PBM Legislation Worries Workers’ Comp Payers
Legislation introduced in several states seeking to impose new regulatory authority over group health pharmacy benefit managers could harm workers’ compensation PBMs and claims payers, sources said.
Introduction of similar bills in 11 states has raised concerns among workers’ comp insurers, third party administrators, and some large employers, said Brian Allen, VP of government affairs for Progressive Medical, a workers’ comp PBM.
“We have had customers calling us every day worrying about how it is going to impact us and them,” Allen said. “These are big insurance companies … they are nervous about it and want to know how it’s going to impact them.”
Overall, it appears the bills seek greater transparency in the way group health PBMs set their pricing, said Joe Paduda, principal at Health Strategy Associates. But group health PBM practices differ substantially from those of workers’ comp PBMs and the bills seek to address issues that “have nothing to do with workers’ comp,” he added.
Yet while the bills appear aimed at practices among PBMs serving the group health industry and not workers’ comp PBMs, Allen and others say a spillover into workers’ comp is possible. So several organizations want language inserted into the bills that would clearly exempt workers’ comp PBMs.
“It appears that workers’ compensation PBMs are not the target of this legislation,” the American Insurance Association said in a statement. “That said, AIA supports efforts to include clear exemptions for workers’ compensation PBMs in these bills in order to clarify legislative intent and avoid any confusion down the road.”
“Community” pharmacies seeking more revenue from products they dispense are supporting the bills that would put PBMs under certain state regulatory agencies, such as pharmacy boards, Allen said.
State workers’ comp commissions or insurance departments already regulate workers’ comp PBMs, depending on the jurisdiction, Allen explained. But the legislation could add oversight from additional agencies such as state pharmacy boards.
Complying with regulations developed by two distinct agencies with potentially conflicting goals could cause an administrative burden for workers’ comp PBMs, Allen added.
“We want to make sure we are not swept up into crazy regulatory schemes that would be difficult to manage,” he said.
A new oversight body could also decide to impact workers’ comp PBM pricing, which is already regulated by state fee schedules, Allen said.
“If for some reason the pharmacy board said, ‘you have to pay pharmacists more money,’ that potentially would impact our customers because we would have to pass that cost onto payers,” Allen said.
EEOC Targets Wellness Programs
The Equal Employment Opportunity Commission has filed suit against three employers for violating the Americans with Disabilities Act (ADA) and Genetic Information Nondiscrimination Act (GINA) with their company wellness programs.
Honeywell, Orion Energy Systems and Flambeau Inc. are all facing litigation over penalties and fines levied against employees who refused to participate in company wellness programs.
Employers that offer voluntary programs may ask participating employees disability-related questions and collect results from biometric testing and other medical exams, as long as they keep the information confidential — and the program is truly “voluntary.” The EEOC has determined that if an employee faces any kind of discipline for refusing to participate, such as a fine or becoming responsible for the full cost of their health plan premium, then the program is in essence involuntary.
“The EEOC describes it as ‘you can’t penalize employees,’ but they have not defined what constitutes a penalty,” said Debra Friedman, attorney with Cozen O’Connor’s labor and employment practice group.
On its surface, the EEOC stance appears to collide with the ACA. The federal rule on “Incentives for Nondiscriminatory Wellness Programs in Group Health Plans,” in fact, allows for penalties in certain circumstances. By defining “reward,” for the sake of the ACA, as meaning either incentives or penalties, the law’s language allows a maximum permissible wellness program incentive (or penalty) of up to 30 percent of the cost of health care coverage, jumping up to 50 percent for programs designed to prevent or reduce tobacco use.
However, the ACA is clear that these reward rules apply to health-contingent wellness programs that are tied to a desired outcome. The law contains no direct guidelines for rewards associated with participatory wellness programs, such biometric testing programs where employees are not obligated to take further action to meet a specific standard (such as attain a specific blood-pressure range or BMI level).
Is It Really Voluntary?
In its litigation against Honeywell, the third employer sued by the commission, the EEOC pointed out that employees not participating in the company’s program would have to pay up to $2,500 in “direct surcharges,” as well as lose “up to $1,500 in contributions” to their health savings accounts. While they don’t need to achieve any particular results, employees must submit to biometric testing in order to receive a premium discount.
“The EEOC describes it as ‘you can’t penalize employees,’ but they have not defined what constitutes a penalty,” — Debra Friedman, attorney, Cozen O’Connor’s labor and employment practice group
At Flambeau and Orion Energy, employees who opted out of the wellness program were forced to pay 100 percent of their health insurance premium. The EEOC asserted that these penalties were so extreme and had such “dire consequences” that, in practice, they rendered the wellness programs involuntary.
