3 New Unintended Consequences of Health Care Reform
As the Affordable Care Act (ACA) continues its gradual and bumpy rollout, health care providers are utilizing various strategies to comply and adapt. Many of these approaches, some of which include M&A activity, IT upgrades and shared service agreements are now creating new risks of their own.
1. Continuity of Care
Many aspects of the ACA and other healthcare trends are driving M&A or shared service agreements among hospitals, physicians and other providers. These new relationships can present serious challenges for managing a patient’s treatment across different organizations.
“There’s a risk that one organization might not provide care consistent with the other,” said Dan Nash, national healthcare practice leader, Zurich in North America. “Oftentimes, it’s not contractually required for them to do so.”
Patients being transferred from system to system might be exposed to different approaches to care and different levels of treatment.
Care managers can do a lot to help alleviate risks associated with continuity of care. Having a “concierge” that knows how each system operates can make transitions much easier for patients and explain why treatments differ from system to system.
“There’s a risk that one organization will not provide care consistent with the standards of the other. Oftentimes, it’s not contractually required for them to do so.”
— Dan Nash, National Healthcare Practice Leader, Zurich North America
“It creates a feeling that they’re working together,” said Dan Nash, national healthcare practice leader, Zurich in North America. “If you have a care manager through the process, it can give the patient a level of comfort that takes away anxiousness,” said Nash. “Then they feel like they’re being taken care of.”
Between the Health Insurance Portability and Accountability Act, the U.S. Department of Health and Human Services and a long list of other government organizations and mandates, there are serious demands on health systems.
“Real estate may be all about location, location, location but healthcare is all about compliance, compliance, compliance,” said Nash.
A lot of risk managers are focused on digital-related exposures, but a significant amount of serious data breaches are still the result of “paper losses.”
“One example happened on a subway in 2009 when a hospital worker left records for 192 patients on a train,” said Nash about an incident involving a mid-Atlantic hospital “It led to the hospital paying $1 million to the government in 2011 to settle the potential HIPAA violations.”
Despite the risks, health care providers are still reluctant to buy coverage around it.
“People used to look at banks with an eye toward their brick-and-mortar locations. ‘My money is safe because it’s housed within those walls,’ they’d think. While that thinking is antiquated when dealing with finances, it still rings true in the health care world,” said Nash.
“Often customers we talk to say it’s important, but not in budget this year,” said Nash. Furthermore, their IT departments seem to think they’ve got the problem figured out on the digital side and companies generally don’t pay enough attention to the possibility of paper losses.
To help combat the risk, Zurich offers to qualified customers a Breach Coach consulting service, during which an experienced cyber breach risk engineering consultant can assess where businesses are most vulnerable to a data loss.
3. Outpatient Treatment
Currently, 60% of hospital services are delivered inpatient with 40% of care delivered through outpatient facilities. Under the Affordable Care Act, the proportion will likely be reversed, so that 60% of care is delivered through outpatient facilities.
“It’s risky because patients generally see hospitals as places where they are safer in the event of an adverse reaction,” said Nash. “They might not have that same sense of security with an outpatient facility.
Nash compared that notion to the way many Americans thought about banks 20 or 30 years ago.
“People used to look at banks with an eye toward their brick-and-mortar locations. ‘My money is safe because it’s housed within those walls,’ they’d think. While that thinking is antiquated when dealing with finances, it still rings true in the health care world,” said Nash. “People feel safer and think they’re getting better care if they’re in a large hospital. At an outpatient facility, that comfort level isn’t the same.”
Another risk of having more outpatient procedures is that the health care provider has less time for observing patients. With patients going home after their procedure, it becomes even more important for the patient to carefully follow instructions: like taking medicine at scheduled times and doing proper rehab. Any health care provider can tell you that’s never guaranteed. But even if they don’t follow the care instructions, the hospital is still responsible.
This article was produced by Zurich and not the Risk & Insurance® editorial team.
Note: This content is provided for informational purposes only. Please consult with qualified legal counsel to address your particular circumstances and needs. Neither Risk & Insurance® nor Zurich are providing legal advice and assume no liability concerning the information set forth above.
Coping with Cancellations
Airlines typically can offset revenue losses for cancellations due to bad weather either by saving on fuel and salary costs or rerouting passengers on other flights, but this year’s revenue losses from the worst winter storm season in years might be too much for traditional measures.
At least one broker said the time may be right for airlines to consider crafting custom insurance programs to account for such devastating seasons.
