopardy of losing the business. This comes following the loss of Brownsville ISD, Los Fresnos ISD, San Benito ISD, PSJA ISD and Edcouch Elsa ISD.

When asked who the victor will be in this bid process, Mulebrier said that Blue Cross Blue Shield is the horse to bet on this time. Local politics will play a heavy role, with area medical providers vying for advantage.

Alonzo Cantu will be the king maker, predicts Mulebrier.

With superior market share in Hidalgo County, Blue Cross has the political advantage. HEB will also make a strong run as PBM and will be very competitive.

Molly Mulbrie’s predicions: Blue Cross for health, HEB for PBM, Highmark for stop loss.

Elrods Supermarket in Texas touts their Cost Plus 12% pricing model – in fact they call their chain of stores Elrods Cost Plus 12.

We think Elrod is on to something here.

From: Brian Klepper [mailto:bklepper@gmail.com]
Sent: Monday, May 17, 2010 2:56 PM
To: Brian Klepper
Subject: WeCare’s Tom’s River, NJ Clinic: First 3 Months’ Performance

 On Friday, I reviewed initial (i.e., first three months) claims data from Integrity Health’s and WeCare’s Partnership Health Care for the School District in Tom’s River, NJ. Here are some general observations.

 I compared total paid claims for November-Jan 2008-09 and 2009-10. I excluded claims greater than $10,000, because it is unlikely that the clinic had any impact on these shock losses, especially during its first three months of operations. Nor does this part of the analysis consider drug costs. I am still working on those.

 In November-January 2008-09, total claims <$10,000 for an average of 2,195 employees (or 5,648 covered lives) equaled $5.116 million, or $2,330.60 per employee ($9,322.38 per employee per year (PEPY)). Factor in a 6% health care inflation rate for 2009 (per the KFF/HRET Survey of Employer Health Benefits, 9/2009), and we would expect the present value of the 2008-09 PEPY cost to rise to $9,881.72.

 In November-January 2009-10, total claims <$10,000 for an average of 2,223 employees (or 5,720 covered lives) equaled $4.404 million, or $1,981.17 per employee ($7,924.70 PEPY).

 In other words, the annualized average cost per employee, not including drugs, has dropped by $1,957 or 19.8%. At the current number of employees, this impact can reasonably be expected to translate into annualized savings of $4.35 million.

 In the first 3 months of clinic operations, the PEPM operational cost + management fee averaged $69.24, or, annualized, about $1.85 million. This projects an estimated first year net savings of $2.5 million ($1,125/employee) due to the clinic. It also projects a return on investment of 2.35:1, not including Rx impact.

 We’ll do more targeted analysis to determine which cost areas were impacted most, but this overview provides the most salient information for clinic prospects, which is significant bottom line savings.

 Brian

 Brian Klepper, PhD

904.343.2921, bklepper@gmail.com

www.brianklepper.info

 Recent Columns

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EHRs for a Small Planet

Mid-2010 TPA Industry Forecast By SPBA President Fred Hunt

MyHealthGuide Source: Fred Hunt, President, Society of Professional Benefit Administrators (SPBA), 5/21/2010, www.SPBATPA.org
 
Background

I have been giving these industry and market report/forecasts for 30 years. Most have predicted things that seemed unbelievable at the time. However, the accuracy rate of coming true has been over 90%. This is being written when the shock of the Obama health reform bill has not worn off, and we are only at the start of about a dozen more years of regulatory decisions and implementation. However, that uncertainty does not impact my forecasts here.

Time of Change

This is a time of change for TPA firms and for the whole process of health employee benefits. However, our business has always been in evolution. For example, when I wrote the first of these SPBA reports in 1980, the TPA market was 99% defined-benefit pension plans for Taft-Hartley collective bargaining plans. Soon, the unionized percentage of the US workforce dropped in half, and government policies inadvertently (but not without warning from those of us in the pension community) cut defined-benefit pension plans to a sliver of the market. So, doomsayers of today should recognize that conventional wisdom over the years has forecast SPBA and TPAs’ demise a dozen times. So, just like a TPA of 1980 would be amazed at the range of services, and types of plans and clients of TPAs of today, TPAs in just a coupe of years will have many new roles and services.

