Episode #4 - Eric Wunder - Cost Coverage Trends

Jerrod Bailey and Consulting Actuary at Milliman, Eric Wunder, have a dialogue about cost coverage trends affecting healthcare.

  • 00:10:11 - 05:10:11

    Jerrod Bailey  00:00

    Welcome back to the risk management and patient safety podcast presented by Medplace. We're excited to bring you conversations with top risk and patient safety thought leaders from organizations around the country. So please subscribe to get the latest news and content. And if you found value from this episode, please feel free to share it with colleagues to create some meaningful dialogues in your community. And if you yourself are interested in participating as a guest, please send us an email at marketing@Medplace.com. And today, my name is Jarrod Bailey. I'm the CEO of Medplace I'll be playing host today. And I'm joined by Eric wonder he's principal in consulting actuary Milliman. Hey, Eric, how you doing?


    Eric Wunder  00:46

    I'm doing great. How are you?


    Jerrod Bailey  00:48

    I'm doing well. 

    So Eric, you and I had the pleasure of meeting, or at least I had the pleasure, of meeting you a few weeks ago, at an event and you gave me a ton of interesting data on the industry. I thought it would be great to have you on the podcast and unpack some of those things and take your unique perspective. But you got to tell me, what is your perspective? What's what is Milliman? And what are you doing there? What do you do? Who do you work with on a day-to-day basis?


    Eric Wunder  01:16

    Sure, absolutely. Jerrod Milliman is an actuarial consulting firm that, first and foremost, we do a number of other things. But my role there is as a consulting actuary. So what is an actuary do? That's the next question, right? an actuary takes a look at all sorts of insurance data and tries to understand that data to project what the cost of coverage is going to look like going forward for the various organizations. Now my role specifically at Milliman [inaudible] looking at physicians and hospitals, sometimes some ancillary general liability coverages on the side there, but really looking at what's going on with the number of claims that are being reported, and then the cost of those trends and then translating that into dollars of premiums.


    Jerrod Bailey  02:11

    Great. Okay, so you're helping us get a little bit more clarity in our cloudy crystal balls, so we can make some better decisions?


    Eric Wunder  02:19


    Jerrod Bailey  02:21

    Love it. 

    Well, so let's unpack that topic.  So we talked about cost of coverage? What have you been seeing in terms of like coverage costs, and in recent years?


    Eric Wunder  02:32

    Yeah, it's been pretty interesting. In recent years, actually, cost of coverage has been fairly stagnant, I would say for quite some time, which is interesting, because in normal environments, you think inflation is going up by 3% a year. And if as long as the number of claims that are coming to the door, about the same, the cost of those claims going up, so the premiums are going to go in the corresponding fashion. But what we've been seeing actually is two different dichotomies going on, the number of claims coming in the door has been decreasing for quite some time, about two decades, actually. But in the early 2000s, we saw the number of claims kind of peak for the industry. And then since then, it's been a pretty steady downward trend up until and including really, these last couple of years. So while the number of claims has gone down, we've seen the cost of those claims go up. And that's resulted in a pretty steady, I would say, amount of premium that's being charged across the industry.


    But, and maybe I should take a step back, what I consider in terms of cost recovery, I think about it in three layers, right? The first layer is what's kind of retained. And so, for a physician out there, that's going to be their deductible, that's maybe $0, maybe $10,000. For a hospital system that you're talking about, they're self insured retention, that may be, $0, still, maybe $100,000, maybe multi million dollars. So that that's kind of the first layer of coverage is going to be what's retained by the person who actually has the risk. And then they're going to go out and buy insurance. And so that's going to be often from a commercial insurance company, or a lot of these larger hospital systems have set up their own captive insurance companies, and then the captives can provide that insurance as well. That's kind of that that second layer, I would say if coverage.


    And then finally, the third layer is that reinsurance coverage, where it'd be the insurer captive insurers buying coverage that they don't feel comfortable taking on $100 million of risk so they can maybe they want to take on the first 10 million and then buy reinsurance coverage above that. So those are the three tiers of coverage.

     it's been pretty interesting of late I would say especially since I would say 2015, for whatever reason, and I can't pinpoint the 2015 for any particular reason, but these, I'll call them nuclear verdicts. And I'll loosely define a nuclear verdict as something that's $10 million or more of a paid plan. And those have really been on the rise in recent years. Starting in 2015, we saw a boom there. And that has really translated into that reinsurance layer, that top layer we've taken on those high dollar. And that's resulted in there raising rates on the insurance companies, and then there's obviously some pass along costs there back to the physicians and healthcare systems as well. Yeah. So it's been it's been interesting in across coverage in recent years.


