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The Ugly Truth Behind Health Insurance in the United States

Do you find it baffling that health insurance costs in the United States are increasing at alarming rates, yet seemingly not anywhere else in the world? I find it baffling, especially since the actual costs of healthcare are not increasing even close to the rate of insurance costs. 

So, why is this happening in the United States, but nowhere else? 

In the United States, for the most part, we have abdicated responsibility for what healthcare services actually cost. 

Yes, I said it. We have, for the most part, abdicated our responsibility to understand what health care costs.

I do this every day and it even happens to me. I go to the doctor, I pay my 20 bucks, and I think that that’s all it costs. It doesn’t. Doctor visits don’t cost $20. They cost $85 or $120 or even $250. Or, if you have complex medical needs, that visit could cost over $500. 

However, many of us don’t see the actual cost of our doctor’s visit, or if we do, we shrug our shoulders and think, well insurance will cover that, and move on. 

You are the Insurance Company

For every other service in life, we know the cost of something before we pay for it. However, our current health insurance system keeps both you as the employer, as well as your employees in the dark. We have no idea how much a health insurance service (i.e. doctor’s visit, lab tests, imaging, procedures, etc. – inpatient, or outpatient) will cost until weeks or months after that service is performed. Not only do we not know how much a procedure costs, neither does your insurance company. Ultimately, you are the insurance company; therefore, it’s in your best interest to know what your service costs. So, how did we get here?

This is one of the consequences of the Affordable Care Act. An insurance company must spend 80-85 cents on every dollar of claims. In theory, this makes sense since it’s important to control administrative costs and spend the bulk of the money on claims. However, what that ultimately means to an insurance company, which is a publicly traded company, is that the only way they can grow their revenue and their profit is to allow for the costs of claims to increase at will. Thus, the higher the claims cost, the higher their cut. 

Most large insurance companies are for-profit entities and they owe that growth to their shareholders, which is reasonable since the point of business is to make money. And, not unlike other for-profit entities, insurance companies also have to plan their budgets and estimate what their claims will be. However, the lack of transparency in the insurance industry is very concerning. 

For example, employers have no idea what their claims actually cost, despite knowing how much they pay in premiums. What they don’t know, however, is how many layers were added in between the provision of care and that final amount. It’s practically impossible to find these numbers out. Even if you are able to get through the red tape, once most employers receive the data, it’s impossible to make heads or tails of it. 

This can be both particularly important and concerning for manufacturers and employers who have businesses that run on a slim margin. For example, I know a CFO whose company makes paper plates, and while he negotiates to the tenth of a cent on raw materials, he has no idea what their health insurance costs. 

Why do Health Insurance Premiums Increase?

If you’re fully insured, you, as the employer, pay a premium to your insurance company.  As the employee, you pay your share of the cost at the provider’s office and then health care plan pays their share.  And, if you are like most people, you assume the insurance company will deliver the lowest price on those services. However, this is not what happens. 

The process looks something like this:

Your case goes to underwriting and the team reviews the prior year and determines what ongoing conditions are present within your group. From that information, the insurance company decides how much risk they are willing to absorb, they negotiate the stop loss/pooling or reinsurance agreement and they decide what they are going to charge you in premium for all this.  

Let’s discuss this a bit further at a high level. I will delve more deeply into each of these in future posts.  

The premium you are charged needs to fund four buckets: claims, reinsurance/stop-loss, administration, and pooling. First, the claims bucket is an estimation of how much your group will spend on claims. Next is the reinsurance bucket. Insurance companies do not assume 100% of the risk for your group. They absorb X amount and then they pass that off to something called a reinsurer or a stop-loss carrier. If you are fully insured, that information is not visible to you. Next, is the administration bucket. It costs money to manage a plan, including administration of the plan rules, processing of claims, and ensuring responsive customer service.  

Finally, there’s a pooling charge, which is an estimation of large claimants (a crap shoot for smaller groups), margin and profit.  Typically, 6-8% of the total. Most for-profit entities have a revenue target each year, and insurance companies are no different. They look at their revenue target, claims, and administrative costs, then add their pooling charge. In theory, there’s no problem with any of this… unless, of course, if they guess wrong. 

