Healthcare: a Tear in the Claims Management

In the few short years between 1991 and 1998, the cost of healthcare as a percentage of auto claims across Canada rose on average by almost a third to the point where amounts paid out by insurers toward vehicle damage/loss has been dwarfed in comparison. The steep and sudden rise in healthcare costs has prompted auto insurers to take a stand against what many see as provincial government medical system inefficiencies, generally poor control over medical service providers in the rehabilitation sector, and the otherwise rigid and antiquated insurance rate filing administrations.

In addition to a major national lobby drive planned for this year, the Insurance Bureau of Canada (IBC) recently initiated a”first strike” in submitting cost-containment proposals to the Ontario government with the intent of revamping the insurance legislation of Canada’s largest auto market.

But, will the industry’s voice be heard?

From an Ontario perspective, the alternative to the government not taking legislative action to assist insurers in curbing the cost of spiraling healthcare expenses relating to auto claims will be sharp premium rate increases, warns Mark Yakabuski, vice president Ontario region of the Insurance Bureau of Canada (IBC).

The IBC recently submitted a comprehensive proposal to the Ontario government calling for reform this year to the Automobile Insurance Rate Stability Act – otherwise known as Bill-59 – which was introduced in 1996 as an attempt to stabilize premium rate increases. Subsequent to the passing of the bill, rates in Ontario fell by about 13% a year while the cost of rehabilitation expenses within auto claims rose by more than 15% a year to reach last year’s staggering tally of $887 million against $312 million paid in 1991. At the time of drafting Bill-59, the Ontario government agreed that cost-control measures in terms of creating medical fee scales and registering classes of rehab practitioners would be implemented. The qualm of insurers is that nothing of substance has been done by the government over the past four years to bring about such controls.

The problems in Ontario are typical of the ails insurers are experiencing in the other provinces, observes Paul Kovacs, vice president of the IBC. However, the proposal submitted to the Ontario government should really be seen as a call for reform to the auto product (see sub-section on Ontario for further details) whereas the healthcare cost problem is significantly broader and has to be seen as a “policy issue” that has to be dealt with at a federal level. As such, over recent years the IBC formed two committees of “healthcare issues” and “fee structures” represented by senior industry management with the intent of lobbying the federal government for legislative reform to the Canada Health Act. The IBC feels that it is now sufficiently prepared to approach Ottawa in the spirit of gaining “agreement” with the various stakeholders involved (including medical practitioners) rather than looking for a heavy-handed legislative approach. “Putting forward the healthcare issue will definitely be at the top of our agenda this year,” confirms Kovacs.

Building pressure

The composition of auto insurance claims costs is changing, Kovacs noted in an issue of the association’s newsletter “Perspective”, which was released around the middle of last year. “In the 1990s, the cost of claims associated with repairing vehicles decreased in real terms, while the compensation for injuries has been on the rise,” he surmised, which led to bodily injury (BI) and accident benefits (AB) costs accounting for more than 54% of total auto claim costs in Ontario, Alberta and the Atlantic Provinces by the end of 1998. The IBC also found that the number of people involved in vehicle accidents and claiming for injuries had risen from 75 per every thousand collision claims in 1991 to 163 per every thousand in 1998. The result of which suggests that not only is the cost of healthcare treatment rising, but the frequency of claims is escalating as well.

Further research by the IBC indicates that, since 1990 to date, medical rehabilitation costs incurred by insurers rose on average by 37% a year compared with a 2.5% per annum rise in general healthcare costs in Canada. The result of this saw insurers nationwide pay about $1.1 billion toward rehabilitation costs in 1999. In addition, the IBC says that the medical services funded by insurers are typically more costly per treatment and require longer periods of recovery than those patients treated through either workers’ compensation or provincial medical plans (see chart). As Serge LaPalme, CEO of Underwriters Adjustment Bureau Ltd. (UAB), observes, “our industry must face the fact that we are now in the rehabilitation and disability case management business”.

Rehabilitation ailments

The real cost factor irking insurers relates to “soft tissue” or minor injury claims. These injuries have to be treated as soon as possible, and are usually handled outside of a hospital environment and may not even be physician directed, the IBC states. The result of having these treatments transferred out of a controlled hospital environment has seen rehabilitation costs rise dramatically, according to IBC findings.

As such, inadequate controls over rehabilitation service providers and the fees they charge, combined with a lack of standardization in the invoicing for the type of services rendered, has hindered attempts to identify cost inefficiencies in the system, confirms Mark Webb of CGU who heads up the IBC’s healthcare issues steering committee. In fact, research by the IBC of the Ontario market suggests that some insurers reflect up to 40% of their healthcare claim expenditure as “other services” thereby masking the true impact of the costs involved. Developing a system of standard invoicing and a fee scale for services rendered by rehab practitioners would greatly enhance efficiency and equity to the system, Webb notes.

Another area which has to be corrected is fraud and abuse of the system by both service providers and those seeking treatment, observes George Cooke of Dominion Insurance and who sits on both of the IBC committees dealing with healthcare expenditures. The current dispute settlement processes applied by the provinces with regard to insurance tend to favor claimants looking to abuse the system, he adds, as the legal cost to insurers in these proceedings becomes too excessive to pursue. Overall, he notes, “the fundamental issue in all markets [provincial auto markets] is excessive treatment of minor injuries”.