Upbeat

I am very upbeat about the prospects for our industry and our Stop-Loss Service Partners. It sounds corny, but Franklin Roosevelt described our current situation best, “We have nothing to fear but fear itself.” Even if the worst-case scenarios of a government takeover and universal coverage comes, TPAs will be busy, because the whole environment of health and employer needs and priorities will change.

Worst Case Scenario

For the sake of example, let me explore the worst-case scenario with you. Fourteen major countries have sent official government delegations to meet with SPBA to learn more about the US health coverage and employee benefits system and self-funding. Each of these countries has a government universal coverage system, and each one has candidly confessed that their government systems are not sustainable. They say, “We need to be more like you.” Also, SPBA has good relations with the TPA Association of Canada. Most US TPAs wondered how TPAs could exist in the government-run Canadian health system, and what was left to do. The Canadian TPAs spoke at SPBA meetings and explained that they have a very active market and services to sell. Meanwhile, I started hearing a year ago that several health insurance companies were looking around the world for possible new markets in case the US private health insurance market disappeared or became unprofitable. The insurers found that markets in several countries in Asia and Europe (with universal coverage) were eager for private health coverage options.

So, the moral of this story is that we see proof today that even in the worst-case scenario of total government universal coverage, there is an active role for TPAs, and

Major Changes

1. Within 5 years, there will be a major shift on the health scene:  Doctor Shortage. Today, the concern has been people who do not have health coverage. However, we are on the verge of a major doctor shortage due to retirements, exasperation, and fewer new doctors. This also coincides with the start of the baby-boom moving onto the unprofitable (for health providers) Medicare rolls, and millions more people added to the unprofitable Medicaid rolls caused by Obama health reform. So, Americans will soon have that helpless feeling like when you have an airline ticket (health coverage), but most of the flights (doctors) have been cancelled or are fully-booked. Also, new bureaucracies, rules, oversight, “efficiencies” and cost-cutting will cause longer and longer delays to get medical care. Among doctors who remain, more and more and clinics will become “boutique” (many terms are used) practices that do not participate in government programs and do not accept insurance assignment. This new scenario of doctor shortage is already starting, so you need to include it in your strategic thinking.
2. Health reform and increasing government nit-picking will probably make the US health fully-insured market unprofitable for insurers. I predict that they will (at the urging of their investors and stockholders) step away from the US fully-insured marketplace, and replace their US market with the new markets they researched last year in Asia and Europe (described above). This does not mean that insurance companies will disappear from the US scene. The majority of their business is already a form of self-funded, so I predict that the insurers will either re-label themselves as TPAs (just as many suddenly relabeled themselves “managed care” companies several years ago)and/or they will enhance their already-large collection of TPA firms. The ill-will from government and media has been so intense that insurers, could, quite understandably, not want to be visible players under their insurer name, because governments will tend to impose “insurer” requirements on any entity using an insurance company name.

Employer Reaction

Will employers gladly throw off the burden of offering health coverage for their workers?? No. There has been bravado huffing and puffing about doing so for 35 years (since ERISA was being passed and considered the death knell to employee benefits because of the new strict employer fiduciary responsibility, and later because of COBRA and constant new mandates). However, the real issue is that important employers need employee benefits to recruit and retain top-notch workersand the side effects of Obama health reform and the change in the doctor/health market will make health-related programs and services even more important for the smooth functioning of the employer. So, employers who back away from health-related benefits are being self-destructive.

What do I mean by the impact on the smooth functioning of the employer?

Today, if a worker has an ailment or hurts himself, he can probably see a doctor in a day or two, get a treatment, and be back on the job quickly. However, what if it takes a couple of weeks for the first appointment, and then another couple of weeks for each specialist just in order to get a diagnosis?

