Wednesday, November 11, 2015

It's Just Money

Yes - "It's just money."

Every business or organization that spends money (that would be all of them) must do the same thing.

Sort the expense line items in descending order. Attack the biggest one first. Once it has been "worked to completion" (can't do any more to improve that one), move on to the next.

You will probably never reach the bottom of the list (or anywhere near it). It doesn't matter. The bottom of the list isn't costing the most - even if it is wildly out of line.

“The California Department of Insurance," says the footer of the department's website, "established in 1868, is the largest consumer protection agency in California. Insurers collect $259 billion in premiums annually in California. In 2014 the California Department of Insurance received more than 175,000 calls from consumers and helped recover over $54 million in claims and premiums.”

That works out to 0.021% - that is two/one-hundredths of one percent of all premium (note, this is NOT just workers' compensation premium).

I'm not sure that's a very good track record to be boasting about, particularly when you see the size of the fraud that gets reported.

No doubt, everyone has to pick their battles. Is employer fraud, provider fraud, employee fraud, or (yes, it happens) carrier fraud the worst problem facing the work comp system?

It seems in terms of overall public impact, the fraud problem is, in descending order, the first three.

But, carrier fraud, which I'll lump brokers and agents (procurement fraud) into, may be bigger in terms of gross dollars. In insurance terms, frequency is less, but severity is greater, than the other types of fraud, and certainly not just in California.

In 2012, $16 million in restitution and jail time was ordered for operatives of a Nebraska insurance agency found to be bilking the system.

And of course there's the Antonucci/Park Avenue fraud involving hundreds of millions down the pipe.

It goes all the way to the top of the big guys - GenRe copped to sham reinsurance deals with AIG inflating loss reserves by $500 million so AIG wouldn't have to pay premium taxes.

Compare those to an indictment that was unsealed this week, exposing the arrest and allegations against physicians, chiropractors and their operatives for illegal kickbacks in the California work comp system amounting to about $25 million. That indictment was the product of years of investigation at considerable cost.

While the return on investment in terms of pure dollars spent and recouped in fraud investigation and prosecution doesn't seem to pan out, public perception and communication of the message that fraud is wrong is an important element to the ROI equation - most people are honest, and will stay honest if they know someone is watching...

I have mixed emotions about reducing the cost of work comp. That is an employer problem that gets passed on to the consuming public.

For instance, the $16 billion in California premium, if amortized against the state's 38.8 million people works out to $412 per person per year. When costs are reduced, will that $412 per person per year be impacted dramatically? No. Will the impact be even noticed by the consuming public. No.

In my opinion, our industry's insane focus on cost containment would better be directed towards benefits for injured workers. We have to fight fraud, no question about that. It seems to me, though, that fraud, and other costs, are a distraction.

Think about it – Medicare claims 3% in administrative costs. Their worst critics claim 8%. Right now, the California carriers are spending over 40% in loss adjustment and administrative expenses.

Remember - the workers' compensation system is intended to be a benefit for employers and their workers - not all of the vendors that ride on the system's coattails (and that includes district attorneys)...

And another thing - brokers and agents. The vast majority of employers are small businesses. They simply don't need sophisticated services that brokers offer. Increasingly, in fact, there is a trend of insurance direct services through the Web.

Why would we pay brokers 6.7% to procure government mandated coverage? Good Lord! In less than three years we set up "Insurance Exchanges" for individuals to handle the Affordable Care Act's mandate. States can elect to create their own or let their citizens use the Federal site.

Yes, the sites are complicated and the decisions are too. But it can be done in about half an hour. The point is that the "small market" is just as adequately serviced without an intermediary placing the insurance and adding nearly 7% to the cost as it is with that intermediary - the value added for the small market isn't there, and takes money away from the benefits bag.

All I'm saying is that we need to step back and breath. Don't get your undies in a bunch about "costs." Costs in the system drive more costs, and sometimes I think we have lost sight of the big picture.

The thing that hath been, it is that which shall be; and that which is done is that which shall be done: and there is no new thing under the sun. (Ecclesiastes 1:9 King James Version)

1 comment:

  1. The California Fraud Assessment Commission exists because self insured employers fund this Commission to the tune of about
    $33, 000,000 dollars every year if not more. This is not only a major conflict of interest by the state of California Insurance Department BUT also why the CA.FAC rarely goes after self insured employers and their insurer carriers for fraud.
    Fraud as large as this comes out of consumers pockets, either through premiums on any insurance premium or added costs on a product such as health care costs when a self insured company is in the medical business such as HMO's or PPO's, or what a person buys in the retail business..etc..
    The insurance industry with it's NICB claims to spend around 5, 000,000,000 dollars a year to go after fraud of claimants, NOT the self insured companies which include a major market in surveillance that uses many illegal and militaristic style tactics.
    The FBI is now conducting an investigation on a large selfinsured employer for hundreds of thousands of dollars denied to ONE claimant over a period of many years. How many other injured workers with a life time of disabilities, the totally disabled are shifted off to SSA/Medicare/SSI/Medi-cal/Medcaid, state disability & other tax payer social safety net funded programs? That is a huge cost to all of us, into the many yearly billions, all to tax payers who paid or pay into a system not designed for employers to shift their financially responsibility to.
    The money saved by employers is then rerouted to their CEO's bottom line for investors and then to the CEO's retirement plans. See where this is going? So, since employers are their own insurance plans, making money off injured workers while shafting the states & federal government through taxes and social safety net programs or as consumers of everything that we pay for, then we as the injured workers/employee/taxpayer/citizen ARE shafted into paying for our own injuries. What can be the total price on injured workers who cannot work ever again, the cost of trying to live with one's injury or illness or dies because of self insured employers rarely pay for the severity of an injury while the money is either fraudulently taken by many other than the injured workers or shifted to safety net programs or the injured worker who goes without the proper medical care and then get to live in poverty along with their families.
    The there is a moral cost of all of this, that is pervasive in and on our society, that selfinsured employers get to break the laws and it has been done every day, all day for over 30 years, besides profiting billions off of injuring workers, that self insured employers can do whatever they as "citizens" want to do, without penalties or jail time.

    But should an injured worker get put in jail for imagined charges, that this is yet another cost that burdens the taxpayers.
    That this is a rogue and parasitical operation on human beings called American workers. It is as if there is this huge disgust for working class citizens. Certainly not paying them decent wages or obeying laws for family leave, sick leave, discrimination's, harassment's, and other abuses on the job are among other protections that were once in place are other areas of true and utter disgust for the working class. Moral and human costs.

    It's an abomination and downright scourge of corporations on us real working American citizens, citizens who lost or lose everything for their future and what they earned prior to an injury on an illness or death that they had nothing to do with.
    I know of hundreds of injured/ill/disabled/dead workers that lost everything and that figure goes into the millions of injured/ill totally disabled workers which is about 7% of the disabled of what is paid out for total disabilities by SSA /Medicare since this concurrently started in the 70's by congress under the Nixon Administration and the congress again under the Reagan administration.

    So the cost to all of us is a lot more than just $ 412.00 a year.