Published by the Public Risk Management Association
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AUGUST 2012
City of Knoxville Risk Manager Creates a Culture of Personal Responsibility in a Health Plan
GARY EASTES NAMED 2012 PUBLIC RISK MANAGER OF THE YEAR PRIMA WELCOMES THE RETURN OF PRIMA INSTITUTE Join us November 5–7 in Charlotte, N.C.
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Volume 28, No. 7 | August 2012 | www.primacentral.org
The Public Risk Management Association promotes effective risk management in the public interest as an essential component of public administration.
PRESIDENT Dan Hurley, CSP, ARM-P, MS Senior Director, Risk Management & Safety Norfolk Public Schools Norfolk, VA
CONTENTS
PAST PRESIDENT Cindy B. Mallett, AIC, CWCP, ARM-P Risk Manager City of Gainesville Gainesville, GA PRESIDENT-ELECT Betty Coulter Director of Risk Management and Insurance University of North Carolina at Charlotte Charlotte, NC
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6 City of Knoxville Risk Manager Creates a Culture of Personal Responsibility in a Health Plan
GARY EASTES NAMED 2012 PUBLIC RISK MANAGER OF THE YEAR By Gary Eastes and Christine Stickler
12 PRIMA WELCOMES THE RETURN OF PRIMA INSTITUTE
Join us November 5–7 in Charlotte, N.C.
By Marilyn Rivers, CPCU, ARM, AIC, and Jessica Konrath
14 POOL COST ALLOCATION
The Advanced Course
By Steven P. Kahn, CPCU, ARM
DIRECTORS Ed Beecher Risk Manager City of Pompano Beach Pompano Beach, FL Dean Coughenour, ARM Risk Manager City of Goodyear Goodyear, AZ Michael Fann, ARM-P, MBA Director of Loss Control TML Risk Management Pool Brentwood, TN Matt Hansen, MPA Director, Risk Management Division City & County of San Francisco San Francisco, CA Amy Larson, Esq. Risk and Litigation Manager City of Bloomington Bloomington, MN Regan Rychetsky, ABCP Director, HHS Enterprise Risk Management and Safety Texas Health and Human Services Commission Austin, TX EXECUTIVE DIRECTOR Marshall W. Davies, Ph.D. EDITOR Jennifer Ackerman, CAE Deputy Executive Director 703.253.1267 • jackerman@primacentral.org
17 The Public Sector Can Benefit from METHODICAL APPROACH OF INDUSTRIAL HYGIENISTS
ADVERTISING Donna Stigler 888.814.0022 • donna@ahi-services.com
Public Risk is published 10 times per year by the Public Risk Management Association, 700 S. Washington St., #218, Alexandria, VA 22314 tel: 703.528.7701 • fax: 703.739.0200 email: info@primacentral.org • Web site: www.primacentral.org
By Mary Kay Crowley, CIH
IN EVERY ISSUE 4 News Briefs | 19 Advertiser Index | 20 Member Spotlight Correction: In the April issue of Public Risk, there was an incorrect graphic associated with Dorothy Gjerdrum’s article on page 20. A corrected graphic and article can be found in the online version of April’s Public Risk at www.primacentral.org. We apologize for the error.
Opinions and ideas expressed are not necessarily representative of the policies of PRIMA. Subscription rate: $140 per year. Back issue copies for members available for $7 each ($13 each for non-PRIMA members). All back issues are subject to availability. Apply to the editor for permission to reprint any part of the magazine. POSTMASTER: Send address changes to PRIMA, 700 S. Washington St., #218, Alexandria, VA 22314. Copyright 2012 Public Risk Management Association Reprints: Contact the Reprint Outsource at 717.394.7350.
AUGUST 2012 | PUBLIC RISK
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Message from PRIMA President Dan Hurley
THE UNIQUE CHALLENGES OF RISK FOR PUBLIC ENTITIES
T
he public sector faces very unique liability challenges due to the broad range of services that government provides. In spite of sovereign immunity that varies from state to state, an increasing number of citizens have become more litigious in seeking financial remuneration for damages, even when they own a significant degree of fault. Reckless human behavior at public parks and zoos is one example of increasing public liability. In a 2011 column in the New York Times, Timothy Egan reported that park rangers at Yosemite National Park were frustrated by human behavior at a park that is 90 percent wilderness. Visitors would hike rigorous trails in flip flops, even in areas with signs clearly marked ‘slippery trail.’ People were even observed descending barefoot on the slippery rocks of the high-elevation Mist Trail. In Yosemite, 16 people died in the first seven months of 2011. Three people died after they climbed over protective trail guardrails, waded into swift streams and then were carried over a cliff. Egan observed a notice on a national park service Web site for a wilderness park he planned to visit that had a highlighted message stating, “Aggressive mountain goats have been reported. Use caution and move away.” This notice was placed because a mountain goat attack in Olympic National Park killed a seasoned hiker in October 2010. When the goat approached the hiker, the hiker kept his distance, walking away from the animal. Even so, he was charged and gored by the animal. Although this was a very large national park with wild animals, the National Park Service received three wrongfuldeath claims from the hiker’s relatives totaling $10 million.
in unfamiliar settings. While on a family vacation at the Grand Canyon, we were listening to a ranger when three mountain goats appeared at the rim. Suddenly, tourists were scrambling to get a close-up picture of the animals, literally charging and falling over rocks. The ranger was able to safely disperse the goats before someone got seriously hurt. Then there is the case of the woman who wanted a close-up photo of a polar bear at the Anchorage, Alaska, Zoo. She climbed the fence to get within a few feet of the cage, totally unaware of the bear paw slipping through and hooking her leg (it’s on YouTube). These are just a few examples of the great challenges we all face as public risk managers, providing essential services to the public while often taking extraordinary measures to protect the public from themselves and insulate our entity further from liability. I hope you all have the opportunity to interact with your leadership and practitioners to evaluate, not only the practical risks involved before a new endeavor is put in place, but to also focus on how some of the public may seek to bypass safeguards either with intent or by absence of forethought. Finally, congratulations to this year’s Public Risk Manager of the Year, Gary Eastes, risk and benefits manager for the City of Knoxville, Tenn. You’ll find a wonderful article about Gary’s successes with the City of Knoxville in this issue of Public Risk. Sincerely,
There seems to be an unrealistic expectation that park service rangers can monitor all of the wild animals in this 1,200-square-mile wilderness park. Growing segments of today’s public feel that the government is financially obligated for all of the things that could happen to them regardless of their own circumstances and behavior. We all know stories of individuals who have acted inappropriately
I hope you all have the opportunity to interact with your leadership and practitioners to evaluate, not only the practical risks involved before a new endeavor is put in place, but to also focus on how some of the public may seek to bypass safeguards either with intent or by absence of forethought.
