Tag Archives: liability insurance

Infographic: Insurance for craft brewers

April 7th marked National Beer Day, in honor of President Franklin Roosevelt signing a law on that date in 1933 to once again legalize the brewing and selling of beer. It was one of FDR’s first steps toward ending prohibition.

Today, craft beer is a growing market, with the number of small and independent operating breweries in the U.S. totaling 5,301 – a 16.6% increase over the year before. But as with any small, closely held business, this expanding industry faces some unique liabilities. The infographic below is based on an article by Milliman consultant Michael Henk, which examines some of the liabilities that both craft brewers and insurers should consider in order to minimize the financial impact of the risks they face.

Curtail ACA’s potential impact on self-insurance programs

The long-tail nature of professional liabilities and workers’ compensation claims make it difficult to gauge the effect that healthcare reform will have on self-insurance. A plan of action is needed though to help organizations value their self-insurance programs. Milliman’s Richard Frese recently authored an article in HFM magazine offering five strategies for lessening the impact of the Patient Protection and Affordable Care Act (ACA) on self-insureds.

Here is an excerpt:

Healthcare leaders will be better prepared to ensure that actuarial estimates will meet loss accruals and forecast needs by implementing these strategies.

Inform all parties of legislation updates and implementation. Although the components of the ACA have been determined, implementation has hit a few snags. Even with a strong effort to explain the proposed changes to the public, there have been multiple interpretations. Further clarification and revisions—and even repeal—are possible. Healthcare leaders should focus on keeping all parties—including the broker, actuary, auditor, third-party administrator, outside defense counsel, and captive management—involved in the self-insurance program apprised of any changes. In return, these parties also should communicate any changes with each other and with the organization’s senior leaders.

Gather opinions from various sources. Senior leaders of each provider organization may not share the same views as leaders of other organizations regarding how the ACA may affect their organization’s role and function. The leaders of each organization will want to ensure the organization’s service providers are on the same page and are working toward its goals and directions, particularly if strategic goals and directions have been revised because of the ACA. During these conversations, leaders also should share their interpretation of what is occurring in the industry.

Monitor loss activity. Healthcare leaders should work closely with risk managers, third-party administrators, and other claims personnel to track any changes in frequency and severity of reported claims. Service providers should be alerted immediately about any noticeable changes. It should be noted whether such changes are believed to be due to the ACA or a different cause, such as a change in claims handling. It will be critical to determine whether any loss change reflects an actual trend and is expected to continue or whether the change is related to a one-time event. Internal meetings also might be held more frequently to better monitor activity.

Fracking exposures could create large liability claims

There has not yet been any environmental accident related to hydraulic fracturing (fracking). Still the potential for enormous liability claims exists. Milliman’s Jason Kurtz offers perspective regarding the financial effects that ecological contamination caused by fracking may have on a company in this Business Insurance article (subscription required):

Jason B. Kurtz, a consulting actuary at Milliman Inc. in New York, said past water contamination cases in other industries, such as those that involve gasoline additive MTBE, demonstrate how costly such events can be.

“If these types of things do manifest themselves, some of the companies involved (in fracking) may not be big enough to fully absorb the financial hit,” he said. “Regulators should be aware of that.”

Regulators overseeing fracking might want to look to insurer solvency requirements as a guide to requirements that could be imposed on companies involved in hydraulic fracturing that would ensure they have sufficient resources, either through their own funds or insurance, to cover groundwater contamination claims, Mr. Kurtz said.

Kurtz also details some insurance related uncertainties involved with fracking in his co-authored paper “Fracking: Considerations for risk management and financing.” Here is an excerpt:

A current lack of insurance capacity may be due to a lack of historical demand. Fracking-related energy production will be around for a long time, with many thousands of wells expected to be drilled in the next several decades, but as this technology is just starting to become more widespread, there may be a temporary lack of capacity as insurers increase their familiarity with the unique aspects of fracking exposures in a particular location.

…If insurers are too concerned about high pollution liability for fracking exposures, perhaps it’s worth evaluating the particular situation to see whether the pollution risk could somehow be further reduced or, at the extreme, avoided. A lack of insurance availability for certain energy companies in a region may be a signal that the likelihood of major pollution losses is too high, either because best practices are not being followed or because of the complexities associated with the use of fracking in that region.

How can hospital and physician groups manage tail liability?

The creation of accountable care organizations (ACOs) is leading hospitals to acquire physicians rapidly. During the process hospitals should consider how a physician’s integration may increase tail liability related to medical malpractice insurance.

Richard Frese’s co-authored article “Managing tail liability” offers hospital and physician groups perspective on tail liability issues that may need to be reflected on the balance sheet.

Here are some specific tail liability considerations:

First, leaders should understand the level of tail liability exposure their physicians face, including exposure related to a physician’s specialty, FTE value, participation in outside activities (such as moonlighting), and prior insurance coverage. This consideration is particularly important when acquiring physicians and when preparing for a physician exit. For example, it is important to know whether the insurance program will provide coverage for prior acts or tail coverage when a physician leaves, and whether a physician will need to come into a program “clean,” with his or her tail liability covered by another organization.

