Paduda: Moves and Implications

Friday, April 15, 2022 | 0

Two things are happening that provide yet more evidence of rapid evolution in workers’ comp.

Joe Paduda

AFGroup grows

AFGroup announced it is acquiring work comp insurer AmeriTrust. Located down the road from AFGroup, AmeriTrust is also focused on work comp and provides insurance in other property and casualty lines as well.

AmeriTrust started out as Meadowbrook and grew from acquisitions over the last 25 years. It carries an A- rating.

AIG completing transition of claims to GB

Not announced, at least externally, was the news that AIG’s internal managed care company HDI will be shutting its doors this summer as its functions transition to Gallagher Bassett.

This follows AIG’s earlier decision to move its internally managed claims to the giant third-party administrator. Notably, I asked AIG directly about this a couple of months ago, and, in part, its response was AIG will continue to handle major loss and specialty claims and medical management.

Evidently, that is NOT the case, as all HDI employees — the people who handle telephonic case management, utilization review, peer review and other functions — will no longer be employed after July 1 (except for a few staff who will remain on the job a bit longer).

While hair-splitting might indicate AIG meant to state that medical management for major loss and specialty claims would still be “handled” by AIG, clearly that is NOT what is happening. Rather, GB will be assuming all medical management responsibilities in addition to handling claims.

Of course, this just makes sense. You want your claims and medical management to be closely aligned.

That said, I’m not particularly enamored with GB’s medical management. There’s way too much emphasis on/use of percentage of savings-related services and fees. Notably, GB has used Coventry’s “outcomes-based network” for some clients, and there’s some evidence that the network delivers better outcomes. (I’ve written lots about this here; briefly, most employers and insurers using TPAs are not focused on the right managed care models, metrics or incentives.)

Why this is happening

Regular readers will not be surprised by these two events, as they are simply rational moves made by payers in a declining, highly mature industry. AFGroup gains additional scale, will likely see an earnings bump due to synergies and adds market share in some sectors/areas.

It is also one — and I would argue, the smarter — of the two main ways to grow. Buying a competitor adds a lot of growth quickly and (hopefully) at a lower price than buying share by under-pricing competitors to win share organically (by selling more business).

AIG just reduced its unallocated administrative expense and future capital investment requirements, a smart move when you expect your budget for capital investments to shrink every year for the foreseeable future.

What does this mean for you?

Grow or sell.

Joseph Paduda is co-owner of CompPharma, a consulting firm focused on improving pharmacy programs in workers’ compensation. This column is republished with his permission from his Managed Care Matters blog.