Dan Hurley, CSP, ARM-P,MS 2012–2013 PRIMA President Senior Director, Risk Management and Safety Norfolk (VA) Public Schools
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News Briefs
NEWS
BRIEFS HHS ANNOUNCES NEW EXCHANGE FUNDING OPPORTUNITIES FOR STATES States will have 10 new opportunities to apply for federal funding to develop the health insurance exchanges outlined in the Affordable Care Act (ACA), the U.S. Department of Health and Human Services (HHS) announced. Governing.com reports that the department set 10 deadlines for states to apply for Level I and Level II establishment grants: Aug. 15, 2012; Nov. 15, 2012; Feb. 15, 2013; May 15, 2013; Aug. 15, 2013; Nov. 15, 2013; Feb. 14, 2014; May 15, 2014; Aug. 15, 2014; and Oct. 15, 2014. All exchange grants will be awarded by Dec. 14, 2014, near the end of the first year that exchanges will have been in operation, HHS said. Mike Hash, interim director of the HHS Center for Consumer Information and Insurance Oversight, declined in a conference call to estimate how much total money would be available to states through the announced funding opportunities. The Obama administration has already awarded more than $850 million to 34 states to establish an exchange. HHS has set a November 2012 deadline for states to submit their applications for a state-run exchange, which will begin enrolling customers in October 2013. States that decide not to develop a state exchange can either enter a partnership model with HHS or have the feds run the exchange in its entirety. The department also released guidance explaining the establishment grants could be used to fund state planning toward any of the three exchange models. HHS wasted no time in reaching out to states about exchange planning after the Supreme Court’s ruling to uphold the ACA. “The federal government and our state partners are moving forward to implement the health care law,” HHS Secretary Kathleen Sebelius said in a statement. “This new funding opportunity will give states the resources they need to establish affordable insurance exchanges and ensure Americans are no longer on their own when shopping for insurance.” Governing is tracking federal funding for state exchanges on its Web site, www.governing.com.
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LAWMAKER HITS WRONG BUTTON, OPENS THE DOOR TO FRACKING IN NORTH CAROLINA A veteran lawmaker in North Carolina says she pushed the wrong button in a marathon legislative session and accidentally opened up the state to fracking. According to the Wall Street Journal, Rep. Becky Carney, a five-term Democrat from Charlotte, burst into tears after mistakenly voting with Republicans to override Democratic Gov. Bev Perdue’s veto of the contentious legislation. The measure lifts the ban on hydraulic fracturing as a means for mining for natural gas.
MAMMOTH LAKES, CALIF., FILES FOR BANKRUPTCY The Los Angeles Times reports that the High Sierra town of Mammoth Lakes has filed for bankruptcy because it cannot afford to pay a $43 million breachof-contract judgment in a lawsuit brought against it by a developer. In a prepared statement, Mammoth Lakes officials said “bankruptcy, unfortunately, is the only option left” for the town, whose largest creditor, Mammoth Lakes Land Acquisition, had won a state court order requiring full payment by June 30, 2012. Facing a judgment nearly three times the size of its annual operating budget and a $2.8 million shortfall in its 2011–12 fiscal year, the town had already cut many services and asked employees to take reductions in pay. Compounding problems, the adjacent Mammoth Mountain ski resort was forced to lay off 70 full-time employees last year because of a dearth of snow. A breakdown in negotiations with the developer was the last straw. The town plans to ask the bankruptcy court to approve a payment plan it says is the most it can afford without jeopardizing the safety of residents and tourists: $500,000 a year over the next 10 years. In the meantime, officials said the town of 7,700 permanent residents about 300 miles north of Los Angeles will remain open for business, and local police and fire departments will continue to provide “high levels of response and care.” Mammoth Hospital, the Mammoth Community Water District and Mono County are separate from the town and are not affected, officials said.
Carney and other Democrats asked for a do-over, as is common when a member pushes the wrong button. But in this instance, Republicans said no. A change in Carney’s vote would have changed the outcome, which is against the House rules. But Carney asked for the rules to be suspended so she could change her vote, but got nowhere. Carney had lobbied against the fracking initiative and had voted against it previously. “It feels rotten,” Carney said, in an interview. “It’s a very heavy responsibility because I just feel like the state is not ready.” Majority Leader Paul Stam said fracking could be important to North Carolina’s economy and Republicans needed every vote they had to allow it, including Carney’s. The Senate had already overridden the veto and it became law the moment voting closed, Stam said. “There was nothing she could do about it,” he said, in an interview. “There was nothing that can be done.”
