Mental Health Change May Hit Insurance Rates Hard

With the national spotlight on Congress' bailout of financial institutions, little notice has been paid to another part of the law passed last month that could affect smaller businesses -- the Mental Health Parity and Addiction Equity Act.

For more than a decade, mental health and addiction treatment advocates have lobbied to bring employers' mental health insurance benefits on par with other medical benefits. In the interim, many large employers took that step on their own.

That's not necessarily the case with smaller employers.

When it goes into effect January 2010, the Mental Health Parity Act will exempt businesses with fewer than 50 employees, but those just above that level may be facing a Hobson's Choice -- either significantly upgrade their mental health and substance abuse coverage, or drop it altogether.

"For people who need mental health treatment, it [the new law] is definitely a win because it will be easier to get appropriate care," said Steven Wojcik, vice president for public policy for the National Business Group on Health in Washington, D.C. "But for those smaller employers, it's definitely going to make health-care costs more expensive, so those employers operating at the margins may have a hard time continuing to offer those benefits."

Here's why: While it's not unusual for a small- to medium-size employer to offer unlimited outpatient visits for a physical ailment, doing the same for mental health and addiction treatment can add significantly to a company's health premium. The same may hold true for inpatient hospitalizations.

For a large employer, many of whom self-insure, the risks and costs are spread out enough to be manageable. For a small-to-medium size business, both risk and cost can look daunting.

"Probably what's going to happen is that the substance abuse treatment benefit will become more generous," said Mr. Wojcik. "I can't imagine you would have limits on outpatient services for conditions like stroke, diabetes or asthma."

Under the new law, he said, if you don't limit rehabilitation services for a stroke, you can't limit them for mental health or substance abuse either.

"The timing is certainly not good, and it's ironic that this was attached to the bailout bill. The last thing you want to do is to raise labor costs at a time of rising unemployment."

Covering treatment for mental health and addiction problems is a good investment for employers if it means they retain a good employee.

As addiction treatment expert Michael T. Flaherty noted, "The positive implications of this law will by far exceed any good achieved by the economic 'bailout' over the years. Medicine can now work on finding the true origins of mental illness and empower the patient in each cure."
He added that insurance companies should welcome the change because millions more people would be added to the rolls of the insured, and conditions will be treated before they become catastrophes.

But the impact can differ depending on the size of a company, both in cost to the employee and the company.

A new Kaiser Family Foundation found that the smallest firms "are about half as likely to offer coverage to their employees" -- about 62 percent of businesses with less than 200 employees -- compared with 99 percent of firms with 200 or more employees. The study also found that employees at smaller firms generally pay higher deductibles.

But smaller businesses already have been facing up to 20 percent annual increases in their health-care costs the past three years, so any further add-on becomes a worry.

How much might premiums go up? Highmark spokesman Michael Weinstein says that "there are so many variables unknown yet on this mental health parity law that, at this point, for any insurance company not just Highmark, it's very difficult to calculate the exact impact on health benefit premiums."

Scott Lammie, chief financial officer for UPMC Health Plan, said it already offers mental health coverage as a standard benefit so the new law "is expected to have only a modest impact on premium levels, which we believe over time could also have a favorable premium impact by helping to reduce overall physical health costs."

So far, the issue apparently has not generated much discussion among small to midsize businesses.

"My suspicion is that they're not as aware [of the new law] as they should be," said Lee Taddonio of SMC Business Councils, whose 2,500 members typically have up to 150 employees. Mr. Taddonio said Pennsylvania has had mental health parity laws since 2006, and also noted that the new federal law offers an out if health-care costs increase more than 2 percent the first year, and 1 percent after that.

"My gut feeling is that I don't think it will be a that significant."

Hard Markets are on their way.

Economists at Swiss Reinsurance Co. are predicting that current financial market uncertainty is likely to continue well into 2010, and will lead to premium rate increases for insurance and reinsurance for several years to come.

Swiss Re predicted that there was a 70% chance of a deep global recession that would last until mid-2009, with continued volatility in credit and equity markets through to 2010, said Kurt Karl, the reinsurer's chief economist in the United States.

There is also a 25% chance that a severe recession—a mini depression that just falls short of the 1930s Great Depression—will last well into 2010, he added. Insurers are not immune from the crisis, according to Thomas Hess, Swiss Re’s chief economist in Zurich, Switzerland.

