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Consequences of the ICD-10 Delay

The U.S. Department of Health and Human Services announced last week that they intend to push back the ICD-10 healthcare compliance deadline by one year to October 2014. Naturally, this news was greeted with mixed reactions. Many say the delay is necessary as organizations struggle with a massive undertaking to meet the 2013 deadline. Opponents to the delay point out that the U.S. is the last major country to switch over. A recent study from Edifecs returned some interesting numbers. Attendees of the 2012 ICD-10 Summit were surveyed on the possible delay and indicated an overall opposition. In fact, 64 percent say a delay will not improve readiness, 60 percent say a one-year delay would have a negative impact, and 69 percent say a two-year delay would be potentially catastrophic.  What are your opinions? Do you agree with the majority surveyed?

March PULSE: A Look at the Labor Market

At The Jacobson Group, we take a couple of different approaches to understanding the changes in the labor market within our industry. Looking backwards is relatively easy as we can simply compile the monthly BLS data that focuses on the insurance industry and see what happened – in fact we do just that and release the summarized data to our clients shortly after the BLS releases their numbers. Click here if you want to see the February data. As always, the more difficult and more valuable part of the exercise is to determine what is likely to happen in the future. Well, for the past three years, Jacobson and Ward Group have been conducting a quarterly study of the industry’s labor market to better predict future trends (you can see the latest edition summarized by Insurance Journal).

Seeds of a Hard Market

The Japanese saga playing out before our eyes is first and foremost a human tragedy that reminds all of us of the fragility of our lives and livelihoods. Here at Jacobson, we are praying for the best outcome for the survivors. Early estimates of insured damages are notoriously rough and so must be taken as intended: with wide margins of error. We do know that the final numbers will be large. Coupled with the catastrophe response costs of other recent events (Christchurch most recently), most insiders are predicting a turn in reinsurance pricing in the near future. What does this mean for the rest of the industry? While each market is independent, they are all connected to the overall industry currents. Clearly, the property market will be impacted most directly. Aside from steep losses, the recent catastrophes may result in increased demand for property coverage. More broadly, at some point, either market or central bank induced, U.S. and other tier 1 sovereign interest rates will rise. When they do, the impacts on the cost and availability of capital could be significant. We may be seeing the seeds of the first broad-based hard market in quite a while.  

Homework: Insights on Telecommuting

My two youngest children are home from school today due to a scheduled day off. Because my wife has returned to college to prepare for her next career, one in healthcare, I volunteered to work out of my home office. There are certainly advantages to doing so: the elimination of the commute and the ability to work on projects with limited interruption (well, maybe it’s just a different kind of interruption) are the first that come to mind. I am fortunate that The Jacobson Group runs large work-at-home projects for our clients, because that means we have the technology and expertise in place to make my telecommute pretty simple. If you are a regular reader of our newsletter or participate in our industry-focused webinars, then you know that we have been talking a lot about work-at-home lately. Interestingly, but not surprisingly, this topic has been our most popular in a while. We have seen a significant boost in telecommuting in the past two years. The number of telecommuting projects that we run on behalf of our clients has exploded over the past 24 months, and these arrangements now make up roughly 40% of our projects. This shift is not surprising considering the need to manage costs carefully these days. On the ‘permanent’ side of the labor market, we have also seen a pretty significant change, though that change began in earnest 20 years ago and has been more gradual. These days, virtually every management role we fill, involves the oversight of offsite staff, nearly always including some telecommuters.

Unintended Consequences of Healthcare Reform

Last year’s America’s Affordable Health Choices Act (also known as the PPACA) is slowly beginning to impact the marketplace. I have argued since I began this blog that the approach that was eventually passed into law was misguided as it did not address the root causes of the true primary issue: healthcare cost escalation. Now we are seeing unintended consequences of this misguided effort. Attacks on the insurance industry are simply driving players from market segments and will thus change the market in a very negative manner from the perspective of the consumer.

