Pure Risk vs Speculative Risk

Pure: Only Loss or no Loss possible

Speculative: includes possibility of a gain.

losses directly affecting individual's life or health.

Most important type of risk from an ee benefits standpoint

Risk of legal action being taken in response to losses resulting rom the negligent/wrongful actions of others resulting in injuries or losses to others.

Can be included in EE benefit plan, but greater emphasis on personal risk

Avoidance

Control

Retention

Transfer

Insurance

Methods of handling risk:

Not taking on the risk/getting rid of the risk (only method mutually exclusive of others because you have no losses)

Taking steps to prevent or reduce risk

Assuming risk and and taking steps to cover loss

Shifting financial burden of risk to another party

A form of transfer in which finanical burden of risk is transferred to an insurance company

Insurance handles existing pure risk through mutual sharing of any loss that occurs.

Gambling creates speculative risk where one did not previously exist where one party gains and the other party looses.

• Known Premium
• Outside administration
• Financial backing: insurance companies often have greater stability
• Cost management: insurance companies are often leaders in loss control
• Economy: insurance company may be able to do the job more effectively

• Additional cost: premium loading for overhead costs, licensing, commission, taxes etc. Cost of high claims in a pool.
• Employee Satisfaction: may be harmed if insurer does not handle claims well

• Large number of homogenous risk
• Loss is measurable and verifiable
• Not catastrophic: a large number of units will not experience the loss at the same time
• Can calculate the chance of loss w accuracy
• Reasonable premium
• Loss accidental or unintentional & outside the insured's control.

• Only certain groups are eligible (i.e. not together just for coverage)
• Steady flow of younger lives in to the group, older out
• Minimum number of persons, minimum participation levels
• Benefit maximums are set
• Pooling companies together of similar sizes, industries and demographics often helps mitigate this risk

Prepaid: set allowance for hospital medical services & paid directly to providers (BC/BS: non-profit, underwritten by community rating- uniform rate used for all subscribes in geographical area)

Indemnity plans: reimbursed set dollar amount to subscriber (other insurance companies that entered market: not open to all and not community rated)

Pay benefits from the first dollar of expense incurred- subscriber pays no expense.  

Viable earlier when utilization and costs were low.

Early cost-sharing techniques in major medical & pros/cons

+ may lead to reduction of utilization & cost

+ reduce premiums as result of savings from lower utizilation

+amount insured pays is related to utilizaion

- discourage preventive care

-present financial barrier to necessary care

Deductibles: Amount of covered expense subscriber must pay before the plan pays benefits

Coinsurance: Percentage of total charges for which plan participant is responsible once deductible is exceeded.

Copayment: Paying a fixed $ amount for a specific service

Premium Contributions: individual contributes towards their coverage before they ever start using it- to value it

- Combined with first-dollar prepaid service plans

- Kicked in when benefit allowances exceeded

- Deductibles and Coinsurance used

- covered "all except" rather than "named peril" and could be stand alone

- Comprehensive adapted from major medical

- Deductibles and coinsurance applied to all services from the start (no first dollar coverage)

Cost-Control features of Comprehensive plans:

• Second Surgical Opinions
• Diagnostic Test Coverage
• Preadmission Certification
• Utilization Review
• Outpatient Facility Incentives

- requires second opinion on elective/non-emergency surgery

- Fully covers diagnostic tests to help catch early

- Requires hospital check with insurer before admitting or imposes penalty

-Examines medical treatment patterns on a concurrent, prospective and retrospective basis

-Gives financial incentive such as no copay or deductible to use Outpatient facility

Managed Care arrangements: 

HMO: Staff, Individual Practice, Group & Network Model

PPO & POS: Individual Practice, Group & Network Model

Coordination of Benefits & Birthday Rule: 

Cost Containment technique to prevent duplicate payment under two policies. 

Limits aggregate benefits an insured receives to be no more than loss.

