The ACA and the Bottom Line
Even before President Obama signed the Patient Protection and Affordable Care Act into law in 2010, company executives began choosing sides. Some believed the PPACA would increase employee health care costs and financially cripple employers, while others hoped it would lower costs because the insurance pool would be expanded to include younger, healthier individuals.
After four years, a survey from the University of South Carolina’s Darla Moore School of Business found that more than three-quarters (78 percent) of respondents are reporting higher health-insurance costs — averaging 7.73 percent more.
Nearly four in 10 (37 percent) stated that their labor costs have increased — averaging 5.6 percent — as a direct result of the health-care reform law.
The results were based on responses from 213 chief HR officers at medium- and large-sized U.S. firms.
Shifting Costs to Workers
One major result of those increased costs has been a significant move toward consumer-directed health plans (CDHP). More than seven in 10 companies (73 percent) have already moved — or plan to move — to CDHPs, which typically call for high deductibles, according to the survey.
“Four to five years ago, insurance companies were [pushing] CDHPs as a way to introduce more market mechanisms into the health market,” said Patrick M. Wright, a professor in strategic HR management at the University of South Carolina, who directed the school’s annual survey.
At the time, he said, roughly 15 percent of surveyed employers adopted that strategy.
“That’s a huge jump. What the [Affordable Care Act] did is basically give companies carte blanche to launch CDHPs,” he said.
Employer-sponsored health insurance will suffer the same fate as pensions, practically becoming extinct – Patrick M. Wright, professor in strategic HR management, University of South Carolina
Recent headlines also coincide with the survey’s findings on the impact of the ACA on employers.
Starting Jan. 1, 2015, Wal-Mart will no longer offer health insurance to employees who work less than an average of 30 hours per week. More than 30,000 workers will be affected. Other retailers, such as Target and Home Depot, already have made similar decisions to eliminate health-insurance benefits for part-timers.
And the impact of the law is still uncertain, since the ACA’s employer mandate was delayed until next year. The mandate requires that businesses with more than 50 full-timers provide health insurance or pay a penalty.
Wright said some employers are holding off from making any decisions until the mandate officially kicks in.
He said the survey’s overall message to companies is that they will need to adapt to a new regulatory environment and figure out strategies to mitigate rising insurance costs.
Wright said he believes employer-sponsored health insurance will suffer the same fate as pensions, practically becoming extinct, as a growing number of companies seek to divorce health insurance from the employment relationship.
Despite the survey’s responses, others cite other reasons for rising health care costs.
“You have to look at your company, who you’re competing with and really make the case for what direction you’re going down the road.” – Lenny Sanicola, senior benefits practice leader, WorldAtWork
David Newman, executive director at the Washington, D.C.-based Health Care Cost Institute, said other contributing factors include the recession and a long history of health care inflation.
He also noted that high-deductible health plans were growing in popularity even before the ACA was passed.
Newman also said that survey results do not always paint an accurate picture. There’s often a “disconnect” between how people respond on surveys and their ultimate actions, he said.
For example, he said, many employers vowed to drop health insurance if the ACA became law. Instead, they adopted a wait-and-see attitude.
Likewise, survey results can differ. According to the 2014 Employer Health Benefits Survey by the Kaiser Family Foundation, there were modest increases in average premiums — 3 percent for family coverage and 2 percent for single coverage.
But whichever numbers you look at, he said, increases are much lower now than in previous years.
“We can speculate to our heart’s content,” Wright said. “I would be looking more at whether the recession has structurally changed health care in some way to keep costs lower than we’ve historically seen.”
Impact on Employees
As more employers shift toward CDHPs, Wright said, each organization should challenge themselves to make such plans affordable to minimum- or low-wage workers who lack savings or live paycheck to paycheck. How can they pay a steep $4,000, or higher, deductible?
Employers must also question the role health care in the company’s employee-value proposition, said Lenny Sanicola, senior benefits practice leader at WorldAtWork in Scottsdale, Ariz.
For instance: Is health care insurance a magnet or differentiator? Will dropping insurance and paying a penalty be a better alternative? What will the impact be on employee relations or attraction and retention? Will employees expect a bump in pay?
“You have to look at your company, who you’re competing with and really make the case for what direction you’re going down the road,” he said, adding that the University of South Carolina survey validated much of what he’s seen in other surveys or heard from employers.
