PBMs Under Scrutiny

PBM Legislation Worries Workers’ Comp Payers

Legislation to regulate group health pharmacy benefit managers could impact workers' comp payers.
By: | February 5, 2014
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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.”

Brian Allen, VP of government affairs for Progressive Medical

Brian Allen, VP of government affairs for Progressive Medical

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.

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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.

Roberto Ceniceros is senior editor at Risk & Insurance® and chair of the National Workers' Compensation and Disability Conference® & Expo. He can be reached at [email protected] Read more of his columns and features.
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Legal Developments

Growing Pains in the Sharing Economy

Experts expect not much will change regardless of the outcome of the Uber employment-classification appeal.
By: | July 1, 2015 • 5 min read
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A recent finding that an Uber driver is an employee rather than an independent contractor has focused attention on the future of the sharing economy.

Whatever that future, observers don’t expect that the sharing economy, with its business models that rely on smartphone apps like Uber’s, will have a significant impact on workers’ compensation insurance.

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They are, however, watching to see how state labor commissions, courts and legislatures nationwide will address the employment status of people providing a range of services through technology platforms such as those offered by ride-sharing companies like Uber and its rival Lyft.

“We are very interested,” said Peter Burton, senior division executive for state relations at NCCI Holdings Inc., a workers’ comp ratings and research organization.

“We actively are watching work comp commission decisions as well as legislative decisions.”

But NCCI’s interest in how states will eventually rule on whether workers in the sharing economy will be legally designated as contractors or employees is mostly technical. NCCI wants to stay abreast of matters, for instance, should it need to develop new rates.

So far, there have been few definitive legal determinations on the classification of on-demand workers, and whether app companies linking them to customers must purchase workers’ comp insurance. Consensus may also be elusive.

“It’s going to have to be adjudicated state by state and you are probably going to have all sorts of different opinions,” Burton said.

“Right now it’s still uncharted ground.”

The issue of whether the sharing economy’s on-demand workers should be classified as employees and legally entitled to a range of benefits and expense reimbursements has surfaced before.

“It’s going to have to be adjudicated state by state and you are probably going to have all sorts of different opinions. Right now it’s still uncharted ground.” — Peter Burton, senior division executive for state relations,
NCCI Holdings Inc.

But the topic recently gained increased attention when news stories reported that rapidly-growing Uber — valued at $40 billion — is appealing a California Labor Commission finding that a former chauffeur was an employee rather than an independent contractor as the company classifies its drivers.

The Labor Commission said that Uber could not exist without the work performed by the former driver. It essentially found that Uber exercised enough control over how the driver conducted her work to make her an employee. The ruling requires Uber to reimburse the former driver $4,152 in expenses and interest.

Uber argued that it is merely a technology company that allows drivers and passengers to conduct transportation business. It filed its appeal of the Commission’s ruling to a San Francisco County trial court on June 16.

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The California Labor Commission’s decision applies to a single plaintiff. But the case’s eventual outcome, and other ongoing cases including class-action lawsuits with similar allegations against a range of sharing-economy app companies, could substantially impact Uber’s profitability and business model.

However regulators and courts in California and other states decide the employment-classification issue, the overall impact on workers’ comp insurer operating results will not be significant, said Robert P. Hartwig, president of the Insurance Information Institute.

If courts and regulators find that sharing economy companies are employers, then workers’ comp insurers would gain only modest opportunity to write new coverage for workers not currently covered by comp policies, he added.

“It would bring the payrolls associated with tens of thousands of workers into the workers comp exposure base,” Hartwig said. “The vast majority of which is not there right now. That would represent a modest opportunity for some insurers who are inclined to write these.”

Any premium volume growth would be limited because the number of people participating in the sharing economy is “very small,” Hartwig explained. About 7 percent of the U.S. population aged 18 and older has engaged in providing sharing-economy services.

Their participation typically is limited, rather than full time, and mostly conducted to supplement other income, Hartwig added. For instance, about 16 percent of people over the age of 65 have participated in the sharing economy, doing so to earn additional income.

Any new revenue workers’ comp insurers might gain from a group of newly insured workers could be offset by losses, Burton said. Insurers already understand how to rate taxi and limousine companies, but time would tell whether losses for ride-sharing companies differ.

Hartwig also wouldn’t expect significant impact on insurers should labor departments and courts take the opposite position, finding that people providing sharing-economy services are not employees.

Evidence does not exist that workers leave traditional jobs, where they are counted as part of employer payrolls and employers’ workers’ comp insurance exposure base, to exclusively participate in on-demand economy work, he said.

“There would be some very small amount of leakage from the overall payroll base to the extent that some occupations can migrate on net to this online platform, but that leakage is very, very small,” Hartwig said.

While there have been scant definitive rulings nationwide on whether shared economy participants are employees or independent contractors, “in most cases we have seen states leaning toward the side of independent contractor status,” Burton said.

That is consistent with Uber’s position.

In a June 19 press release announcing that it will appeal the California Labor Commission ruling, the San Francisco-based company said six states have found that Uber drivers perform services as independent contractors.

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Uber also said that the recent California Labor Commission ruling is contrary to a previous finding by the same body. In 2012 the Commission ruled that a driver performed services as an independent contractor and not as an employee, Uber said.