Here is why:  Assume that your insurance company is projecting your claims to be $500,000. And, if you are a 100-life employer, you probably have about 100 members (employees and dependents) on your plan. If you only spend $350,000 of the $500,000 that the insurance company projected, you don’t get that $150,000 back. That overflow stays with the insurance company. 

If you spend more than the $500,000 the insurance company projected, they have reinsurance. It’s not coming out of their pocket; it’s coming out of the pocket of the stop-loss. The stop-loss coverage that is built into your plan cost.

Understandably, the reinsurance might increase a little bit next year, but that cost is being passed back to the employer.  

The result is that the carrier (insurance company) can forecast what they will make, plus they’re hedging their bets that your claims will be less than forecasted. 

This is why it’s especially important for you to know what your claims cost so you can better negotiate your plan. 

There is great disparity between healthcare costs and the cost of health insurance. Insurance companies are over-estimating your potential claims, but not refunding any of the premium back. 

At Altiqe Consulting we help employers add control and predictability back into their healthcare spend, which results in lower health care costs for employers, less out of pocket for employees and access to higher quality care. 


New Law Requires COVID-19 Paid Sick Leave, FMLA Benefits

Legislation signed into law by President Trump will extend sick leave benefits for workers who are sickened by the coronavirus, as well as provide for additional weeks of time off under the Family Medical Leave Act so they can be guaranteed of being able to return to their jobs afterwards.

Public and private employers alike need to pay extra attention to the added paid sick leave and FMLA provisions of this new law. Both sections apply to employers with fewer than 500 employees.

Paid sick leave

Employees are entitled to two weeks (80 hours) of paid sick time for coronavirus-related issues. Eligible workers will receive their regular pay, up to $511 per day and $5,110 total. Those caring for someone subject to quarantine due to COVID-19, and parents of kids who can’t go to school or daycare, will receive two-thirds of their regular pay, up to $200 daily with a $2,000 cap.

The emergency sick leave benefit can be used immediately, regardless of how long the worker has been employed with you. It can be used when they cannot work or telecommute for any one of the following reasons:

  • The employee is subject to a government quarantine or isolation order related to COVID-19;
  • The employee has been advised by a health care provider to self-quarantine due to COVID-19;
  • The employee has symptoms of COVID-19 and is seeking a medical diagnosis;
  • The employee is caring for an individual subject to quarantine due to COVID-19;
  • The employee needs to care for a child whose school or place of care is closed or whose childcare provider is unavailable due to coronavirus.

The law does not require certification of order by the government or a health care provider. But employers can require reasonable notice procedures, such as not announcing in the middle of a shift that they take COVID-19 sick leave. But they cannot require the employee to find a replacement worker to cover the shifts they will miss. Employers must post the law’s requirements “in conspicuous places.”

Employers are not allowed to discipline a worker who takes this sick or FMLA leave for coronavirus purposes and, if an employer refuses to provide the leave, they can be ordered to pay both back pay and statutory damages that are equal to the back pay the employee is owed.

This law provides payroll tax credits to offset all costs of providing these paid leaves.

FMLA

The FMLA portion of the law provides for 10 additional weeks of FMLA leave, but only for those who must stay at home to care for a child whose school is closed or their childcare provider is unavailable due to COVID-19-related issues.

These 10 weeks will be paid at two-thirds the employee’s regular rate of pay, up to $200 per day with a cap of $10,000. They will also receive 12 weeks of leave with job protection, though employers of health care or emergency care providers can exclude such employees.

The employee would likely use up their two weeks of paid sick leave before applying for FMLA benefits, which unlike traditional FMLA (which is unpaid), are paid leaves after the first 10 days under the new law. 

Employees who have been working for more than 30 days are eligible, and the employer can require them to provide reasonable notice that they are taking leave.

A final word

This law only applies to employers with fewer than 500 workers, so it leaves uncovered those people who work for larger companies.

Also, employers need to make financial plans, as the credit cannot be claimed until after the employer pays their payroll taxes.

A bigger issue is that the law requires that workers be paid the sick leave even if they are not sick, but have been ordered to self-isolate. In states that have ordered workers to self-isolate, such as California, employers could be faced with an avalanche of paid sick leave claims all at once.

This law sunsets on Dec. 31, 2020.


New Accumulator Programs Can Surprise Employees at Pharmacy Counter

An ongoing tense relationship between insurers and drug companies is spilling over and hitting enrollees in group health plans, by saddling them with additional out-of-pocket expenses.