Child covered under separate plans- primary plan is plan covering parent whose birthday falls earlier in the year

Subrogation

Preadmission Testing

Medical Necessity Language

Skilled Nursing Care

Home Health Care

-   Gives rights to ER/insurer with respect to claims against negligent 3rd parties allowing to receive reimburesement from EE who receives a liability recovery, thus limiting costs

- Contains costs by having necessary testing done on outpatient basis before being admitted, limiting costs by reducing inpatient days

- Sets requirements that help eliminitate inappropriate or unnecessary treatments by not covering those treatments which helps limit costs

-Skilled nursing care/Home Health Care have lower cost than hospital confinement so can help reduce costs during latter days of hospitalization/rehab

Hospital Bill Audits & Errors:

Auditors check physician orders, nurses notes, pharmacy records, total charges for therapy divided by number of hours logged etc.

Made on bills exceeding a certain amount, room & board charges less than 44% of total bill, lab tests listed more than once every 24 hours, therapy sessions prescribed more than normal, treatments for nonrelated conditions, large and frequent drug claims.

Errors are often found in pharmacy costs, lab, radiology, inhalation therapy & occupational therapy costs. 

CDHP

Link high deductible supplemental major medical with a savings account used to pay expenses.

HRA: ER sponsored only

HSA: EE sponsored only

Expected to incorporate rewards for thoughtful care consumption to impact utilization.

Evolution of Health Insurance Rating Technique

1. Community Rating 
2. Adjusted community Rating
3. Experience Rating

1. Same rate for geographical area
2. Baseline claims & utilization patterns in community are used to establish rates, but incorporate favorable characteristics of plan sponsor's own past claims data for better rates.
3. Past claims and utilization experience of particular organization used to set rates.  

Cost-Plus/Self Insured Funding Approach

Stop-Loss Funding Approach

Organization pays the claims for the group with insurer handling claims.

Used in conjunction with above, puts a limit on claims exposure (both individual and aggregate) after which insurer begins making payments. 

Clinical review process: 

1. Prereview Screening
2. Initial Clinical Review
3. Prospective Review
4. Concurrent Review
5. Continued Stay Review
6. Retrospective Review
7. Discharge Planning

1. Automated: Do Care and symptoms/diagnosis match?
2. Assessment of appropriateness of care
3. Utliization Management review conducted prior to admission/treatment- to improve safety and reduce possibility of medical errors
4. On-site hospital review of patient charts during stay.  Looks at need for admission, assigns length of stay, assesses: need for extensions, appropriateness of care provided, progress & efficiency of care given and extracts data for quality assessment
5. Off-site medical review while patient is hospitalized with treating physician using medical criteria and length of stay norms to review necessity and appropriateness of treatment plan and inpatient stay
6. Review of all data after discharge to limit costs by identifying medically unnecessary bed days or incorrect charges.
7. Makes plans for continuing care.

Accountable Care Organizations (ACO)

Focuses on Early Identification, intervention and care management

PPACA created- network of doctors and hospitals sharing responsibility for providing care and accountable for care, satisfaction, quality of care and total medical cost.  

Some of the money saved by avoiding unnecessary tests etc while meeting quality targets can be kept by the ACO.

Clinical Care supply chains

Clinical Resource management

Inpatient Clinical Pathways

- Total sequence of business that allows individuals to receive health-related services

-Medical management practice fucsed on developing clinically integrated supply chains in order to improve health outcomes and minimize costs.  Use collaborative work between Physicians & managers that focus on process improvements

-Structured care tools used by hospitals to eliminate gaps between usual care and best care by standardizing physician orders

- provided federal initiatives to encourage establishment of HMO's

- Dept of Health and Human Services provided funding to start-up HMO's after this

- provided cost savings without reduction in provider choice inherent to HMO's.

- Early PPO's primarily discounted fee-for-service arrangements w/little focus on utilization control

-now more monitoring and quailty control; opponents argue weak form of managed care.

- Offers grater choice and lower admin expenses while still some managed care and credentialing.

.p

-Change in the process of health care delivery

- no specific uniform definition

- Any plan that deviates from traditional fee for service; integrated treatment method; financial risk (deductible, coinsurance) + particular set of benefits (plan design) + specific set of providers + quality-of-care/utilization management mechanism

Utilization Management Programs

- admission precertification

- concurrent review of confinement

-discharge planning

-outpatient precertification

-second surgical opinion

-case management

- Incentive: used when want to introduce managed care plan with least amount of disruption.  Richer preferred benefits while maintaining existing benefit levels for nonpreferred benefits. (100% for preventive)

-Disincentive: used to achieve cost savings- preferred benefits equal to prio plan and nonpreferred benefits being reduced. (80%/60%)

-Combination: saves money while still not disrupting too much.  preferred benefits 90%, non preferred at 70%

PCP coordinates all care, "gatekeeper"; all preferred benefits are available only if performed through/coordinated by PCP- otherwise OON coinsurance. 