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AUGUST 2012 | PUBLIC RISK
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City of Knoxville Risk Manager Creates a Culture of Personal Responsibility in a Health Plan
GARY EASTES NAMED 2012 PUBLIC RISK MANAGER OF THE YEAR Knoxville Member is PRIMA’s 2012 Public Risk Manager of the Year
GARY EASTES RECEIVES PRIMA’S TOP HONOR By Jennifer Ackerman, CAE When Gary Eastes came to the City of Knoxville in 2003, the entity boasted an annual workers’ compensation cost of $5.3 million per year. This amount had risen steadily over the previous three years. Liability costs for the city had also reached an all-time high. As the city’s new risk and benefits manager, Eastes was tasked with lowering workers’ compensation costs as well as the health care costs of the city’s employees. Eastes seized this opportunity to make substantive changes to his entity’s program by creating a new way of managing rising health care costs. Eastes’ hard work and research helped the City of Knoxville break out of the status quo of managed health care HMOs and create a new way for employees to take responsibility for their health. Eastes’ My Health plan allows city employees and their families to earn rewards for taking a pro-active approach to their health. Employees and their families also have the added benefit of access to an on-site health clinic, where they can receive well care as well as participate in programs aimed at improving their health and wellness. Eastes’ innovative approach has earned him the Public Risk Management Association’s 2012 Public Risk Manager of the Year award. Eastes was chosen as this year’s Public Risk Manager of the Year by a panel of his peers. “Gary’s commitment to the health and safety of his entity and his peers made him a standout candidate in a very competitive field this year,” said Marshall Davies, PhD, PRIMA executive director. “His programs have made a difference to the City of Knoxville and its employees, even going so far as to save lives.” Eastes was chosen for his notable accomplishments, which include: • Reducing the city’s per-employee medical costs to 26 percent below the national average. • Lowering workers’ compensation costs from more than $5 million annually in 2004 to $2 million in 2010. • Cutting the number of total injury cost days in half between 2004 and 2010. The Public Risk Manager of the Year award was established by PRIMA in 1994 to honor a risk manager who has effectively coordinated and managed a risk management program for a public entity facing out-of-the-ordinary challenges.
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By Gary Eastes and Christine Stickler
From 2001 through 2005 the City of Knoxville’s medical insurance cost rose 141 percent. In 2004, the city elected a mayor from the private sector, who brought a finance director charged with stabilizing the city’s finances. The mayor’s management style, which focused on seeking consensus, helped develop an atmosphere of cooperation among the city council. Fortunately, these things combined to make the timing right for beginning significant change in the city’s health program.
In the 1980s, the city had been self-insured for medical insurance. The lack of adequate reserves combined with unpredictable leaps in claim costs in the 1990s forced the city into a state-operated medical insurance pool. The 141 percent increase had occurred while part of the insurance pool. The average city employee was four years older than the typical Tennessee employer, and like many cities, the employee population was heavily weighted with males over 40 in high-risk occupations. The city’s medical claims per member were 28.3 percent above the average Tennessee employer. Prevalence of chronic disease among health plan members was also 40 percent above the norm for employers in Tennessee. The city had operated an on-site medical clinic for many years. It was staffed by two registered nurses and a receptionist, who were city employees. There was also a contracted part-time physician. The senior RN had been allowed to run the clinic with almost total independence. While the quality of the services was widely regarded as poor, employees had developed a sense of entitlement to the free services, and too many employees relied on the clinic as their only medical care. The city recognized two aspects of personal responsibility that needed to be reinforced as part of its health plan: (1) personal responsibility for managing one’s own health, and (2) personal responsibility as a purchaser of medical services. The status quo made it obvious that a majority of employees would not voluntarily accept personal responsibility; the plan design would need to motivate them to do so. At the same time the city had to consider two factors in designing a health plan to motivate employees
to assume personal responsibility: the fact that many city employees are low income and using cost shifting as the primary tool to force personal responsibility on employees was not reasonable; and the political reality that city employees have a level of influence with city council members and citizens so there needed to be buy-in from a significant percentage of employees before a plan could be implemented. These factors were not considered negatives. Rather, they increased the importance of making changes in measured steps and creating buy-in along the way. The timing of changes was important; so was a consistent and persistent message about the importance of employee health and personal responsibility.
PHASE I 2004: Management pressure to improve the quality of services resulted in the resignation of the contracted physician and retirement of the senior RN at the on-site clinic. This created the right atmosphere for the city to issue a request for proposals for providing medical services, which resulted in the city contracting with a local physician group. The more traditional services (annual medical exams for uniformed employees and treatment of work-related injuries) were to be provided at the group’s existing offices. Quality requirements were built into the contract. Annual exams for uniformed employees were extensive, including not only occupational tests, but preventive health testing, such as lipids, PSAs and thyroid tests. The contract also provided for a full-time, on-site RN to provide health screenings for non-uniformed employees, which included the same lab work the uniformed employees received. An RN rotated between offices at each of the three largest city facilities as well as several other employee locations to be as accessible as possible. The on-site medical facility itself
AUGUST 2012 | PUBLIC RISK
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Personal Responsibility in a Health Plan
A vision of health “needs to be perceived as a priority business asset and has to be recognized as having a big and important impact on the ultimate success of the enterprise. It has to be viewed as critical to the strategy of the organization.� Dr. Catherine Baase, Global Director of Health, Dow Chemical Company
was closed, due to the contracted physician group being unwilling to operate it. While this created some controversy, the improved quality of services was obvious. No additional funding was required. 2005: The city began providing cash incentives for employees to participate in regular physical activity, to be tobacco free and for participating in an on-site disease management program if they had one of five chronic diseases. The disease management program consisted of submitting monthly logs dependent on the specific disease (glucose, weight, blood pressure, pulmonary function) that were reviewed by the RN. Participating in the annual health screening was required to receive any of the incentives. This was possible because the mayor and finance director bought into the belief that these incentive programs would result in long-term savings. Approximately 33 percent of employees participated in the first year.
PHASE II 2006: The city left the state-operated insurance pool in order to give the city more flexibility to design programs to improve employee health, and allow the city to receive the financial benefits from improved employee health. The HMO, which had been the most popular health plan in the state pool, was no longer offered. Instead, only a PPO was offered with either a $300 or $1,000 deductible. HMOs were based on the premise that a personal physician/gate-keeper would keep patients healthier. The reality was that the traditional medical system has done an outstanding job of extending lives even as the prominence of chronic disease has exploded, but it has been a failure at preventing chronic disease because physicians are neither trained nor paid to prevent chronic disease, but only to treat it. The intent of personal responsibility is to place responsibility for individual health on the individual and not encourage the individual to rely on a personal physician to keep them healthy.
