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What Verily’s Reinsurance Platform Means for Healthcare: An Interview With Kenneth White

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Life science company Verily has recently launched a new health insurance venture. How might this affect the healthcare industry? In today’s episode, Darshan Kulkarni talks with healthcare lawyer and practice leader Kenneth White about the implications of Verily’s reinsurance platform. Plus, we’ll discuss the meaning of stop loss and provider excess loss.

Narrator: This is the DarshanTalks Podcast. Regulatory guy, irregular podcast with host Darshan Kulkarni. You can find the show on Twitter @darshantalks or the show's website at darshantalks.com.

Darshan: Hey everyone. Welcome to another episode of Darshan Talks. We have one of our favorite guests. We have Kenny White, who has a really interesting, there at the back, one that in the right situation will talk back to you because there's a fun story behind it. We are going to be discussing insurance and reimbursement and Verily, and what all this means. So Kenny, you want to introduce yourself?

Ken: Sure. Kenneth White, I go by Kenny. I am the national managed care practice leader for Willis Towers Watson, and the director of the Payor Solutions Center of Excellence at Willis. And I have a long history of being a healthcare lawyer. I practiced law for almost 30 years in healthcare as a trial attorney before taking my job at Willis six years ago.

Darshan: Just want to specify because he's mentioned Willis, nothing we're saying represents what Willis' official position is. This is just Kenny's personal opinion.

Ken: Or Aon for that matter now that we're in the midst of all of that, so.

Darshan: Correct.

Ken: Although I understand that my email address will get shorter.

Darshan: I live for the days when my email address get shorter with my long name, it was always painful to fill out SAP.

Ken: Now. Well, [email protected] is a lot to say, [email protected] is a lot shorter.

Darshan: I'm with you.

Ken: We'll see how that...

Darshan: So Kenny, tell us a little bit about what happened with Verily and what does this mean? And is there any impact on healthcare?

Ken: Okay. So as many of the tech companies, some that are very much into insurance, Riccardo, InsureTech companies, the other ones it's Verily would probably be referred to as an InsureTech company because it's born of a tech company. So with, with Haven, when Chase and Amazon and Berkshire all got together and created Haven, everybody was sitting back going like, what is this going to be? Every time Jeff Bezos walks to a microphone, people listen because he's Jeff Bezos. So he came out with this idea and everybody just went like, Oh, this is going to be a big deal. So far, it hasn't been a big deal. They ran through several CEOs. They'd been through several CFOs, some innovation directors, et cetera, what it looks that's going to be as more of a way to seriously impact, the health and benefits being provided primarily by those three entities, which obviously is a lot of employees.

So anything that many MP employees are going to do as a thing together, will impact the rest of the industry. Verily on the other hand is a company that is being created to provide, what they call, stop loss. It's not really stop loss, it's provider excess loss and stop loss.

Darshan: What is stop loss? And what is provider access?

Ken: Okay. So stop loss, traditionally is an insurance product that allows self-funded health plans, to access a re-insurance market to cover outlier claims. So most claims fall within a range, of a dollar to a couple of 1000 dollars, in terms of what the actual payout is, not the actual bill charges. But you have significant cancers or blood disorders, or unfortunately what people we refer to, as bad babies in the legal world, where you had multiple millions of dollar claims. Those are claim outliers. That depending upon the size of your pool, if you have 500 employees in your plan, that's a huge hit.

If you have, $150,000 in your pool, it's still significant because you're probably going to have more of them or two or three of those. So what you do is you buy stop-loss coverage that says that if I have a claim that gets to a $100,000, that the amount of the claim over the $100,000 I can go to the re-insurance market or my stop-loss carrier, and they will pay a portion of that back to me. So I pay a premium to that so that I can even out the costs associated with outlier claims. So on...

Darshan: Before you continue. So if let's say it's your one, right? And I have, as you put it a bad baby and next, or I have a person with cancer next year, and obviously the first year I go to the stop loss coverage company and go, "I need you to cover my loss". Next year, that same person with cancer, would that be considered to be? You already knew about it, so you should have covered for it or...

Ken: No, that pre-existing conditions aren't a thing in that line of insurance. Now you will be loss rated so that your premium is probably to be higher, because they're going to look at your loss run. Which is what people refer to all of the claims that you had in the last year or five years or 10 years, and what the insurance company had to pay out will affect your premium. But I mean, there won't be a declination of coverage for that person.

Darshan: Got it.

Ken: You know, so you'll still get coverage, but you'll probably have to pay more for your insurance. Just like if you, your auto insurance, if you had three wrecks last year, you're going to have to pay more for your auto insurance because you're a crappy driver. You know, so provider excess loss is a different animal. It's not technically a re-insurance product. It's a product that has been developed by the insurance industry to help providers, doctors, ACO, CO's physician groups that get into value based contracts, where there is a downside financial risk, upside financial risk you don't need it. All you're going to do is either going to do a good job and save them money and get to collect part of it. Or you're not.