- No Deductible and 100% after small copay

- One routine gyno exam/year

-Member only submits claims when self-refers or specialist used

-PCP directs medical care and obtains all precertifications.

- Can use incentive, disincentive or combo but must be a greater benefit differential than in PPO

PPO & POS member can still receive benefits outside the network, though at a reduced rate.

POS (combo of HMO and PPO)

HMO models

Group Model

Staff Model

Open Panel model

Group Model: contract with groups of physicians linked by forms of risk sharing. (large numbers of HMO members create financial tie with carrier).

Staff model: physicians are employed by HMO (Kaiser)

Open Plan Model (IPA model): contracdt with individual practice associations or directly with private practice physicians.  Most common structure and often most popular among members.

- Self-Funded HMO

-gives plan sponsor more flexibility

- MO may directly sponsor EPO or sell it's managed care network to a TPA

LTD programs start 3-6 months after an ee has become disabled, at which point ER has hired and trained replacement worker.

STD programs now using managed care techniques to integrate with LTD and more effectively deal with the entire disability.

Successful approach is with integrated team w/nurse, rehab specialist and ER that starts when disability does.

Employee Benefits:

Broad Definition

Narrow Definition

- Broad: any form of compensation OTHER than direct wages (includes gov't mandated benefits and private plans, SSN, vacations, pension etc)

- Narrow: all plans sponsored or initiated by employers and employees (not underwritten or paid for by gov't)

Inland Steel Case

1. ER contributions to ee benefit plan are tax deductible
2. ER contributions generally not considered income to EE
3. Benefits can accumulate un-taxed to ee until distributed

Functional Approach to employee benefit planning:

1. Classify ee needs/objectives

2. Classify categories of ee's er wants covered

3. Analyze benefits presently available in terms of above

4. Determine gaps in benefits/dual coverage

5. Recommend changes, showing estimated costs/savings

6. Evaluate alternate methods of financing, other cost saving techniques

- Analyzes org's ee benefit program as a coordinated whole in terms of it's ability to meet ee needs and manage loss exposures.

- Need to be planned cause EE benefits are large part of labor cost, so effective planning is a must

- using functional approach can get rid of gaps between plans adopted piece-meal

- functional approach helps keep benefits current

Compensation Philosophies

Average

High

Low

-Average: follow generally prevailing benefits levels in the industry or community

- High: attempt to attract higher levels of talent by offering higher benefits

- Low: lower than average and more modest in scale; budget is main concern.

Always seek to balance basic salary and incentive compensation with ee benefits based on er's compensation philosophy

Compensation/Service oriented philosophy vs Needs philosophy

- Compensation/Service: level of benefits tied to salary or tenure.

- Needs: benefits designed for needs of the emplyees, not tiers.

Replacement Ratio

Setting retirement income objective to a percentage of estimated final pay of ee.

Income for SSN, capital accumulation benefits etc would be taken into account

- HDHP: protects against catastrophic but encourages engagement for basic services

- Spending Account: FSA, HRA or HSA to help pay 1st dollar expenses on some basic services

- Information and tools to education public

- Management for chronic conditions/illnesses

How much does federal law mandate specific CDHP features?

- No legally required features for the HDHP from ERISA or federal tax laws

- How Spending accounts that accompany HDHP are set up is precisely defined.