    Jerrod Bailey  06:00

    Interesting. Knowing that, is that trend expected to continue? How do I make better decisions at this point? What sorts of things do I need to either brace for, consider, if I'm looking at these trends?


    Eric Wunder  06:20

    Yes, great question. And it's a difficult one to fully unpack. In speaking with my clients, one of the reactions that I've had is my reinsurance premiums are going up by 20%. And I don't think that's fair. I've never had one of these big claims that I hear about the news. And I don't feel like I should be paying for that. “What would you think, Eric about not paying for that coverage? And just taking on that risk by myself”? And the answer there is? That's risky. If you do end up having that one, I would say, maybe there's 20-50 of those claims nationwide. But it seems like once a week, if you're looking for it, you can find something on Google that says “here's the other $13 million plane that was sold this week”. And it's all lightning strikes, it happens. If you decide to go bare there, you might be fine for five years, and then six years, you might get hit with a $50 million claim, and that's going to hurt. On the other hand, you could pay that the pay that reinsurer, and they'll charge you for it, because they're seeing it elsewhere. Those if it does, at least you're covered there. And one of the other considerations there is how tall to build that tower, right? A lot of these specially larger health care systems. They may have coverage up to 10 million coverage up to 50 million or 100 million or so on. How tall to build that tower should be consideration when you're thinking about the reinsurance costs and what you want to be thinking about there. There's, there's no right answer, you have to take a look at your own personal risk, talk to brokers, what the best options are, but it's definitely a complex question and one that you need to have kind of on the forefront of your mind on as a risk manager.


    Jerrod Bailey  08:28

    Interesting. I'm sure you don't see everyone's decisions, what everyone's doing. Do you see any trends? As far as decision making goes as far as what hospitals are doing or systems or trends in  maybe a smaller clinics are going to go one direction versus like a large system is going to have maybe different options? What does that look like?


    Eric Wunder  08:50

    Yeah, so a lot of the smaller clinics are still I would say, largely buying commercial coverage, somewhere else to restructure its market and not doing their own captives or doing your own self insurance, reinsurance programs. But some of the smaller clinics, they may be looking at taking on more of that first dollar risk. And then, getting a reduction of premiums, because they're taking on that first one $1,000 or what have you. But buying more coverage seems to be the trend these days, in terms of the amount of limits you're covered up to. That's definitely


    Jerrod Bailey  09:27

    increasing the height of the tower there. That is,


    Eric Wunder  09:31

    yeah, absolutely. I mean, yeah, but increasing the height of that tower. And, it's getting more expensive, and in many cases, actually, with some of the larger hospital systems that I've worked with. I've seen sort of it being pushed to them where the reinsurer touch anything up until $2 million or $5 million. They just don't want that risk, they want to keep that low dollar risk with the hospital system, and then only really attach at $5 million, or what have you. And then the other part then is that any given reinsurer, they may only want from five to 10, they may have to go to somebody else to get 10 to 20 and 20 to 30. So, it really become dependent bond broker to find the right reinsurance partners for you. And that in most cases, that's been one of the trends that I've seen in recent years is the premiums are going up, and that those reinsurance won't take on less risk for hospital at the best they can.


    Jerrod Bailey  10:41

    Yeah, interesting. I always wonder who's innovating in a particular space? Or when you have hardening market? And the trends that we're seeing if you've seen any innovation going on in this space, or new ideas, new players, and that's kind of been introduced to the game board? Are we working with the same tools we had 10 years ago?


    Eric Wunder  11:05

    Yeah, in many cases, we are working with a lot of a lot of the same pieces that we've been working with for quite some time. Certainly, I think that there's a version to change, I think some of that's just human nature, right? If it's not broke, why fix it? Which it's a tough thing to overcome. And there's a lot of costs that come with, with change and technology. There's a physical dollars that get must get put into it. And there's also a human element of “why do I need to change this”, there's the inertia to it. But once you get I think you get the inertia going. There's some amount of change that just kind of gets developed into the company culture, that organization culture. I think that's the toughest hurdle to clear is getting through that first push and helping people understand that the technology can help make their make their lives easier. One of the things that I think the pandemic has shown us is that the telehealth can be a really important part of any organization, any health care organizations care program. Yeah.


