Public Safety Enterprise Health Risk
Management Case Study
Juan Kelly
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SUMMARY
Public Safety Enterprise Health Risk Management Case Study
A - INTRODUCTION
B - METHODOLOGY
Public Safety Enterprise Health Risk Management Case Study
A - DISCUSSION
B - RESULTS
Public Safety Enterprise Health Risk Management Case Study
A - CONCLUSIONS AND RECOMMENDATIONS
B - APPENDICES
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Public Safety Enterprise Health Risk
Management Case Study
Introduction:
• Health plan sponsors in the United States have fiduciary
duty to examine creative cost-containment alternatives
• Due diligence options with respect to risk
– Avoid
– Transfer
– Reduce
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Public Safety Enterprise Health Risk
Management Case Study
Introduction (continued):
• Background
– Historically, entire risk transferred from plan
sponsor to health insurance carrier
– Locking in of costs did nothing to dampen volatility
at renewal (monthly cost trend)
– Double digit annual percentage increases in cost
per employee force employers to shop or cut
– Difficult in light of tight labor market
– and retention difficulties generally preclude
employers from cancelling healthcare benefits
– Case study examines large police department
experience in Southeast United States
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Public Safety Enterprise Health Risk
Management Case Study
Introduction (continued):
• Transferring and reducing risk only viable alternatives
• Emphasis on managed health after managed care organizations
signed up majority of providers
• Risk management tools
– Medical excess stop loss insurance purchased from specialty
carriers
– Prophylactic health risk appraisals performed by competent
health professionals
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Public Safety Enterprise Health Risk
Management Case Study
Introduction (continued):
• Principles in the use of these tools
– Health care consumer/provider encounters triggered by
medical necessity based on best practices and recognized
– Health care guidelines
– Adequate oversight and formal peer review at each step of
the health care delivery system
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Public Safety Enterprise Health Risk
Management Case Study
Methodology:
• First and foremost, cost-containment initiatives not to stifle
productivity and creativity of enterprise members
• Financial decision maker looks at large recent credible claims
adjudicated and paid by party responsible for paying claims (carrier,
third party administrator or internal source)
• Simultaneously, communications campaign launched to schedule
voluntary personal medical interviews
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Public Safety Enterprise Health Risk
Management Case Study
Methodology (continued):
• Designed as early intervention for employees in need of
immediate treatment (e.g., very high blood pressure such as
180/120)
• Individual shock (over $25,000 net of employee cost-sharing)
claims incurred and paid over ten month period laddered up
to $500,000 using actual distribution
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Public Safety Enterprise Health Risk
Management Case Study
Methodology (continued):
• Interviews, also referred to as Health Risk Assessments (HRAs)
done as follows
– Top management of enterprise must strongly endorse
voluntary program for it to be successful
– 25-30 minutes per individual
– At work site
– During duty hours
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Public Safety Enterprise Health Risk
Management Case Study
Methodology (continued):
– Medical history questionnaire
– Four tests
• Blood pressure
• Heart rate
• Blood sugar
• Cholesterol
– Follow-up consults if warranted
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Public Safety Enterprise Health Risk
Management Case Study
Methodology (continued):
– Steps taken after HRAs completed
• High health risks identified
• Summary deidentified report to financial decisionmaker and human resources representatives
providing baseline on wellness/morbidity of work
force
• Savings associated with early intervention identified
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Public Safety Enterprise Health Risk
Management Case Study
Discussion on transferring risk:
• Should the enterprise be protected from the cost of shock claims in
the aggregate (e.g., recoveries beginning when actual claims have
exceeded 125% of expected claims) through reinsurance?
• Which healthcare claims will be insured (e.g., medical, surgical,
dental, vision, prescription drugs, mental health, substance abuse)?
• Will surcharges imposed by county and state governments as
means of subsidizing cost of indigent care be covered?
• How will immature first year claims and runout from prior periods be
recognized?
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Public Safety Enterprise Health Risk
Management Case Study
Discussion on transferring risk (continued):
• Most importantly, how much risk is the enterprise willing to
absorb (up to $500,000) as result of self-insuring individual
specific healthcare risk?
• Will an intermediate layer of risk, referred to as aggregating
specific, be retained by the enterprise?
• Which medical excess stop loss reinsurers offer creative pooling
in setting premiums as well as providing early intervention case
management services?
