Category: Uncategorized

New survey discloses the best and the worst insurance companies – 2009payorsurveyfactsheet1

A stop loss carrier sent this to us this morning which bears worth watching:

HB 1578 has been introduced in the Texas Legislature.  The Bill would affect stop loss and reinsurance policies.  Under the Bill reinsurance would be prohibited and stop loss insurance required to cover a self-funded plan.  All stop loss policies must be approved by the Commissioner.  An individual stop loss policy must have a deductible between $5000 and $100,000 or it will not be approved. 

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Editor’s Note: This is another example of government interferance in private enterprise. It appears that the State of Texas wants to become an insurer and will prohibit the private sector from reinsuring medical stop loss policies. Specific stop loss limit of $100,000 will significantly increase costs for larger self-funded groups that currently have their specific level at $250,000 or higher.  And, for those groups, it would not be actuarial sound to limit their exposure to $100,000.

Health care reform has taken center stage this week and we expect headline news on this in the coming days. Yet, no one really knows what changes are to be proposed or what specific directions a national health care plan will take.

Our predictions include a two payer system; a government run system that will compete with private health care companies such as Aetna and Cigna. This arrangement will be problematic since a government run plan can mandate costs while a private health care company can only negotiate costs.  Our second prediction is all health care costs will be taxable income to plan beneficiaries. Our third prediction is that the government will mandate expense ceilings for private health care plans as well as mandated target loss ratios. This will diminish the role, and the need for, independent insurance agents and brokers as well as damper financial interests of private payers such as United HealthCare, Aetna and their respective share holders. In time, the private sector health care payers will fade away and a one payer natiional health plan will become reality.

A Texas public school district could join the TRS ActiveCare Plan, essentially maintain the same level of benefits, and save the taxpayers over $16,000,000.  Current annual cost of the district’s self-funded health insurance exceeds $42,000,000. When you add in claim run-off liability, that figure jumps to over $50,000,000. Yet by joining the TRS ActiveCare Plan this district’s cost would below $30,000,000 annually.

aegisrisk_08

More employers are considering captives as a method to fund their employee benefit programs. We have been reporting on this for the past six months – see previous articles on this weblog. There is an excellent article in the March 2009 Employee Benefit News on captives. The theme of the article is that “captive owners can have increased control through tailor-made benefit designs and claims cost management.”

We are currently working with a captive manager with a proven track record of establishing and managing captives for employers who self fund their group medical plans. A unique scheme to band small employer groups into a captive without becoming a MEWA may be a viable option for employer groups that are currently fully-insured with 50 – 500 employees. These employers can band together for the purpose of establishing a captive to fund their health care plans, yet remain independent of each other.

Brownsville Independent School District is actively seeking a fee-based insurance consultant to provide expert insurance advice for the district’s insurance needs. The current consultant from Dallas is charging the district an annual fee of $24,500. The consultant before him , from San Antonio, charged an annual fee of approximately $35,000. In our opinion, neither fee supports the work to be provided.

This group is the largest employer south of San Antonio, with over 7,000 employees. It will be interesting to see who bids on this and how much their fees will be. Once the insurance consultant contract is awarded, we will post the bids on this weblog.

http://www.bisd.us/PURCHASING/sp09-141.pdf  

el-paso-isd-rfq-insurance-consultant

Editor’s Note:  We have monitored insurance consulting fees charged to policitical subdivisions in Texas for several years and find no rhyme or reason for fee structures. We have seen fees as low as $5,000 for the same work as performed for an awarded fee of $100,000. We do not understand how some consultants make money with the low fees they sometimes charge. A 7,000 life political subdivision, for example, awarded a twelve month insurance consulting contract to a large national consulting firm for $24,500. The consultant agreed to review, assist, monitor all lines of cover. In estimating expenses, we concluded that this firm will not make a profit on a $24,500 fee and will in fact lose money. One would wonder if there other revenue streams in play? Of course, dual compensation in Texas is prohibited. 

New Yorker Oberste Justizbeamte Cuomo Himmler befahl gestern AIG, eine Mitarbeiterauflistung von denjenigen zur Verfügung zu stellen, die Bonus vom Versicherungsriesen erhalten sollen. Zur gleichen Zeit gab bayerischer Unteroffizier Schummer bekannt, dass die Bonus-Schuldigen streng bestraft werden, wenn sie nicht bereit sind, die Bonus zurückzugeben. Ein Senator von Iowa fügte hinzu, dass schuldige Beamte von AIG Selbstmord begehen sollten.

Editor’s Note: Is 2009 beginning to look like 1937?

March 10, 2009 scheduled sentencing of admitted felon and still active insurance agent , “Half Guilty” Arnulfo Cuahtemoc Olivarez was cancelled until “further notice.”  This is the second or third time that sentencing has been delayed. 

Part of a Plea Agreement finalized last year included dropping a separate indictment (edcouch-indictment). See August 2008 archives for more information.

Will Aetna buy Humana next week? If so, how will the two corporate philosophies morph into one? Aetna is viewed by many as a Round Peg fits only a round hole and a square peg fits only a square hole  type of company. Humana, on the other, has a different corporate philosophy and allows Regional Managers to manage their own territories with little or no home office interference. At Humana innovation is rewarded. At Aetna, direction flows from the top down.

In 2008 an employer group decided to move away from the PPO world into a program that utilizes Federal Law (ERISA) to pay providers a fair and reasonable fee for services.  Here is a summary of results after six months:

Allowed Amounts:    Under PPO Contract    Fair & Reasonable

– Facilities                    43% off Billed                  85% off Billed

– Physicians                  41% off Billed                   57% off Billed

Plan paid facilities on a cost-plus basis. All other providers were paid using a uniform formula applied to 2008 RBRVS as the basis of payment. Since ERISA mandates that a plan fiduciary must only pay a fair and reasonable rate, balance billing issues are subject to an appeal process handled by an out-sourced plan fiduciary. Plan participants are protected against balance billing through a propriety arrangement.

Total hard dollar savings for this South Texas employer during the six month period exceeded $800,000.