Companies that decide to stay in the health care game need to explore options or develop innovative strategies to manage costs, he said.
Sanicola offers several to consider: Implement wellness initiatives with incentives, introduce spousal surcharges, pay less for dependents but more for individual coverage, or create reference-based pricing where the company only pays the average price for procedures or tests such as MRIs.
He said many large companies also contract with hospital systems and providers to deliver quality care at lower costs for big-ticket items such as knee or hip replacements.
Employers should prepare themselves to thoroughly explain any changes in health plans, especially CDHPs, which may require some handholding, he said.
In addition to providing vendor hotlines and conducting face-to-face meetings, he said, companies can train a handful of employees to act as ambassadors — to address questions from co-workers. Employers should also consider extending access to spouses — who often make family decisions.
Many companies continue to struggle in helping to educate employees to be better health care consumers.
They need to do “a better job of giving people tools to help them price out [services] . . . and navigate the system,” said Sanicola. “That’s really half the battle.”
Connected to Custom Coverage
Seismic changes are afoot in the insurance world with new technological developments stemming from the rush to the Internet of Things (IoT).
According to a report from McKinsey Global Institute, IoT has the potential to unleash as much as $6.2 trillion in new global economic value annually by 2025.
But what value will it bring to the insurance industry and, more specifically, to their customers? Let’s take a look at a few common areas of insurance — automotive, health benefits and commercial real estate — and see what the future holds.
Do you have the same driving patterns as your friends, family and colleagues? It’s highly unlikely, but until now, you’ve had no choice but to pay the same rates and premiums, based on the average risk level. If you are a safer than average driver, you end up paying to cover those at greater risk. Is it fair and is this the best system we can have?
One in five new cars already collect driver and driving data for car manufacturers, but the future of the connected car will allow consumers to manage their individual automotive policies from the comfort of their driver seats.
Automotive dealers will be able to team up with insurance companies to provide data on driving habits and behaviors such as acceleration and taking corners too harshly via embedded sensors, and assign highly personalized risk scores.
But take this another step into the future and picture your car connecting to your Facebook. According to Ovum, insurers should focus on creative initiatives that analyze data from a number of sources, including social media and machine-to-machine communications.
If your car could sort through your contacts and match your driving profile (developed by the embedded sensors) to other people with similar driving profiles then you could band together to buy insurance as a group. For this example’s sake, imagine that you’re the picture-perfect driver with zero black marks on your record and your car has grouped you with other spotless drivers.
Your group of safe drivers can now buy insurance for a much lower premium and will qualify for a massive safe driver discount. Will connected cars be the ticket to replacing individual or company policies?
Driving Like a Girl
You may read this and think I’m being sexist, but the insurance industry has notoriously charged teenage male drivers much higher premiums than their female counterparts. In 2012, however, the European Court of Justice passed the “EU Gender Directive” that stated men and women must be offered the same quote if their circumstances are otherwise identical.
In response, Drive Like a Girl, a UK-based, telematics car insurer, has used little black boxes to record driving behaviors and discern whether a driver is driving with the profile of a 17-year-old girl regardless of age, gender, occupation, etc.
Video: Wireless Car describes the wide-ranging benefits of telematics to both drivers, manufacturers and businesses.
Telematics allows an insurer to provide lower rates accordingly. So, you don’t actually have to be a 17-year-old girl to catch a break on your insurance; you just have to drive like one!
The EU ruling is only one factor fueling the massive growth of global insurance telematics subscriptions, expected to grow 81 percent from 5.5 million at the end of 2013, to 107 million in 2018. More consumers want to take insurance underwriting into their own hands.
The United States doesn’t have a similar ruling on the books yet, but some companies, such as Progressive, are relying on the technology.
More than one million drivers have chosen to install that company’s device under the wheel, which allows Progressive to analyze individual driving habits and track projected savings, allowing a totally personalized rate for the driver.
The emergence of mobile apps and enhanced customer experiences through the use of technology in order to improve customer retention are additional reasons for this growth.
Impact on Health
Wearable devices such as smart watches or wristbands allow employees and consumers to say, and prove, that their lifestyles are low-risk. Fitness junkies and professional athletes are already commonly using this technology to monitor heart rate, stress levels, sleep schedules and calories burned.
But the next logical step is to use these devices to qualify for better employee health insurance or personal health insurance discounts.