I have a friend in Canada who has a key skill at his job. It has taken about 18 months off work to get the tests and diagnosis that would take a week or two here. Receiving actual treatment has also been progressing at that slow rate. The off-work time has been devastating to the employee’s income, and thus a drag on morale at the company, and his long off-work time has severely hampered the work of the employer. So, the shortage of doctors and delays will mean that the new priority of employers will be to have whatever programs help keep workers on the job. These new priority services will range from having their own or a parallel health coverage plan for their workers, to the whole very wide range of wellness and health promotion programs and services, to perhaps private clinics. Employers will realize that personnel will need the kind of prompt careful maintenance and repair that precision machines need to keep them working. TPAs are perfectly positioned to implement and administer the kind of highly-personalized types of services each employer will want and need for its workforce.

TPAs Control Their Future

A consistent and proven message in my report/forecasts in recent years is that TPAs control their own fate and future profitability. The TPAs who remain in a 1990s mindset and services mode will just bump along, and be vulnerable to fading away at any time. Also, TPAs who do not proactively get up to speed and offer the new types of services to their clients are going to find those clients wooed away by insurers (90% of whom report that they are already creating these new services), or lured by other TPAs, or by the hundreds of new consulting and compliance firms and services that will pop up to try to dazzle your clients with their health reform compliance solutions. Note: The consulting and one-service firms don’t offer the ongoing comprehensive services SPBA TPAs provideand the new reporting and complexity and delicate data-collection means an employer is taking a risk to split up his sources of services because things can fall through the cracks.

What Now (Mid-2010)?

We often hear that employers are not interested in proposals from TPAs to become the new claims processor. However, instead, if you have the new services to help in the changed environment and serve the new needs and priorities and to streamline and secure the onerous new data collection and paperwork, you will have an attentive ear, because that is a current and evolving need employers and plans have.

Top

MyHealthGuide Source: Todd Leeuwenburgh, Editor, The Guide to Self-Insuring Health Benefits newsletter, Employer Health Benefits, Thompson Publishing Group, 5/20/2010, www.Thompson.com

Employers have a set of immediate action items to comply with newly promulgated federal health reform laws. How employers implement those changes will determine whether health coverage costs remain steady after health reform exigencies are met.

The Patient Protection and Affordable Care Act (Pub L. 111-148) and the Health Care and Education Reconciliation Act (Pub. L. 111-152) contain health insurance changes that very likely will increase the cost of providing health coverage. However, some of these increases can be tempered by changes in plan design and other measures, he notes. Since some reform provisions go into effect in 2010, employers should not delay thinking about these issues.

HHS is drafting regulations and guidance to clarify requirements; meanwhile, employers can expect to be under tight deadlines to finalize plan designs, update enrollment forms and complete modified enrollment processes before the end of 2010.

Dependent Rule Won’t Save.

One such rule clarification — details on how plans and insurers must admit newly qualified dependent children up to age 26 — has been issued as interim final rules published in the May 13 Federal Register (75 FR 27122). These do not offer much promise for cost savings.

Not only do plans have to take all dependent children up to age 26, they may not vary age eligibility due to student status, residency with the participant or financial support. (Common models like: “Dependents up to 19 and not in school and dependents up to 23 who are full-time students are eligible” will no longer be allowed.)

Plans and insurers also won’t be allowed to deny coverage to a dependent child under 26 based on eligibility for other coverage — although grandfathered group health plans will retain that right until 2014 (see below for details).

And moves to pin the costs of extending dependent care coverage on workers by increasing worker contributions was expressly addressed in the May 13 rule. “[A]ny difference in benefits or cost-sharing requirements constitutes a different benefit package,” the rule states, using language that reads like such a move could jeopardize grandfather status.

In spite of that, there are some strategies be best for making the most of a potentially costly reform situation.

Don’t implement changes that may jeopardize your plan’s grandfather’ status. Plans that were in existence on March 23, 2010 are considered “grandfathered” and exempt from implementing certain reform requirements. HHS has begun drafting rules on grandfathered plans, and the question on all employers’ lips is: What changes to the plan or coverage, if any, will compromise grandfathered status?