“It’s important to remember that the number one reason drivers choose to use Uber is because they have complete flexibility and control,” the release states.

“The majority of them can and do choose to earn their living from multiple sources, including other ride sharing companies.”

Roberto Ceniceros is senior editor at Risk & Insurance® and chair of the National Workers' Compensation and Disability Conference® & Expo. He can be reached at [email protected] Read more of his columns and features.
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Sponsored Content by AIG

Preparing for and Navigating the Claims Process

Be clear on what your organization's policy does and does not cover before you need it.
By: | July 1, 2015 • 5 min read
SponsoredContent_AIG

All of a sudden – it happens.  The huge explosion in the plant.  The executive scandal that leads the evening news.  The discovery that one of your company’s leading products has led to multiple consumer deaths due to a previously undiscovered fault in its design.  Your business and its reputation, along with your own, are on the line.  You had hoped this day would never come, but it’s time to file a major claim.

Is your company ready?  Do you know – for certain – how you would proceed, both internally with your own employees, and externally, with your insurance provider?  What data will you need to provide, and how quickly can you pull it together?  Do you know – and understand – the exacting wording of your policy?  Are you sure you are covered for this type of incident?  And even if you are a multinational with a global policy, how old is it, and is your coverage in concert with any recent changes in the laws of the country and local jurisdiction in which the incident occurred?

As should be clear from these few questions, if you organization is hit with a major event and you need to make a claim, just knowing that you are current with your premium payments is not enough.  Preparation before the event ever occurs, strong relationships with your insurance team, and a thorough understanding of what needs to happen throughout the claims process are all essential to reaching a satisfactory claim settlement quickly, so that a long business disruption and further damage are avoided.

Get Ready before Disaster Strikes

SponsoredContent_AIGThe Boy Scout motto, “Be prepared,” applies equally well to organizations that may suddenly be faced with the need to navigate the complexities of the claim process – especially for large claims following a major crisis.  Crises are by nature emotional events.  Taking the following steps ahead of time, before disaster strikes, will help avoid the sense of paralysis and tunnel vision that often follows in their wake.

Open up a dialogue with your insurer – today.

For risk managers and others who will be called upon to interface with your insurer in the event of a crisis, establishing open and honest lines of communication now will save trouble and time in the claims process.  Regular communication with your insurance team and keeping them up to date on recent developments in your organization, business and manufacturing processes, etc., will provide them with a better understanding of your risk profile and make it easier to explain what has happened, and why, in the event you ever have to file.  It will also help in the process of updating and refining the wording in existing policies to reflect important changes that may impact a future claim.

Conduct pre-loss workshops to stress-test your readiness to handle a major loss.

Firefighters conduct frequent drills to ensure their teams know what to do when confronted with different types of emergencies.  Commercial airline pilots do the same.  Your organization should be no different.  Thinking through potential loss scenarios and conducting workshops around them will help you identify where the gaps are – in personnel, reporting structures, contact lists, data maintenance, etc., before a real crisis occurs.  If at all possible, you should include your insurance team and broker (if you have one) in these workshops.  This will not only help cement important relationships, but it will also serve to further educate them about your organization and on what you will need from them in a crisis; and vice versa.  The value to your organization can be significant, because your risk management team will not be starting from zero when you have to make a claim.  Knowing what to do first, whom to call at your insurer, what data they will need to begin the claims process, etc. – all of this will save time and help get you on the road to a settlement much more quickly.

Know what your policy covers, before you need it.

SponsoredContent_AIGThis advice may sound obvious, but experience has shown that all too often, companies are not aware, in detail, of what their policies cover and don’t cover.  As Noona Barlow, AIG head of financial lines claims Europe has noted, particularly in the case of small to mid-size organizations, “it is amazing how often directors and risk managers don’t actually know what their policy covers them for.”   This can have dire consequences.  In the case of D & O insurance, for example, even a “global” policy many not cover all situations, because in some countries, companies are not allowed to indemnify their directors.  Obviously, these kinds of facts are important to know before rather than after an incident occurs.  So it is important to have an insurer with both a broad and deep understanding of local laws and regulations wherever you have exposure, in addition to an understanding of the technical details of working through the claims process.

Make sure your data management policies are in order.

Successful risk management depends on having consistent, high-quality data on all of your risk-sensitive operations (manufacturing, procurement, shipping, etc.), so that you can quantify where the greatest risks sit in the organization and take steps to reduce them.  Good data, complemented by strong analytics, will also help you to identify potential problems before they occur.  It will also help you to maximize the effectiveness of your insurance purchasing decisions.  Frequent, detailed conversations with your insurer will help you to identify any areas where additional data might be needed in the event of a crisis.

No one ever wants to find themselves in the midst of a crisis.  But if and when such an event does strike, if you have taken the steps above you will be much better positioned to work through the claims process – and reach an effective resolution – as quickly and as smoothly as possible.

For more information, please visit the AIG Knowledge and Insights Center.

This article was produced by AIG and not the Risk & Insurance® editorial team.



AIG is a leading international insurance organization serving customers in more than 100 countries.
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