Some insurers have started adopting copay accumulator programs — sometimes called accumulator adjustment programs — that change the way a patient’s out-of-pocket medication costs are added up (accumulated) when there is some type of drug company financial assistance for the health plan enrollee. 

These accumulator programs do not count the drug company assistance (in the form of coupons or copay cards) that defray the employee’s out-of-pocket expenses.

Unfortunately, many group plan enrollees often do not know that their group health plan has changed its policy to be an accumulator program. This is because they did not read the plan summary when they renewed their policy during open enrollment, or they read about it and didn’t understand how it works.

For most employees, the change will not make much of a difference, if any at all, if they are low users of their health benefits and rarely need prescription medications.

But, for heavy users and those with chronic health problems, the change could mean hundreds, if not thousands of dollars more out of pocket for their medicines. For patients who need expensive medications, drug makers will often provide copay assistance in the form of coupons or copay cards, which the enrollee shows the pharmacy when buying the drugs.

Essentially, accumulator programs block patients from using any third party monies toward their deductibles and out-of-pocket maximums.

How it works

To understand how an accumulator program works and how it may affect your employees, take the example of a patient who needs $15,000 worth of medications a year with a pharmaceutical out-of-pocket maximum of $7,000 on their health plan:

  • Traditional plan with no copay assistance: Employee pays $7,000 and the insurer pays $8,000.
  • Typical plan that allows copay assistance: Employee pays $4,000, copay assistance pays $3,000 and insurer pays $8,000.
  • Plan with copay accumulator: Employee pays $7,000, copay assistance pays $3,000 and insurer pays $5,000.

Insurers that have instituted the practice say they did so because they want to steer health plan enrollees toward generic medicines and away from pricier brand-name drugs.

They say that these copay cards and coupons are an incentive for pharmaceutical companies to inflate list prices for drugs, then offer copay assistance that spares the patient, but shifts more of the costs to the insurer.

Lawmakers in a number of states have taken note and are trying to address the practice legislatively. They have introduced legislation that would ban insurers from using accumulator policies when there’s no generic version of the drug available.

However, the Centers for Medicare and Medicaid Services in February 2020 proposed a rule allowing insurers to impose copay accumulator policies.  

What you can do

Many health plan enrollees do not know that their health plan has a copay accumulator program until they get to the pharmacy counter after they think they’ve reached their out-of-pocket limit and still have to pay for their medications. 

If they haven’t had this experience in the past with their plan, it’s maybe because they didn’t realize that it had switched to an accumulator program.

Come your company’s next open enrollment, you should stress to your staff that if any of them are large users of prescription medications, they need to carefully read their current plan’s summary of benefits as well as other plan documents.

If you have concerns that any of your staff might run into issues, you can call us to go over your current plans to identify those with or without accumulator programs.

This is especially important during open enrollment, as those enrollees that require expensive prescriptions should be given options, including at least one plan that does not use an accumulator program.


Don’t Overlook Equipment Breakdown Insurance

Imagine it’s a typical July day. You own a 30,000-square-foot office building that is 85% occupied. And the air conditioning and ventilation systems stop working. The outside temperature is in the 90’s and the humidity is high. It doesn’t take long before the tenants start to complain.

The contractor you summon determines that an electrical arc fried the circuit board that controls the systems.

The board must be replaced, but it will take up to five business days for it to arrive. In the meantime, the building is unfit for people to work in, and the leases oblige you to credit tenants’ rents for periods when the building in uninhabitable for more than a day. In short, you face thousands of dollars in repairs and much more in lost rents.

While your property insurance policy will cover the resulting property damage from fires or explosions, it will not cover the equipment or lost income from the downtime during repairs.

But equipment breakdown insurance will.

Equipment breakdown insurance

This form of insurance is not a substitute for other property coverage. It will not pay for damage caused by fire, lightning, explosions from sources other than pressure vessels, floods, earthquakes, vandalism, and other causes of loss covered elsewhere.

Equipment breakdown policies are designed to fill in the gaps left by other policies, not to replace them. Also, they do not cover mechanical breakdowns that result from normal wear and tear as a device ages.