In programs and required medical exams that are involuntary, the ADA states that employers cannot ask disability related or other personal medical questions that are not “job-related and consistent with business necessity.” There are some exceptions to this rule, but none that apply to the three employers facing suits.
On Nov. 3rd, however, the U.S. District Court for the District of Minnesota denied the EEOC’s request for a temporary restraining order and preliminary injunction against Honeywell, stating that the company’s program aims to raise awareness among its employees about their health indicators, but does not break any laws because it doesn’t require any behavior changes. The court did note, though, that the case raises interesting questions as to how the ACA, ADA and GINA will work together.
Wellness and Workers’ Comp
The Affordable Care Act requires employers to make wellness a priority in the workplace, and employers have much to gain by doing so. While there’s little research that shows a direct effect of wellness programs on workers’ comp costs, more information is coming out that supports how reducing certain risk factors can shorten claim duration and minimize claim costs. Modifiable risk factors like obesity, COPD and depression can lengthen injury recovery time.
“We see a trend in employers implementing wellness programs because they are interested in the health, welfare and longevity of their workforce,” said Bob Stoner, SVP of operations for BTE Workforce Solutions. “Healthier employees are more productive employees.”
While wellness programs typically fall in the realm of employee health benefits, administrators of workers’ comp programs should take an equal interest and work internally to coordinate their efforts.
“If you’re 50 years old and depressed, your workers’ comp claim is going to cost more than someone who is 50 but has a great support network and positive outlook,” said Karen Curran, director of health risk management at Pinnacol Assurance.
“Employers need to understand this is an evolving area, and there’s a lack of guidance from the EEOC, so we need to wait and see whether EEOC and courts will find wellness programs that are compliant with the ACA regulations to be compliant with ADA and GINA,” Friedman said. “Employers should make sure there is no discipline against an employee for refusing to participate, and I would recommend not shifting full costs of premium to employee. The safest route is to stick to participatory programs.”
Participatory programs would include things like no-cost health seminars and positive rewards for submitting to a health risk assessments, said Terri Rhodes, executive director of the Disability Management Employer Coalition. The ACA also allows for biometric screenings to be considered participatory as long as employees are not penalized based on the results or required to take further action to change the results.
Health-contingent or outcome-based programs, on the other hand, attach significant rewards or penalties to meeting specific goals, such as in a smoking-cessation or weight loss target, or anything measured around biometric standards, such as blood pressure or cholesterol. These types of programs run a higher risk of running afoul of the ADA and GINA.
“Employers need to be very careful about collection and handling of any family medical history,” Stoner said. “Employee information must be provided voluntarily and with clear written consent, and kept separate and confidential from personnel records. Wellness programs that incorporate financial penalties or incentives must be carefully crafted in order to be compliant.”
Culture Is Key
Curran said the best way for employers to avoid running afoul of the ADA and GINA is to retool their workplace safety culture to make unhealthy behaviors more difficult.
For example, one of her clients had an enclosed sunroom on their property where workers were permitted to smoke. The room was equipped with picnic tables, comfy couches, and plenty of windows and natural light.
“They were making it an enjoyable environment and making it easy for people to smoke,” she said. “That makes it hard for people to quit.” She advised that the smoking area be moved from the sunroom to an outdoor area underneath an umbrella, with no tables or chairs. That makes smoking less enjoyable and quitting a little bit easier to commit to. It also doesn’t violate any laws because the company was not taking away any employee’s right to smoke nor asking them to join a cessation program, but simply asking them to smoke in a different area of the campus.
“It’s not so much about the program as it is about engaging your workforce,” Rhodes said. “I think that’s something employers struggle with, especially with a multi-generational workforce.”
Curran also advised sprucing up stairways with colorful paint and adequate lighting and slowing down elevators to encourage taking the stairs. Adding healthy snacks to vending machines and raising the price of candy bars slightly to offset the expense is another way to “make the healthy choice the easy choice.”
“Look at what you can do to create a culture of wellness, and the ADA doesn’t even come into play,” she said.
3 + 3: Theory of Risk
Anthony Valsamakis doesn’t just practice risk management, he wrote a book about it. And he doesn’t just consult with quants, he is one.
