Tag Archives: Risk Management

Does Your Employer Have The Right To Select Your Physician And Review The Results Of Your Annual Checkup?

Have you been following the recent debate over President Donald Trump’s health? His personal physician recently summarized his annual checkup by declaring that the President is in “excellent health,” and is “absolutely … fit for duty.”

But others who reviewed the President’s lab results assert that he must “ … increase the dose of his cholesterol-lowering medication and make necessary lifestyle changes … (to reduce his) moderate risk of having a heart attack in the next three to five years …”

Embedded in this debate is the natural awkwardness of revealing any individual’s private health information to others. After all, wouldn’t you feel uncomfortable if the results of your annual checkup were revealed to others and then openly debated by them?

Even federal Senators, state Governors, and other high-ranking elected officials are not subjected to such personal scrutiny. Only the President has been required to submit to it.

In the private sector, though, similar debates have simmered for years about whether publicly traded companies should monitor and disclose the health risks that are faced by their Chief Executive Officers. Apple, for instance, was sharply criticized for keeping many of the details regarding Steve Jobs’ mortal illness confidential. And its Board never insisted on selecting Jobs’ primary care physician.

In contrast, the railroad transportation firm CSX is now opting for a policy of full transparency. Its Board of Directors, responding to the sudden death of its recently deceased CEO, recently decided to “ … require the railroad’s chief executive to submit to an annual physical exam that will be reviewed by the board … (to be performed by) a medical provider chosen by the board …”

This policy inevitably raises an important governance concern. Namely, are companies entitled to select their CEOs’ physicians, and then to review their private health information? The need for such transparency may be understandable, but is the policy itself appropriate?

After all, CEOs are not the only key employees within firms. There are undoubtedly dozens, or even hundreds, of workers within each company who may be deemed key members of the work force.

Should companies have the right to monitor all of their private health information? Where does an employee’s right to privacy outweigh a company’s need for information? And which employees, if any, should be subjected to such scrutiny?

Today, this question may only affect the President of the United States, the incoming Chief Executive Officer of CSX, and a few other key employees of various firms. In the near future, though, it may affect all of us.

Farewell, COSO Cube

Are you familiar with the COSO cube of Enterprise Risk Management? First released in 2004 by a consortium of five accounting trade associations, the framework has survived twelve long years of volatility by nature of its utility and simplicity.

As a three dimensional shape, the cube features three sides of guidance that describe how to develop a risk management plan. One side describes the functions that should engage in risk management work. A second side describes the organizational levels that should be responsible for doing so.

And a third side is the most valuable one of all. It lists the eight tasks that any entity should complete in order to prepare a comprehensive risk management plan. The middle four tasks are the stand-outs.

And what are they? The entity should begin by identifying as many potential problems as possible. Then it should “red flag” the highest priority problems. Then it should develop response activities to limit the damage that would occur if these problems are not prevented. Finally, it should develop preventive control capabilities to reduce the likelihood that these problems might occur in the first place.

Simple and yet useful, eh? That’s exactly why the cube has lasted as long as twelve years. So, last month, when COSO released an exposure draft of its new framework, accountants and risk managers around the world eagerly scrolled through it to view the new and improved cube.

And guess what they found? The cube has vanished! There is now a three-part arrow that appears to be piercing the open hole of a five-color doughnut. Each color represents a component of risk management activity. And there are 23 (yes, 23) principles that support the five components.

Got it? If you’re thinking “not exactly,” you might wish to compare the old 2004 executive summary with the new 2016 exposure draft summary. By all means, ask yourself whether the new version — in all its complexity — represents a step forward or a step backward. Either way, it does appear that our accounting profession is about to say farewell to the COSO cube.

Obama Care: All But Useless?

Two days ago, the New York Times published a story with the following provocative headline:

Many Say High Deductibles Make Their Health Law Insurance All but Useless

The ensuing story described certain health plans that are sold at extremely low rates, but that incorporate very high out-of-pocket deductibles. But how low is a low rate? And conversely, how high is a high deductible?

According to the article, in the 38 states that utilize the federal web site healthcare.gov, “8 out of 10 returning customers (can) buy a plan with premiums less than $100 a month …” However, such individuals may be on the hook for thousands of dollars of medical expenses, up front, before they reach their deductible limits and begin to receive claim reimbursements.

Less than $100 a month? That’s a very low rate. And thousands of dollars in expenses? That’s a very high deductible. So, on balance, are such policies worthwhile? Or are they truly all but useless?

Well, let’s think about an analogous example regarding property insurance. Suppose that you spend several thousand dollars to waterproof your beachfront home and fix some minor roof leaks this year, and that you also spend less than $100 a month on property insurance to cover the risk of severe hurricane induced flood damage. If no hurricanes strike your home, should you conclude that your flood insurance policy was all but useless this year?

On the one hand, if you believe that a property insurance policy should reimburse you for the costs of waterproofing and minor roof patching, then you might indeed conclude that the policy was worthless. And yet, if you held such expectations about your policy, you should probably expect to pay far more than $100 a month for your coverage.

On the other hand, if you believe that the purpose of your insurance policy is to protect you against the risk of a catastrophic hurricane induced flood, then you might conclude that the coverage is worthwhile even if there is no hurricane damage. In fact, you might indeed conclude that the purchase of insurance with no subsequent damage (or claim filing) represents an ideal outcome.

And if you scroll down towards the bottom of the New York Times article, that’s exactly what a health plan member with this type of coverage told the Times reporter. Josie Gibb of Albuquerque explained “It’s really just a catastrophic policy.”

Well, in reality, it’s probably a little better than that. When Josie pays for her services out of pocket, she probably pays the discounted rates that are negotiated by her health plan, as opposed to the standard rates that are charged by her medical providers to uninsured individuals.

Nevertheless, she is undoubtedly correct about the essential nature of her insurance policy. It is indeed designed to provide coverage against catastrophic illnesses and injuries, but it is not designed to reimburse her for non-catastrophic out of pocket expenditures.

Thus, it would only be reasonable to consider her plan “all but useless” if she were to suffer through a catastrophic medical event but then fail to obtain any benefits. With that in mind, what should we make of the fact that she has suffered through no such event this year?

It doesn’t mean that she wasted her money. Instead, it means that she’s been blessed with good fortune.