A number of events can trigger a claim for equipment, such as:

  • Mechanical breakdown in equipment that generates, transmits or uses energy, including telephone and computer systems.
  • Electrical surges that damage appliances, devices or wiring.
  • Boiler explosions, ruptures or bursts.
  • Events inside steam boilers and pipes or hot water heaters and similar equipment that damages them.

Business owners often overlook equipment breakdown coverage. Bur, virtually all of them have some need for this insurance.

What equipment breakdown insurance covers:

  • The cost of repairing or replacing the equipment.
  • Lost business income from a covered event.
  • Extra expenses you incur due to a covered event.
  • Limited coverage for losses like food spoilage in freezers that break down.

Most businesses rely heavily on machines in their daily operations, from computers to refrigeration equipment and elevators to manufacturing equipment.

For some, the cost of repairs to this equipment and resulting downtime can have a serious impact. Such businesses should seriously consider buying equipment breakdown insurance.
Call us if you would like to discuss this crucial form of coverage.


Employer Guide for Dealing with the Coronavirus

As the outbreak of the 2019 novel coronavirus gains momentum and potentially begins to spread in North America, employers will have to start considering what steps they can take to protect their workers while fulfilling their legal obligations.

Employers are in a difficult position because it is likely that the workplace would be a significant source of transmission among people. And if you have employees in occupations that may be of higher risk of contracting the virus, you could be required to take certain measures to comply with OSHA’s General Duty Clause.

On top of that, if you have workers who come down with the virus, you will need to consider how you’re going to deal with sick leave issues. Additionally, workers who are sick or have a family member who is stricken may ask to take time off under the Family Medical Leave Act.

Coronavirus explained

According to the Centers for Disease Control, the virus is transmitted between humans from coughing, sneezing and touching, and it enters through the eyes, nose and mouth.

Symptoms include a runny nose, a cough, a sore throat, and high temperature. After two to 14 days, patients will develop a dry cough and mild breathing difficulty. Victims also can experience body aching, gastrointestinal distress and diarrhea.

Severe symptoms include a temperature of at least 100.4ºF, pneumonia, and kidney failure.

Employer concerns

OSHA — OSHA’s General Duty Clause requires an employer to protect its employees against “recognized hazards” to safety or health which may cause serious injury or death.

According to an analysis by the law firm Seyfarth Shaw: If OSHA can establish that employees at a worksite are reasonably likely to be “exposed” to the virus  (likely workers such as health care providers, emergency responders, transportation workers), OSHA could require the employer to develop a plan with procedures to protects its employees.

Protected activity — If you have an employee who refuses to work if they believe they are at risk of contracting the coronavirus in the workplace due to the actual presence or probability that it is present there, what do you do?

Under OSHA’s whistleblower statutes, the employee’s refusal to work could be construed as “protected activity,” which prohibits employers from taking adverse action against them for their refusal to work.

Family and Medical Leave Act — Under the FMLA, an employee working for an employer with 50 or more workers is eligible for up to 12 weeks of unpaid leave if they have a serious health condition. The same applies if an employee has a family member who has been stricken by coronavirus and they need to care for them.

The virus would likely qualify as a serious health condition under the FMLA, which would warrant unpaid leave.

What to do

Here’s what health and safety experts are recommending you do now:

  • Consider restricting foreign business trips to affected areas for your employees.
  • Perform medical inquiries to the extent legally permitted.
  • Impose potential quarantines for employees who have traveled to affected areas. Ask them to get a fitness-for-duty note from their doctor before returning to work.
  • Educate your staff about how to reduce the chances of them contracting the virus, as well as what to do if they suspect they have caught it.

If you have an employee you suspect has caught the virus, experts recommend that you:

  • Advise them to stay home until symptoms have run their course.
  • Advise them to seek out medical care.
  • Make sure they avoid contact with others.
  • Contact the CDC and local health department immediately.
  • Contact a hazmat company to clean and disinfect the workplace.
  • Grant leaves of absence and work from home options for anyone who has come down with the coronavirus.

If there is a massive outbreak in society, consider whether or not to continue operating. If you plan to continue, put a plan in place. You may want to:

  • Set a plan ahead of time for how to continue operations.
  • Assess your staffing needs in case of a pandemic.
  • Consider alternative work sites or allowing staff to work from home.
  • Stay in touch with vendors and suppliers to see how they are coping.
  • Consider seeking out alternative vendors should yours suddenly be unable to work.