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Employees could also choose between a broad and a limited provider network. The range in premiums created by these choices was significant, and emphasis was placed on employees having choices to manage their costs. Spouses were included in the incentive programs, and incentives were provided as Health Reimbursement Account (HRA) contributions rather than cash, in order to provide tax advantages and keep the focus on making responsible choices. An additional incentive/compassionate contribution was added for lower-income employees who participated in the annual health screening. The city also removed disease management from the medical insurance administration contract, believing the telephonic service was ineffective; and declared the on-site disease management program was the disease management program for the health plan. 2007: The city issued a new request for proposals for medical services. We contracted with a much larger physician group (Summit Medical Group, with approximately 200 physicians) to reopen the on-site medical facility (now called the Health, Education and Wellness Center— The Center) and provide all the contracted medical services on-site. Obesity and hyper-lipids were added to the disease management program. The contract provided incentives to Summit Medical Group for increasing participation in the incentive programs and for lowering average A1C scores for those in disease management. These incentives were renegotiated each year to ensure they remained effective. Treatment for acute illness/injury was provided to employees at The Center, but a minor co-pay was charged and employees were required to phone for appointments (usually same day). Allowing walk-ins and free acute care would make it impossible for The Center to be efficient in providing the range of expected services. 2008: The city added over-the-counter and step-therapy programs to the pharmacy benefit program. The city also added what became one of the most clearly successful
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components of the health plan. Prescriptions for Oxycontin beyond 60 days had to be pre-authorized. With concern about abuse of narcotics, the city became aware that many scripts for Oxycontin were being written by physicians who were not allowed in the PPO network because of their practice patterns. The first requirement for pre-authorization beyond 60 days was that the prescribing physician had to be a network physician. Medical necessity was also a criteria, with cancer diagnosis being automatically approved. The pharmacist for the insurer advised against the requirement, arguing the insurer and the city would receive substantial criticism from physicians and employees. However, only one complaint was recorded during the first year, from an anonymous employee who argued his pain specialist was more qualified than the physicians who were in the network.
prescriptions. Acute care was expanded to covered retirees and dependents. The additional staffing and services resulted in no additional budgeting due to the reduced expenses of purchasing services from disparate vendors.
2009: The city added hypertension to the disease management program, reduced copays for chronic disease medications for those in disease management and changed the disease management program from submitting logs to participating in face-to-face health coaching. A second full-time RN was added to help provide the coaching.
PHASE III
2010: A new contract was negotiated with Summit Medical Group, which significantly expanded the staffing and the occupational services. Health coaches now included a nutritionist/certified diabetic educator and a fitness trainer/physical therapy assistant. The city expanded the Oxycontin preauthorization to all schedule 2 narcotics. The insurer’s pharmacist had been highly complimentary of how effective the program had been for Oxycontin and the absence of controversy. But she advised against expanding the program, arguing that while there had not been criticism previously, there would be when it was expanded. Again the controversy did not occur, and input from some physicians indicated they appreciated having an additional tool for declining to write such
NARCOTIC AGONIST ANALGESICS – SCRIPTS PER 1000 250 208
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193
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100 79
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50
2011: The focus now was on simplifying the program, which had allowed employees and spouses to separately choose among the incentive programs they preferred and had become very time intensive to administer. The complexity of incentives and requirements was discouraging participation. Additionally, under the smorgasbord incentive program, the more chronic diseases an employee and their spouse had, the more rewards they were eligible to earn due to the disease management incentive. Some employees saw this as appropriate because managing those diseases held down everyone’s premiums, but some saw it as unfair or illogical. Rather than medical insurance and incentives being kept as separate components of the health plan, going forward employees were given the choice of choosing either: ➊ My Health, a health/insurance plan including all incentive programs and wellness requirements, or ➋ Medical Only, an insurance plan that includes no incentive programs or wellness requirements, (but does include a pharmacy benefit).
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Personal Responsibility in a Health Plan
Logically, “paying people cash incentives to lose weight, quit smoking, lower their blood pressure or engage in other healthy behaviors should work. But it doesn’t. Or at least, not in the long run.” Linda K. Riddell, Health Economy, LLC
Employees in My Health receive lower premiums as well as contributions to an HRA account. They also receive lower co-pays for chronic disease medications and free chronic disease monitors and diabetic supplies. My Health is all or none. You must comply with all requirements and you receive all the rewards. Not only the employee, but spouses and children covered by the insurance must participate as well. This keeps some employees who want to participate from doing so, because their spouse refuses, but it was impractical to allow employees and their dependents to choose different health plans. If you:
You receive in HRA dollars:1
Are in the My Health Plan
$64/month or $768/year (employee + one or more dependents) 2
Additionally, if you: Earn less than $30,805
$150/year
Earn $30,805–$41,458
$75/year
Or your covered dependent participates in the City’s prenatal program (must enroll by 10th week of pregnancy)
Prote c t i ng C er tif ied
$32/month or $384/year (employee only)
Risk
t he
Managers
$200 upon delivery of baby
Wor l d
Many employers have concluded that carrots alone are not broadly effective. In one study, it was found that professional golfers took entirely different approaches to a putt for birdie than the same putt for bogie. The effect on the golfers’ score is the same for either putt, but the golfers played the birdie putts more cautiously, because gaining a stroke on par (instant reward) was not mentally viewed as important as avoiding losing a stroke on par (instant punishment). Earning rewards is not as important to the human psyche as avoiding punishment. While reduced premiums can be communicated as earning a reward, in employees’ perception paying more in premiums not to be in My Health is a punishment to avoid. The result was a higher participation (more than 75 percent) in the first year of My Health than anticipated. Cash incentives simply did not have as much impact as the differentiation in premiums, though My Health has both. Using increased premiums allowed communicating reward but with the impact of punishment. There are many compromises and differences of opinion in the design of the incentives and requirements. The physical activity requirement is almost completely honor system; participants submit an online affidavit each month stating they have met the requirements. There is a concern about
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CALENDAR OF EVENTS PRIMA’s calendar of events is current at time of publication. For the most up-to-date schedule, visit www.primacentral.org.