Hurricane Season Predicted to Heat Up

Last week, Business Insurance published updated projections from Colorado State University’s Tropical Meteorology Project and from NOAA (National Oceanic Atmospheric Administration). Basically, both organizations expect storm season to heat up any day now and are still expecting a rather active season – CSU calls for ten hurricanes; NOAA calls for eight to twelve. We are seeing an interesting dynamic occurring as the industry prepares for the height of the hurricane season. We typically have a number of clients who work with us to proactively prepare their catastrophe response by staffing up their operations as the season approaches. This year we are seeing a lot more activity than normal. This dynamic is not surprising considering the changes over the past several years. Looking at employment segments within the property and casualty industry, we saw the most significant losses of jobs within claims adjusting (NAICS 524291) organizations. Employment peaked in October of 2008, with 56,200 and, as of June 2010, had fallen to 43,500, a loss of 22.5% in less than two years. Taking this information as a proxy for all P&C claims employment is perhaps a bit of a stretch, as one could argue that perhaps carriers had in-sourced much of this activity. However, during the same period, employment at P&C carriers declined by just over 5%; and our experience in the industry confirms anecdotally a sharp drop in overall claims employment. With an expected increase in storm activity and claims organizations extremely lean, we expect strong demand for claims experts as the summer progresses. So far, it seems that the industry agrees. I’ll keep you posted as to how this plays out.

Labor Market Direction Question from Compass

I penned the article in this quarter’s Compass, our executive newsletter, detailing my thoughts on the labor market recovery and expanding on some of the ideas you have read about in this blog. The response to this article has been terrific – and we really appreciate the feedback – and included a thought-provoking question that happened to be asked by a few different people. I’ll paraphrase: Does the rise in temporary employment really suggest general job growth or is this a reflection of a new paradigm in the labor market whereby organizations shift their labor mix toward temporary staff? This is an intriguing hypothesis and one that I have heard about before. Even the SIA has recently predicted higher temporary penetration rates than ever before in the future. That said, I remain skeptical that we are seeing the beginning of a new paradigm and that the growth in temporary jobs since September portends anything markedly different than what it has meant in the past: coming job growth. The nature of a dynamic economy is to reward specialization and efficiency. It is accepted fact that both of those traits require workers who know and understand the niches or micro-niches they serve very well, but I further postulate that organizational knowledge is equally important for most day-to-day business. While I believe strongly in the value that can be provided by temporary expertise at all levels – for the very same reasons of specialization and efficiency – much of the knowledge required by organizations for day-to-day business is organization-specific; thus it is hard for me to envision a wholesale change in the current balance between temporary and more traditional employment. As I pointed out in the Compass article, the numbers seem to be just now starting to affirm the job growth story. This morning we had one more piece of confirmation – the NABE (National Association of Business Economists) released their April Industry Survey, which highlighted expected job growth. Within The Jacobson Group, we continue to see demand for both temporary and traditional staff at much higher levels than 2009. What are you seeing?

