Cavalcade of Risk: The Spamalot Version

It’s our turn to host the “Cavalcade of Risk,” which is what they call a “blog carnival.”  Blog carnivals are collections of linked posts around a common theme.  In this case, that theme is “risk” – its concepts, theory, and applications.  Risk topics can include economics, insurance, public, policy, and health.  Unfortunately a lot of people seem to have found the “Risk” heading and decided it would be a good target for posts that sell their services in the area of personal finance.   So it’s turned into a Cavalcade of Spam.

Some of these “submissions” are from”cash loan” sites.  Others are headlines “Stock Trading Riches.”  Some have only one post on the entire blog.  One isn’t even about personal finance.  It reads:  “Our team of designers came up with the ultimate wedding limousine and party ride that you can rent out for your night out in new york, new jersey, or Connecticut for a very low hourly rate. ”

This is a carnival, people, not a circus!

End of rant.  Some postings from respected friends, colleagues, and new but clearly well-informed people were buried in that torrent of spamvertisements, and we happily cite them below (some other worthy posts were only marginally relevant, or repeated well-known ideas, and were cut for space reasons):

Jason Shafrin presents Why the CDC ignored Swine Flu warnings: Type I vs. Type II Errors posted at Healthcare Economist, saying, “Why did the CDC and WHO ignore early warnings of a flu outbreak in Mexico? The concept of Type I and Type II errors may help to explain their thinking.”  Good stuff.

Michael F. Cannon’s take on the Obama Health Summit in Cato At Liberty is that the misunderstanding about the industry commitment to health savings was the Administration’s fault. He writes that “…the event was a fraud.  And the industry got burned.”

John Leppard at Health Care Manumission wasn’t psyched about that summit, either.

I (Richard Eskow) wrote in The Sentinel Effect about a risk management (and Bono-like “one world”) perspective on the swine flu – as a personal vs. collective threat – in “The Swine Flu, The Universe, and Everything.”

The Loreen blog reports that certain mental health meds may increase one’s risk of cardiac death.

At Mostly Economics, blogger Amol Agrawal discusses risk management issues.

Bob Vineyard at Insureblog suggests that proposed new taxes actually mean the government will come to depend on risky health behaviors like smoking and drinking for income. (Or, I suppose, the behaviors will diminish and costs will go down.) He also challenges the spurious-sounding assumption that HSAs encourage overconsumption of resources.

Jaan Sidorov of the Disease Management Care Blog shows how much he likes (or at least respects) actuaries in this review of a Milliman report on how to reduce the health care cost trend.  He supplements their recommendations with observations on how the Milliman suggestions can make a big difference.

David Williams at the Health Business Blog celebrates the progress demonstrated by the fact that people with AIDS can now buy life insurance.

Nancy Germond at AllBusiness.com – Risk Management for the 21st Century looks at how health reform could impact small business, reflecting on the cost-benefit of wellness programs (although small business health care tends to be fully insured and therefore less sensitive to these interventions).

And speaking of risk! Jon Coppelman of Workers Comp Insider looks at texting while operating motor vehicles on the job.  If U R texting U R crazee.  But I have to go now.  I’m posting this while operating my car, and I need both hands to downshift now.

Texting while driving would be so hard if it weren’t for all that freakin’ spam.

The Impact of Reform on California Workers’ Comp Costs

The Workers’ Compensation Insurance Rating Bureau has released its results on 2006 workers’ compensation costs in California. Reform has saved a great deal of money, as predicted. What’s interesting is where it’s saved money.

Estimated ultimate total loss per indemnity claim is down from the $48,000 range in 2000-02 to $39,851. But most of that savings comes from the indemnity side. Ultimate indemnity’s down from the $20-22,000 range to $13,640. But ultimate medical isn’t down at all. It was $25,567 in 2001, and $26,309 in 2002. But after a u-shaped dip, it was back to $26,211 in 2006.

Hospital payments were down more than 17% from 2005 to 2006. Pharmacy and physician payments dropped slightly in the same one-year period. Total medical was flat for the two years, so cost drivers for this high ultimate medical costs lies elsewhere. (Where isn’t obvious from the available data.)

There is much higher usage of medical networks, from 33% in 2002 to 62% in 2005. That was expected, too. What the report doesn’t state is whether networks themselves had any impact on utilization, or whether their effect was primarily limited to reducing the unit cost of services provided.

