Increased deductible use prompts strategy change

More insurers require health care organizations to carry a deductible or a larger one than they used to carry, and many providers seize the deductible as an option for controlling the current huge increase in insurance costs. But risk managers warn that the emphasis on deductibles will require a significant change in the way you handle claims.

The increasing use of deductibles is an offshoot of the insurance crisis that has left some providers with premium increases of several hundred percent. Many risk managers will be caught unaware by the deductible, says Monica Berry, BSN, JD, LLM, DFASHRM, CPHRM, vice president of risk management and loss control for the Rockford (IL) Health System. Berry also is president of the American Society for Healthcare Risk Management (ASHRM). Risk managers who are not directly responsible for the purchase of insurance may be unfamiliar with how deductibles have been changed recently, she says.

"If the CFO [chief financial officer] is responsible for buying insurance, they may go for the lowest price. And, to get a lower price, the CFO may embrace the use of a deductible, for instance," Berry says. "Some health care organizations have never had a deductible for liability claims, but now we’re seeing a whole lot more. Now we’re seeing a mandate for deductibles in some organizations."

Increased emphasis on deductibles — or self-insured retentions, the equivalent for providers who self-insure — is a common result of a hard insurance market, says R. Stephen Trosty, JD, MA, director of risk management at APAssurance Corp. in East Lansing, MI. The spiraling insurance premiums of the past few years have created one of the hardest insurance markets, where it is difficult for even the best health care providers to afford insurance.

"And if you’ve had bad claims experience, very often the only insurance you can get in a hard market will be with a high deductible," he says.

Much more involvement

If you have dealt with deductibles before, the greater emphasis on deductibles may require only a shift in strategy, Berry says. In general, the effect tends to be that the provider must be stricter about when to settle a claim. When the deductible is larger, you may have to change your approach to settling claims so that you don’t pay out of pocket too quickly. The greatest impact will be on those who have never had a deductible before, Berry says, and that includes a great many risk managers.

"If a deductible is a new thing to you, you’ll need to seek out education on how to negotiate a settlement, how to handle claims, what your settlement authority is. You just plain have to get comfortable with a whole new process," she says. "That means risk managers need to go back for education and training for how to deal with general professional and liability claims that come with a deductible layer. This can radically change how you negotiate claims."

Berry says ASHRM takes the issue so seriously that it is putting a special emphasis on providing continuing education on claims management and deductibles.

"This problem is hitting, and it’s hitting big time," she says.

Trosty explains that, with the deductibles, insurers are telling health care providers that they must take on more responsibility for managing claims themselves — and to carry more of the risk. That will mean a tremendous increase in the amount of work that risk managers spend on an individual claim or potential claim, he says.

"One of the effects is that it encourages better risk management, better quality improvement, better peer review," he says. "There’s a chunk of your own money on the line for every single claim, and that’s money from the bottom line. It causes you to look at negotiations differently, no matter how much we like to think that we treat the insurance company’s money just as carefully as our own."

One of the biggest effects of having a larger deductible is that you will have to hang on to claims much longer, and therefore do much more work on claims in general. An insurer usually takes over the primary management of a claim once it is submitted, but with a large deductible, the insurer doesn’t get involved until you cross the deductible line. Claims that previously might have been paid by the insurer may be settled for an amount below the deductible threshold, which means that the entire case will remain on your desk instead being passed on to the insurer to handle. And even for larger claims, it will take longer for you to reach the deductible cutoff and hand it over to the insurer. Depending on how your insurance policy is written, the deductible may include expenses as well as actual payouts to the plaintiffs.

"You’re going to be doing much more of the claims management and legal component of your cases," Trosty says. "You’re going to do more of everything before the insurance company steps in and takes the lead."

Seize opportunity or risk extinction

Working with a deductible requires closer coordination with the insurer than some risk managers may be used to. As you handle the initial claims management, you may have to estimate the expenses that are accruing, including legal counsel, and then notify the insurer when you approach the deductible cutoff, Trosty says. Crossing that line will be a mixed blessing.

One the one hand, you can hand over much of the workload to the insurer and you can stop paying the expenses of the claim. But on the other hand, you may have to do considerable work to educate the insurer about the claim and hand over the reins. Then you get to see what the insurer does with all the work you’ve put into the claim so far. Without a deductible, many claims are turned over to the insurer before the risk manager does enough work to feel real ownership. It’s different once you’re put a lot of work into the case.

"You’ve gotten the ball rolling, and now you’ve met the deductible so the insurance company comes in and may or may not agree with what you’ve done," Trosty says. "They have a lot of control to say we’re not paying the claim if we don’t think it’s being handled in the best way."

The major task for risk managers faced with a higher deductible is to improve the claims management process, he says. For many, that will require more education. He recommends the continuing education offered by ASHRM, the Risk and Insurance Management Society, state risk-management associations, and universities offering risk-management degrees. But unlike their approach to many topics, most insurers won’t be eager to help educate you on claims management and working with deductibles. They’ve put the ball in your court.

One option, Trosty says, is to hire a third-party administrator to manage claims. This can be a good option if your risk-management system would need a major revamping to adequately handle claims with a deductible. But even then, he warns that the risk manager should be directly involved in selecting a third-party administrator and managing that person’s work. No matter how you meet your needs in the organization, the risk manager must take charge and not be pushed aside, Trosty says.

The insurance crisis presents a crossroads for risk managers, he says. You can seize the opportunity and play a much larger role in claims management, thereby building a closer relationship in the organization and with the CFO because you’re responsible for more money. But if you are unable to do that, you risk being seen as superfluous.

"You can improve your status or see yourself pushed aside," he says. "The advantage is that you can end up managing claims better and actually cut costs. The risk manager has the opportunity to be a hero if you wind up saving money."