BLS Labor Market Data – Sources and Discrepancies

In my last post, I promised a look at the BLS (Bureau of Labor Statistics) labor market data and where it comes from. I am going to start with a primer on the data quoted most often and where it comes from. If you know this or simply aren’t interested in the details, feel free to skip to the next section. Employment Data Primer There are two main data points that are picked up by most media outlets: the Unemployment Insurance Weekly Claims Report, which is reported every Thursday morning at 8:30 ET, and the monthly Employment Situation Report, which is reported the first Friday of every month at 8:30 ET. The Unemployment Claims Report compiles UI claims data from all states to provide both the number of new unemployment claims (claims filed by individuals who are newly unemployed) and the number of continuing claims (all those who are collecting unemployment from the state UI offices) for the previous week. However, the headline numbers that are reported leave out a very large subset of people who are currently receiving benefits: those who receive benefits through the various federal UI extension programs, of which there are quite a few. The biggest of those programs is the Emergency Unemployment Compensation Program or EUC – more detailed information on the EUC can be found here. The government does report the numbers for those claiming benefits from the various federal programs separately but within the same report. The monthly Employment Situation Report is a complex report that relies on two distinct surveys: the Current Population Study (CPS) and the Current Employment Statistics Survey (CES), known colloquially and respectively as the household survey and the payroll (or establishment) survey. There is a lot of data released in this report; but the headline unemployment rate (U3), which comes from the CPS, and the total non-farm payroll, derived from the CES, are the most noteworthy and widely-circulated numbers. The CPS is a survey of approximately 60,000 households and is anchored to the one week period which contains the 12th of each month. The CES is a survey of 140,000 businesses and government agencies representing over 400,000 worksites and is also anchored to the week that contains the 12th of the prior month. The Discrepancy Aside from the headline numbers that each survey produces, both surveys produce a lot of other data. While the CES is the source of official BLS data on employment count, the CPS, or household survey, also produces a count of employment. Interestingly, these data points diverge quite a bit and for many reasons. In the past two months there has been a significant divergence between the change in employment numbers reported by households (CPS) and the change reported by establishments (CES). On a seasonally-adjusted basis, while the well-circulated CES has shown losses of 62,000 jobs, the CPS has shown job gains of more than 800,000 jobs! I should point out that each survey has its respective strengths and weaknesses; and generally, the CES is considered the more accurate source of data with respect to total employment count, in part due to an annual reconciliation process with unemployment claims data that often leads to rather large revisions in March for the 12-month period that ended the previous March. However, because of the limitations inherent in collecting information on company start-ups and companies ceasing operations, the CES relies quite a bit on what is called the birth/death model; and this model can be highly inaccurate. This model is the subject of a fair amount of controversy. There is enough uncertainty to suggest that it may be significantly understating the number of new jobs created during a time of entrepreneurial renewal. Furthermore, the monthly CES data is subject to a number of revisions, including the aforementioned reconciliation with UI data – interestingly, the most recent reconciliation led to a 900,000 job revision (downward) for the period ending March 2009. My point in all of this is that the household data MAY be confirming what our organization is already seeing in real-time – an accelerating demand for labor (at least in the insurance industries) that is not yet reflected in the official BLS data. As I have mentioned, we saw demand begin to uptick in October and then really intensify after the New Year. If you are interested in more information on the discrepancies I Cite, the BLS has done four studies over the past 50 years to try to understand these discrepancies. The most recent of those was published in 2006 and can be found here.

Capitalistic Renewal is Leading to Job Growth – RIGHT NOW!

(3rd follow-up post to the 2010 Impact Survey results: U.S. Labor Market) When I graduated college in 1994, the job market was in the early stages of a healing process that began in late 1992 or early 1993. There was significant apprehension among us graduates as all the media talk was about the ‘jobless recovery’ and how hard it was for new graduates to find work. Even in my field of mechanical engineering – which was considered somewhat immune from cyclical windstorms – there were widespread stories of mass joblessness. By the time graduation rolled around, virtually all of my fellow classmates who were seeking employment had found it. Our fears were unfounded. Until the rumblings of Northern Rock awakened us to the shaking bedrock beneath our feet, we Gen-Xers had been extremely fortunate since we joined the workforce. There had been some hiccups – the early 90s and the early ought’s – but as children of the Great Moderation, our road for the most part had been paved smooth with the asphalt of ‘enlightened’ monetary policy. The shaking of Northern Rock turned out to be the harbinger of a major quake that has opened up a chasm at our feet and, in the process, changed our perceptions of the world. If you open up a newspaper, magazine, Kindle, I-Pad, or website today, you will find the evidence of our new perspective. “Decades before we recover the lost jobs,” “a ‘New Normal’ of persistent low growth,” “the end of American pre-eminence,” “China is the future” – all predicted with the faith of fact. It is a wonder that we all decide to wake up in the morning. I have three arguments with the seeming consensus of our greatly exaggerated demise and thus with the accepted view of the labor market. First, I believe that the Austrian School’s process of creative destruction provides the fertilizer of capitalism. Innovators power the economy by bettering their larger, slower, more complacent dominant rivals. Today’s social mood is part of this endless process of renewal and innovation. The greatest motivation entrepreneurs possess is the desire for a better existence – and as faith in what we thought we knew has broken down, there are many more smart, motivated people now seeking a better existence. There is no question in my mind that the upheaval of the past three years has provided an elevated level of entrepreneurial risk taking. Second, I believe that in today’s environment all economic performance is relative. As globalization has taken hold, the relative performance of economies has taken on greater and greater significance as products, labor, capital, and even knowledge can now flow relatively freely to the area of greatest demand. If you agree with this perspective, the most important determinant of the success of a country will be its infrastructure to support capitalistic endeavors. I would argue that this infrastructure must include strong personal property rights, intelligent regulation to protect the mission-critical systems (i.e. financial, transportation, etc.), and a commitment to the free market as the primary driver of wealth creation. Comparing the U.S. to any other country in these areas yields a pretty good result – for now. Finally, I will give you my ‘main street’ view of labor demand. Things are changing and the pace of change is accelerating. In October, I provided a cautiously optimistic outlook for the labor market in the three insurance industries. Since that time, demand has continued to pick up for our temporary services, rather dramatically so since January. Beginning in January, we have also seen increased demand for our recruiting and search services. While demand in this area is only beginning to increase, the very strong historical relationship between temporary staffing and subsequent employment growth (3-6 months typically) seems to be holding. I will again caution that I can only speak to the experience of one company that serves only three related industries; but in my experience, it is fairly unusual for our industries to tell a very different story than the rest of the economy when it comes to labor demand. My cautious optimism is becoming less cautious. In my next post, I’ll talk more about the labor market and the way the government measures it. In the meantime, I would love to hear about what you are seeing.

