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Health Republic: What went wrong and why?

Crain’s New York recently published a terrific article laying out the reasons how and why Health Republic turned into such a catastrophic failure.

From the article:

“On Sept. 25, 2015, Health Republic was ordered to shut down by the same state and federal agencies that had given the insurer their regulatory blessings just two years earlier. In 20 months, from January 2014 through August 2015—when it became clear the insurer couldn’t survive—Health Republic had accumulated tens of millions of dollars in losses. The company was ordered to close its doors effective Nov. 30, leaving 209,000 enrollees to scramble for new coverage.

A three-month investigation by Crain’s New York Business shows that, from its conception in 2012, Health Republic was on unsteady ground. Crain’s found that management deliberately set low premium rates as a marketing ploy to attract customers. Regulators approved those rates but then wouldn’t let the company raise them after it became clear that the prices jeopardized the company’s solvency. 

To put it more bluntly; Health Republic’s failure was the result of negligent leadership and incompetent government oversight.

Again, from the article:

“By several accounts, DFS did not monitor Health Republic closely, aside from handling initial consumer complaints. It wasn’t until early 2015 that DFS began demanding monthly financial reports from Health Republic instead of only quarterly and year-end financial statements. By then, the company realized it had lost $77.5 million in 2014, an amount it had still hoped would be covered by the federal backstop. Meanwhile, Health Republic’s executives tried to reduce losses. They stopped selling policies in several upstate counties where claims were particularly high. The company also tried to interact directly with providers to manage patient care that generated expensive claims but was blocked by the restrictive contracts that had been signed with MagnaCare.”

Even now, months after the failure, the fallout continues. The real question is: What will New York State lawmakers and policy officials due to ensure that the regulators accomplish their primary mission of maintaining carrier solvency so this doesn’t happen again?

New York’s Economic Outlook: Dead last

A new report by the American Legislative Exchange Council (ALEC) finds New York ranks dead last in economic outlook among the 50 states.

From the report: “Rich States, Poor States examines the latest movements in state economic growth. The data ranks the 2016 economic outlook of states using fifteen equally weighted policy variables, including various tax rates, regulatory burdens and labor policies. The ninth edition examines trends over the last few decades that have helped or hurt states’ economies.

Used by state lawmakers across America since 2008, Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, is authored by economist Dr. Arthur B. Laffer; Stephen Moore, distinguished visiting fellow at the Heritage Foundation; and Jonathan Williams, vice president of the ALEC Center for State Fiscal Reform.”

This is the third year in a row that New York came in last place.

A closer look at Buffalo job numbers

Perhaps you’ve seen the news recently about a rather startling revision of employment  numbers in the Buffalo/Niagara region. In case you missed it, here is the gist: preliminary numbers said the region added 8,900 jobs in calendar year 2015. That figure represented a 1.6 percent increase that would have been the strongest job growth the area had seen since 1999. However, when the revised figures came out, what was once 6,100 new jobs, turned into 2,900 new jobs. And that 1.6 percent job growth rate we just mentioned, it plummeted to a disappointing 0.5 percent, well below the statewide and national growth rates.

Further adding to the confusion, John Slenker, the labor department’s regional economist in Buffalo, thinks the newly announced fourth-quarter slump is overstated, and the numbers will be revised AGAIN a year from now.

That same story suggested that Slenker’s more optimistic view is backed up by local unemployment data, which shows that the Buffalo Niagara jobless rate has steadily declined for nearly four straight years since peaking at 9.4 percent in February 2012. It dropped to 5.7 percent in January.

And while those numbers are accurate, they do not tell the full story.

Consider the following, from 2012 thru 2015:

  • Erie County’s unemployment rate fell from 8.3 percent to 5.4 percent
  • At the time the county’s labor force fell by 12,000, from 461,000 to 449,000, a drop of 2.6 percent.
  • Total employment grew by just 1,800 positions, or 0.4 percent.
  • Compared to 2008 job figures, jobs in 2015 were DOWN by 22,000, or 5 percent below pre-recession levels.

Adding all that together and saying it a different way, of the 38,400 Erie County residents unemployed in 2012, only 1,800 got jobs, 12,000 left town or quit looking, and 24,000 remain jobless.

These data show a continuing story of slow economic growth in upstate New York. New York needs to make its economy more competitive for investment and job growth statewide. Small business tax cuts, elimination of energy assessments, and meaningful workers’ compensation reform are all part of the economic remedy. The last thing New York needs is a massive increase in wage costs, which is what the proposed $15 minimum wage, and its accompanying $15.7 billion dollar statewide price tag, would bring.