“Risk management has been in my blood for so long that I have to stop myself, otherwise I could go into a two-hour monologue,” said Valsamakis, whose career in the discipline goes back almost 35 years, to his first job with the Standard General Insurance Company.
In 1990, the London-based chairman of the Eikos Group received a doctorate in Business Economics. In 1992, “The Theory & Principles of Risk Management” was published, with Valsamakis the principal author, and is now in its 4th edition.
Valsamakis worked first with a carrier, then as a commodities broker, before taking up an academic post. The company he started in 1999, the Eikos Group, has a risk consulting arm, with clients in most industrial sectors, including the food, mining, forestry, industrial paper and packaging and banking industries. The group also includes a transportation risk brokerage and a Bermuda-based carrier.
“I think the idea of having a secure data base that everyone can access and can update at any moment is by far the best innovation that I can see happening in the information game.”
– Anthony Valsamakis, Chairman, Risk Financing Strategy, Eikos Group
For as long as he can remember, Valsamakis sought ways to get better information on the risks he underwrites, brokers or consults on.
“Over many years we’ve tried hard to increase the quality and timeliness of the information that enables us to do just that,” Valsamakis said.
Finally, it looks like Valsamakis has found a risk management information systems platform that enables him to do just that.
For the past year and a half, Valsamakis has been using a system developed by Riskonnect.
“What’s useful for me is that the platform basically resides within the client’s systems,” he said.
The information he needs to prioritize, depends on which client he is working with.
“By definition, depending on where I am working and what I am doing, risk management priorities are very different,” Valsamakis said.
The Riskonnect platform provides the necessary flexibility.
A mine, for example, could be in a location in Africa or South America with a high degree of political risk. A key risk for a furniture maker might be around trade secrets, the possibility that a disgruntled employee would leak a pricing catalogue to competitors. For a packaging manufacturer, their material supply chain is of the utmost importance, and so on.
For each client, Valsamakis can use Riskonnect platform and work with the client to compile the information that is most relevant to that client and its industry and enter that into a secure system.
“All of these are template facts that you can easily put into the Riskonnect system,” Valsamakis said.
The Riskonnect platform is housed within the client’s information technology system, and it is transparent enough, to give Valsamakis and his client access to the same sets of data.
“I think the idea of having a secure data base that everyone can access and can update at any moment is by far the best innovation that I can see happening in the information game,” he said.
Whose System Is It?
Valsamakis has been around long enough to know a few things about data and risk transfer. He’s seen a number of risk information management systems put out by brokers, for example, that he thinks are set up more for the broker’s business model than for the sharing of information.
Generally speaking, information about an insured’s risks come from the broker and the insured. The Riskonnect system works, according to Valsamakis, because it is designed to be adapted to the client, not the broker.
“I have seen efforts by brokers, for example, over the years to produce a type of risk information platform that becomes theirs,” Valsamakis said.
“It’s been a perennial problem in the industry, where depending on which broker you end up with, you’ll end up with system A, B or C,” he said.
The Underwriter Needs to Know
Using Riskonnect, Valsamakis encourages clients to be as transparent as possible, in order to give the most complete information to underwriters.
“For me the question is, ‘What is the volatility around the asset and can there be an impact on the balance sheet of our clients?’” he said.
“We need to describe this exposure in various contexts so that the underwriters know what they are covering,” he said.
It’s basic human psychology. If an underwriter doesn’t feel they are getting enough information about a particular risk, they will take a negative view of that risk.
The more accurate the information Valsamakis has about a client’s exposures, the better the pricing he gets from underwriters.
“If you were an underwriter putting your capital and risk and I gave you little information, you would actually be less inclined to look at the risk in favorable terms. There will be a natural inclination to downgrade it,” he said.
Where Valsamakis sees enormous value is in the Riskonnect system ability to tag which can be revisited at a later stage.
“It’s amazing how clients forget, in the passage of time, that there are profiles that have changed for better or worse.”
A Long-Term Investment
The Eikos Group invested significantly in the Riskonnect product and are taking it to a number of clients. The transparency of the system and the advantage it gives the Eikos Group and its clients with underwriters is in itself a business advantage over the competition.
“We made a decision as a small company, relatively speaking, to invest a lot of money in Riskonnect and be very proactive about it,” Valsamakis said.
“When I talk to executives I say we invested in it because it’s going to save our clients money. Better information will lead to a lower cost of risk,” he said.
“If I’m talking to someone at a high level, that’s fairly easily understood.”
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Riskonnect. The editorial staff of Risk & Insurance had no role in its preparation.