WEBINARS 2012
dishonesty; plus the physical activity requirement is low—only one hour per week. But it is our experience that those who are not willing to participate in even a low physical activity requirement also will not take the time to fill out an online affidavit. Those who do are also meeting requirements that are measurable, making it less likely they are being dishonest. The reason the physical activity requirement is low is that we do not want to focus on increasing activity levels of those who are already active, but to get those who are not active at all to some level of activity. Once they begin, most will increase the level on their own. It is important to determine the target employees you want to reach and have a goal for that target group that is realistic. You can have more individual impact on a small target group, or less individual impact on a larger group. We have focused on a larger group with the expectation that as time goes by, we can gradually raise the expectations/requirements.
BOTTOM LINE While the disease burden of those who participate in My Health and those who choose Medical Only are almost identical, the medical claims per employee for those in Medical Only are 55 percent higher than the claims per employee in My Health. Absenteeism is significantly less for My Health participants, with a projected savings of $78,000 per year in reduced sick leave use. Surveys of participants indicated improved productivity with My Health participants. Biometric measures show improvement in My Health members in cholesterol and A1C, and significantly better compliance regarding gaps in care. My Health members have significantly reduced emergency room visits and claims costs for chronic disease. In 2008, the city’s per-employee medical costs were 14 percent below Mercer’s average for large employers. The difference has increased each year, and in 2011, the city’s per-employee costs were 26 percent below Mercer’s average. By comparison with other employers, the city’s health plan is clearly a success. But being realistic, we are far from being able to claim success. Though we have numerous success stories of employees losing weight, even over 200 pounds, we have not measurably reduced the average employee BMI. The increase in diagnosis of diabetes is frightening. We continue to have a high-risk employee base, and do not expect that to change. There is evidence that we have had an impact in changing the culture, but not nearly enough. We are also warily watching an increase in claims trend, knowing bad periods are inevitable no matter how good your program may be.
• September 19: You Don’t Choose Tragedy, But You Can Choose Your Response: Crisis Response for Schools • November 17: Generational Differences in the Workplace (session presented by Genesis Management and Insurance Services Corporation)
PRIMA ANNUAL CONFERENCES June 2–5, 2013 PRIMA 2013 Annual Conference Tampa, FL Tampa Convention Center June 8–11, 2014 PRIMA 2014 Annual Conference Long Beach, CA Long Beach Convention Center June 7–10, 2015 PRIMA 2015 Annual Conference Houston, TX George R. Brown Convention Center
OTHER MEETINGS November 5–7, 2012 PRIMA Institute 2012 Charlotte, NC
UPCOMING CHAPTER MEETINGS Chapter meetings are listed on a space-available basis. For a complete list of PRIMA chapter meetings, visit www.primacentral.org. For information on a specific meeting, please contact the chapter directly. Arizona
August 8–10
Colorado
The bottom line is we have to continue to improve the health and well-being of our employees. It can only occur by continuing to take timely steps to increase the level of personal responsibility in our health plan. Gary Eastes is the risk and benefits manager for the City of Knoxville, Tenn. Christine Stickler is the benefits coordinator for the City of Knoxville, Tenn.
August 12–14
Connecticut Kansas
August 12–14
August 17
To have your chapter meeting listed on the PRIMA Web site, contact Bles Dones at bdones@primacentral.org.
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PI 12
PRIMA INSTITUTE 2012
PRIMA WELCOMES THE RETURN OF
PRIMA INSTITUTE 2012 JOIN US NOVEMBER 5–7 IN CHARLOTTE, N.C.
By Marilyn Rivers, CPCU, ARM, AIC, and Jessica Konrath
In November, public risk management professionals will gather in Charlotte, N.C., for the newly re-vamped PRIMA Institute 2012. This year, industry leaders will help create a new generation of public risk management professionals capable of effective problem solving and leadership. The program’s goal is to position attendees to envision a future that inspires all public risk managers to constantly and continually learn and improve. PRIMA Institute 2012, also known as PI 12, has been re-designed with the educational needs of today’s public risk management professional in mind. Today’s new public risk managers face extremely different challenges and are forced to solve different problems than the public risk managers of the 1990s. PI 12 has been reformatted to serve the interests of and induct new generations into the ever-challenging environment of public risk management. PI 12 is also the perfect venue for experienced risk managers who want to polish and update their risk management toolkit with the most up-to-date methods and ideas.
WHAT’S NEW? The driving focus of this new format is to inspire and challenge public risk management professionals to become leaders and policy makers who are ombudsmen and strategic statesmen. The new programming is set to begin a three-tiered rotating educational program that will continually evolve over three-year cycles of public risk professional training. The training will be administered by industry leaders to a smaller group of risk management professionals in order to build strong networks with fellow students and key corporate partners. PI 12 will be the first year of the three-year rotational training. Monday’s curriculum focuses on a brief overview of the profession and includes an introduction to the total cost of risk, the politics of public risk’s environment, the evolution of risk and bridging the gap with the new ISO 31000 model. Tuesday explores the insurance continuum and the many types of insurance programming available to tailor the management of risk within your organization, including how best to effectively market your entity in an ever-tightening market. Wednesday, the final day of the program, focuses on individual leadership and empowerment. Attendees will learn about the different tools for policy making, consensus, public–private
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partnership development and the positive use of social media in risk management programming. Wednesday will conclude with attendees learning how to succeed, thrive and empower themselves and their risk management teams, no matter where they are placed within an entity or where they are in their career.
A SPECIAL THANK YOU TO THE 2012 PRIMA INSTITUTE TASK FORCE:
The first two days of PI 12 will conclude with a Q&A panel as well as relevant case studies that will allow for group interaction and discussion about real-life scenarios. Attendees will be encouraged to apply what they learned that day.
Mary Sue Linville WA Schools Risk Management Pool
PI 12 has also partnered with the University of North Carolina at Charlotte to integrate students into this program. UNCC students will be able to attend sessions and social events in order to supplement their university classes and build their professional network.