Editors Note: Tyler Independent School District and Blue Bell Creameries, among others, have achieved similar results utilizing out-of-the-box risk management techniques. Employers who are willing to consider these proven techniques can cut their health insurance costs by as much as 50% or more.

“If you are not part of the solution, there is good money to be made in prolonging the problem.”

The economic stimulus legislation signed into law in February could be onerous for employers and their health care partners. The law now requires “covered entities”, which in the past typically included employers and insurers who sponsor health plans, to notify individuals in writing if their personal health information is compromised. Notification of a breach in privacy must be made within 60 days of the breach.

For the first time, the law extends direct HIPPA enforcement to “business associates” which include consultants, pharmacy benefit managers, third party administrators and other vendors. The legislation gives state attorney generals the authority to bring lawsuits seeking statutory damages and attorney fees for HIPPA violations.

This law will have a direct impact on employer’s relationships with their vendors, including consultants. If, for example, a consultant breaches HIPPA, he/she must notify the insured within 60 days of the breach. The state attorney general can then bring suit against the consultant for damages.

E&O coverage needs to be amended, in some cases, to cover this liability.

Brokers are beholden to the insurance companies they represent and know that moving business from them can bring them severe economic disaster. Every agent contract we have reviewed allow the carrier to terminate the agent/broker appointment at any time without cause. Overrides and bonuses (often not disclosed to the customer) based on production have the intended effect of “capturing” the agents self-interests controlled by the insurance company he represents. The broker/agent is thus held hostage by the insurance company at the expense of the interests of his client. This conflict of interest is not clearly understood by most employers who purchase insurance through independent brokers.

Insurance brokers fear insurance companies because they know the carriers  can, and have, terminated agent contracts at will.

We know of many instances wherein a carrier has terminated an agent’s contract without cause, leaving the agent without commission income earned through his efforts on behalf of the carrier he represented.  We have also had a carrier group representative boast to us that he was about to have his company terminate a local broker’s contract because “he moved a major account from us last month and we dont think he gave us a fair shot at renewing it.”

Employers should demand full disclosure of all compensation earned by their agent/broker. This should include bonuses, overrides, servicing fees, commissions, vacations, vouchers and anything else of value. And, it should be contained within a  written contract between the employer and the agent/broker.

RiskManagers.us represents five Mexican insurance companies to provide cover for your Mexican risk exposure.      

http://www.cnbc.com/id/15840232?video=1039849853

Also, Putin Warns Against Socialism – http://www.americanthinker.com/blog/2009/02/putin_warns_us_to_eschew_socia.html

Glenn Beck – http://www.youtube.com/watch?v=lNS8IY_Td14

In 2001, the Texas House passed Texas HB 45, the cents-per-mile choice law, authorizing insurance companies to offer a cents-per-mile alternative to their dollars-per-year prices. Texas was the first state to change its insurance laws; others are now considering similar changes.

www.milemeter.com    http://springwise.com/financial_services/auto_insurance_by_the_mile/ 

http://www.pegasusnews.com/news/2008/oct/21/dallas-based-insurance-carrier-milemeter-offers-un/

The TRS ActiveCare plan for Texas educators has announced their new rates for Plan Year 2009-2010. Currently over 330,000 Texas educators participate in the program, comprising over 85% of Texas public school districts.

The TRS ActiveCare program is self-insured. There is no stop loss cover in place and the plan is not marketed through independent agents and brokers. The funding rates are competitive. Many Texas school districts that are not participating are paying substantially more.

http://www.trs.state.tx.us/TRS_activecare/documents/123_plan_rate_changes_fy10.pdf

U.S. Legal Services providers numerous legal protection plans, including their CDL Protector Plan.  The CDL Protector Plan helps transportation companies to improve their bottom line, improve or maintain their SafeStats rating and provide the company’s safety director with timely violation data to supervise drivers and their fleet.  For more information go to www.uslegalservices.net .

CoverageFirst is an independent, online wholesale insurance marketplace, serving more than 7,000 independent agencies and brokerages. CoverageFirst helps these agencies find and access the P&C insurance products they need for their clients.

Small independent producers who qualify can access competitive markets in seconds. Quotes can be generated in hours instead of days.  For more information go to www.coveragefirst.com. Another source can be found at www.psgins.com and www.applieduw.com.

Using a national wholesale broker, independent insurance brokers can quote, bind and deliver to your email inbox liquor liability coverage through an “A” rated non-admitted carrier. More than 1,000 clases of P&C business written under immediate binding authority. Visa, MasterCard and HCH payments accepted. For more information go to www.gotapco.com .

Many employers do not offer group or individual disability insurance for their employees. Yet, statistics show that the need is higher than group term life insurance, which most employers offer.

Group disability insurance cost averages 1% of payroll while individual payroll deducted disability insurance averages 1-5% of one’s gross monthly salary (rates based on each individual’s age).

Viatical and Life Settlements is the purchase of existing life insurance policies for cash. Most states regulate the business of Viatical and Life Settlements. Texas, for example, requires licensure with detailed annual filings of all business activities.

A Policy Put Option can be established whereby the owner of a life insurance policy has the option, but not the obligation to sell the policy at a predetermined price at a future point in time. The owner has total optionality. This gives the owner of the policy the best of both worlds. If they choose to keep the policy and not exercise the option, the option will simply expire.

A Policy Put Option offers comfort and reassurance to the owner that in the event circumstances change and they no longer require the policy then can exercise the option and receive a sum greater than premiums paid. Estimated cost of the option is 1% of the face amount of the policy.

The stimulus bill approved by the House and Senate include provisions that lay the groundwork to put a National Health Insurance Plan on a fast track.  Tucked in the bill are “sleeper cells” ready to attack the U.S. health care industry with government “attack dogs” aka bureaucrats, with the power to dictate medical care access to the provider community. A debate on this may have produced a different outcome. It was political genius to hide provisions in the 1,500 page plus bill while stressing an immediate need to pass the bill or “face an economic meltdown and Great Depression” if not passed TODAY.  Even Arlene Spector admitted he did not have time to read the entire bill, and did not know all of the provisions of the bill, yet he was one of three Republicans that voted in favor of the bill. In other words, he voted for abill not knowing what was in it. Go figure. Are all politicians brain dead?