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Public Safety Enterprise Health Risk
Management Case Study
Discussion on transferring risk (continued):
• Does the medical excess stop loss reinsurer pay the providers
treating the shock claimants directly or must the policyholder
wait for reimbursement?
• What are the associated fixed costs (per capita) associated with
the respective risk transfers?
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Public Safety Enterprise Health Risk
Management Case Study
Discussion on reducing risk:
• What are the associated fixed costs (per capita) associated with the
respective risk reductions achieved by the voluntary HRAs?
• Evaluation of HRA vendors
– Charges including travel and vaccine (e.g., influenza)
administration
– References of medical professionals
– Savings by similar enterprises offering HRAs
– Feedback from employees undergoing HRAs
– Sufficient staffing for multiple sites in multiple states
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Public Safety Enterprise Health Risk
Management Case Study
Results in transferring risk:
• Studied population (over 10 months) including retired employees
and dependents numbered about 3,700
– 64 shock claims across gamut of Physician’s Desk Reference
– Malignant neoplasms number one diagnosis
– Multiple diagnoses for bone fractures, cellulitis, coronary
atherosclerosis, knee sprains, osteoarthrosis, renal failure and
spinal meningitis
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Public Safety Enterprise Health Risk
Management Case Study
Results in transferring risk (continued):
• Example at $250,000 annual individual specific attachment point
– Net stop loss premium on paid basis = $176,125
– Net stop loss premium on incurred basis = $326,375
– Mean = $251,250
– Comparison with actual quote from carrier
• $60,000 aggregating specific layer of risk retention
• Profit and administrative expense components
• Price equals $269,438 (7.24% more)
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Public Safety Enterprise Health Risk
Management Case Study
Results in reducing risk:
• 362 HRAs conducted over 3 month period (38% of active
membership)
• 15% of examinees deemed high risk prompting immediate
physician referral
• Net savings with respect to imminent heart failure, diabetes and
cardiac arrests approximately $1,000,000
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Public Safety Enterprise Health Risk
Management Case Study
Conclusions and Recommendations:
• Early HRA results encouraging
• HRA team continuity and follow-up visits should push up voluntary
participation in light of care shown by employer, building trust by
employees, improving productivity and reducing absenteeism
• Goal of raising annual individual medical excess specific healthcare
retention to $500,000 by 2010, saving $250,000 in fixed costs
currently
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Public Safety Enterprise Health Risk
Management Case study
Appendix 1: Demographics
• 323 active members without dependents on healthcare coverage
• 637 active members with dependents on healthcare coverage
• 305 retired members without dependents on healthcare coverage
• 315 retired members with dependents on healthcare coverage
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Public Safety Enterprise Health Risk
Management Case Study
Appendix 2: Extract from Actual Shock Claim Distribution
• Retinal detachment claim incurred March 2004, paid $84,119
through November 2004, projected $102,812 through January 2005
• Malignant neoplasm colon claim incurred March 2004, paid
$298,955 through November 2004, projected $365,390 through
January 2005
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Public Safety Enterprise Health Risk
Management Case Study
Appendix 2: Extract from Actual Shock Claim Distribution
(continued):
• Malignant neoplasm bone claim incurred March 2004, paid
$115,493 through November 2004, projected $141,158 through
January 2005
• Recurrent depression claim incurred March 2004, paid $37,397
through November 2004, projected $45,708 through January
2005
• Renal failure claim incurred March 2004, paid $377,170 through
November 2004, projected $460,985 through January 2005
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Public Safety Enterprise Health Risk
Management Case Study
Appendix 3: Extract from Per Employee Per Month (PEPM)
Specific Stop Loss Rate Development for Paid Claims
• At $200,000 annual threshold, shock claims in excess were
$276,125; PEPM rate = $17.48
• At $250,000 annual threshold, shock claims in excess were
$176,125; PEPM rate = $11.15
• At $300,000 annual threshold, shock claims in excess were
$77,170; PEPM rate = $4.89
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Public Safety Enterprise Health Risk
Management Case Study
Appendix 4: Extract from Per Employee Per Month (PEPM)
Specific Stop Loss Rate Development for Incurred Claims
•
At $200,000 annual threshold, shock claims in excess were $481,356;
PEPM rate = $25.39
•
At $250,000 annual threshold, shock claims in excess were $326,375;
PEPM rate = $17.21
•
At $300,000 annual threshold, shock claims in excess were $226,375;
PEPM rate = $11.94
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Public Safety Enterprise Health Risk
Management Case Study
Merci Beaucoup
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