Ken: If you have a downside risk contract, whether or not that's a capitated arrangement, so that you have a benchmark that you're getting paid per member per month. And if they cost you to provide the care more than that, you're out that much money, or if it costs you less, you make more profit. Or if it's a bundled payment program, like with the joint programs for knees and hips, where you have a target rate of let's pick a number $30,000 for a knee replacement, you are responsible for 30 days before the surgery to 60 days after the surgery, you have to provide all of the care and treatment that person needs, related to the knee for $30,000.

If it ends up costing you 25 grand, you made an extra five. If there's a problem and you have to replace the hip, they get an infection, something happens and it's $200,000, then you're out 170 grand. So in that case, you would want to have this provider excess loss coverage, for the same reason that a self-funded health plan would want the stop loss. You want that coverage to provide for the outlier claim that could wreck your whole year in terms of profitability. So, that's what Verily is doing. They're getting into that market, to provide that.

Ken: Because in most of these cases, the volume that any of these practices are providing does not reach an amount that a traditional re-insurance company like a Munich Re or a Swiss Re, or many of the big reinsurance companies, the Lloyd's syndicates. They're not going to be interested in playing in that ballpark because there's not enough, as they say, juice for the squeeze. They want really big deals. So Verily is trying to get into a market, that will enhance the ability of providers, to be involved in value-based contracting with the thought, I think, being that the more value-based contracting going on, the better the outcomes will be the lower the costs will be. That goes along with Haven's goals, exactly. You know, it makes sense on paper, put it that way.

Darshan: I just knowing you, when you make a statement, like it makes sense on paper, there is a practical element that we missed.

Ken: Yeah. Humans are human and, I'm often, I wouldn't say that I'm libertarian, but I am certainly a Keynesian conservative person and not a Republican or GOP that's party politics, I don't get involved in that. It's a pox on all your houses, as far as I'm concerned. Fiscally I'm conservative, but I understand that there is a need for regulation, because humans will do what humans are wanting to do. And that usually is what's best for the human and not necessarily best for everybody else. So what makes sense on paper in terms of I will provide a service or a product to you, that will help you eliminate some of your fear about being involved in value-based contracting, which I see, or other people see as a way of reducing costs and increasing or bettering outcomes.

Ken: The problem is that the only data that we have, with regard to whether or not those two goals are being met by value-based contracting, are the data that comes from the accountable care organizations that were created under the ACA. That data indicates that overall costs are not being reduced very much and outcomes are not being better to word, bettered. The quality is not increasing very much so while it's more cost shifting, if I'm CMS and I have people participating in one of the downside risk programs that I'm either offering voluntarily or mandatorily, in some cases, my goal is to have the federal government pay less for more.

I am achieving the pay less a little bit, but I'm not achieving the more, hardly at all. So if I'm a commercial plan, like an Aetna or a Cigna, Humana, one of the BluecrossBlue Shield plans, who are pushing this much harder than the federal government is because they're not subject to rule and regulatory requirements, they're pushing this much harder. They are shifting the cost of providing the care to the providers. So the insurance cost is going down, but the overall expense of providing the care isn't necessarily going down, it's just that somebody else is having to pay for it. It's teeter-totter, I mean, the one end of the swing goes down and the other one goes up. I mean, they're not both going down, which is the goal.

Ken: And as with MNA agreements, where people argue that this is going to be good for the consumer, it's going to lower their cost and increase the outcomes, and historically, that is not the case. It does not lower the cost to consumers. And it does not better their outcomes. Anecdotally, it might on a couple of occasions, but over the entire process, it does not. Same thing with value-based contracting to date, it has not significantly reduced costs. It has shifted costs, and it has not historically increased the quality of the outcomes so that you're pushing the dollar costs to another entity or another person. But you're not really saving anything as healthcare goes as an entire industry sector.

Ken: So that's, what I mean on paper. On paper, it sounds like a great idea. It is a complete part of value based contracting will not, my opinion, move forward significantly without it. But here's the other aspect of that, if I told you that you have to build a box and that box has to be really good and if the box is exactly as I anticipated it to be, I'm going to pay a 100 bucks. If you make a perfect box, I'm going to pay $110. If your box is not so great, I'm going to pay you $90. But if you go out and get insurance, that covers the fact that you screw up, you don't have to pay, what's your incentive?

I've just cut half of your incentive off, there's a $20 swing there between building a crappy box and building a really, really good box. But if I hack that in half via insurance, it's really a $10 swing, you're going to go, I don't want to put the time and effort into a building, a really, really good box. I can build an average box, get paid $100 and go play golf. I can't play golf and build $110 box, I have to do one or the other, but it's not going to hurt me if I build a $90 box, because I've got insurance, it's going to cover my backside. It has a consequence, financially it's a great thing. But from a quality perspective, you're taking the skin out of the game. And if there's no skin in the game, then people tend to do what humans do, which we get lazy. I'd rather play golf.