WHAT’S NEXT? Next year, PI 13 will transition into 200-level classes and the following year, PI 14 will focus on 300-series classes. The new PRIMA Institute will change every facet of how PRIMA partners with local chapters, corporate partners and educational institutions to insure the evolution of public risk management knowledge and learning. In order to thrive within our individual and collective professional positions, we must adapt and accept our ever-changing roles. Partnerships are the key and the lifeline to excellence in public risk management. PI will embrace the changes in technology, change the way public risk management education is delivered and help new public risk managers, or those looking to polish their risk management skills, establish the partnerships they need in order to succeed, thrive and empower public risk management profession.
David Parker Midwest Employers Casualty Company
Betty Coulter University of North Carolina at Charlotte Keith L’Esperance City of Rapid City, SD Dorothy Gjerdrum Arthur J. Gallagher Dave Randall Safety National Marilyn Rivers, CPCU, ARM, AIC City of Saratoga Springs, NY
For more information, or to register, visit www.primacentral.org/institute. Marilyn Rivers, CPCU, ARM, AIC, is the director of risk and safety and the safety and compliance officer for the City of Saratoga Springs, NY. She is also the chair of PRIMA’s education committee. Jessica Konrath is PRIMA’s education and training manager.
PI 12 CURRICULUM MONDAY, NOVEMBER 5 A Brief Overview
TUESDAY, NOVEMBER 6 The Insurance Continuum
WEDNESDAY, NOVEMBER 7 Leadership and Empowerment
• Defining the Total Cost of Risk Within Your Organization • The Politics of Risk Management • The Evolution of Risk Management • Bridging the Gap: Into the New ISO 31000 Model • Case Studies • Q&A Panel
• How the Insurance Cycle Materially Affects Your Individual Risk Management Program • Types of Property and Casualty and Workers Compensation Insurance Programs • Certificates of Insurance and the Additional Insured • Marketing Your Insurance Program • Case Studies
• Policy Making Strategies and Tools for Public Risk Managers • Safety and Risk Management Leadership: Managing Through Influence • The Use of Social Media in Public Risk Management • Future Trends in Public–Private Risk Partnerships • Risk Management: Learn to Succeed, To Thrive and To Empower
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POOL COST ALLOCATION THE ADVANCED COURSE By Steven P. Kahn, CPCU, ARM
All pools allocate costs to members, but the methods used vary widely. This article will present basic plan design issues and provide alternatives for meeting the pool’s objectives. While the examples are based on a “typical” pool, much of the discussion applies equally to individual organizations. ALLOCATION PLAN GOALS An obvious but sometimes overlooked first step is to consider what you want the rating plan to accomplish. Typical objectives include: Obtaining funds to operate the pool. Fostering cooperation with cost-reduction programs such as risk control, claims reporting and pursuit of subrogation recoveries. Rewarding members that reduce actual losses. Keeping individual member premiums competitive with commercial insurers and/or other pools. Keeping premiums stable from year to year. Some pools have other, less-often discussed goals that may drive plan design, such as: Beating the heck out of the competition for an individual member or class of members. Raising funds to purchase a new building or information system. Rolling out, competitively, a new coverage or service. Attracting or driving away a class of business.
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There is a real cost to increasing the number of rating plan factors and coverage groupings. These costs include increased investment in information systems, increase in time members spend providing data, more time developing rates, more time explaining the plan to members and prospects and more time calculating premiums. You should carefully consider what you gain by adding (or deleting) factors from the rating plan.
With respect to item four, you may, for example, want to expand a county pool to include cities and design the plan to produce attractive city premiums. Similarly, you may operate a pool covering primarily cities and counties but that has a few long-time school district members you would like to see join the school pool in your state. We don’t often see these as written plan objectives but do find plans that include features to achieve such objectives.
COSTS TO ALLOCATE Pools typically allocate all budgeted costs to members, but not always. Costs usually built into the rating plan include: Expected losses and allocated loss adjustment expenses (ALAE). Claims adjusting costs (i.e., unallocated loss adjustment expenses—ULAE). Administrative costs. Taxes and regulatory fees, where applicable. Excess insurance/reinsurance costs. Amount to increase (or decrease) surplus. Anticipated investment income (as a “negative” expense). Some pools do not allocate risk control and investment income to members but instead simply use investment income to fund risk control or other programs. Although this is a valid approach, we believe it is easier to ensure all costs and revenues are accounted for if they are included in the allocation plan.
BASIC PLAN DESIGN CONSIDERATIONS All cost allocation plans require certain tradeoffs. The first is stability versus responsiveness. Pool members prefer premiums that are stable (i.e., change little from year to year). However, it is desirable for premiums to respond to changes in losses and a member’s exposure to loss (as measured by payroll, property values, number of cars, etc.).
Most pools consider loss experience in determining workers’ compensation and liability premiums. This is done by experience rating, which is discussed later in this article. The second set of tradeoffs is equity versus simplicity. For a rating plan to treat each member equitably, the plan should recognize each member’s unique characteristics. However, as the number of factors considered in the rating plan increases, it becomes more complicated to administer and understand. One example of the choices to be made is how you rate automobile liability, for which you might have a: Single rate per vehicle, regardless of type, One rate for emergency vehicles and another rate for all other types of vehicles, or Same as item two but modified by territory within the state. A similar choice is how liability coverages are grouped and rated. You could combine general, police professional and errors and omissions liability into a single coverage grouping, or you could rate each of these coverages separately. Similarly, you could have a single rate for both automobile liability and automobile physical damage, or you could rate these two coverages separately. There is a real cost to increasing the number of rating plan factors and coverage groupings. These costs include increased investment in information systems, increase in time members spend providing data, more time developing rates, more time explaining the plan to members and prospects and more time calculating premiums. You should carefully consider what you gain by adding (or deleting) factors from the rating plan.