Arnie Olivarez

Arnulfo “Half Guilty” Olivarez, admitted felon, will be sentenced in McAllen, Texas on March 10, 2009 at 9:30 am. See August archives for details.

 arnulfo-cuahtemoc-olivarez-plea-agreement

Seems everyone is screaming for their fair share of the Stimulus Bill now before Congress. Banks, Loan Companies, Insurance Companies and others are clamoring for a portion of the Golden Goat. But, we hear nothing from the hospitals. Why are they silent? After all, hospitals have been complaining for years that they “give away” millions in “free” care to those who can’t afford to pay. You would think that hospitals would need help too, especially in this economy.

Maybe a review of hospital finances will provide a clue – hospital-net-income 

Wealthy individuals (names) are set to back other new sidecar syndicates at Lloyd’s of London. The number of names slid to 907 in 2008 from 1,124 in 2007. Attractive tax breaks and the ability to effectively use their capital twice always have made Lloyd’s a magnet for the rich, but the risk of losing their entire fortunes if hit by big claims has deterred many. However, recent changes that allow individuals to invest on a limited liability basis means names will not have to endure the financial nightmare experienced by previous investors. Lloyd’s, with expected increased capacity, may be looking for risk exposure in the U.S. medical stop loss market.

The Lilly Ledbetter Fair Pay Act of 2009, approved by the Senate, will ease time limits on wage discrimination claims which could lead to increased litigation and administrative headaches for many employers.

If it becomes law, Richard Gisonny, a principal with Towers Perrin in Valhalla, New York, said “it will lead to an increase in costly litigation and that would come in the midst of a difficult economic climate” where companies are laying off employees “and trying to stay in business.”

Editor’s Note: This country (USA) is turning towards socialisim faster than a speeding bullet.

Business Insurance, January 26, 2009

Employers would be required to offer COBRA health care coverage for at least a decade to many former employees and retirees under legislation likely headed for a vote by the full House this week.

The COBRA provisions embedded in the $825 billion economic stimulus package that cleared by the Ways and Means Committee last week, would be a huge expansion of the COBRA law and saddle employers with health care costs few could have imagined when Congress enacted the health care continuation law in 1986.

Under HR 598, employees who stop working as young as age 55 could retain COBRA coverage until becoming eligible for Medicare at 65, regardless of how long they worked for the employer. In addition, any employee who worked at least 10 years for a company could keep COBRA until eligible for Medicare, an entitlement that could stretch for decades in the case of younger workers.

Editor’s Note: We have one employer who called us about HR 598. If the COBRA extension is passed, they say they will terminate their group health insurance program altogether and advise employees to seek medical insurance in the individual market. This is just another sign that employers are becoming increasingly fed up with government meddling in their corporate affairs.

http://www.tdi.state.tx.us/wc/fee/documents/asccalcreim0209.pdf      aoasc0808

Setup helps groups leverage buying clout, eliminate fronts
by Dave Lenckus
Published March 26, 2007

TUCSON, Ariz.—Health plan sponsors that are having problems finding affordable medical stop-loss insurance should pool their plan funding and reinsurance risks through a newly designed arrangement that promises a plethora of cost-saving and plan flexibility advantages, a consultant says.

The arrangement would allow groups of plan sponsors or an association—on behalf of its members—to set up a risk retention group that would cover a portion of the sponsors’ assets that are dedicated to paying health claims and then purchase commercial excess-of-loss reinsurance for the remainder, said Stace C. Bondar, managing member of Exlman Re L.L.C. of Baltimore.

Among other things, the pooling design would allow plan sponsors to leverage their large group buying power, eliminate fronting insurers, legally avoid state-mandated benefits and avoid having to obtain U.S. Department of Labor approval, Mr. Bondar said during a session at the Captive Insurance Cos. Assn.’s International Conference in Tucson, Ariz.

Mr. Bondar is seeking approval for the first two arrangements of this kind in Montana and the District of Columbia and is in the process of developing it for nine others in six domiciles. Montana regulators said the facility has been tentatively approved. The facility, AD-COMP MED RRG Inc., is owned by 271 automobile dealership franchises in California, Mr. Bondar said. He declined to identify the District of Columbia facility’s owners.

Need for the arrangement has intensified significantly in the past five years, he said, during which U.S.-based medical reinsurance sources have dwindled from about 300 to fewer than 50.

Among remaining reinsurance markets, many have long “ineligible industry” lists, and others charge certain industries “significantly higher rates” than they charge others, he said. Industries having the most trouble finding coverage are hospitals, law firms and trucking companies, he said.

Under the arrangement that Mr. Bondar is seeking approval for in the District of Columbia, a group of self-funded health plan sponsors with core businesses in the same industry banded together to form a risk retention group without any involvement from an association.

Each sponsor designed its own plan, including its own benefit design and its own deductible or retention level. Under the Employee Retirement Income Security Act, each self-funded plan is exempt from state laws relating to benefits, including mandated health benefits.

Still, in that kind of arrangement, each plan sponsor has a contractual obligation to participants to fund the plan with the sponsor’s assets.

That is where the RRG comes in. The facility’s members/owners determine how much of the aggregate retention the facility will accept.

The RRG then quotes, underwrites and issues to each of its members/owners a contractual liability policy that promises to cover or reinsure their contractual obligation to their health plan participants to fund the plan with their own assets.

The RRG then goes to the commercial market to buy reinsurance for the portion of the risk its members/owners decide to cede. The commercial policy responds when losses exceed a plan sponsor’s per claim and aggregate retention levels.

So, for example, a group of plan sponsors with $1 million of total health plan risks decides to retain $250,000 of that risk in the aggregate, with each plan sponsor selecting a different retention level. The total risk is ceded to the plan sponsors’ RRG, which retains $250,000 and cedes the remaining $750,000.

The key to this arrangement is that the policy does not cover a medical claim but instead covers a plan sponsor’s assets against losses resulting from a large medical claim, Mr. Bondar said. “The key to success here is to pool at the reinsurance level, not the health plan level.”