FSA pros & cons

+ Pre-tax er or EE funding (also not subject to FICA)

+ Can be coupled with any type of health plan

- Use it or lose it may cause ee's to spend unnecessarily

HSA vs FSA vs HRA

FSA: no carry-over, excludable from income to limits, can be used with any med plan, ER or EE funding, has max set, no med premium payments

HSA: no annual or lifetime limits, excludable from income to limits, carried with you, ER or EE funding, can pay premiums if COBRA or unemployed or for Medicare/LTC premiums and services, HDHP only, earnings not taxable

HRA: Carry-over only if ER allows, excludable from income no limits, ER funded, ER sets allowable expenses, can pay med premiums/LTC premiums, combine with any med plan

HSA, FSA & HRA discrimination rules

HSA: if ER funded must have same contribs to all ee's participating (if through cafeteria plan then those rules apply)

FSA: Cafeteria & self-insured medical expense reimbursement plan non-discrim rules

HRA: same nondiscrim rules as self-insured medical expense reimbursement plans

GAO (Government Accountability Office) CDHP study results

- Regular dental care is needed at least annually

- Dental treatment is sometimes postponed because there is no life-threatening emergency

- Dental care is often cosmetic

- Dental care often offers variety of alternative treatments

- Dental expenses are lower and more predictable than medical

- Large emphasis on preventive

Dental Treament categories

1. Diagnostic
2. Preventive
3. Restorative
4. Endodontics
5. Periodontics
6. Oral Surgery
7. Prosthodontics
8. Orthodontics
9. Pedodontics
10. Implantology

1. Routine exam and x-rays
2. To preserve and maintain (cleaning, fluoride etc)
3. Repair and Reconstruct: fillings
4. Treatment of Dental-pulp disease (root canal)
5. Treatment of gums (root planing)
6. Tooth extraction
7. Construction, repair & replacement (bridges)
8. Correction of tooth position
9. Treatment of children w/out permanent teeth
10. Use of implants (usually excluded in plans)

Scheduled Dental Plan

- pays fixed allowance for each service (sometimes deductible)

+ cost control

+easy to understand

-Benefits must be changed periodically to maintain reimbursement objectives

- reimbursement levels will vary depending on location

- covers percentage of reasonable/customary charges, includes deductible, reimburses at different levels for different types of coverage.

+ percentage of total cost reimbursed is uniform

+ built in adjustment for inflation

+built in incentive to shop around

- cost control can be an issue because benefits adjust to increased cost of care

- can't make modest improvements to benefits

- not always clear what final payment will be for a service

+ avoids the cost that comes with dental neglect

+ individuals induced to invest in their own dental health

- promotes early overutilization

- once met, lifetime deductible has no further use for a stable population

- introduces ee turnover as important cost consideration

- may result in adverse ee reaction to plan

- EE ages; 30 to 40 has increased usage

- % female population (higher utilization)

- location; dental charges and availability are impacted

- incomes of participants (higher income = higher costs)

- occupations (blue collar = lower costs)

- combining dental with medical

- limiting enrollment to OE

- requiring dental exam prior to enrollment and excluding pre-ex

- requiring members stay in plan for x amount of time

predetermination of benefits provision (dental)

- new techinque; new way of providing same care, generally covered as soon as recognized by ADA

- new procedure; totally new to market, must be recognized by ADA (American Dental Association) and have track record of success before being covered.

- surgical procedures for ear generally coverd under medical

- hearing aid benefits commons with 80% reimbursement and materials maximum of $300-$600

Usually administered by PBM (pharmacy benefit manager/TPA), provides cost management

+offers discounts off normal pharma charges, mail service and internet.
+Quality checks because involves more detail through online claims system

+ Rebates from manufacturers for volume purchases

+ online claims management, rather than submitting receipt to med carrier

- not as streamlined to manage separately 

RX Prices

AWP

WAC

MAC

- AWP (Average Wholesale Price): price assigned by drug manufacturer, reference price for all discounts paid to pharmacies and PBM's & pricing guarantees

- WAC (wholesale aquisition cost): price wholesalers buy pharma from manufacturers

- MAC (maximum allowable cost): ceiling on reimbursement.  Based on CMS (centers for medicare & medicaid services) document for upper limit prices for generic, but carriers develop their own.

Common RX exclusions

- Smoking cessation, 'lifestyle drugs' (hair loss, obesity, etc)

-contraception

- OTC meds

- increased volume, utilization, mix and availability of products

- Direct to consumer advertising

-more advanced drugs being developed

Prior Auth: restricts coverage for cetrain drugs based on patients condition. Physician must call into RX addministrator to answer questions about condition and based on this is covered. 

Quantity Limits: restrict number of dosage units- to ensure meds can't be abused/overused.