For a good part of the country, including many parts of the Southeast, snow and ice storms have wreaked havoc on flight cancellations, with a mid-February storm being the worst of all. On Feb. 13, a snowstorm from Virginia to Maine caused airlines to scrub 7,561 U.S. flights, more than the 7,400 cancelled flights due to Hurricane Sandy, according to MasFlight, industry data tracker based in Bethesda, Md.
Roughly 100,000 flights have been canceled since Dec. 1, MasFlight said.
Just United, alone, the world’s second-largest airline, reported that it had cancelled 22,500 flights in January and February, 2014, according to Bloomberg. The airline’s completed regional flights was 87.1 percent, which was “an extraordinarily low level,” and almost 9 percentage points below its mainline operations, it reported.
And another potentially heavy snowfall was forecast for last weekend, from California to New England.
The sheer amount of cancellations this winter are likely straining airlines’ bottom lines, said Katie Connell, a spokeswoman for Airlines for America, a trade group for major U.S. airline companies.
“The airline industry’s fixed costs are high, therefore the majority of operating costs will still be incurred by airlines, even for canceled flights,” Connell wrote in an email. “If a flight is canceled due to weather, the only significant cost that the airline avoids is fuel; otherwise, it must still pay ownership costs for aircraft and ground equipment, maintenance costs and overhead and most crew costs. Extended storms and other sources of irregular operations are clear reminders of the industry’s operational and financial vulnerability to factors outside its control.”
Bob Mann, an independent airline analyst and consultant who is principal of R.W. Mann & Co. Inc. in Port Washington, N.Y., said that two-thirds of costs — fuel and labor — are short-term variable costs, but that fixed charges are “unfortunately incurred.” Airlines just typically absorb those costs.
“I am not aware of any airline that has considered taking out business interruption insurance for weather-related disruptions; it is simply a part of the business,” Mann said.
Chuck Cederroth, managing director at Aon Risk Solutions’ aviation practice, said carriers would probably not want to insure airlines against cancellations because airlines have control over whether a flight will be canceled, particularly if they don’t want to risk being fined up to $27,500 for each passenger by the Federal Aviation Administration when passengers are stuck on a tarmac for hours.
“How could an insurance product work when the insured is the one who controls the trigger?” Cederroth asked. “I think it would be a product that insurance companies would probably have a hard time providing.”
But Brad Meinhardt, U.S. aviation practice leader, for Arthur J. Gallagher & Co., said now may be the best time for airlines — and insurance carriers — to think about crafting a specialized insurance program to cover fluke years like this one.
“I would be stunned if this subject hasn’t made its way up into the C-suites of major and mid-sized airlines,” Meinhardt said. “When these events happen, people tend to look over their shoulder and ask if there is a solution for such events.”
Airlines often hedge losses from unknown variables such as varying fuel costs or interest rate fluctuations using derivatives, but those tools may not be enough for severe winters such as this year’s, he said. While products like business interruption insurance may not be used for airlines, they could look at weather-related insurance products that have very specific triggers.
For example, airlines could designate a period of time for such a “tough winter policy,” say from the period of November to March, in which they can manage cancellations due to 10 days of heavy snowfall, Meinhardt said. That amount could be designated their retention in such a policy, and anything in excess of the designated snowfall days could be a defined benefit that a carrier could pay if the policy is triggered. Possibly, the trigger would be inches of snowfall. “Custom solutions are the idea,” he said.
“Airlines are not likely buying any of these types of products now, but I think there’s probably some thinking along those lines right now as many might have to take losses as write-downs on their quarterly earnings and hope this doesn’t happen again,” he said. “There probably needs to be one airline making a trailblazing action on an insurance or derivative product — something that gets people talking about how to hedge against those losses in the future.”
Sparking Innovation and Motivating Millennials
Two trends in the insurance industry, if they continue, could compromise its vitality in today’s fast-paced, technology-driven business world: slow innovation and a scarcity of millennial talent.
The quests to develop innovative solutions and services and to recruit young people to the field have raised concerns in the industry for several years, causing some insurers to think about how they will stay viable in the future when senior-level managers begin to retire.
But Lexington Insurance Company, a member of AIG, may have found a way to spark innovation that also engages millennial minds.
Innovation Boot Camp started three years ago as a one-off project meant to identify young, high-potential employees, give them exposure to senior management and evaluate their teamwork and leadership capabilities.
“The original concept was fairly straightforward. We would bring together a group of about 30 high potential employees for some semblance of team project work and it would allow management to gauge and assess talent,” said Matt Power, Executive Vice President, Head of Strategic Development, Lexington Insurance.
Little did he know how well the program would not only generate a plethora of innovative ideas that would drive the company forward, but also reinvigorate younger employees.