    And there's issues there as well. I mean, I would say the number one issue that everyone's kind of been waiting on is the legislative impact, right? I think Congress did a pretty decent job early stages, pandemic, making sure that all the Medicare reimbursements were being given appropriately given that a lot of the care was being delivered via telehealth and not in house. And that was important at the time, because everyone was distancing themselves practicing social distancing. But a lot of those telehealth reimbursements were being done at a lower rate, and they're really pre pandemic. And a lot of that legislation is set to expire at some point in time. So that already has some but will in the future. I know congress is working, they've got numerous bills that they're looking at to extend or expand even some of those waivers for Medicare to make those. I would say those, those waivers were more permanent for health care providers. And to me, and then I'm no legislative expert, certainly. But to me that there seems to be enough bipartisan support for those types of things that I think we will see sort of a telehealth reform on the Medicare side. And if Medicare's pushing it it's only a matter of time before non-Medicare and same thing.


    So I think that's going to be great for the industry. I think a lot of the patients seem to be enjoying that telehealth flexibility. There's certainly a contention that always wants to be in seeing the doctor as they normally have, but just having the option to call up or have a video call. It just adds so much flexibility. And I think that it's going to be tough to put that one back in the well.


    Jerrod Bailey  14:13

    It's somebody who hasn't walked into a retail store in 10 years, I get everything on Amazon, I tell you I had COVID a few months ago, and to be able to dial in and do a video call with my doctor was delightful.  So as consumers, I think, we've been trained by much bigger companies to want and reach for convenience. So I think the cat's sort of out of the bag there and, and telehealth is sort of inevitable. And then the question is how it gets regulated and the quality brought up and all the other controls that we would expect to see something that's, that's gone mainstream. It's interesting we're managing our risk like we've done for decades, and yet the world has changed. It's rotated underneath us, right? We've got these new technologies, we've got these new delivery models. And as I look at the landscape of because we're a technology company in the space, right, looking to innovate, and I'm looking at other innovators, I tell you what, there's a lot of innovation going on, on the on the plaintiff side of this equation, right, there's a ton of organization and AI, and it's really interesting stuff from just from putting a technology lens on.


    And that that battlefield has changed. And there's I often say there's, there's a lot of knives to bring thing brought to gunfights these days. But you also see some really interesting innovation on the healthcare delivery side to really sort of avoid these nuclear verdicts to begin with. I find what's available now, from an analytics perspective, to be able to use data to really identify where you have risks in your, in your delivery model, and be able to eliminate and mitigate and minimize those types of things. It's all I think, also, where a lot of the battles being, if there's battles being won, it's on that front. But you do require a certain amount of leaning into technology culturally, within hospitals, it's very often you find a sort of aversion to certain types of technology, especially when it comes to things like around monitoring, measuring, delivering care, and stuff like that.  I'm really encouraged by what I see out there, what's available, and by some of the really innovative hospitals and adopted some of these methods. So when you look at the whole stack of risk credit can starts their delivery. It's just interesting to me what's going on, and yet, I still recognize that there's a big gap in terms of adoption of things that are out there.


    Eric Wunder  17:01

    Yeah, you spoke to a lot of points that I'll try and hit on a couple of them. But first and foremost, I would say, data is king. Right, that's, that's what the plaintiffs are relying on, they're sharing their methods and techniques. And they, they're their life care plans, they've really been pushing to drive up costs. They're very organized, and they seem to be coordinated, and what they're doing, and that I think, probably plays into a little bit of those nuclear verdicts that I talked about earlier. So on the defensive side if you're talking about being a risk manager, and how to manage those risks, data is king. It's difficult sometimes to ask one of your doctors to report an incident that maybe something went wrong. And we can't tell as a layperson, if there was a medical issue there, that something was negligent. But if something went wrong, you are much, much, much more likely to see a lawsuit or claim come through your door. And if there's a risk manager, you can take a look at that before that even happens, and say, “okay, something went wrong, what happened?”


    Just to dissect it a little bit, not only will the care of delivery, delivery, the care improve going forward, just because you've had those conversations, you've maybe learned a little bit from a mistake, or maybe it wasn't a mistake, maybe it was just a bad thing that happened, medicine is a very touchy and evolving subject. It's changed all the time, and we learn things every day on it. But just having those conversations and learning about how to deliver with care the best. And then if you do find something that went wrong, and there's certain healthcare systems in particular that have had the sort of apology tours that that seemed to be working. I don't know that there's a lot of data to support that. But anecdotally, I certainly think that there's, there's some justification to that.