The insurance industry had combined $18 trillion invested assets worldwide at the end of 2007, but by September this year, nonlife insurers alone had lost 10%-15% of their shareholder equity. They also account for some $200 billion of the financial market’s total $40 trillion loss from subprime structured products, he added.

Should an insurer need to raise capital, the credit crunch would also be an issue, as it would prove difficult and expensive to raise capital and hedge against financial risks, Mr, Hess said.
Mr. Hess predicted that nonlife premium rates will rise in 2009, first for reinsurance and then for insurance. Price increases for reinsurance would result from higher demand for reinsurance at a time of reduced capacity, he added.

“There is a scarcity of risk capital, and so naturally the price of risk increases, including the price of reinsurance,” he said. “I expect prices in reinsurance to rise. It will take longer for primary insurance rates to increase, but they will also rise.”

Nonlife insurers could also take steps to improve their underwriting results, to compensate for lower investment returns, Mr. Hess said.
In a special report published Tuesday “Global Insura
nce Review 2008 and Outlook for 2009: Weathering the Storm,” Swiss Re said that refocusing on underwriting profitability was likely to lead to rate increases in lines where losses have been highest—including directors and officers, aviation, U.S. catastrophe and credit. In other lines, there will be an end to the decline on rates, it added.

“A general hardening of rates across all lines will be slow to emerge in the poor macroeconomic environment. However, the expectation for rate changes will be a shift away from softening to hardening in 2009, reflecting the increased cost of insurance production due to higher capital costs and lower investment returns

Complex Property Coverages

Sadly, a lot of times clients only ask one thing about property coverages -- How much does it cost? The next few blogs are meant to highlight issues that when there is a claim the client is asking --How much is your Errors and Omission coverage.

Debris Removal

Debris removal usually only applies to insured's property covered by the policy. There is going to be property owned by the insured that is customarily not insured by the property policy, they will have to clean it up and it is not covered unless an exception is made for this property under Debris removal. ( i.e. concrete blocks, driveways, curbs, walkways are not covered and trees, shrubs and lawns are commonly excluded for wind losses).

Debris removal owned by others is not covered if it is not insured under the policy. You must get debris removal changed to include insured's property and others including outdoor property.

Most policies have very low removal limits. Always increase these limits. It is not expensive and absolutely essential coverage in a loss. It is not uncommon to have greater debris removal costs than reconstruction costs.

Secret Questions

Knowledge based authentication (KBA), or the use of secret questions to verify a person's identity, is generally safe. The most frequently used KBA questions are ones with unchanging answers, such as what is your mother's maiden name or the name of your favorite pet. The consumer selects a secret question and provides an answer himself, which the company stores in its database. These types of questions are implemented only after a relationship has been established with the consumer. However, some risk exists if an identification thief were to know the answers from common knowledge or a data breach. Another type of KBA question is the dynamic type, which is intuitive and is created spontaneously using data from a consumer's data record that is accessed in real-time. This type of question does not require a prior relationship with the consumer and can be used for such things as account origination or requesting account changes.

Successful Construction Claims

Massive documentation is par for the course in large construction projects, and lawyers can use the paper trail as evidence to aid in the defense or prosecution of a construction claim. There is a wide array of project documents, including contract documents, drawings, applications for payment and payment certificates, a bar chart and electronic schedules, minutes of site meetings, site superintendent reports, deficiency lists, handwritten notes of meetings or telephone conversations, inspection and testing reports, and contemplated change notices, site instructions, price quotations, and change orders. Organizing documents in chronological order reveals a project history that can be related in an understandable and revealing way. That narrative frequently traces the history of construction problems that may become the basis for construction claims, and the way the story is communicated may play a decisive role in the claim's success or defeat. A paper trail can determine a problem's causes, suggest ways to correct the problem, and establish which parties are responsible or contributory to the problem.

Florida Catastrophe Fund

Insurance industry groups recently warned Florida legislators that the state's underfunded Catastrophe Fund must be reformed, especially since the state is in the midst of a 20-year increased hurricane activity cycle, according to Florida Insurance Council Executive Vice President Sam Miller. The fund currently needs up to $15 billion to meet its current obligations, but bond issues are unlikely to raise enough money in this economic climate. Miller suggests legislators reduce the fund's obligations from $28 billion to $16.5 billion, which would prompt insurers to purchase additional reinsurance. He also suggests allowing insurers to increase premiums to cover the additional reinsurance costs.