In Montana, the process for establishing a reinsurance mechanism for a group of health plan sponsors was more complex but demonstrates how an association can become the driving force behind one, Mr. Bondar said.

In that case, service vendors for a self-insured workers comp pool wanted to help pool members with their self-funded health plans.

The group of accountants, lawyers, bankers and other service providers formed an association and then sold shares in it. With that capital, the association formed a captive that issued a surplus note to the RRG that the workers comp pool members formed for their health plans. Since the RRG was not designed to insure the association and its members are not in the same industry as the plan sponsors, federal law precluded the association itself from forming the RRG.

The RRG also could cede part of its members/owners’ retained risk to the association captive. Like the District of Columbia-domiciled RRG, the Montana facility would purchase excess-of-loss reinsurance for the part of the risk it and the association captive does not retain.

The surplus note, which the RRG has to pay back over time, was accepted by Montana regulators as appropriate capitalization as long as each RRG member/owner demonstrates it made a capital contribution to the facility, Mr. Bondar said.

To that end, Mr. Bondar negotiated an agreement under which each member/owner would have to make only a small capital contribution up front but would have to surrender all of its equity in the facility if the member/owner pulled out of RRG in less than three years.

After three years, the portion of the surplus note that would be repaid out of the facility’s surplus would be considered an adequate capital contribution, he said.

A major advantage of either the District of Columbia- or Montana-domiciled RRG is that a fronting insurer is not necessary, since an RRG can issue its own policy, Mr. Bondar said. “Fronting carriers can charge as much as 10% of premiums paid in order for a program to use their paper,” he said.

In addition, because a plan sponsor would not be in a single-parent captive, the sponsor would not have to obtain a prohibited transaction exemption from the Department of Labor.

The exemption would be necessary if a pure captive were used, because the DOL wants to ensure that the captive owner has not devised a system that provides it advantages to the detriment of plan participants, Mr. Bondar said. The exemption is not required when a plan sponsor participates in an RRG because the odds of pulling many plan sponsors into a scheme that could hurt their plan participants are considered very low, he said.

By pooling risks in an RRG, reinsurance availability increases and costs decrease because reinsurers see little risk of having to pay a claim above a retention that far exceeds those that an individual cedent would maintain, Mr. Bondar said.

Over time, RRG members/owners should be able to build surplus to gradually raise the retention level so the facility can reduce or even eliminate its reinsurance needs, he said.

He said the only similar arrangement in use today involves the interplay of voluntary employee beneficiary associations set up by seven highway contractors and the RRG the contractors have set up (BI, Sept. 11, 2006).

But Mr. Bondar said plan sponsors cannot pull their capital out of VEBAs unless they convert to a fully insured plan and that VEBA recertification costs are expensive. He asserted that his mechanism would be 25% to 30% less expensive.

http://www.riskandinsurance.com/story.jsp?storyId=166272912 

Excerpt from Business Insurance, January 19, 2009

If Coca-Cola Co. wins regulatory approval to fund retiree health care benefits through a special trust and its captive insurance company, it could blaze a trail for other employers looking to do the same.

Under it plan, the company would use assets now held in a voluntary employees beneficiary association to purchase medical stop loss policies from Prudential Insurance Company of America to pay claims. The medical stop loss would pay claims that fall between an attachment point and an upper limit.

For those concerned about rising group health care costs, a preview of this video may provide alternatives. http://www.brainshark.com/brainshark/vu/view.asp?pi=4568064

Recently an employee took his dependent son to a physician owned out-patient surgery center for a 45 minute operation to repair a deviated septum. This facility was out-of-network (they have not joined any network). Prior to the surgery, the employee was told by the business office of the clinic that his portion of the claim would be about $1,400 (included deductible and estimated co-insurance). The employee wrote the check and the surgery was performed successfully.

The claim was received by the employer’s third party administrator who negotiated the $58,000 in billed charges down to $56,000, and wrote a check for that amount on the employer’s claim account. A weekly check register sent to the employer for review prior to releasing claim checks for that week, caused the comptroller to question this claim as appearing to be too large for such a simple surgical procedure. The claim check for $56,000 was put on hold pending our investigation.

Medicare would have paid the clinic approximately $2,700 for this procedure. In contacting a medical care supplier that supplies this particular surgical center, the sales representative told us that the supplies used in a typical deviated septum surgery such as this one was less than $500.  In contacting the Bexar County Medical Society about this claim, we were told that it was certainly cause for concern and they would be more than happy to have their peer review committee review the claim.  Then we met with the business manager of the clinic, showed him our research, and told him that we would pay him $2,000 as payment in full for his services (employee already had paid $1,400, so with our $2,000 the total payment to the clinic was $3,400).  His response was “we hardly ever get questioned on our bills, and most insurance companies just pay us!”

This is just one example of what we have documented regarding inflated medical billing. What amazes us is that most employers, insurance companies and third party administrators don’t question medical charges and blindly pay claims. After all, it seems, it is not their money and any losses are simply passed on to the employer in the form of a rate increase.

Yesterday we received an email from one of our clients, asking us to review his recent medical charges from a local physician. He wanted to know how the charges compared to 2008 RBRVS. Here is what we found:

CPT 86000        Billed $292.80                2008 RBRVS    $9.75  

This represents a +3000% markup from Medicare reimbursement formula.

About 6 months ago we moved an employer from a PPO plan to a plan that pays claims using 2008 RBRVS as a claim payment benchmark. To date the plan has saved approximately $500,000. And, we put in place a mechanism that addresses the balance billing issue so often raised by PPO representatives as a tactic to hold employers hostage to the PPO method of controlling costs.

Consumers should compare medical costs but most don’t

It appears the House will be getting a new Speaker, Rep. Joe Straus. Known as a moderate Republican, he has served only two terms in the House but has lined up significant support. A wealthy San Antonio businessman, Straus held minor posts in the Bush and Reagan Administrations. He is a principal in the insurance and executive benefits firm of Watson, Mazur, Bennett & Straus, L.L.C. He also is affiliated with National Financial Partners, a leading financial services company in the insurance, investments, and benefits industry.