What I Learned About Healthcare Reform in B-School…

(2nd follow-up post to the 2010 Impact Survey results) During my first year of business school, as part of an Organizational Behavior class, I was a member of a small team that implemented an organizational alignment analysis on a local non-profit, The United Negro College Fund’s Chicago area office. The UNCF has done some wonderful things since its inception, but back in the late nineties the Chicago office was having some challenges. Our project was an in-depth look at the operational and fundraising challenges in Chicago, and our team ultimately delivered a series of concrete steps to redress the issues. While I believe we offered some well-thought-out suggestions that (hopefully) may have made a difference to the organization, the real beneficiaries in this exercise were us students. We were able to work directly with senior members of the UNCF organization and were provided tremendous access to the staff and the organization’s process documentation. The most beneficial part of the exercise for me, however, was the experience of a real world formal analysis of the root causes of business issues. What I took from the exercise was a healthy respect for the importance of uncovering and then addressing root causes instead of symptoms. Much of this Organization Behavior class turned out to be focused on the application of root cause analysis, the astounding prevalence of change focused on the wrong variables, the heuristics that drive these errors in judgment and the sometimes devastating consequences of these errors. Unfortunately, attempts to heal symptoms not only neglect to fix an issue, but frequently end up exacerbating the issue and further veil the true root causes. It is on that note that I again turn to the current “health insurance” reform debate. Today, the administration rolled out the latest proposal for reform, borrowing nearly all of the substantive measures approved on a partisan basis in HR3590 but adding federal control over health insurance rates, cutting Medicare Advantage reimbursement rates further, delaying the “Cadillac Tax” that would have affected union members and others with rich benefits, and replacing that revenue with increased penalties – administered via a complex process – on businesses whose employees are provided government subsidies. Back in October, I wrote about the lack of consumerism in healthcare as the true root cause of our nation’s healthcare cost escalation issues (one of a number of primary symptoms), which in turn is a major contributing factor to many of the other secondary and tertiary symptoms we see, including the portion of the uninsured population that is involuntarily uninsured. Since that time, our government representatives seem to have moved farther away from addressing the issues that are at the heart of our “healthcare” challenges and have simply stepped up the attack on the one industry that has historically innovated to control costs. The impact of these attacks is felt everywhere in our industry. We are seeing many of our clients continue to retrench in the wake of the double blow delivered by the attacks from Washington and a major recession that has dramatically reduced their membership rolls. A government body set up to determine health insurance rates will further distort market forces that would otherwise reward innovation and efficiency, resulting in far less investment in these critical areas. Nearly every part of the current proposal focuses on symptoms and political rewards rather than root causes, and the effects on our healthcare system will be negligible at best and disastrous at worst.