Darshan: So, I just worked as general counsel, chief compliance officer for a startup in the value based contracting world. And one of the big things we struggled with is that the rules aren't completely clear yet, which means that the industry isn't mature yet, which means that the numbers aren't clear yet. What you're seeing as a value shifting, for example, is it just too premature? Or do you think that we have enough data, to actually see what the future looks like?

Ken: You got to start somewhere, and Verily coming into the market is actually a good thing for that purpose. The insurers, as you might know, are conservative people. They like to stay within actuarily consistent frameworks, they're regulated. They can't go rogue on you, but that's called private equity. That's not called insurance. And if that's going to be the case, then they have to have something to base the numbers on, which is why there aren't a lot of players in the small market Stop loss and small market Provider excess loss, arena. And Verily will come in and help to fill that, that will build in some of the batter that we're missing, [crosstalk 00:17:30] which is a good thing.

Darshan: So I'm going to use your words in a way that you didn't intend them, but tell me if I'm misinterpret...

Ken: Wouldn't the first time.

Darshan: So to me, what I'm hearing without you saying it, is Verily has come in and basically put a huge bet on value based contracting. And what that really means is that the industry, whether or not we wanted to go down this direction based on the data that's existed so far. Verily has, in some ways, incentivize this by saying, "We'll help you cover those losses". Which means that this type of reimbursement is not poised to grow, which means that Haven and Geisinger, and whoever else, Mayo are all going to go, "Yeah. We can experiment more with this type of a contract value based contracting, basically"...

Ken: For sure, that's like, I want you to cross this side of this fast moving creek. You know, some people would be willing to do that because they see something on the other side that they want, most everybody else is going to stop and go, "Eh, unless you throw me a rope and pull me over or build a bridge, I ain't getting over there". It's nice and pretty over there. It looks nice. But besides, the risks associated and insurance is all about risk, risk transfer. So the risk of getting from one side to the other is a significant risk. If somebody can help me reduce that risk, I am much more willing to cross from this side to that side, because the downside for me has been reduced. There is a reason why large health plans sell stop loss coverage, to their administrative services only, clients. Administrative services only are the self-funded health plans that will retain a... Sorry I don't know how to turn it off.

Darshan: That's okay.

Ken: They retain the health plan, the managed care organization to be a TPA for their self-funded health plan. So the self-funded health plan determines the benefits and the eligibility and the cost associated with it. And they ultimately pay the cost of the care, but they don't have the resources to run the plan. So they'll hire Aetna or Cigna or BluecrossBlue Shield plan to do it United Healthcare Optum. You know, those folks, they'll hire them to do it. And usually you buy into their network, you get the benefit of their network contracting, they handle all of the things and you pay them an administrative fee. You can buy as part of that administrative fee with most of these plans, stop-loss coverage. Well, depending upon how big your plan is and how much revenue you are deriving from the self-funded, administrative that can be hundreds of millions, if not billions of dollars a year.

Ken: So part of that fee goes to buying stop loss coverage for the self-funded health plans. And since the companies that are the TPAs, or in fact insurance companies, they often offer it directly. So Aetna will enter into an agreement with employer A, who has 75,000 employees as part of that arrangement, part of their fee that they pay Aetna to run the plan. They're buying stop loss coverage from Aetna, Aetna issues, and actual stop loss policy written on Aetna, because they're an insurance company and there's all sorts of advantages from compliance and tax and everything else for doing it that way. But that's the way it works. So Verily, in this case is coming in to that market, whether it's stop loss or provider excess loss to build a bridge. So that more, my guess is we don't know for sure, but my guess is they're probably going to be paying more in the provider excess loss world than the stop loss world, because what they want is they want providers, hospitals for doctor offices, large physician groups, ACOs, to be involved in this accountable care, this value based contract.

Ken: So if they're involved in that, then they can help mash the goal of reducing the cost and bettering the outcomes. But you can't do that, if you can't get people to join the party, and these people are willing to come in and basically pay the cover charge. I'll pay your cover charge, you come on in, we'll make this work, we'll have a good time. But you know, it makes sense for them to do that because if that's what they're trying to do as Haven or as individuals in the healthcare business, if their goal is to increase the participation in value-based contracting, the only way that you're really going to do it, is to soften the blow to the people who are providing, who have downside risk, and that's a way of doing it.

Darshan: So, I think we're going to cut this one right here, because I think this was a really, really good conversation. Kenny, we'd love to have you back for some more talks. Would you be open to that?

Ken: Sure.

Darshan: It was great. Thank you again, Kenny. Oh, by the way, can you give a Twitter account or anything?

Ken: I'm on LinkedIn.

Darshan: There you go. You can find Kenny White on LinkedIn, if you want to reach out to him. Thank you everyone.

Ken: Bye. Take care.

Narrator: This is the DarshanTalks Podcast. Regulatory guy, irregular podcast with host Darshan Kulkarni. You can find the show on Twitter @darshantalks or the show's website at darshantalks.com.

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