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Pool Cost Allocation
EXPERIENCE RATING Applying a rate to an exposure measure yields a “manual premium” (e.g., $500 x 10 cars = $5,000 manual premium). Many pools modify the manual premium to reflect whether a member’s loss experience is good or bad in relation to the loss experience of other members by applying an experience modification factor (xmod). Xmods are most often used for workers’ compensation and liability coverages. The xmod is calculated by a formula established by the pool. The results might be an xmod of .91, meaning the manual premium is multiplied by .91 to determine the premium paid to the pool (a 9 percent discount). Alternatively, the xmod might be 1.25, meaning the member pays a 25 percent surcharge due to relatively poor loss experience. A key element of the xmod calculation is to compare a member’s share of exposure to its share of losses. If a member had 3.00 percent of auto losses and 5.00 percent of the cars, this would indicate relatively good loss experience. If the member had 5.00 percent of the losses and only 3.00 percent of the cars, this would indicate relatively poor loss experience.
This article sets out basic guidelines for rating plans… Each pool should model a range of options and evaluate results to determine if pool objectives are being achieved. The formula used to determine an xmod can give more or less weight to loss experience. As the weight increases, premiums will be more responsive to changes in loss experience and less stable over time. A few of the techniques used to vary the weight given to loss experience include: Changing the weight given to loss experience in the xmod formula (a credibility weight). Capping individual claims, such as at $25,000 per occurrence, to moderate the effect of large claims. Changing the experience period. Most experience rating plans use three years of loss and exposure data. Lengthening the period to five years will reduce year-toyear changes in the xmod but will make the xmod less responsive to changes in losses. Capping year-to-year changes in the xmod.
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EXPERIENCE VERSUS SCHEDULE RATING In most rating plans, a premium is developed by multiplying the exposure measure by the applicable rate and applying an xmod. This is usually a formula-driven calculation. Schedule rating is an insurance industry term meaning the premium may be modified based on judgments as to the quality of the risk. For example, a member may implement a new risk control program which, over time, should reduce losses, which would reduce the xmod and reduce the premium. The anticipated benefits of the risk control program could be recognized when implemented by applying a percent rate credit when the plan is implemented. Most schedule rating plans allow a small credit or debit for each of 5-to-10 factors. For example, the plan may allow a 3 percent credit/debit for attending driver training classes or reporting claims within 48 hours. Total credits/debits maybe capped at some level, such as 10 percent.
MODELING RESULTS This article sets out basic guidelines for rating plans. Within these guidelines there is a very broad range of acceptable or “fair” options. You can change exposure measures, coverage groupings, experience periods and many other factors. Each pool should model a range of options and evaluate results to determine if pool objectives are being achieved. Steven P. Kahn, CPCU, ARM, is a managing director of Aon Global Risk Consulting (AGRC). He is past president of the Orange County CPCU Chapter, past president of the Risk Management Research Council and was the editor of Practical Risk Management for eight years.
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THE PUBLIC SECTOR CAN BENEFIT FROM
METHODICAL APPROACH OF INDUSTRIAL HYGIENISTS By Mary Kay Crowley, CIH
“Industrial hygiene” is a title that evokes a variety of mental images, from factories with significant noise exposures from machinery to spacesuit-garbed employees handling sensitive microchips in Silicon Valley clean rooms. The standard definition from the Occupational Safety and Health Administration goes far beyond these instantly recognizable situations: “Industrial hygiene: The anticipation, recognition, evaluation and control of chemical, physical and biological hazards in the workplace.” This definition covers both what an industrial hygienist does (anticipate, recognize, evaluate and control) and the range of potential hazards addressed (chemical, physical and biological). Let’s look at each element. • Doing the Job. The anticipate-recognize-evaluate-control rubric is a logical, sequential approach to identifying potential hazards. By mapping out the tasks associated with a job and how they are carried out by employees, both in theory and at a specific worksite, an industrial hygienist can anticipate and recognize potential exposures to hazards. The evaluation piece of the work may involve taking measurements with monitoring equipment to quantify the exposure and potential impact on employees. Finally, based on the evidence from these assessments, an industrial hygienist can recommend specific control methods.
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The Public Sector Can Benefit from Methodical Approach of Industrial Hygienists
The skull and crossbones symbol has become synonymous with toxic hazards, warning of the possibility of death from dangerous materials. However, all toxins are not equal, and not all exposure represents a true hazard. The industrial hygienist knows that it is the concentration and duration together that determines a substance’s true toxicity.
• Range of Hazards. Hazards can come in many different forms. Chemical hazards include gases, vapors, fumes and even mists or dust from processes such as woodworking, welding or cutting fibers. Physical exposures cover threats such as noise, radiation, temperature extremes and abrasion potential. Biological agents include blood-borne pathogens, viruses, bacteria, fungi, dust mites, animal dander and a variety of living organisms invisible to the naked eye. While the need for competent industrial hygiene advice may be obvious for a manufacturer whose processes include lab technicians mixing chemicals that give off toxic fumes, public entities must also understand the importance of a safe operating environment. Because the work environment of public entities are traditionally thought of as office-based, town managers may believe industrial hygiene expertise goes beyond their needs for creating a safe workplace.
UNDERSTANDING THE HAZARD The skull and crossbones symbol has become synonymous with toxic hazards, warning of the possibility of death from dangerous materials. However, all toxins are not equal, and not all exposure represents a true hazard. The industrial hygienist knows that it is the concentration and duration together that determines a substance’s true toxicity. This is why evaluating the circumstances surrounding a hazard is important. Police officers practicing their shooting skills at a firing range may be in danger of lead exposure from the bullets’ lead dust, but generally have a much lower level of exposure than the range employee who cleans up the lead debris. The exposure in the latter example should be further evaluated.
However, industrial hygiene expertise can come into play in a number of jobs that many public entities have under their umbrella, ranging from the obvious wastewater treatment crew to the less-intuitive park maintenance employees, jail staff and safety officials. Even office workers processing city permits are not immune from possible hazards.
To determine the level of exposure, industrial hygienists use a number of methods to evaluate the degree of the hazard. They may conduct air sampling, monitor noise or temperature, or assess how employees actually perform a job, including whether they make use of protective measures already in place.