“Implementing changes and controlling costs will challenge a plan that does not want to lose its grandfathering [status],” warns attorney Alexander Clark, Fulbright & Jaworski, Dallas.

The law provides no guidance on how a grandfathered plan may lose its grandfathered status. However, HHS is expected to issue guidance on grandfathered plans (including how to lose the status) this summer, so “grandfathered” plan sponsors should hold off on the following changes until it’s clear that these changes will not threaten a plan’s grandfather status.

• Changing third-party administrators or insurers.
• Vast changes in plan design.
• New PPO networks.
• Imposing higher employee cost-sharing to cover a reform mandate (for example, new dependents who must be allowed to join under reform).

New employees (and their families) who join a plan and family members of current employees who join for the first time will not impact grandfather status, under the legislation.

Take advantage of the retiree health subsidy.

The law creates a temporary reinsurance program to reimburse employer-sponsored health plans up to 80% of early retirees’ (ages 55 through 64) health care costs between $15,000 and $90,000. But the government has only funded $5 billion for this program, so if you quality for it, file your application quickly. “This money will go fast,” warns Dean Hatfield with Sibson Consulting in New York. The program is to be established by the government no later than June 23, 2010. Interim final rules were published May 5, 2010; comments on the rules are due June 4. To learn more about the subsidy, view the rules and obtain instructions for filing comments on them, go to http://edocket.access.gpo.gov/2010/pdf/2010-10658.pdf.

Remove ineligible individuals.

Remove ineligible individuals from the plan before the rescission prohibition becomes effective. The law bars employers from rescinding health insurance coverage for any reason other than fraud or intentional misrepresentation as of Sept. 23, 2010. If the plan has ineligible dependants on its roster, it will be easier to remove them before that date, suggests Brennan Clipp, senior VP for sales at HRAdvance, Dallas, a company that helps employers deal with the eligibility process. You should review and update your list of eligibles accordingly.

Think about reducing benefits.

Revisit your stop-loss insurance policy.

Since some of the provisions in the health reform law, such as the prohibition on annual and lifetime limits, can potentially increase an employer’s exposure, it’s more important than ever to make sure that your stop loss coverage is adequate. Employers with stop loss insurance coverage may need to change their stop loss coverage amounts, says Hatfield.

An oversight by Democrats who wrote the healthcare reform legislation could result in the entire bill being declared unconstitutional, according to one analyst.

The problem: The bill lacks a “severability” clause, which stipulates that if any part of a law is stricken down as unconstitutional, the rest of the bill remains.

Greg Scandlen, a senior fellow at the Heartland Institute, said: “Apparently, there was no severability clause written into this law, which shows how amateurish the process was.

“Virtually every bill I’ve ever read includes a provision that if any part of the law is ruled unconstitutional, the rest of the law will remain intact. Not this one. That will likely mean that the entire law will be thrown out if a part of it is found to violate the Constitution.”

The provision in the bill most likely to be challenged on constitutional grounds is the mandate requiring Americans who aren’t previously covered by insurance to buy a plan, according to Investor’s Business Daily (IBD).

Another provision that could be challenged is the expansion of Medicaid that forces states to boost their spending on that program.

“The bill writers and lawmakers who voted for it without reading it were unprofessional,” an IBD editorial states.

“That was obvious in the haste in which the 2,400 pages of the Patient Protection and Affordable Care Act were passed and signed into law. The Democrats’ rush to get the bill through was a clear act of desperation that looked like the work of novices — or despots.

“It was hurried House Speaker Nancy Pelosi who said that ‘we have to pass the bill so that you can find out what is in it.’ Evidently it had to pass for her party to find out what wasn’t in it, namely the shield of a severability clause.”

For years employers have relied on secretive PPO hospital contracts for promised discounts on health care costs. Yet employers have faced annual cost increases every year. “Trend” (medical inflation) has been touted by the insurance industry as the main culprit for ever rising costs. 