- age & gender of population (determines desease mix likely to be treated)

-Benefits covered by plan & plan design

- drugs covered under plan

- rebates involved

- PBM charges

- Review design to make sure copayments adequate

- Analyze experience to view comon areas needing management (depression and ulcers common)

- Reduce RX network to smallest possible without compromising access

-offer incentive programs for mail RX

-generic drug substitution

List of preferred drugs.  Committee evaluates whether drugs are equally effective and selects drugs most cost-effective (usually brand products w/rebates etc.)

Open Formulary: allow any prescribed RX

Preferred Formulary: reduced payment for preferred RX list

Closed Formulary: plan doesn't cover non-forumlary drugs

-network management for best discounts

- quantity limits/max dollar amounts

-prospective review of new drugs

-pharma clinical case management

-Concurrent or retrospective utilization review (point of service or case management)

DSM (Disease State Management) programs

 Medical Model

Therapy Directed Model

Medical Model: Call centers with nurses to triage patients to crrect care.  F/U w patient to ensure scheduling, getting proper tests etc. 

Therapy Directed Model:  PBM, health & disease management co's administer.  Integragted. Foster improved compliance

- administers managed pharmacy programs through programs, services and techniques designed to control costs by: 

- streamlining and improving prescribing and dispensing

-maintaining retail network and mail order that offer discounts

- offer limited DUR (Drug Utilization Review)

-control costs through clinical and financial programs such as rebate contracting (PBM keeps some, passes on rest)

- usually guarantees % off AWP plus dispensing fee

- introduced after WWII

- limits placed on care because often went for indefinite period of time

-lower benefits than for medical with yearly max dollar limits

- provides mental health benefits separately under own contract from MBHO (Managed behavioral Health care Organization)

- specialization means better case management

- drugs that affect behavior or experience.

-account for significant % of overall cost of health care

- administered through PBM's, so MBHO doesn't know prescription, but has to manage behavior on it.

to establish equal benefits between medical and behavioral benefit limits

- doesn't require plan sponsors to include mental health benefits

-does not apply to substance abuse or chemical dependency

expands MHPA rules to substance use so benefit limits must be same as medical

-small ERs (<50) exempt

-deductibles/coinsurance/treatment limitations may not be more restrictive than w/medical

-seaparate cost-sharing not allowed for MH/SUD benefits

MBHO funding arrangements

-Fully Insured

-Shared Risk

-Administrative Services Only (ASO)

Fully Insured: MBHO assumes financial risk for providing services and paying claims.  Fixed premium paid by ER (3-6% of med prem)

Shared Risk: ER pays claims/costs up to certain amount and then MBHO assumes responsibility

ASO: MBHO handles management, utilization review, admin functions and claims payment- ER has all financial risk.  Exempted from ERISA

MBHO Cost Containment Procedures

1. Care Access
2. Predictive Modeling & Risk Assessment
3. Performance Measurement
4. Case Management
5. Utilization review
6. Outcomes management
7. Coordination of care
8. Depression disease management
9. Substance abuse relapse program

1. Pre-auth required to access treatment (call center with nurse)
2. Analyzing claims data and indentifying high-risk/high-cost members and intervening to avoid preventable treatment costs
3. Treatment data to assess effectiveness
4. Manager assigned to coordinate member's care and collaborate with treating providers, facilities and community resources
5. Review of care to determine medical necessity/appropriateness
6. System to assess treatment effectiveness based on aggregates
7. Coordinating with medical and behavioral practitioners to manage behavioral aspect within medical disorder

- promote healthy lifestyle

-encourage conscious consumerism

-target "Modifiable Risk Factors" from poor nutrition, lack of activity, stress, tobacco use that lead to chronic diseases (preventable illness makes up a large portion of total healthcare costs)

People don't change their behavior without good reasons outweighing pain and annoyance associated with giving up longstanding habits.