TEXAS: A bill was filed last week that would require insurers to report their medical loss ratios to the Department of Insurance on an annual basis and to maintain those ratios at 75 percent. The bill further gives authority to the Commissioner to order rebates, rate rollbacks or take other necessary steps to penalize any carrier in violation of the minimum ratio.

Text of Bill: texas-house-bill-medical-loss-ratio-hb00531i

unitedhealth-group-newsroom

http://www.oag.state.ny.us/media_center/2009/jan/jan13a_09.html

Editor’s Note: This is going to impact the group health care market in a big way.

DALLAS — A health-care company hired to manage a program for elderly Texans as part of a broad privatization plan was fined more than $1 million by the state in the past year over mounting complaints that included delayed or denied medical care.

Evercare of Texas, a unit of Minnesota-based UnitedHealth Group, has drawn the ire of some powerful Austin lawmakers over its management of preventative and long-term care for the state’s most vulnerable, The Dallas Morning News reported Sunday in the first of a four-part investigative series.

Editor’s Note: HEB is a large chain of grocery stores in South Texas

By George Will

Washington Post Writers Group

Sunday, January 04, 2009

Washington —- Health care, says the man most concerned with that 17 percent of America’s economy, can be “a nation-ruining issue.” As Michael Leavitt ends four years as secretary of health and human services, he offers this attention-arresting arithmetic: Absent fundamental reforms, over the next two decades the average American household’s health care spending, including the portion of its taxes that pays for Medicare and Medicaid, will go from 23 percent to 41 percent of average household income.

It is, Leavitt says, “predictable” that today’s traumatizing economic turbulence, by heightening Americans’ insecurity, will complicate reforming entitlements. This, too, is predictable: By curtailing revenues, today’s recession will bring closer the projected exhaustion of the Medicare Part A trust fund, from early 2019 to perhaps 2016. That should get the president-elect’s attention.

When Medicare was created in 1965, America’s median age was 28.4; now it is 36.6. The elderly are more numerous and medicine is more broadly competent than was then anticipated. Leavitt says that Medicare’s “big three” hospital procedure expenses today are hip and knee replacements and cardiovascular operations with stents, which were not on medicine’s menu in 1965.

After being elected to three terms as Utah’s governor, but before coming to HHS, Leavitt headed the Environmental Protection Agency. He came to consider it a public health agency because the surge in Americans’ longevity in the last third of the 20th century correlated with cleaner air and fewer waterborne diseases. Longevity is, however, expensive, and demography is compounding the problem.

In the 43 years since America decided that health care for the elderly would be paid for by people still working, the ratio of workers to seniors has steadily declined. And the number of seniors living long enough to have five or more chronic conditions —- 23 percent of Medicare beneficiaries —- has increased. Many of those conditions could be prevented or managed by better decisions about eating, exercising and smoking. The 20 percent of Americans who still smoke are a much larger percentage of the 23 percent who consume 67 percent of Medicare spending. Furthermore, nearly 30 percent of Medicare spending pays for care in the final year of patients’ lives.

Suppose, says Leavitt, buying a car were like getting a knee operation. The dealer would say he does not know the final cumulative price, so just select a car and begin using it. Then a blizzard of bills would begin to arrive —- from the chassis manufacturer, the steering-wheel manufacturer, the seat and paint manufacturers. The dealership would charge for time spent there, and a separate charge would cover the salesperson’s time.

Leavitt says that until health care recipients of common procedures can get, upfront, prices they can understand and compare, there will be little accountability or discipline in the system: “In the auto industry, if the steering-wheel maker charges an exorbitant price, the car company finds a more competitive supplier. In health care, if the medical equipment supplier charges an exorbitant price, none of the other medical participants care.”

Medicare is a price-fixing system for upward of 12,000 procedures and drug codes —- and for hundreds of categories of equipment, the providers of which tenaciously oppose competition. Leavitt began implementing a tiny program of competitive bidding covering just 10 products in 10 cities. Based on the 15 days it lasted before Congress repealed it, savings were projected to be substantial. That is why equipment providers got it repealed.

Rather than ruining the new year by dwelling on Medicare’s unfunded liabilities of about $34 trillion (over a 75-year span), ruin it with this fact: In the next 50 years, Medicaid, the program for the poor —- broadly, sometimes very broadly defined —- could become a bigger threat than Medicare to the nation’s prosperity.

This is partly because of the cost of long-term care for the indigent elderly, some of whom shed assets to meet Medicaid’s eligibility standard —- sometimes as high as income under 200 percent of the federal poverty level. And many states, eager to expand the ranks of the dependent with the help of federal Medicaid money, use “income disregards” to make poverty an elastic concept. For example, they say: A person who gets a raise that eliminates his eligibility can disregard the portion of his income that pays for housing or transportation.

Governments with powerful political incentives to behave this way will play an increasingly large role in health care. As is said, if you think health care is expensive now, just wait until it is free.

A large South Texas school district recently went out for Request for Proposals (RFP) seeking competitive stop-loss insurance for their self-funded employee health insurance program. Several proposals were received. A consultant was retained to review the offers but was not asked to make a recommendation. The recommendation was to be made internally to the Board of Trustees. The district’s CFO made it known that he recommended the apparent “low bidder.” However, the Board of Trustees voted to select the highest bid through a local insurance agent. Subsequently the CFO was removed from his position and given the job of “grants administrator.”

An Open Records Request was received by the district in November 2008 seeking documentation of the stop-loss insurance RFP. The requestor subsequently received an anonymous phone call stating that “I have seen your Open Records request, and I can tell you that you will not get everything you have asked for, and documents are being destroyed.”

If this scenario is true, it is a sad commentary on how some political subdivisions make business decisions at the expense of the taxpayers. Vendors become aware of those political subdivisions that consistantly make “political business decisions” and usually decline to offer competitive proposals/bids in future RFP’s. This has become such a prevalent issue that some carriers have “red-lined” South Texas and seek to derive business elsewhere.