Car Crashes a Leading Cause of High-severity Claims

Traffic accidents continue to be one of the leading causes of high-severity workers’ comp claims, according to research.

The National Council on Compensation Insurance found in a study that the cost of workers’ comp claims for accidents involving motor vehicles was 250% more than the average for all workplace accidents.

The study also found large differences between the cost of claims involving large trucks and passenger cars, as well as a reduction in the number of accidents during economic recessions. Besides a threat to other drivers on the road, any injuries your employees suffer while on driving for you on the job will end up being paid for by your workers’ comp policy as well any time missed from work due to the injury. 

The study found:

  • While the frequency of truck fatalities is now very similar to the frequency of passenger vehicle fatalities, the frequency of non-fatal injuries is higher for passenger vehicles.
  • Motor vehicle accidents are more likely to result in multiple claims, and claims costs are higher for claims from multiple-claim events.
  • Motor vehicle accident claims are more severe than the average workers’ compensation claim.
  • Vehicle accidents affect a wide range of occupations other than just truckers.
  • Neck injuries are among the top diagnoses.
  • The duration of motor vehicle accident workers’ comp claims is more than a third longer than the average claim.
  • There is a significant amount of subrogation in workers’ comp traffic accident claims, with such claims accounting for more than half of all claims with subrogation.
  • Motor vehicle claims are three times as likely to involve a claimant attorney compared with other claims.
  • Distracted driving continues to be a leading cause of accidents and close calls.

Safe-driving rules for your staff

Encourage your employees to drive safely and abide by the safety rules you establish.

A good set of rules, drawn up by OSHA and which should be in writing for your employees, is:

  • Wear a seat belt at all times – driver and passenger(s).
  • Be well-rested before driving.
  • Avoid taking medications that make you drowsy.
  • Set a realistic goal for the number of miles that you can drive safely each day.
  • Do not use a cell phone while driving, unless you are wearing a hands-free device. Do not send text messages.
  • Avoid distractions, such as adjusting the radio or other controls, eating or drinking.
  • Continually search the roadway to be alert to situations requiring quick action.
  • Stop about every two hours for a break. Get out of the vehicle to stretch, take a walk, and get refreshed.
  • Keep your cool in traffic!
  • Be patient and courteous to other drivers.
  • Do not take other drivers’ actions personally.
  • Reduce your stress by planning your route ahead of time (bring maps and directions), allowing plenty of travel time, and avoiding crowded roadways and busy driving times.

Trends Shaping Health Insurance and Health Care in 2020

As a new decade begins, the health insurance industry is on the cusp of making a leap towards improved, higher-tech management of health plan participants.

A recent paper by Capgemini, an insurance technology and consulting firm, predicts the following trends that will be taking shape in the health insurance industry and how they may affect businesses that are paying for their employees’ coverage.

1. Realigned relationships — Insurers are trying to shift risk between themselves and pharmaceutical companies in an effort to reduce drug outlays. The report says insurers are also working more closely with health care providers for early intervention in medical issues that may be facing participants. Addressing health issues early can reduce long-run treatment costs.

2. Fluid regulations — As we’ve seen, just because the Affordable Care Act became the law of the land, the regulations governing health care and health insurance have continued streaming out of Washington. If the last two years are any guide, this will continue to be the case. Also, the constitutionality of the ACA is now being litigated once again after an appeals court upheld a lower court’s ruling that the individual mandate is unconstitutional.

3. Increasing transparency — More stringent regulations, along with President Trump’s recent executive order to improve price and quality transparency, are forcing the health care industry and insurers to become more transparent in their pricing.

One of the biggest focuses is on the drug industry and the role of pharmacy benefit managers, the largest of which have been criticized for being opaque in their pricing, discounts and how they handle drug company rebates.

Also, insurers are increasingly providing detailed information regarding services covered under their health plans, claims processing and payments. Additionally, some insurers are helping enrollees to make more informed decisions before they use a health care service by providing digital tools to help them reduce out-of-pocket expenses.

4. Predictive analytics — Health insurers are using predictive analytics for risk profiling and early intervention for enrollees with health issues. Predictive analytics provide insurers with insightful assessments of potentially high-risk customers, in order to mitigate losses.