- Optimal Incentive program uses simplest most cost-effective incentives to motivate: promote long term change so that even when rewards removed, behaviors continue

- Education

- Peer Pressure

- External Incentives

• Tangible: Cash, Merchandise, vacation days, premium reduction
• Intangible: Recognition, personal challenges, accomplishment, sense of belonging
• Activity: Doing X to get incentive- doesn't necessarily decrease health risks, easiest to cheat
• Achievement: Dropping/Maintaining X to get incentive- additional cost, HIPAA
• Adherence: Maintaining X for specific period- longer time before incentive is awarded, HIPAA

+behavioral change

+can be flexible, simple and easy to administer

-individuals may exploit

- reward the wrong thing (per pound weightloss incentive)

- behavior may only last as long as reward does

Incetives should be designed so the perceived value is high relative to the ER's actual cost

Lag in savings from lower utilization means most programs take several years to develop positive ROI

- Total reward must not exceed 20% of cost of ee-only coverage

-program must be reasonably designed to promote health and prevent disease

-individuals must be allowed to qualify for rward at least once a year

-reward must be available to all similarly situated individuals (must give reasonable alternative to any individual who is unable to satisfy standard due to medical condition)

-plan must disclose all materials describing the terms of the progam and availability of reasonable alternative standard

1. That any med records as part of wellness program are confidential and separate from personnel records
2. program is voluntary (not penalized for not participating)

wellness program is voluntary if ER neither requires participation nor penalizaes ee's who don't participate.

- If ee doesn't participate in HRA and so doesn't have access to incentive, EEOC may take position that incentive is actually penalty (not binding on courts)

- ER/carrier may not restric enrollment or adjusting premium/contrib amounts based on genetic info

- ER/carrier may not require genetic testing

-ER/carrier may not request or purchase genetic info related to enrollment/underwriting.

-Implement HRA that doesn't soliciti genetic info

-Implement HRA that solicits genetic info but doesn't provide incentive for taking HRA or make request prior to or in connection with enrollment

-Implement variation: 1 HRA with genetic info (reward), 1 without.

ERISA standards for plan fiduciaries

1. Sole Benefit Standard
2. Prudent Expert Rule
3. Diversification Rule
4. Plan Document Rule
5. Prohibited Transactions Rule

1. Plan fiduciary must act solely in the interest of the plan's participants for exclusive purpose of providng benefits and defraying admin expenses
2. Fiduciary must act with care, skill, prudence and diligence under prudent person circumstances (weighing risk for loss vs opportunity for gain)
3. Fiduciary is required to diversify investments unless prudent not to do so (as determined by similar person in similar role)
4. Fiduciary must follow the terms of the written plan doc (unless in violation of ERISA) and administer plan without discriminating
5. Fiduciary must not allow plan to engage directly or indirectly in ERISA prohibited transactions

- sale, exchange or leasing of property 

- lending of money/credit 

- furnishing of goods, services or facilites

-acquisition of employer security or employer realy property 

- plan fiduciary

-legal counsel or employee of plan

- person providing services to the plan

- employer who's ee's are covered by plan

-employee organization covered by plan

-50% or more owner of er sponsor of plan

-ee's, officers, directors and 10% shareholders

- exercises discretionary authority or control over management of plan

-exercises authority or control in management of assets

-has discretionary authority or responsibility in administration of the plan

Person named in plan documents, but also anyone who exercises the above duties regardless of title. (trusties and administrators included)

ERISA penalties for breach of fiduciary requirements

- personally liable for any losses resulting from the breach

- also liable for breaches by other fiduciaries if known beforehand

- liable to restore to the plan any profits realized through improper use

- fine of up to $10,000 if fiduciary did not disclose convicted of felonies

-Excise tax of 15% of amount involved in transaction for each year a prohibited transaction was outstanding, plus interest since '97

- court-ordered attorney fees and costs incurred to remedy breach

-punitive damages

-special damages equal to profits received by fiduciary from prohibited transactions

-mandatory assessment of civil penalty equal to 20% of amount recoved by secretary of labor

- duly appoint manager in writing and in accordance with ERISA.  

-Fiduciary still held liable for imprudently selecting manager or failing to remedy known breach.

nonretaliation, nondescrimination provision:

ER cannot terminate ee to avoid benefit coverage or benfit claims.

ER can cahnage plan designs even if has adverse impact on one ee or group

- failure to provide COBRA notices

-exclusions of experiment medical treatment

-Erroneous certification claims

-reduction or elimination of retiree health benefits

ERISA preempts any state law relating to an ERISA benefit plan.  

Does not preempt state laws regulating insurance, securities or banking.