    Jerrod Bailey  19:12

    Are we talking about like communication in resolution programs, ERP programs, early resolution type stuff?


    Eric Wunder  19:18

    Yeah, absolutely. And just reaching out to patients and just saying, “hey we understand something went wrong here”. We're looking into it and even if just keeping those ones communication open to them understanding Hey something went wrong with an alert care or “Hey, no, this was just a complication we could not have possibly foreseen”. Just giving them understanding and because your lay person looks at medicine, your average consumers going to say, these are the experts, they should know exactly what to do every time. But doctors don't always know the right thing to do. Every time they're learning. They're dealing with no evolving situation and they're making the best decisions they can based on the information available. that that may be an incomplete picture a lot of times, and so it's a difficult space to be in. But managing that risk and dealing with these early resolution programs and trying to mitigate the risk that way, it can be helpful, I think. 


    Jerrod Bailey  20:13

    I mean if you, if you look at it, and this has been happening for longer than COVID, but I think COVID exacerbated it, you've got this new element of the patient is coming in with a perception of education, and in empowerment, or just a perception of healthcare, and, in its turning combative in some cases, and you got this, like this, sort of, which feels like this shift of I always trust my doctor implicitly to now, there's something else that's been introduced into that relationship, and it's causing headlines and all sorts of things causing a lot of difficulty for physicians and nurses and clinical providers in the clinical setting. And that's, that's really been exacerbated recently. I don't know, when and how the trend started. But you've also got some of that happening, too.


    And I'm sure that there's contributing factors and, and from all sides, but it's, it's been really challenging to see, when you have a shift in culture in sort of relationship with your health care provider we really do need to be thinking about different methods, like, how do we combat that, and when you look at these CRP programs, and I've heard some pretty powerful stories of hospitals, really maintaining their brand, their brand equity in their patient relationship. And really, just a very one at turn on what historically has been a very different sort of reaction to when things go wrong. And so I don't know if that's the right answer, but it does feel like it's a counter to some of these some of these relationship changes that have been that have been happening


    Eric Wunder  22:13

    Yeah, exactly. And I don't know, the right answer certainly can't be the right answer all the time. But it's another tool in the toolbox. And if you don't have that tool in the toolbox, you're probably missing out on something. So just having those options available, and making sure that you've got the innovation in the right place there to make sure that you've got people that know what to do and, and how to resolve these issues as best they can. They can't hurt having that extra tool in the toolbox to reduce that that risk of liability.


    Jerrod Bailey  22:42

    Yeah, so it's interesting. We have innovation from a technology perspective, that tends to be an obvious one. But you get innovation from a response perspective. It's another area of innovation. I think that we're seeing, are you and I don't know how much you're tied to any of the legislative things that are going up going on out there. Is there any inhibition happening at the legislative level? To change things? Or good or bad? Is there any kind of new introductions of ideas that you're aware of there?


    Eric Wunder  23:12

    So I'm not super tight in there. I know that the Medicare reimbursement one is the one that's getting, I would say the most headlines in terms what people are looking at, because that impacts more than delivery of care side of things. On the liability side, there has been talk off and on for a long time. Maybe going back to George W. Bush, but some sort of federal tort reform where we're talking about damage caps or the side of the other thing. But those types of conversations I think have waned a bit in recent years. Certainly, there's been more protections put in place the Good Samaritan laws in recent years with COVID, just making sure that the providers feel like they're protected, protected when they're getting care. But a lot of those, those conversations really don't happen at the federal level as much a lot of them happen at the state level. If anything, I would say the state level pendulums they tend to swing back and forth over time right now they're swinging pro plaintiff where some of the indemnity damage caps are increasing, or the amount of interest that's being paid pre or post verdict, those amounts are increasing. So you're seeing the plaintiffs side start to pick up some wins there. at the state level, that seems to be the trend. And obviously, there's 50 Different states going so they're not all swinging the same way at the same time, but as a whole, I would say that's the way things seem to be trending.


    Jerrod Bailey  24:50

    We're planning on a episode here where we bring in some legal folks and sort of unpack some of the trends going on. And it really is being done. At the state level, right, I think the chances of seeing anything meaningful at the federal level is going to be very difficult to see something go through there. But I am seeing at the state level, some new ideas being introduced, will impact there. So, Eric, you're working with your clients day to day, what sorts of questions are they asking? Like, what are you helping them through primarily at this point?


    Eric Wunder  25:25

    Yeah, so I mentioned at the outset, I deal with looking at the data coming up with premiums that can be charged for these coverages, muscle dealing with the reserving side of things, as I'm sure this audience knows pretty well. But professional liability coverage takes, oftentimes, several years to resolve.