With advancements in technologies such as big data and connected devices, insurers now have access to vast amounts of customer data, which can be used to remind people it’s time for their check-ups, medications and other necessary medical services.

Insurers are using predictive analytics to identify and monitor high-risk individuals to intervene early and prevent further complications. This in turn can help reduce claims.


DOL Issues New Rules for Joint-Employer Status

The U.S. Department of Labor has issued new and more simplified rules for determining joint-employer status, which can often be found in work involving temporary workers, subcontractors or workers in franchises.

The new rule reverses Obama-era regulations that employers say opened a floodgate of litigation, making it easier for workers to sue more than one entity for labor violations, as for example in these instances:

  • Both the Subway Group and separately owned franchises that own Subway eateries.
  • A business and the subcontractor that it hires to do specific work.
  • A beverage delivery company and the temp agency that sometimes provides it with replacement drivers.

Joint-employer rules are important as they can help determine which employer is responsible for wage and hour violations. But the new rules apply mainly to violations under the Fair Labor Standards Act, when an employee may have, in addition to their employer, one or more joint entities that are jointly and severally liable with the employer for the worker’s wages.

The new non-binding rule, which takes effect March 15, spells out in which circumstances an entity can be considered a joint employer under the FLSA.

Balancing test

The final rule provides a four-factor balancing test when an employee performs work that also benefits another person or entity. It defines an employer as an entity that:

  • Hires or fires the employee;
  • Supervises and controls the employee’s work schedule or conditions of employment to a significant degree;
  • Determines the employee’s rate and method of payment; and
  • Maintains the employee’s employment records

An employer does not have to meet all four factors to be considered a joint employer.

The ruling does seem to fall in line with recent court decisions regarding McDonald’s Corp., which franchisee employees had sued along with the franchisee itself in seeking back wages and overtime.

The National Labor Relations Board in late 2018 approved a settlement between workers and their employer, a McDonald’s franchisee, which absolved franchisor McDonald’s Corp. from any direct joint-employer responsibility.

Also, the U.S. Ninth Circuit Court of Appeals in California decided in October 2018 that McDonald’s was not a joint employer with its franchisee for violations of California wage and hour laws, because the company did not exercise the “requisite level of control” over the workers’ employment.

The takeaway

When the rule becomes effective, it should provide clarity for all parties in a multi-employer or multi-company arrangement.

That said, you should not interpret the new rule as a reason to approach joint-employer responsibility recklessly.

If you use temp workers and/or subcontractors and you provide your employee handbooks and policies to any other entities’ employees, you should include disclaimers that make it clear that the provision of those materials does not create an employment relationship.

You may also want to take this opportunity to examine your relationships with the workers from whom you receive beneficial services, but whom you do not employ directly.


Congress Eliminates the ‘Cadillac’ and Other ACA Taxes

Congress before the new year passed legislation repealing the so-called “Cadillac tax” on generous group health plans, as well as two other taxes, finally putting to bed an issue that has plagued the Affordable Care Act since its inception.

Although it had not yet been implemented, employers didn’t like the Cadillac and labor unions came out against it as well. It was so unpopular that Congress voted twice to delay implementation, which was originally set to start in 2018. The latest start date had been pushed until 2022.

The Cadillac tax, an enacted but not yet implemented part of the ACA, is a 40% levy on the most generous employer-provided health insurance plans — those that cost more than $11,200 per year for an individual policy or $30,150 for family coverage. It was designed to only tax the portion of the premium that was above the threshold.

Effect of repeal on group plans

The tax would have been levied on health plans, which are legal entities through which employers and unions provide benefits to employees. It would have been paid by employers, but its impact on employees would be indirect and would have depended on how firms and health plan managers responded to the tax in offering and designing benefits.

None of these issues now need to concern employers offering group plans.

The tax was eliminated as part of a $1.4 trillion year-end budget bill that President Trump signed in order to keep the government open. Here are all the ACA-related taxes that the legislation eliminated:

  • The Cadillac tax, which had been expected to raise $197 billion over 10 years.
  • Starting in 2021, the health insurance tax, which had been projected to raise $150 billion over the next decade, and
  • The 2.3% excise on the sale of medical devices, which had been expected to generate $25.5 billion in the next 10 years.

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