Modern Healthcare – December 22/29, 2008

A new study says the boom in convenient-care clinics appears to be slowing, and this could have a negative implications for the people most likely to use them; the uninsured and Hispanics.  The study indicated that only 1.2% of U.S. families reported visiting a convenient-care clinic in the past 12 months, while only 2.3% reported ever visiting one. Uninsured families accounted for 27% of convenient-care clinic users. Also 1.9% of Hispanic families surveyed had used such a clinic in the past year, compared with 1% of non-Hispanic whites.

According to the Convenient Care Association trade group, there are now roughly 1,150 retail clinics operating in some 38 states.

The most common services obtained at convenient-care clinics were diagnosis of a new illness or symptom, 48%,  prescription drug renewal, 47%,  vaccination, 23%, and care for an ongoing condition, 18%.

Editor’s Note: While we don’t question the accuracy of this study,  we find that convenient-care clinics are in a growth mode in Texas. Texas Med Clinics in Bexar County (San Antonio) is one example of the economic success potential of this business model. Just recently a group of deep pocketed investors in Amarillo started a company that will be building clinics throughout the Panhandle to gear towards walk-in traffic as well as employer based health plans. We expect the convenient-care clinic business model will grow significantly in Texas.

Cover Story – Modern Healthcare – December 22/29, 2008

The Congressional Budget Office (CBO) laid out scores of ideas last week as a way to help federal lawmakers craft what could become the most sweeping legislation seen in a generation. Healthcare policy experts praised the CBO analysis as a handy reference tool for reform that they believe will serve as a prelude to the main event when lawmakers release an actual bill in 2009.

In one report the CBO addresses our healthcare system that spends with abandon more than $2 trillion a year and showing how it threatens the U.S. The CBO report stresses that a solution would require a variety of approaches, not just a “one size fits all” scheme, such as mandating universal coverage.

A second report lays out more than 115 different options for reform, encompassing a wide swath of issues related to how healthcare is delivered and paid for. Among the options are some that would reduce spending and others that would increase it.

Some of the options that would reduce spending include trimming billions of dollars in Medicare and Medicaid payments from the provider community. The CBO proposal looks at a proposal to bundle payments for hospital care, a move it found would save $18.6 billion over 10 years. Separately, an option to reduce Medicare payments to hospital with high readmission rates would shed another $9.7 billion.

Editor’s Note:  2009 may bring significant changes to the U.S. healthcare delivery system. Powerful lobbying entities will spend millions to sway 435 people to vote on proposals that benefit special interests.

December 29, 2008 – Business Insurance

It isn’t often that the captive insurance industry scores a victory of the Internal Revenue Service, but in 2008 it did just that.

That victory came in February, when the IRS withdrew a proposed 2007 rule affecting sponsors that use captives to fund risks of various corporate entities and that file a consolidated tax return covering the affiliates and the captive.

The rule would have barred captives from taking an immediate tax deduction at the time reserves were established. Instead, tax deductions would have been allowed only at the time claims are paid – a change that wold have made captive programs much less attractive financially, especially for captives used to write long-tail business.

Editor’s Note: Employers are beginning to realize that funding a health benefit program through a captive makes sense for some. Those employers utilizing existing captives for other lines may be wise to consider the scheme. Auto dealers have used captives successfully for years on their credit life business, for example. Large retail chains such as furniture outlets have done so as well. A large national TPA is marketing a product utilizing a Rent-A-Captive scheme for employer groups of 50-250 employee lives.

The top achievement of RiskMangers.us in 2008 was to peel away the onion layers of the PPO world to expose the truth behind PPO discounts. It has been an interesting mission indeed. We met with hospital administrators, PPO network officials, PHO groups, all of the BUCA’s to learn as much as we could about the mysterious world of hospital and physcian pricing. One of the BUCA’s told us that we would never, ever get our hands on one of their hospital contracts. They were wrong. And what a story their hospital contract told us!

One interesting assignment in 2008 was a newly acquired client in North Texas, a political subdivision, who for the past ten years were sending their employees to one of the two hospitals in the area. Hospital “A” was the “better” hospital because it was in-network, while Hospital “B” was out-of-network. What we found was that the charges at Hospital “A” through the PPO was three to four times higher than the charges at the non-network hospital ten minutes away. So, in essence, employees and their families were steered to a higher cost facility and thereby increasing the Plan’s cost by over $1 million a year for this small group of about 350 employee lives.

There are numerous other stories regarding our quest for truth about PPO’s that are fascinating but for the purposes of this post, would be quite lengthy.

As a result of our quest for truth, in 2008 we moved several of our more progressive clients from the PPO world into the darkness of the unknown – back to the 1970’s when PPO’s were not yet invented. We had the audacity of recommending that our clients may save more by getting away from the PPO world and dealing direct with the provider community – results so far have been good.

What is interesting is all the players watching our intentions play out jumped on the “Your gonna be balance billed and boy are the employees going to be upset” bandwagon. Through a strategic partnership, we solved the problem of balance billing once and for all.

We have also learned that you can partner with a PPO on a client specific basis to achieve similar results. We found this to be particularly true in working the El Paso market.

We are looking forward to 2009 with the many changes sure to come.

Two years ago we assisted a 3,500 life restuarant chain in designing a self-funded mini-med program for their hourly employees. The plan offers a $20 physician co-pay, a prescription drug card (not a discount card), 80% coverage up to an annual calendar year maximum of $2,500 per insured. Plan benefit payments use 2007 RBRVS as a benchmark. Plan participatants pay $50 per month while the employer contributes an additional $50 per month per participant. Paid claim loss ratio has been consistantly below 40%.

We have two other accounts on a similar program. One is a long haul trucking firm and the other is a political subdivision located in Texas. The trucking firm has an annual plan limit of $25,000, while the political subdivision has no annual plan limit. Both plans have funding levels of approximately $100 pepm which has proven to be adequate to cover the expense of the plan.