One wonders, to what extent have hospitals  been passing on annual operating costs  increases to their patients in order to remain profitable?  We suppose that hospital executives know what their costs are, and they charge patients accordingly by adding a profit margin to their costs. That is how capitalism works.

The Cost-Plus financing method is really what hospitals are doing already. The difference is that hospitals can arbitrarily inflate their charges behind the curtain of secretive PPO contracts. 

We have found that hospitals routinely charge cost-plus 400-500% or more. We can understand why hospitals dont want to step from behind the curtain. Consumers would be outraged if they knew.

PPO Hospital Contracts may be viewed as Contracts of Adhesion.

Market driven Cost-Plus financing takes a different approach – transparency. Both the consumer and the hospital benefits. The consumer is guaranteed a fair and reasonable rate, while the hospital is guaranteed a 12% profit margin.

If real estate brokers get 6%, general building contractors 25%, health insurance agents 5%, attorney contingencie fees are 33%, why would hospitals object to the public knowing that they get 12%. Is that because they are now getting 500% or more?

Hospitals scream that they lose money on Medicare and Medicaid and have to make up the loss elsewhere. The fact of the matter is that the majority of hospitals profit from these government programs. Just look at their financials.  

Cost-Plus is a market driven product and will earn it’s market share.

Editor’s Note: Insurance companies,PPO networks and hospitals should be careful in their reported efforts to band together to boycott, coerce and intimidate. Under law, it is generally understood that no one may commit, or agree to commit in concert with others, any act of boycott, coercion, or intimidation resulting in or tending to result in a monopoly or an unreasonable restraint of trade in the business of health care.

“It’s in your best interests to consider quality options”

Cost Plus health plans are catching on in Texas.  Brokers in key geographic areas are advising their clients to consider this innovative approach to reigning in their health care costs. Some brokers are jumping on the cost plus bandwagon because they see the results and believe in them, while others do so as a matter of survival.

Carriers seem worried. Carrier representatives, on the verge of irrational behaviour in fighing the cost-plus approach, are worried that some of their biggest broker producers are begining to embrace the cost[plus method of health care finance, many with rare enthusiam.

Key Stop Loss Carriers are joining the cost-plus avalanch with several major A+ stop loss markets actively recommending the scheme to their clients.

Below is a partial copy of a Seminar Invitation a large brokerage firm in Texas has sent out to key accounts inviting them to learn about the cost plus approach to health care:

San Antonio Company Lowers Healthcare Cost by over 40%

As quoted in Forbes Magazine (5/11/09)

Forbes BusinessWire reported that Bill Miller Bar-B-Q, a San Antonio-based restaurant chain, terminated its PPO program in August, 2008, and restructured its group health insurance program by partnering with area medical providers.  Under its new program, medical care providers are reimbursed on a cost-plus basis.  This program starts at cost and adds a margin rather than relying on PPO networks and insurance companies who historically pay based on a phantom original bill which is then discounted.  As of May, 2009, when this story was first reported, Bill Miller Bar-B-Q’s benefits consultant attested that the company would have spent as much as 40% or more for the same benefits had they remained on a traditional PPO program.

In a lenghy school board meeting yesterday, the Board of Trustees voted to table action on the administration’s recommendation to renew the school’s insurance consultant contract with Alamo Insurance Group.

The BISD went out for a Request for Qualification for Insurance Consultant. Several proposals were received as a result of this process. The current consultant, Alamo Insurance Group is currently paid more than $40,000 per year.

Board Member Escobedo voiced concerns that due to an on-going audit of the self funded health insurance program which was recommended by their current consultant, he felt uncomfortable to awarding/renewing the Alamo contract until the results of the audit were known. Board member Garcia concurred. Board member Zayas expressed concern that there was little or no backup in his Board Packet related to the administration’s recommendation.

Zayas asked about the status of the proposal from Valley Risk Consulting of McAllen, Texas.

A motion was made and approved to table this action item.