Indemnity claims frequency is way down from the last decade, but there’s no reason to assume that the change is driven by reforms. (At least, to my knowledge.)

Physical therapy utilization dropped 66 percent, and chiropractic utilization 82 percent, but both these were the expected result of reforms. The number of medical visits per claim dropped, although the percentage changed based on fee schedule and diagnostic variations. Overall, the number of visits per claim dropped by 9%, whereas visits per claim were increasing at a significant clip before reforms.

It’s reasonable to assume that this reduction in the number of visits also reduced case durations, and therefore had a ‘shadow effect’ that drove indemnity costs down as well.

What’s next? Pushback from the California Applicants’ Attorney Association, for one. Their arguments, especially against reductions in permanent disability costs, may get a sympathetic hearing now that results are so much better for the insurance industry.

What hasn’t changed? Loss adjustment expenses haven’t gone down. That means it still costs the insurance company just as much to administer a claim as it did before. That’s the least surprising result of all.

health wonk review: the daily double

It’s my turn once again to host the Health Wonk Review, and this gang has gone absolutely wild! Apparently it was Daily Double Week for the Review, with Joe Paduda heading the list of contributors who offered dual postings. That left us with 24 entries, so let’s get right to it (and if I’ve overlooked your entry drop me a line):

Joe Paduda says there’s a “pre-lash” against consumer directed health plans – that’s a backlash before something happens, says Joe. Then, ever helpful soul that he is, he recommends some fixes to help CDHP purveyors from feeling the sting of the lash.

David Harlow of the HealthBlawg looks at the new IRS position paper on EHRs, and follows up with a discussion of binding arbitration between nursing facilities and their residents. Nice double-down, dawg.

Roy Poses, MD summarizes the new information coming out about Avandia and possible cardiovascular risk, following up with some lessons learned and observing that some reports suggest the FDA may have known of the risk for seven years and done nothing.

Bob Laszewski offers an invaluable guide to the Democratic Presidential candidates’ health plans, with some interesting observations about the politics involved. He also notes the lack of detailed plans on the Republican side, and suggests that may be a miscalculation. (Bob didn’t submitted two posts, but I thought they were both valuable.)

I (Richard) looked at those various reform plans and offered some advice for employers in a changing environment, in a post called Health Reform: What Should Business Do?

Jon Coppelman analyzes Massachusetts’ low comp rates – a boon for employers – looking at who’s subsidizing this good news and the factors that might change the situation going forward. A valuable resource for comp mavens.

David E. Williams only offered a single submission – but it’s called Double For Nothing. He compares wait times in the US with those under other national systems. He observes that, while critics of health reform point to the waiting lists common in other systems, we’re not doing very well in this country either.

Matthew Holt takes on free-marketer Amy Ridenour with a singularity of purpose here.

Vince Kuraitis of theHealth e-CareManagement blog has an interesting post about disease management going mobile (wasn’t that a Who song?) and being distributed on a retail basis. That’s the kind of story that piques my interest from the perspectives of investment, social behavior, and technology.

Henry Stern, LUTCF, CBC presents Insurance going to the dogs (and cats)? posted at InsureBlog, saying, “When Fido (or Fluffy) need medical care, do you reach for his/her insurance card? Surprisingly, a lot of folks do.” Why did I have my cat spayed? I don’t mind paying for her coverage, but those dependent premiums were killing me.

Shaheen Lakhan presents Defining Malpractice During an Emergency Evacuation posted at GNIF Brain Blogger. Interesting issue – is failure to evacuate during an emergency a form of malpractice? Med mal insurers, take note: This could be you next time.

Jason Shafrin presents Will Medical IT increase cost? Is slow adoption better? posted at Healthcare Economist. This is an important topic for economic analysis, since the Democratic candidates’ health platforms are predicated on a decrease in cost via IT.

Pay-For-Performance: Does It Work?

A study in this month’s New England Journal of Medicine will not end debate on the topic of performance incentives for healthcare. The Centers for Medicare and Medicaid Services conducted a pilot program (administered by nonprofit hospital consortium Premier, Inc.), and will shortly issue $8.7 million in incentive payments.