This should give the reader some idea of what a mini-med plan should cost in view of the benefits offered. There are numerous fully-insured mini-med plans in the market  for those employers not comfortable with assuming any risk.  The best fully-insured mini-med plan we have seen has no deductibles, no co-pays and simply pays 100% of Medicare allowable up to $25,000 per calendar year – all for about $128 per employee per month. And, if you realize that less than 4% of any insured group have claims in excess of $25,000, this may be a very good option for the majority of the participants in the plan.  A premium of $128 versus $500 we have seen for a conventional plan, could be affordable for many employers now struggling with the high cost of group health insurance.

The Texas Department of Insurance Division of Workers’ Compensation reported that the workers’ compensation interest/discount rate for Jan. 1, 2009, through March 31, 2009, will be 3.95 percent. 

The interest/discount rate for the quarter ending Dec. 31, 2008, is 5.22 percent

More than two years after Massachusetts passed groundbreaking legislation to move the state closer to universal health insurance coverage, the Bay State has achieved that milestone, according to a survey released last week. Some 97.4% of Massachusetts residents now have health insurance coverage.

Several provisions in the Massachusett’s 2006 reform law have been key in increasing coverage, expets say, including state premium subsidies for the low-income uninsured, imposing financial penalties of more than $900 a year on those who are not covered under a health plan and a $295 per employee assessment on employers who do not offer coverage.  

Effective July 1, 2009, a new Medicare mandate will require employers to file claim data to CMS in an attempt to ensure that the government saves money in cases where Medicare is supposed to be a secondary payer for its beneficiaries. Self insured employers should assure that their third party administrator is positioned to provide Medicare with the required information.  Employers should be concerned because the penality for failure to report is $1,000 per day per claim. This new reporting mandate is contained in the Medicare, Medicaid and SCHIP Extension Act of 2007 that President Bush signed a year ago. 

AUSTIN, TX – The Texas Department of Insurance, Division of Workers’ Compensation (TDI-DWC) approved 13 companies to self-insure for workers’ compensation claims for a one-year period under the TDI-DWC Self-Insurance Regulation program. These 13 companies collectively employ approximately 26,500 employees in Texas.

Under Texas law, certain large, private companies can self-insure for workers’ compensation claims, while retaining the protection of the Texas Workers’ Compensation Act for the company and for its employees. To qualify, a company must have a minimum workers’ compensation insurance unmodified manual premium of $500,000 and meet other requirements subject to annual review.

The following thirteen companies received renewals of existing self-insurance certificates: 

• AAA Cooper Transportation, Dothan, AL
• American Electric Power Company, Inc., Heath, OH
• Associated Wholesale Grocers, Inc., Kansas City, KS
• E. I. du Pont de Nemours and Company, Wilmington, DE
• Emerson Electric Co., St. Louis, MO
• FedEx Freight East, Inc., Harrison, AR
• Guardian Industries Corp., Auburn Hills, MI
• Hyatt Corporation, Chicago, IL
• International Paper Company, Memphis, TN
• The Sherwin-Williams Company, Cleveland, OH
• Unique Staff Leasing I, Ltd., Corpus Christi, TX
• Valero Energy Corporation, San Antonio, TX
• VF Corporation, Greensboro, NC

The Texas Department of Insurance cautions consumers that the public is being offered investments in life settlements bonded wholly or in part by Provident Capital Indemnity, Ltd. of Costa Rica ( http://www.providentinsurances.com/).  The bonds are included with the investor agreement to purportedly provide a guarantee to the investor in the event the insured lives longer than the projected life expectancy.

Provident Capital Indemnity has never held a certificate of authority to act as an insurer or surety in Texas nor has Provident Capital Indemnity ever been qualified as an eligible surplus lines insurer in Texas.

http://www.tdi.state.tx.us/news/2008/news2008188.html      tdi-bulliten-provident-capital-indemnity

At the request of the Texas Commissioner of Insurance, a petition was filed on December 3, 2008, to liquidate Indemnity Lloyds Insurance Company (“Austin Indemnity”). On December 29, 2008, a Liquidation Order will be submitted to the Travis County District Court. As a consequence of the entry of the Liquidation Order on December 29, 2008, all policies issued by Austin Indemnity that are still in effect on January 28, 2009 will terminate effective January 28, 2009.

In Texas, public school districts are eligible to purchase their group health insurance coverage through the Teacher Retirement System. Most Texas school districts have elected to do so. Rates, for all practical purposes, have remained static over the past 4 years, with the Economies of Scale providing a safe harbor for many.

Yet, we find that there are still some Texas school districts that have elected not to join the TRS ActiveCare program.  It seems that these disticts are paying more by not joining the TRS plan. We are wondering why. Could it be that there are no commissions to be paid to brokers, who in turn are unable to secure school board votes with “campaign contributions.?”  It seems to us that if you can get the same or better coverage through the TRS ActiveCare plan and save a substantial amount of taxpayer money, it would be a prudent business practice to join the TRS plan.

Editor’s Note: The TRS Active Care program is self funded, as opposed to a partially self-funded plan (TRS plan has no stop loss insurance cover).

2008 Audit Report shows $1.1 billion in revenue, $953 million in paid claims. Ratio of total operating expense to revenue is 96.3%. Booked reserves are $476 million. Based on this, we expect little or no increase needed to fund expenses and liabilities through 2009. Plan expenses are low due to lack of stop loss, agent commissions, marketing fees, etc.

For more information on TRS ActiveCare, click here – http://www.trs.state.tx.us/

Investments and catastrophic losses affected property/casualty insurance industry earnings for the first nine months this year as net income dropped 92%. Net income for the industry after taxes was $4.1 billion for the first nine months of 2008, compared with $50 billion during the first nine months in 2007.

December 19, 2008 – Agents from the Federal Bureau of Investigation have seized files from Brooke Corp. and are combing through the bankrupt insurance agency franchiser’s financial records, the special master appointed to oversee the bankruptcy confirmed. 

Editor’s Note: What will be the immediate future of the Brooke Insurance Agencies in Texas?  

Aetna is offering traditional medical policies for pets as it branches out for the first time from humans to cats and dogs.

The Hartford-based health insurer began underwriting the policies last week in six states, mostly in the West, and in the District of Columbia. Aetna eventually expects to sell in all 50 states.