“The boot camps would be focused on innovation, with the idea that if we ended up with a concept or product that we could commercialize, then the boot camp would have been effectively self-funded. When they came back at the end of the 12 weeks, we were absolutely shocked because they produced about half a dozen products that have since been commercialized and are in some phase of being rolled out.”
— Matt Power, Executive Vice President, Head of Strategic Development, Lexington Insurance
New Ideas Emerge
The inaugural Innovation Boot Camp began with a two-day kick off meeting for participants— consisting of six teams with five or six participants. Each team was tasked with developing a business plan, and began to connect virtually over the next 12 weeks. The plan would culminate in a presentation to a senior management judging panel at the program’s conclusion.
“The boot camps would be focused on innovation, with the idea that if we ended up with a concept or product that we could commercialize, then the boot camp would have been effectively self-funded,” Power said. “When they came back at the end of the 12 weeks, we were absolutely shocked because they produced about half a dozen products that have since been commercialized and are in some phase of being rolled out.”
Power credits the program’s success in part to the participants’ youth. They were tuned in to different trends and issues than their more experienced counterparts.
Cyberbullying, for example, was a problem that didn’t exist for Power and his contemporaries as they grew up, but was salient for millennials. Based on the presentation of one group, Lexington developed coverage on their personalized portfolio for exposures associated with cyberbullying.
Likewise, “they educated us on the emergence of the craft brewing industry and how rapidly it was growing in the U.S.,” Power said. “That led to us launching a whole suite of products for craft brewers.”
Another team brought forth the concept of how rapid sequencing laser photography could be used to create a three-dimensional picture of a construction work site. That would allow contractors or claims managers to virtually walk through the site at a given point in the construction process to identify deviations from the original blueprint plans.
The images could memorialize the building process down to the millimeter, to every screw and wire. If a loss emerges later on due to a construction defect, the 3D map would be a valuable investigation tool.
Innovation Boot Camp proved so successful that Lexington expanded it to other arms of AIG all over the world.
“Suddenly we started getting calls from London, Copenhagen, Brazil,” Power said. “We were doing these programs for our global casualty team, for our lead attorneys in New York, for our financial lines group, and so on. We recently embarked on the 16th iteration of this program in London, with additional programs in the works.
“It’s a journey that has evolved from trying different things and not being afraid to fail, not being afraid to try new ways of thinking about the business.”
Engaging Millennial Minds
In addition to generating new product ideas, Innovation Boot Camp also engages younger employees more fully by offering the opportunity to make meaningful contributions to the company through independent work that requires some creative thinking.
Past participants are often great crusaders for the program.
“A program like IBC is something rarely seen at a large corporate conglomerate, and really a concept for new age startup companies,” said Alyson R. Jacobs, Vice President, Broker and Client Engagement Leader in AIG’s Energy & Construction Industry Segment. “But we were given a chance to work with people of all different professional backgrounds, and that environment unearthed concepts and solutions that have made a significant impact in the lives of our insureds and their employees.”
The chance to do work that makes a difference, both for the success of their company as well as the clients its serves, is what attracts millennial employees to the program and motivates them to devote their best effort to the project.
“Millennials want to be able to share their ideas and make meaningful contributions at work,” Power said. “Innovation Boot Camp has evolved into the perfect forum for that.”
David Kennedy, Esq., Product Development Manager for Lexington Insurance and former Coach for two Innovation Boot Camps, said the program engenders an “entrepreneurial spirit of developing something new, of applying analytical rigor to emerging risks to create unique and timely solutions for our clients and the marketplace.”
Exposure to senior executives doesn’t hurt either.
“It provided a platform for me to not just interact with our Senior Executive leadership but present a concept that could potentially be adopted by our company in the future,” said Ryan Pitterson, Assistant Vice President, AIG. “It helps to build your internal network, elevate your profile in the company and connects you with our client base as well.”
At a time when recent college graduates choose employers based on how much opportunity they’ll be given to have meaningful input — as well as opportunities for advancement — projects like Innovation Boot Camp could be the answer to the insurance industry’s struggle to pull in millennials.
“We give them the time, space and resources to create something new,” Power said. “When employee engagement is done right, it inspires passion and creativity.”
As multiple arms of AIG adopt Innovation Boot Camp around the globe, both the quantity and quality of new ideas are bound to flourish.
“The bottom line is, many heads are greater than one, and AIG has figured out how to leverage this. AIG hears their employees’ voices and enables those ideas to take our company into the future,” Jacobs said.
To learn more about Lexington Insurance, visit http://www.lexingtoninsurance.com/home.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Lexington Insurance. The editorial staff of Risk & Insurance had no role in its preparation.