Video: Some employees at Atlantic Corp. talk about the health changes they have experienced since wearing Fitbit.
According to research from the Henry J. Kaiser Family Foundation and the American Hospital Association’s Health Research and Educational Trust, the cost of employee health insurance is still increasing faster than wages and overall inflation.
Currently, the average price for a single worker is $6,025 and the average annual premium for a family plan rose to $16,834. But with the Affordable Care Act’s higher costs for employers, we will begin to see more companies turning to wearable devices to help them monitor their employee’s health in the near future.
In order to combat costs, wearables will be given to employees, and incentive programs will be created to encourage their use.
For example, British Petroleum handed out Fitbit Zip devices to about 14,000 employees in 2013. If employees took one million steps, they received points that qualified them for lower insurance premiums.
In fact, Fitbit reports that sales to companies are one of the fastest growing segments of its customer base. We may need to establish a new technology acronym to replace BYOD — perhaps BYOW will take off in 2015?
The technology can also usher in crowdsourcing for personal health insurance as well — there is undeniably more buying power with 1,000 individuals than just one person.
Perhaps this will even open the door to pet insurance as well given new wearables designed specifically for man’s best friend continue to roll out. And what does the insurance industry love more than the ability to break into niche markets? Insurance companies can use this technology to target low-risk opportunities to drive a better return and greater volumes.
The advent of smart commercial buildings will eliminate the need for building managers to total a stated insurable value by listing everything on its premises.
With a smart building monitoring itself and updating its central system in real time, the building can tell an insurer that its risk profile this afternoon is at at a lower risk than it was just yesterday.
Instead, property premiums can be automatically tallied by connecting the insurance company to the building’s central smart hub, which houses all of the data such as air quality and temperature.
Access to security systems, sprinklers, and disaster recovery plans in one location provides a much crisper insurance profile than just relying on raw building and cost data.
With a smart building monitoring itself and updating its central system in real time, the building can tell an insurer that its risk profile this afternoon is at at a lower risk than it was just yesterday.
Rather than replacing an annual policy or going through the hassle of a three year deal, policies can be adjusted daily.
As such, building owners could qualify for better insurance premiums by providing a historical view of building trends. There are also benefits aside from cost savings.
For example, say you own a building in Miami. You can match and profile your hurricane risk by the minute and remediate high-risk issues very quickly. Additionally, the need to hire field evaluators to do this process manually is eliminated.
Thanks to the advancements taking place within the IoT, shopping for insurance of any sort will be akin to shopping for new clothes.
It won’t be a cumbersome process where you are purchasing retrofitted policies that don’t seem to match. It will be a sleek and automated experience where policies will be developed to fit individual needs.
We’re entering an insurance era where consumers and companies are empowered and we all should be ready for it.
Six Best Practices For Effective WC Management
It’s no secret that the professionals responsible for managing workers compensation programs need to be constantly vigilant.
Rising health care costs, complex state regulation, opioid-based prescription drug use and other scary trends tend to keep workers comp managers awake at night.
“Risk managers can never be comfortable because it’s the nature of the beast,” said Debbie Michel, president of Helmsman Management Services LLC, a third-party claims administrator (and a subsidiary of Liberty Mutual Insurance). “To manage comp requires a laser-like, constant focus on following best practices across the continuum.”
Michel pointed to two notable industry trends — rises in loss severity and overall medical spending — that will combine to drive comp costs higher. For example, loss severity is predicted to increase in 2014-2015, mainly due to those rising medical costs.
Debbie discusses the top workers’ comp challenge facing buyers and brokers.
The nation’s annual medical spending, for its part, is expected to grow 6.1 percent in 2014 and 6.2 percent on average from 2015 through 2022, according to the Federal Government’s Centers for Medicare and Medicaid Services. This increase is expected to be driven partially by increased medical services demand among the nation’s aging population – many of whom are baby boomers who have remained in the workplace longer.
Other emerging trends also can have a potential negative impact on comp costs. For example, the recent classification of obesity as a disease (and the corresponding rise of obesity in the U.S.) may increase both workers comp claim frequency and severity.
“The true goal here is to think about injured employees. Everyone needs to focus on helping them get well, back to work and functioning at their best. At the same time, following a best practices approach can reduce overall comp costs, and help risk managers get a much better night’s sleep.”