The Comp is too #$@% high

This morning, the Albany Times Union reported something that employers around the state have known for far too long, workers’ compensation costs are terribly high and continue to rise. New York consistently ranks within the top four most expensive states in the nation for comp costs. While the article quotes the administration as saying that they are open to ideas on cost-controlling reform, The Business Council has endlessly advocated to the board and the administration not only the need for reform, but the specific remedies that would cut costs while guaranteeing the best care for injured workers.

From the article: “Despite a recent drop following the 2007 reforms, costs quickly went back up and are now 20 percent higher than before the changes. And while the average workers’ compensation cost per employee was 40 percent higher than the national average before 2007, it is now projected to be even higher at 2.5 times the national average.

On average, the cost of sustaining the system, which is financed largely by assessments on employers, will run $1,000 per employee each year. What happened? While there are lots of factors, critics like Ginsburg place much of the blame on the way claimant lawyers have been able to use the reforms to their advantage. One of the big changes was an increase in payments to injured workers.

While they used to be capped at $400 per week, that was raised to $840. In exchange, workers gave up lifetime payments and instead get money for a fixed period of time which maxes out at 10 years, with some exceptions. But the timetable doesn’t start until a case is fully resolved, or the injury is “scheduled” in workers comp parlance. Payments, however go out during this negotiating period and these can easily run for years due to the various appeals mechanisms in place. Final determinations can now take six or more years.

Unfortunately, the demands of the special interests of unions and trial lawyers have ruled the day. It appears that, for now, their zealous protection of the status quo (which earns them hundreds of millions of dollars annually), will continue to balloon costs until lawmakers decide that enough is enough.

Congress worried about overtime rules

As we all sit and wait for the U.S. Department of Labor Wage and Hours Division to release the new final rules regarding the salary level for exemptions from overtime pay, some in Congress are beginning to worry about how these new rules will affect their staff.

As you know, the proposed rules would raise the minimum salary level for exempt employees from its current $455 per week ($23,660 per year) to perhaps as much as $970 per week ($50,440 per year).  (Our discussion of the proposed rules can be found in the link above).

According to an article in Bloomberg BNA, some members of Congress wonder how their budgets can accommodate such a dramatic rise in salaries. Congressional staffs are often made up of young, exempt, professionals who are paid less than the proposed $50,440 threshold and often work in excess of 40 hours per week. Many House Democrats who favor the expansion of overtime protections to employees in the private sector are concerned they won’t have enough money to maintain their current staffing levels.

Once the rules are finalized, all New York employers will be scrambling to adjust their budgets to reflect the new reality. Unfortunately, unlike Congress, private employers cannot just “appropriate” more money for themselves. Important decisions will need to be made regarding staffing levels and pay practices.

For questions on how these new rules may affect you, please contact Frank Kerbein, Director, Center for Human Resources at frank.kerbein@bcnys.org or at (800) 332-2117.

Small businesses are big business for New York State

On the same day dozens of small business owners from across New York rallied at the state Capitol, Comptroller Thomas P. DiNapoli released a report highlighting the nearly $1 trillion in annual revenues small businesses generate for the state.

According to the report: “New York’s small businesses generated $954 billion in receipts in 2012, the latest figures available, accounting for approximately 43 percent of all business receipts in New York, according to DiNapoli’s report.

Among the more than 455,000 businesses in New York, more than 451,000 are small businesses.  Almost two-thirds of small businesses have fewer than five employees. More than 80 percent have fewer than ten employees.

Firms with 20 to 99 employees comprised approximately one-third of the total small business employment with over 1.2 million employees. The larger firms (those with 100 to 499 employees) had the highest average payroll per employee, nearly $56,000 per year.”

This report should serve as a stark reminder to lawmakers of the myriad of benefits small businesses bring to their communities as they contemplate a 67 percent increase in the state’s minimum wage.

That wage increase would cost anywhere from 200k to 600k and further erode the job prospects and opportunities for growth among our state’s poorest citizens.

Please visit www.minimumwagerealitycheck.org to learn more about this misguided proposal and to join our growing coalition against the $15 an hour minimum wage.

U.S Chamber goes to court

The U.S. Chamber of Commerce, of which The Business Council of New York State is a member, filed a lawsuit in U.S District Court for the Western District of Washington earlier this week to “challenge a Seattle ordinance that authorizes union organizing of for-hire drivers working as independent contractors, highlighting that the ordinance will burden innovation, increase prices, and reduce quality and services for consumers.”