LURKING HAZARDS
Once a hazard is identified and the situation is evaluated, the industrial hygienist can make recommendations to help the entity create a plan to protect employees. Perhaps the simplest, but often the least effective, control is to provide protective gear for employees. This method of control is usually the last resort industrial hygienists recommend because its success depends on the employees’ willingness to properly wear and maintain the equipment, as opposed to other control methods that don’t rely on the human element to address the exposure.
Toxic hazards can be hidden and the best protective measures may be elusive without the help of specialists who can evaluate exactly how and to what degree employees are potentially exposed. Many public job functions come with potential risks, including the following examples: • Wastewater and drinking water treatment. These facilities not only use chemicals in quality testing labs but may also have exposures such as gases released from wastewater treatment, water-borne biological hazards and
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extreme temperatures or noisy conditions. • Parks and recreation department activities. Employees performing park maintenance can be exposed to insects carrying disease, pesticides and herbicides and the chemicals in pressure-treated lumber, commonly used for structures in parks. Even artificial turf was at one time the focus of attention because of its possible lead content. • Police. Officers may be potentially exposed to chemicals in meth labs, blood-borne diseases when entering a violent crime scene, noise and airborne lead at firing ranges, and unknown hazard sources when handling evidence. • Jail operations. Indoor air quality and communicable diseases are potential issues in jails, as well as blood-borne diseases and fecal contamination. • Office conditions. Buildings may have indoor air quality problems, such as water damage/mold, vapors off-gassing from new furnishings and allergens that impact workers.
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COMING UP WITH A PROTECTION PLAN
The approach taken by industrial hygienists to assess a potential method of control can be as simple as plotting
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Advertiser Index the path between the source of the hazard and the person exposed to it. It is a three-level process: What is happening at the source that is causing a toxin to be emitted? Is there a way to eliminate the toxin at the source? For example, can an alternative, non-toxic (or less toxic) substance be utilized? If not… What is the pathway to the person that the toxin moves along? Is it possible to create ventilation that will divert the toxic fumes away from the worker(s)? Can the source be isolated so the toxin is contained before it reaches employees? Or can employees be isolated in a control booth so the toxic exposure does not occur? If not… What other protective measures could reduce the potential exposure? Can work schedules be created that will rotate employees through a job area so that their exposure duration is lowered and is ultimately at a safe level? If the protective measures are physical barriers that employees must wear (personal protective equipment or PPE), how can an employer ensure the PPE will be used? Goggles that are not worn will not protect employees’ eyes, and respirators that are not used properly will not prevent them from inhaling fumes. By working through this hierarchy of controls, industrial hygienists can make recommendations to help entities form a plan that makes sense for employees and is appropriate for the hazard level.
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Has your entity launched a successful program? An innovative solution to a common problem? A money-saving idea that kept a program under-budget? Each month, Public Risk features articles from practitioners like you. Share your successes with your colleagues by writing for Public Risk magazine! For more information, or to submit an article, contact Jennifer Ackerman at jackerman@primacentral.org or 703.253.1267.
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KEEPING PEOPLE SAFE No one wants to knowingly put the general public or their employees in harm’s way. However, some hazards may remain unidentified and uncontrolled until there is an incident. Industrial hygienists are professionals trained to identify hazards and recommend controls that can help employers address the hazards before they become workers’ compensation cases. Public entities looking to tap into these resources should talk to their insurance agent or carrier to identify options available to help them control hazards and provide a safe workplace for employees. Good industrial hygiene is a key factor in effectively managing and potentially reducing workers’ compensation costs. Fortunately, public entities do not have to identify all the potential hazards and create effective safety plans on their own. By working with their insurance agent or carrier, they may have access to helpful resources that offer industrial hygiene and other risk management services. Mary Kay Crowley, CIH, is a senior industrial hygiene specialist for Travelers Risk Control.
Keep up with what’s happening at PRIMA and connect with your risk management peers! Visit us at www.facebook.com/ primacentral.
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Member Spotlight
CIRSA DISCOVERS THE RISK IS IN THE ROUTINE Each month, Public Risk features a member who has gone above and beyond in a feature column titled “Member Spotlight.” Do you know someone who deserves recognition, has made a contribution or excelled in their profession? If so, we’d like to hear from you for this exciting column, as PRIMA shines the spotlight on its members. To be considered for the Member Spotlight column, contact Jennifer Ackerman at jackerman@primacentral.org or 703.253.1267.
C
olorado-based risk pool, CIRSA, decided that it needed to put a new spin on accident prevention in its member entities. Many of the claims the pool processed were due to inattention, poor housekeeping, not following established safety practices and inadequate training. Pool members joined together to produce a new video titled, The Risk is in the Routine: A New Look at Accident Prevention, to assist them in managing routine types of exposures. The purpose of the video was to demonstrate that unsafe behaviors can have potentially life-altering effects.
Greer said that the excuses for unsafe actions cause the viewers to question other types of activities they may have done in the past and their own role in taking personal responsibility for their actions.
“This program was developed to help public entities demonstrate to employees that safety is everyone’s responsibility,” said Tim Greer, CIRSA executive director. “Workers should follow established safety rules and procedures, avoid short cuts, use provided safety equipment and take personal responsibility for their own safety.”
CIRSA’s program was the recipient of PRIMA’s 2012 Risk Management Achievement Award for pools.
The program is also highly transferrable. “Regardless of entity size or operation, this information can be used for increasing task awareness for new and experienced employees,” said Greer.
For more information, contact Tim Greer at tim@cirsa.org.
The topic of the video was selected by the CIRSA safety committee. Employees from five member entities participated with CIRSA staff to prepare an outline of the program. The video filming involved 65 employees and six days of filming in multiple locations. Seven municipal scenarios were featured in the video including: • • • • • •
Inattention to driving; Poor housekeeping practices; A back injury to a parks works employee due to lifting; A police officer training injury; An injury while dismounting heavy equipment; And slipping on a wet pool surface.
In the video, participants gave common excuses why the events occurred and follow-up scenes reviewed the correct and safe practices. Some of the excuses given included: • • • •
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“It wasn’t my fault.” “It’s not my job.” “I do this all the time and we’ve never had an accident.” “I guess I should have asked for help.”
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