    So if you've got an insurance company who or Captive Insurance Company, which are primarily most of my clients, they are thinking about how much money they need to hold from that premium that brought in, in order to pay out all these potential claims that are coming in the door. So that's been an issue of late COVID, has impacted that in two ways, which I think is where most of the questions have been coming from lately. On the one hand, COVID really shut down the courts or slow the processes down quite a bit. And a lot of times of trial dates, or something along those lines will really push the two parties, the plaintiff and defendant towards some sort of settlement agreement. And with those court dates really not looming anymore, they've been really pushed out for quite some time as the courts deal with criminal cases or other things that are a little bit more a call press. There's, there's been a slowdown there. And so these the dollars of reserves that are being held on this balance, sheets just keep increasing and increasing and increasing, because they can't, they can't get anything through the door, they can't get anyone to settle anything. So that's been one issue. That's been a trend that I think most of the entire industry's been seeing. So that has been interesting.


    And then on the other side from COVID, I would say that the I mentioned this a little bit earlier, the number of reported claims has just been decreasing for two decades. And it seems to have I don't know if I'd go quite as far as say, cratered, but saw another decent jump downward in 2020, and continuing into 2021. And that's maybe be expected, right? I mean, we've still got these technology advances, we're still moving in that direction with our process and CRP programs and all that. But on top of that, then we saw an exposure reduction, because we saw tech or the larger healthcare industry in a negative way, right, there's fewer elective surgeries, there were fewer checkups, people were just a little more hesitant to put themselves in an environment where they may come in contact with someone that has COVID. That hurt on the bottom line for the healthcare providers. But because they were seeing less patients, there was less opportunities for errors or, and by that fewer claims lawsuits being brought by patients and their point of attorneys. So in that sense, the number of claims, because of COVID actually has come down in these last 18 months, or two years now. Now, it's unclear whether that's going to be permanent or temporary. My belief is that it's going to be temporary once we get back to business as usual. Exactly. And time will tell there, but it just all signs point to that once standard. Once the care delivery of care kind of goes back to normal. We're probably going to see claims rebound a little bit.


    But, but those are the two things that I guess my clients have been asking me most about. It's kind of Where's COVID? Go COVID impacting us on the liability side. And those I think are the two primary drivers.


    Jerrod Bailey  29:12

    Yeah, I know, there's still a lot of questions, a lot of unknowns around the COVID Safe Harbor laws and things that have been passed. And there's a lot of a lot of folks on the other side looking at ways that get round them, but I mean, you're seeing you're seeing some chinks in the armor a little bit. So we don't know where that's going. We don't know what's going to happen from that. I think we're all kind of waiting for that. But as we get back to business as usual, it's nice to at least know that there was some silver lining with- I don't know one hospital that hasn't been struggling through COVID to even turn anything remotely close to a profit. But then it's at least me at least the lawsuits have been tapering off one at a time, but this is great. Well, Eric, any other kind of parting advice for our audience or anything else you want to say before we close it up for today?


    Eric Wunder  30:11

    I just want to say thank you for having me on. It's been it's been great talking with you. And I know you mentioned the outset, have you had the pleasure of meeting me, I would say the pleasure was all on this side. So I appreciate you reaching out and it's been a great meeting you these last couple weeks here.


    Jerrod Bailey  30:24

    Likewise, hey, people want to get a hold of us or anywhere that you'd send them?


    Eric Wunder  30:27

    Sure. If you'd like to, you can look me up at Milliman.com Look up Eric Wunder. So if you got any questions, feel free to reach out.


    Jerrod Bailey  30:39

    Sounds good. Well, we'll link to that and anywhere else that you want to also in the in the show notes here. But Eric, as always, it's pleasure. Thanks for coming and talking me through all this stuff today. Thanks, Drew.

Jerrod Bailey and Eric Wunder talk about industry trends and the cost of coverage. Eric provides clarity on the predicament of providers and hospital systems when evaluating coverage plans and the use of data analytics in the process.

Eric Wunder

Guest - Eric Wunder

Principal and Consulting Actuary, Milliman

Eric Wunder is the Principal and Consulting Actuary at Milliman, with extensive experience in long-tailed commercial lines of business such as professional liability, workers’ compensation and general liability. He specializes in property and casualty insurance, especially in areas of loss reserving, pricing, captive feasibility studies and pro forma financial modeling.

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