According to Amanda Eversole, president of the Chamber’s Center for Advanced Technology & Innovation, “this ordinance threatens the ability not just of Seattle, but of every community across the country, to grow with and benefit from our evolving economy. Technology companies are leading the charge when it comes to empowering people with the flexibility and choice that comes with being your own boss, and that is something to be championed, not stifled.”

Now, this of interest to us here in New York for two reasons: first, Uber and Lyft are currently operating as for-hire vehicle service companies in New York City and second, they are actively trying to expand to the rest of New York State. Whatever happens with this suit would set a precedent that could then be applied here. The Business Council has been vocal in its support of for-hire vehicle companies like Uber and Lyft. We believe they would be an economic development tool for many upstate communities that lack reasonable and robust public transportation options.

This litigation, and the issues it brings up vis a vis the definition of “independent contractors”, was the subject of one our recent Labor/HR webinars. You can learn more about this series here, and sign up for our March 17th webinar focused on “Paid Family Leave”.

State Senate honors Wegmans

The New York State Senate today passed a resolution commemorating the 100th Anniversary of Wegmans Food Markets, Inc. Wegmans, based in Rochester, NY, is a longtime member of The Business Council of New York State, Inc.

The resolution, sponsored by Senator Richard Funke (R, Rochester) said, in part, “Since 1998, Wegmans Food Markets, Inc. has consistently been ranked on Fortune magazine’s 100 Best Companies to Work For list, and was rated No. 9 on Forbes magazine’s 2015 list of America’s Best Employers. In addition, it was named the best for corporate reputation among the 100 most visible companies nationwide according to the 2014 Harris Poll Reputation Quotient study. Wegmans Food Markets, Inc. prides itself on raising the bar on the shopping experience by providing the best quality, a spectacular abundance of choice, restaurant-quality prepared foods, beautiful stores and displays, and an exceptional level of customer service.”

This is a tremendous achievement for the company and the entire Wegman family. We would like to offer a special note of congratulations to Paul Speranza, the Vice Chairman, General Counsel and Secretary of Wegmans Food Markets, Inc., and the Vice Chair and Treasurer of The Business Council of New York State.

New video highlights benefits of New York’s Commercial Division

A new film about the Commercial Division of the New York State Supreme Court explains why the court has become the premier forum for business litigation.

In less than 15 minutes, the film describes the origins of the court and the reasons why it has transformed New York from a dreaded venue for the resolution of business disputes, to the preferred setting.

The professionally filmed video, produced by the Historical Society of New York State and the Commercial Division Advisory Council, comes on the heels of a special event last spring when the Business Council hosted a breakfast spotlighting the business benefits of the Commercial Division (see July/August issue of Connect). At the breakfast, Heather Briccetti recalled the “bad old days” when it would have been inconceivable that the New York courts could be viewed as an attraction for businesses seeking to relocate to New York.

Those days, as the new video makes clear, are gone.

Featured speakers include:

Gregory Palm (Goldman Sachs), Joseph Wayland (ACE Limited), Michael Fricklas (Viacom, Inc.), Michele Mayes (New York Public Library), Daniel Jonas (ConMed Corporation), Stephen Cutler (JPMorgan Chase & Co.), Elizabeth Moore (Consolidated Edison, Inc.), Richard Walker (Deutsche Bank AG), Douglas Lankler (Pfizer Inc.) and David Ellen (Cablevision Systems Corp.).

The video is available on several sites, including the court system’s YouTube channel. A full transcript is available on the court system’s website.

CEO survey shows confidence waning

The Siena Research Institute’s 9th Annual Upstate New York Business Leader Survey, sponsored by The Business Council of New York State, Inc., shows business leader confidence has dropped across upstate.

Following a record-breaking confidence level last year, business leaders are again worried that the tax and regulatory policies of New York State will have a negative effect on their businesses’ ability to grow. Combine that with the push for a $15 minimum wage and paid family leave, both which are nearly universally panned by the survey’s respondents, and there are some real headwinds for the upstate economy.

As sponsors of the survey, we were able to get an early look at the findings and we were pleased to see how well the results lined up with our own legislative agenda. For us, it was further proof that our members and our own policy priorities are well in-line with the broader business community.

To view the full survey results, click here.

And here are some links of coverage the poll’s release received around the state.

Albany Times Union: CEO poll: $15 minimum wage plan is wild card in New York

Buffalo News: Siena poll finds WNY business leaders less optimistic about economy

Rochester Democrat and Chronicle: CEO confidence dips in Rochester, upstate

Rochester Business Journal: Optimism fades among area’s business leaders

As part of the rollout The Business Council and Siena are traveling the state to speak directly to each region’s business leaders. Our next presentation is this Wednesday, February 3 at the offices of the Buffalo Niagara Partnership, register here.