MMSEA Section 111 Regulations Update

*** Update: CMS responds to industry concerns by delaying implementation date *** This posting is targeted toward claims management and claims executives overseeing liability and WC products. The April 1 CMS implementation date for NGHP (non-group health plans) Medicare Secondary Payer Mandatory Reporting associated with Section 111 of the MMSEA (Medicare Medicaid and SCHIP Extension Act) of 2007 is quickly approaching, and we are hearing all kinds of compliance pain. While a consortium of industry trade groups (NAMIC, AIA, SIIA) have sent a letter to CMS asking for reconsideration of the date, the onerous penalties, and other aspects of the program, I am not aware of any changes to the implementation schedule or parameters at this point. In the meantime, insurers and TPAs are scrambling to comply with these updated regulations. For additional information, follow this link to the CMS section on Mandatory Insurance Reporting. There you will find an overview of the process, details on the application to NGHP (P&C claims departments fall under this heading), transcripts from recent CMS “Town Hall Teleconferences” and other resources. If you want to hear more details on how our clients are tackling this issue or need further assistance, don’t hesitate to contact us.

Economically Speaking…

(a follow-up post to the 2010 Impact Survey results) Much like our actuarial friends, my comfort level is greatest with the ‘evidentiary’ or hard sciences – this is why I obtained a degree in mechanical engineering in my younger days. I am least comfortable with the softer social sciences and am certainly not by nature an economist. I do, however, consider myself a student of politics, current events and of history; and I truly enjoy hearing many sides of an issue. Like many among us, back in 2007, as Northern Rock was toppling and the credit market was beginning to seize up, my interest turned to the economy and its fundamental drivers. Thus, I have read and watched and listened to quite a bit about what we are currently going through. For the most part, this post is going to be my recommendations on where one might find some interesting (and I feel compelling) perspectives; but first I will provide an update from the front lines of the insurance industry labor market with no suggestions that our view has broad implications. Back in October, I mentioned this study by the American Staffing Association and the statistical links between GDP performance, temporary staffing growth and employment growth. Well, from the micro perspective of one mid-market firm, the links are holding up this time around again. In October, I referenced the marked increase in order activity that began in September within our three temporary staffing business units. Aside from an expected lull around the holidays, this higher level of activity continued through December and then accelerated quite a bit in January. Interestingly, January also saw a significant improvement in our executive search and professional recruiting businesses. In fact, our new search bookings reached their highest level in 18 months. So far, the script is playing out as one would expect based upon the historic patterns as evidenced in the ASA study. For other, more accomplished perspectives on the economy and where we go from here, the following are my recommendations: One of my survey participants referenced Nassim Taleb’s "The Black Swan” and suggested that Mr. Taleb would believe I had asked the wrong question – ironically this was one of the first books I tackled back in 2007. If you haven’t read it, I highly recommend it as a unique and thought-provoking perspective on the world in which we all live. Mr. Taleb also has an ongoing blog, though I understand that he is not currently posting in part due to his frustration over the recent reconfirmation of Ben Bernanke. I found Carmen Reinhart and Ken Rogoff’s “This Time is Different: Eight Centuries of Financial Folly” to be a very readable, data-driven survey of financial crises. Their approach is to lay out the data facts in clear terms with very little unsubstantiated opinion. Their follow-up into what happens after financial crises serves as a stark warning of the dangers of mistaken policy over the next several years – we cannot allow a consumer debt crisis to simply be replaced by a sovereign debt crisis. If you are looking for a more narrative overview of financial crises and their aftermaths, “Devil Take the Hindmost: A History of Financial Speculation” by Edward Chancellor was very readable and educational. Back in May of 2008, as the ‘subprime crisis’ was morphing into something much larger and uglier, NPR’s “This American Life” ran a show entitled “The Giant Pool of Money” that provided a very well-researched overview of what had happened and was happening in the subprime market. I believe this became one of the most popular episodes of an incredibly popular radio series (“TAL” is currently the most popular podcast in the country). From this episode, NPR spawned a new podcast in late 2008 called “Planet Money,” which is a non-economist look at all things economist. Some episodes are lacking; but overall this is a well-researched and worthwhile podcast and they have had some very accomplished guests. Finally, if you want to see an entertaining overview of the competing Keynesian and Austrian School viewpoints, take a look at this very funny video. I’ll finish up by saying that I have heard, read and learned many different viewpoints on where we go from here (the above is only a small sample). There are some very bearish views with very compelling stories. I am aware of these perspectives and give them their due respect; but personally I am very optimistic that this great country is on the mend and that the brightest days for our economy are in the future. Challenges lay ahead, but so does opportunity. I welcome comments and any of your recommendations.