Employed physicians usually are covered under occurrence-based medical malpractice policies. Some organizations may choose to cover employed physicians’ liability through a self-insured vehicle, such as a captive or risk-retention group, or through self-insured retention (a dollar amount that must be paid by the organization before the policy will cover a loss). Nonemployed physicians also may be offered such coverage through an insurance vehicle, but they must secure coverage on their own; the hospital itself cannot provide this insurance. In addition, some healthcare entities purchase commercial claims-made coverage for employed physicians, but will offer physicians the option to purchase occurrence coverage. This approach results in tail liability for the organization.

The article also details solutions that can help hospitals and physicians control these liability expenses:

Use a self-insurance vehicle. Self-insurance is an option, particularly when insurance prices are high during a hard market. Theoretically, an entity experiences savings through the profit, contingencies, and insurer’s expenses built into the rate. Self-insurance also allows an entity to maintain more control of the losses, because the carrier may not be involved until claims reach the excess layer. Pooled physicians might have the additional benefit of obtaining lower insurance rates. But there also is increased risk and variability with self-insurance, because cash flows may not be known up front as they are with commercial insurance. Administrative costs also may increase when claims previously monitored by an insurance company become the responsibility of the self-insured entity. Use of self-insurance also requires greater knowledge of underwriting, and actuarial estimates will be needed for funding future losses.

Consider combined limits between hospital and physicians. Programs that have separate limits for the hospital and physicians may find savings in having a single combined limit. This practice may not be feasible in some states with medical malpractice funds, depending on the rules, but for other states, there are clear advantages. First, programs that have single combined limits experience reduced legal expenses, because alignment of the hospital’s and physicians’ goals and incentives allows for joint defense of claims and reduced “gray boxes” of coverage. This approach also avoids internal situations where the hospital and the physicians blame each other for an incident, as well as situations where the hospital may be brought into a claim as a deep pocket. Combined limits also allow for more protection for physicians, because commercial coverage usually has lower limits.

Ryan Weber, of McGladrey, also contributed to this article.

The SMART Act aims to remedy five MSP issues affecting liability insurers

The Strengthening Medicare and Repaying Taxpayers Act (SMART) clarifies certain rights and responsibilities under the Medicare Secondary Payer Act (MSP) and Section 111 of the Medicare, Medicaid, and SCHIP Extension Act (Section 111). MSP establishes that Medicare is a secondary payor of benefits to Medicare beneficiaries under certain circumstances, such as when a workers’ compensation plan or liability insurance policy provides coverage for the injury. Section 111 strengthens MSP by requiring workers’ compensation and liability insurers to report claims involving Medicare beneficiaries to the Centers for Medicare and Medicaid Services (CMS), so that CMS can identify all claims where Medicare is the secondary payor and collect reimbursements from the insurers.

In this new article, Christine Fleming discusses how primary payors are affected by MSP and Section 111 and how SMART attempts to address their concerns. Here is an excerpt from the article:

Medicare’s secondary payer status and right to reimbursement are nothing new – MSP (Medicare Secondary Payer Act of 1980) has been around for 30 years. However, renewed interest percolated recently with the enactment of new legislation – referred to as Section 111 – which required primary payers to report claims involving Medicare beneficiaries to the Centers for Medicare and Medicaid Services (CMS). The purpose of the reporting requirements was to enable CMS to identify all claims for which it is a secondary payer and collect conditional payments owed to it by the primary payers. Prior to the enactment of Section 111, CMS did not have a fast and easy way of identifying such claims, making it difficult for CMS to actually enforce its MSP reimbursement rights against primary payers. Now, with the enactment of Section 111, the claim is reported to Medicare’s coordination of benefits contractor, and the MSP recovery contractor can quickly initiate recovery efforts. And no dodging allowed—under Section 111, the failure to report claims to CMS results in a fine of $1,000 per day per claim.

Thus, the passage of Section 111, while seemingly procedural in nature, actually did impact the way many in the industry view and uphold MSP’s substantive provisions. As a result, interested parties’ rights and obligations under MSP have been scrutinized anew, generating a myriad of issues and questions.

SMART is intended to resolve five of these issues:

• How and when does an insurer know the amount of the conditional payment owed to Medicare?
• How does an insurer dispute a conditional payment amount? Is there an appeal process with respect to conditional payment determinations?
• How long does Medicare have to bring a suit to collect conditional payments?
• What happens if, despite best efforts, an insurer cannot acquire the information needed to report a claim under Section 111—doesn’t the $1,000 per day per claim penalty seem a bit harsh under these circumstances?
• Do insurers have to report and reimburse conditional payments for claims involving very small settlement amounts?

These five questions posed problems primarily for liability insurers, and to a lesser degree for workers’ compensation insurers. Workers’ compensation insurers report claims involving Medicare beneficiaries throughout the life of the claim, as long as they have “ongoing responsibility for medical” (i.e., workers’ compensation insurers make medical payments directly to the providers). Because of ongoing reporting obligations, workers’ compensation insurers are more likely to be aware of the conditional payment amounts sought by Medicare throughout the life of the claim, and well in advance of final settlement. Liability insurers, in contrast, report a claim under Section 111 only once, after payment of the settlement, judgment, or award, and therefore are unaware of conditional payment amounts owed until after settlement.