– Debbie Michel, President, Helmsman Management Services LLC (a subsidiary of Liberty Mutual)
“These are just some factors affecting the workers compensation loss dollar,” she added. “Risk managers, working with their TPAs and carriers, must focus on constant improvement. The good news is there are proven best practices to make it happen.”
Michel outlined some of those best practices risk managers can take to ensure they get the most value from their workers comp spending and help their employees receive the best possible medical outcomes:
1. Workplace Partnering
Risk managers should look to partner with workplace wellness/health programs. While typically managed by different departments, there is an obvious need for risk management and health and wellness programs to be aligned in understanding workforce demographics, health patterns and other claim red flags. These are the factors that often drive claims or impede recovery.
“A workforce might have a higher percentage of smokers or diabetics than the norm, something you can learn from health and wellness programs. Comp managers can collaborate with health and wellness programs to help mitigate the potential impact,” Michel said, adding that there needs to be a direct line between the workers compensation goals and overall employee health and wellness goals.
Debbie discusses the second biggest challenge facing buyers and brokers.
2. Financing Alternatives
Risk managers must constantly re-evaluate how they finance workers compensation insurance programs. For example, there could be an opportunity to reduce costs by moving to higher retention or deductible levels, or creating a captive. Taking on a larger financial, more direct stake in a workers comp program can drive positive changes in safety and related areas.
“We saw this trend grow in 2012-2013 during comp rate increases,” Michel said. “When you have something to lose, you naturally are more focused on safety and other pre-loss issues.”
3. TPA Training, Tenure and Resources
Businesses need to look for a tailored relationship with their TPA or carrier, where they work together to identify and build positive, strategic workers compensation programs. Also, they must exercise due diligence when choosing a TPA by taking a hard look at its training, experience and tools, which ultimately drive program performance.
For instance, Michel said, does the TPA hold regular monthly or quarterly meetings with clients and brokers to gauge progress or address issues? Or, does the TPA help create specific initiatives in a quest to take the workers compensation program to a higher level?
4. Analytics to Drive Positive Outcomes, Lower Loss Costs
Michel explained that best practices for an effective comp claims management process involve taking advantage of today’s powerful analytics tools, especially sophisticated predictive modeling. When woven into an overall claims management strategy, analytics can pinpoint where to focus resources on a high-cost claim, or they can capture the best data to be used for future safety and accident prevention efforts.
“Big data and advanced analytics drive a better understanding of the claims process to bring down the total cost of risk,” Michel added.
5. Provider Network Reach, Collaboration
Risk managers must pay close attention to provider networks and specifically work with outcome-based networks – in those states that allow employers to direct the care of injured workers. Such providers understand workers compensation and how to achieve optimal outcomes.
Risk managers should also understand if and how the TPA interacts with treating physicians. For example, Helmsman offers a peer-to-peer process with its 10 regional medical directors (one in each claims office). While the medical directors work closely with claims case professionals, they also interact directly, “peer-to-peer,” with treatment providers to create effective care paths or considerations.
“We have seen a lot of value here for our clients,” Michel said. “It’s a true differentiator.”
6. Strategic Outlook
Most of all, Michel said, it’s important for risk managers, brokers and TPAs to think strategically – from pre-loss and prevention to a claims process that delivers the best possible outcome for injured workers.
Debbie explains the value of working with Helmsman Management Services.
Helmsman, which provides claims management, managed care and risk control solutions for businesses with 50 employees or more, offers clients what it calls the Account Management Stewardship Program. The program coordinates the “right” resources within an organization and brings together all critical players – risk manager, safety and claims professionals, broker, account manager, etc. The program also frequently utilizes subject matter experts (pharma, networks, nurses, etc.) to help increase knowledge levels for risk and safety managers.
“The true goal here is to think about injured employees,” Michel said. “Everyone needs to focus on helping them get well, back to work and functioning at their best.
“At the same time, following a best practices approach can reduce overall comp costs, and help risk managers get a much better night’s sleep,” she said.
To learn more about how a third-party administrator like Helmsman Management Services LLC (a subsidiary of Liberty Mutual) can help manage your workers compensation costs, contact your broker.
Debbie discusses how Helmsman drives outcomes for risk managers.
Debbie explains how to manage medical outcomes.
Debbie discusses considerations when selecting a TPA.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Helmsman Management Services. The editorial staff of Risk & Insurance had no role in its preparation.