The Future of Comp

Thought Leaders on the Present and Future of Workers’ Comp

Industry experts share their thoughts about the challenges and trends facing workers' comp professionals going forward.
By: | February 6, 2015 • 10 min read

Medical advancements and their associated costs, treatment guidelines, and the Affordable Care Act are among the issues weighing on the minds of workers’ comp practitioners this year. WorkersComp Forum spoke with several industry experts who shared their insights about the upcoming challenges and trends facing the system.

Innovation and Technology

“It’s becoming extremely clear that technology is progressing much faster than ever before,” said Jeffrey Austin White. “The rate of technological advancement has now been demonstrated to be exponential.”

Advertisement




White, the newly named director of Innovation at Accident Fund Holdings, Inc., is tasked with identifying opportunities for the insurance carrier to generate revenue and improve operations “while leveraging solutions backed by research, collaboration and state-of-the-art technology,” according to a statement on the company’s website. The staggering pace of technological advancements is being seen in the workers’ comp space with such things as 3-D printing.

“Most people last year said it was a hobby,” White said. “Today, at the recent Computer Electronics Show in Las Vegas people came to market with printers using both metal and plastic — vendors demonstrated working machines that were built in a matter of hours.”

Such achievements have the potential to revolutionize medical devices and the way medical care is delivered to injured workers. Consider the possibilities of digital health.

“It is absolutely one of the greatest transformations in health care right now,” said Kimberly George, senior vice president, senior healthcare advisor for Sedgwick. “One reason is, if we want consumers to be engaged in their wellness and health care, we have to offer new ways for them to be involved; we need them to actively participate in their treatment.”

Among the digital health developments are wearable devices that allow injured workers — and their physicians — to monitor their chronic conditions, or fitness and recovery from an injury. Another use is a digital health tool around medication adherence.

“Think of pharmacy and the lack of compliance or wasted medications,” George said. “There’s a whole realm of medication adherence health tools.”

New medical advancements are creating exciting opportunities to help injured workers recover more quickly. However, industry practitioners say it’s a double-edged sword.

“Medical advances are prolonging lives and increasing function. That’s wonderful,” said Mark Walls, vice president of communications and strategic analysis for Safety National. “But it also increases costs.”

As Walls pointed out, advancements are allowing people with catastrophic injuries to live longer and achieve better function through superior prosthetics. But it potentially creates reserving problems.

“These claims used to top off at $5 million, and a $10 million claim was rare. Now $10 million is becoming more the norm,” Walls said. “Medical advances mean people live longer. The claim tail for total disability is slowly increasing over time.”

Weighing the obvious advantages of scientific developments against the costs is a delicate balance. It’s an issue that the experts are considering carefully.

“Certainly we’ve seen many requests for 3-D prosthetics. While these were being discussed and piloted in the early part of 2014, today they really are here,” George said. “While we need to see how such technology will impact cost and utilization, we want to make sure they can be deployed because these devices may be able to improve the injured worker’s overall health and wellbeing.”

Another example of health care technology coming onto the scene is the exoskeleton that allows paraplegics to stand upright. Despite the benefits, payers are concerned about the costs for such equipment.

“If a physician says it is necessary and appropriate, we are expected to pay for the treatment, the state laws determine this,” White said. “But who determines the price? The manufacturer, distributor or even the medical provider. The going rate for a robotic exoskeleton is anywhere from $70,000 to $150,000 per unit.”

As White explained, devices such as the exoskeleton raise many concerns. “We are monitoring new technologies that have significant potential to impact our business within the next five years. The big questions are how to determine their effectiveness, their costs, and how to reserve appropriately.”

Medical Treatment Guidelines

Increasing medical costs, along with improved outcomes, are among the reasons many states have adopted medical treatment guidelines in recent years. But research among multiple states shows there are wide variances.

Advertisement




“Medical treatment guidelines are a metaphor for what is appropriate care,” said Richard Victor, executive director of the Massachusetts-based Workers Compensation Research Institute. “We and others have done plenty of research that shows physicians in different parts of the country — or city — answer that question very differently. They can’t all be correct.”

Part of WCRI’s focus in 2015 will be to continue that research and “help educate providers on how different they may be from the norm and evaluate the things states are doing to try and improve the quality of care,” Victor said.

The medical treatment guidelines come in many different forms. In addition to those developed by the American College of Occupational and Environmental Medicine and the Official Disability Guidelines published by the Work Loss Data Institute, states like Colorado have developed their own guidelines. Other states use a hybrid of the existing ones.

States are increasingly refining their guidelines in an effort to provide more consistent care to injured workers, and rein in costs. “I also have begun to hear more and more states thinking about fee schedules that are tied to prices paid by commercial/group health insurers rather than by Medicare,” Victor said.

Victor and others said more states are also looking at implementing drug formularies to identify acceptable medications; i.e., those that will be readily paid through the workers’ comp system.

Texas, for example requires preauthorization for certain medications in the workers’ comp system — mainly opioids and others more prone to abuse. A WCRI study based on information from the Texas Department of Insurance indicated a decrease of 67 percent in new claims with non-formulary drugs that required preauthorization between 2010 and 2011. Prescriptions written for non-formulary drugs dropped by about 70 percent, and non-formulary drugs’ share of the total prescription drug costs for new claims decreased by more than 80 percent. Among the states that have taken notice is California.