Not all consultants use the same approach to serve a client’s needs. Consultants will typically take one of two basic approaches when they work with clients:

Consultants as Experts – Many think of consultants as experts. A medical doctor is an “expert” – you explain your symptoms to a doctor, who in turn asks you a few important questions and then tells you what you need to do to get better. This situation is not too different in a business context. The obvious advantage of hiring an expert is that they have knowledge that is not available within the client organization.  One potential problem with hiring an expert is that the expert may not fully appreciate the nature of the client’s business and may recommend actions that cannot or do not address the problem the consultant was hired to solve. Alternately, a client may end up with some wonderful recommendations but be unable to implement any of them because of the unique politics or culture of the company.

Consultants as Facilitators – under this approach the consulant simply assists the client in going through the steps necessary to solve a problem. The consultant “oversees” the project while staff of the client does most of the work. The consultant does not implement changes, take actions, and does not tell the client what solution is best under the circumstances. Instead, the consultant assists the client in defining the problem, analyzing the situation, evaluating possible solutions, and deciding on the best solution and the best way to implement the option choosen. One problem using this approach is that the client group may not be capable of making tough decisions. Many times, the aim is to accomodate all the participant’s view-points and to keep peace in the company. As a consequence, although a consensus may be achieved, it may be at the cost of making the best decision.

Sometimes we get a call into our office, a referral, seeking our services as a consultant. Almost immediately the question is posed: “How much do you charge”? The biggest mistake we have made is to give out a pricing range, without first interviewing the potential client to determine expectations, needs and outcomes. Every consulting job is different and unique.

An excerpt from www.freehealth.com :                            

“We are in a sad state.  There are Americans who need life saving surgical procedures each day who simply cannot afford it, do not qualify for state or federal aid, do not know of any other options and die each day because of lack of access to healthcare.  No one talks about this “tragedy” that happens on a daily basis in America, as doctors, hospitals, and the government turn their back on millions of Americans.  Even more Americans don’t take necessary prescription drugs simply because they are unaffordable.    ” Our American health care system is broken leaving many Americans with no access to health care.”
That is why it is so shocking to Americans that they can jump onto an airplane fly several hours outside of American Airspace, and wherever they land the price of surgery and prescription drugs are as much as 50% to 90% less than in America.   Does that make sense?   That a prescription drug costing $150 costs $15 outside of the US, or a injectible prescription drug that costs $1,800 costs $900 outside the United States.  The exact same drug by the same drug manufacturer?  Is the drug subsidized by the foreign government?  No!

So, the next question the uninsured asks is what does the hospital look like and what experience do the doctors have.   We have to ask that question because how would it be possibly to provide equal to or better care in a hospital for 90% less than in America.  If a heart procedure that costs $100,000 could only cost $9,000 overseas than the hospital must be sub-standard compared to American hospitals, and the doctors less experienced than American doctors.   Over 500,000 Americans who went overseas for surgical  procedures  in 2006 discovered that the hospitals were equal to or in some cases nicer than American hospitals.     Some American hospitals describe the hospitals as “7 Star” hospitals , nicer than a Ritz Carlton, and they come back and “rave” about the tremendous experience of the doctors and how some were trained in the US or UK.”

“Did you know that 25% of doctors practicing in the U.S. were trained overseas?”
Do you know that the U.S. was rated 37th on the World Health Organization’s Health Report and that the U.S. was beat out by Costa Rica and Columbia?

Editor’s Note: Free health? There is no such thing as free health anywhere. Someone pays for it. But, it is a catchy phrase and will peak one’s curiosity. So, we went to visit www.freehealth.com and reviewed the power point – free20health20powerpoint20presentation – sure enough, the program does cost something, seems to be about $8 per month.

“Coca Cola Co., in a potentially groundbreaking move, plans to seek approval to fund retiree health care benefits though it’s South Carolina – domiciled captive insurance company.”

“Coca Cola’s retiree health care funding proposal comes at a time of increased employer interest in using captives to fund employee benefit risks.”

“Observers cite several reasons for the growing corporate interest in captive benefit funding. “You can save money and improve cash flow. There are pluses all the way around,” said Karin Landy, a managing partner with Spring Consulting Group in Boston.”

Risk & Insurance, December 2008

“Two innovations offer solutions outside of cost-shifting and dropping coverage for self-funding companies that still would like to provide cheaper but top-notch benefits to their employees.”

“One option is to get healthcare providers to charge what medical services actually cost.”

“Self-insured companies could also apply leverage to healthcare providers by sending workers someplace else for care. That’s a large part of the premise behind another innovation – a medical travel program.”

Editor’s Note: This is an excellent article. We have initiated these suggestions in some of our more progressive groups over a year ago. This is out-of-the-box kind of solutions that work. See entire article here – cheaper-insurance

Employer: How do we know we are doing much better this year than last year?

Risk Manager:  What is this year is last year plus or minus this year’s change.

CFO:  But change is the only constant, so why do we need to measure it?

To quantify risk management performance, the cost of risk must be measured. The components of Cost of Risk (COR) include 1. insurance premiums, 2. retained losses, 3. risk management department budgets, 4. risk management contract services. Results are compiled to show an average COR cost per $1,000 of revenues.

“An actuary is a person who passes as an expert on the basis of a prolific ability to produce an infinite variety of encomprehensible figures calculated with micrometric precision from the vaguest of assumptions based on debatable evidence drawn from inclnclusive data derived by persons of questionalble reliability for the sole purose of confusing an already hopelessly befuddled group of persons who never read the statistics anyway.”              

Daren Daley, Perr & Knight

Most people don’t know that when Theodore Roosevelt ran for President on the Bull Moose ticket, he proposed universal healthcare and a national insurance program. Since then, presidents have attempted to secure universal or near-universal healthcare coverage for Americans with limited success or none at all.

U.S. community hospitals enjoyed record profits in 2007, posting $43 billion more in revenue than expenses and creating the largest single-year jump in profit margins in at least 15 years, according to figures released by the American Hospital Association in its AHA Hospital Statistics 2009 Edition.

stop-loss-through-captive