The levy “double dip”

In addition to runaway rehabilitation costs, insurers also pay healthcare levies to the provinces with private insurance systems. The levies are supposed to compensate the governments in question for costs to their healthcare systems as a result of treating third-parties involved in auto accidents. However, the way this system has evolved, comments Co-operators General Insurance Co. vice president of claims Sharon Bros, is that provincial healthcare cutbacks of recent years have shifted a greater expense burden onto insurers. “Essentially, the governments are ‘double dipping’,” by taking the levies and not fulfilling on the resources being paid for, Bros says.

Although the levy versus dwindling public healthcare resources is a problem across the provinces, the situation is particularly poor in Ontario, Bros notes. For example, one of the reasons why rehabilitation costs keep rising is that, more often than not, the waiting list for treatment at Ontario Health Insurance Plan (OHIP) resources is too long for effective treatment of soft tissue injuries. As a result, injured parties have to be sent to private clinics for treatment, thereby producing an additional cost outside the levy subsidy.

Another problem with the levy system is that each province has its own way of calculating the “cost” incurred and therefore what is charged against insurers. Co-operators’ national payout on provincial healthcare levies rose by 10% to $14 million for 2000 compared with $12.7 million for the year prior. “The levies just keep going up,” Bros adds, “and we don’t have any say in the process”. She points to a recent “battle” insurers had with the Alberta government which had demanded a 24% increase in its 2000 levy to $62 million. After some tough negotiating, insurers were able to shave this amount down to $52 million. “Can you imagine what the reaction [from politicians and the public] would have been if we had raised auto premiums in the province by 24%?”

The Ontario solution

The IBC proposal recently put before the Ontario government with regard to recommended reforms to Bill-59 is built on four pillars, says Yakabuski. Although changes to the current rehabilitation billing system plays a large role in the IBC’s plan, other factors such as extending tort access to seriously injured accident victims and introducing a more flexible rate filing system are key elements to the proposal. The conclusion of the report notes, “our proposals are submitted as an integrated package. None of these measures will work on its [their] own.” The four broad-based recommended actions are:

Introduce standard invoicing and fee schedules for rehabilitation service providers;

Identify other healthcare “collateral sources”, and ensure that they share the cost responsibility. Such sources include providers of disability and health benefits who should not be allowed to refuse payment of benefits when a member under their coverage happens to have auto insurance;

Introduce a more flexible rate filing system enabling insurers to make more frequent but moderate rate adjustments within an agreed range and depending on at-the-time market factors; and

Allow further tort options to seriously injured parties who do not qualify under the category of “catastrophically impaired”.

Leading “rehabilitation related” recommendations contained in the IBC proposal include limiting case management studies of injuries to only regulated medical practitioners, possible “black-listing” of service providers identified as having abused the system, excluding death benefits for suicides in vehicles, cut back benefits to claimants if they refuse to take “reasonable steps to rehabilitate or refrain”, and require injured claimants turned down by a designated assessment center (DAC) to pay the costs involved.

In addition to the IBC proposal, the Ontario government has been waiting on a report from the Financial Services Commission of Ontario (FSCO) outlining recommendations on fee agreements with healthcare providers. FSCO commissioned Justice George Adams to facilitate such agreements on billing arrangements between service providers and insurers. This was an integral part of the agreement which ultimately led to the drafting of Bill-59, but stagnated as insurers and many of the representative healthcare provider bodies involved could not reach agreement on fee schedules (at the time insurers were also less than aggressive in pursuing the matter as companies were chasing marketshare at any cost). The Adams report was expected to be handed to FSCO by December 15th, (after this article was written). However, a FSCO spokesperson says the report is expected to contain several “ground breaking” initiatives that should hopefully loosen the logger-jam that currently exists between Ontario’s insurers and rehab service providers.

Referring to the Adams report, Yakabuski says, “this is really an attempt to get over ‘unfinished business’ with regard to what had been agreed to with the passing of Bill-59”. As such, the Adams report has to be seen in a separate context to the proposals just put forward by the IBC. And, he points out, “I’m not saying that every healthcare provider out there is going to agree with our recommendations, but in putting together the proposals, we had discussions with all the key stakeholders in the process, because we obviously want it to fly.”

In that respect, Yakabuski says early feedback from government sources with regard to the proposals has been positive, and the IBC is hoping to see a draft version of some kind of reform legislation put out for comment this spring.

Where to now

Webb is hopeful that the progress being made in Ontario on the healthcare cost issue will provide a basic platform for a national solution. At the very least, the concepts and agreements made through Ontario should provide the basis for discussion at the higher federal level.

However, not all in the industry believe that the Ontario proposal should be used as a basic framework for a national solution to the healthcare cost problem. Cooke cautions that applying the Ontario plan on a national scale could prove too restrictive. “I see the Ontario initiatives as being specific to the market’s circumstances. If we use this as the basis of a national plan, I think it will be too restrictive – Ontario is not about healthcare policy, it’s about product reform.”

Cooke acknowledges that, at a national level, there is presently no table for the industry to sit down at to debate the healthcare problem. The next step, he says, “is to create one…the government [federal] will have to eventually review the Canada Health Act, and we need to be ready.”