When correcting for all the relevant variables, hospitals enrolled in the incentive program only performed 2.6% to 4.1% better than nonparticipants, depending on the condition being evaluated.

(“Better” is defined, in this case, as closer adherence to a predefined set of treatment guidelines. This study did not address medical outcomes. In the old medical data analysis lingo, it addressed “process” rather than “structure” or “outcome.”)

The Wall Street Journal quotes one professor of medicine as saying the impact of the program was “very modest.” That may be generous. The New England Journal’s editor, Arnold Epstein M.D., suggests that the difference may be entirely attributable to the “selection effect” – that is, that the hospitals that enrolled did so because they believed they were already achieving the program’s goals. That’s a plausible explanation, and the topic deserves further study.

24-Hour Care: Back to the Future

A little-noted provision of Gov. Schwarzenegger’s health plan will implement a pilot program to study the effectiveness of “24-hour care,” using members of the CalPERS benefit program for state employees. It’s not clear whether the pilot will include some or all CalPERS enrollees, although other private employers will have the right to opt into the plan.

24-hour care is among the most-“piloted” concepts in health insurance history. Formal pilots go back to the 1980’s with CIGNA and other large carriers, and informal programs date back as far as the 1960’s. I’ve participated in a number of these experiments myself.

There are many reasons why 24-hour care might be attractive. Allowing people to use familiar doctors for a work-related injury seems more reasonable. There should be no need for two separate health bureaucracies, and there is the hope that combining the two systems might create administrative savings. Lastly, medical expenses under workers’ compensation are considerably higher than they are for similar conditions under health insurance.

It’s easy to understand why comp insurers might be attracted to a 24-hour care program. As far back as a decade ago, studies documented that medical expenses are higher under workers’ comp. One study showed that injured workers in California had 8.4 times as many physician visits per injury, with 2.5 times as many lab tests and surgeries, as those whose injuries weren’t covered by workers’ comp.(1)

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But some fundamental design issues have never been addressed in the 24-hour concept. First, workers’ compensation is an exclusive remedy based on a compact between the employer and employee.  Exclusive remedy says, in effect, that employees waive their right to a lawsuit in return for full coverage of their injury. That means that injured workers have no out-of-pocket costs in workers’ comp, while universal coverage plans like the Governor’s and Sen. Ron Wyden’s include deductibles and copays.

Eliminating out-of-pocket costs would dramatically increase the cost of providing health insurance, both by eliminating patient contributions and by removing incentives that (rightly or wrongly) discourage some treatment from taking place.

Secondly, workers’ comp places very different financial incentives on insurance companies than health insurance does. Insurers pay for a work comp injury “from cradle to grave” – or, from the time of injury until the case is closed (either by recovery or death.) And they pay for salary replacement and other non-medical costs incurred as a result of the injury.

The result is that financial incentives under workers’ comp are in some ways more humane than they are under standard group health insurance. Group health insurers have incentives to encourage undertreatment of certain chronic conditions, especially when costly interventions like surgery are required. Comp insurers, on the other hand, pay a higher overall medical bill if they delay needed treatment.

In addition, health insurers pay no penalty if delaying or denying treatment results keeps a patient out of work longer. Comp insurers do, however, since they either pay salary replacement costs or must factor in estimates of future lost income when settling claims.

Some 24-hour plans I assisted tried to address this inequality by including non-occupational disability insurance into the mix, creating a more equivalent program for medical and non-medical conditions. But the issues of portability and out-of-pocket costs were never fully resolved.

There are other unresolved concerns, too. Regulatory requirements make it unlikely that 24-hour plans can save on administrative costs in the short term. In fact, these experiments have tended to increase overhead expenses.

It’s not clear whether the Governor’s plan envisions 24-hour coverage or simply 24-hour coordination. Its language specifies only that the plan “will ensure that health care services are delivered by the same set of providers … used in the managed care/HMO program for work-related and non-work-related healthcare.” There are no specifics yet about whether the plan will include coordination of other administrative functions such as member relations or utilization review.

24-hour care might still be a good idea, but it may take some new thinking to make it a viable aspect of health care reform – one that takes into account the different incentives built into the workers’ compensation system.

(1) Johnson W. et al 1996. “Why is the treatment of work-related injuries so costly? New evidence from California.” Inquiry. 33: 53-65.