“We are hearing discussions about the formation and possible implementation of a drug formulary,” said Alex Swedlow, president of the California Workers’ Compensation Institute. “Our recent study modeled what might happen if the current mix and price of pharmaceuticals used in California were subject to either the Texas or Washington State formulary. The results showed that the California workers’ comp system could save up to 50 percent, or $500 million off its $1.2 billion a year spend.”

While the experts see the changes to, and focus on treatment guidelines and formularies as a positive trend, some are troubled by the politics involved. “I don’t accept the fact that human anatomy is different in Florida than California, or any other state,” Walls said. “We should have universally adopted treatment guidelines, like ODG, rather than trying to develop state-specific guidelines. ODG have been developed by leading experts. They are updated frequently. State-based guidelines are often influenced by politics.”

The guidelines are generally geared to evidence based medicine, which uses scientific research to improve consistency in decision making among medical providers.  But some physicians and others say EBM is a ‘cookie cutter approach’ that limits providers’ ability to make the best decisions for their patients, based on their education and experience.

“A big focus of my ongoing oversight is going to be how the company can better utilize evidence-based medicine guidelines,” White said. “I think these guidelines have been underutilized and we can leverage them with good decision-making and the right expertise to really ramp up our quality of care, completely change the way we make decisions and how we facilitate outcomes measurements.”

Despite the guidelines, White said most states mandate that payment must be made when a provider decides what is “necessary and appropriate treatment.” He thinks there should be some additional level of oversight to avoid the large diversity in treatment patterns.

Advertisement




“We don’t want to look over a physician’s shoulder,” White said. “But if a doctor wants to use a different treatment, particularly one we have never seen before, let’s find out why. We can’t just be expected to pay for it, especially when it endangers the patient. That’s how we got to where we are in workers’ comp with opioids and physician dispensing.”

White would like to get state legislatures involved in the discussion and create a dispute process based on medical research and evidence based guidelines. In this way they can provide a more cost effective and efficient way to negotiate treatment plans that deviate from the standard of care.

“The problem is, in today’s world, whatever the physician decides at whatever cost, regardless of whether it’s ethical or safe, carriers are generally expected to pay and patients have the burden of living the rest of their lives with the outcome. It’s really the outlier stuff we are most worried about today,” White said.

Physician Dispensing

The issue of physician dispensing of medications from their offices has caught the attention of many in the industry of late. Reports of physician-dispensed medications that cost exponentially more than the same drug dispensed by a pharmacy led many states to adopt legislation to hold down the costs.

Despite those efforts, the cost issue may not be alleviated. Additionally, there are concerns about whether injured workers may be put at risk because of physician dispensing. WCRI has been on the forefront of research into the issue and just released a new study.

“The study  raises a question about whether these reforms are sustainable and the finding that there are very creative opportunities to still get much, much higher prices if you are a physician dispensing even with the current reforms,” Victor said. “We’ve done studies in the last year that show if the reforms are successful, prices are still 20 percent to 30 percent higher because pharmacies grant discounts to pharmacy benefit managers that physicians don’t get. So this is on top of all that.”

According to WCRI’s research, physician dispensers in Illinois and California have started to prescribe and dispense common medications at uncommon strengths. So, for example, where a medication may be commonly prescribed in dosages of 5- or 10-milligrams, physicians are dispensing them at 7.5 milligrams.

Because there is a “new manufacturer” involved, the prices of the new strength medications are significantly higher than those of the commonly prescribed dosages. The new strength versions of the medications have taken over a large chunk of the market share among physician dispensers in both states.

“When a new strength comes to market and gets 40 percent market share of physician dispensed medications, either it is superior clinically, or it’s more of the same,” Victor said. “And if it’s superior clinically then I wish the physician dispensers would tell the other physicians because they are not using it at all.”

Mental Health

Another emerging issue and one that is front and center for Sedgwick’s George is that of well-being, especially mental health. She said members of Congress are proposing federal legislation on mandatory mental health language that will be part of the Affordable Care Act.

“It’s an area that is definitely at the forefront and being considered by politicians, employers and health based companies,” George said. “An investment in mental health is an investment in health and wellbeing.”

George, who was invited by former First Lady Rosalynn Carter to attend her 30th Annual Symposium on Mental Health Policy, said it’s an issue that employers need to address in the workplace. “Whether mass shootings or continual workplace absences, mental health issues are impacting virtually every employer in the country today. We have to begin highlighting mental health across the entire health spectrum,” she said. “We need to determine how to identify employees with mental health concerns early on so they can get the care, advocacy and support they need, whatever that might be, in or out of work. It’s a huge issue for employers. It affects productivity as well as their costs.”

Advertisement




Echoing George’s comments was Safety National’s Walls. “Employers are realizing the importance mental health plays in their workforce,” he said. “They are slowly starting to see a wellness revolution. It’s not about incentives for knowing your blood pressure but focused on the whole person and the importance of managing every aspect of this. I for one welcome this.”

Nancy Grover is the president of NMG Consulting and the Editor of Workers' Compensation Report, a publication of our parent company, LRP Publications. She can be reached at [email protected]

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.

Advertisement




Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.


R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.

Advertisement




We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?

Advertisement




Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.

Advertisement




Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now and where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.

Advertisement




More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]