Workers Compensation and Group Health

2006 National Council on Compensation Insurance, Inc. All rights Reserved

Workers Compensation and Group Health

Presented by

John Robertson, FCAS, MAAA

Casualty Actuaries of the Southeast MeetingApril 11, 2006

2 of 41 2006 National Council on Compensation Insurance, Inc. All Rights Reserved

• Workers Compensation (WC) medical costs per claim grew 9% to 12% per year over the last several years

• WC does control prices for non-hospital medical services through fee schedules in most states

• But medical costs can be high even with price controls due to overutilization

• Utilization controls are new to WC, but have been in place in Group Health (GH) for many years

• How do WC medical costs compare to those in GH?

Medical Costs


Workers CompensationMedical Cost Trends


1991-2004: Based on data through 12/31/2004, developed to ultimateBased on the states where NCCI provides ratemaking servicesExcludes the effects of deductible policies

$8

.3

$8

.4

$8

.2

$8

.9

$9

.4

$1

0.1

$1

1.1

$1

2.0

$1

3.2

$1

4.2

$1

6.0

$1

7.4

$1

9.0

$2

0.9

+10.3%

+9.1%

+8.7%

+12.3%

+8.1%+9.5%

+8.3%+10.1%

+7.4%+5.1%+9.0%

-2.1%+1.3%+6.8%

5

7

9

11

13

15

17

19

21

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Annual Change 1991–1995: +3.9%Annual Change 1996–2003: +9.2%

WC Medical Claim Cost TrendsRemain High in 2004

Lost–Time ClaimsMedicalClaim Cost (000s)

Accident Year


4.53.6

2.83.2 3.5

4.14.6 4.7

4.0

5.1

7.4

10.1

8.3

9.5

8.1

12.3

8.7 9.1

10.3

4.4

0

2

4

6

8

10

12

14

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Change in Medical CPI Change in Medical Cost per Lost-Time Claim

Workers Compensation Medical Severity Has Been Growing Much Faster Than the

Medical CPILost–Time Claims

Percent Change

Medical severity 1995-2004: Based on data through 12/31/2004, developed to ultimateBased on the states where NCCI provides ratemaking services, excludes the effects of deductible policiesSource: Calendar year medical Consumer Price Index (CPI), Economy.com; accident year medical severity, NCCI

Year


Workers Compensation Medical Losses Are More Than Half of Total Losses

All Claims—NCCI States

45%55%

1984

MedicalIndemnity

1994

51%49%

Indemnity Medical

2004

44% 56%Indemnity Medical

Based on data through 12/31/2004, developed to ultimateBased on the states where NCCI provides ratemaking servicesExcludes the effects of deductible policies


Cost, Price, and Utilization


Price Versus Costof Medical Services

• Cost = Price x Utilization

• Utilization = Quantity adjusted for Quality/Mix

• Cost and price are usually but not always correlated

• Utilization patterns are the difference


Prices Per Service


Prices for Individual Medical ServicesExcluding Hospitals

• Prices paid per service for WC are similar to those paid for GH

• States with a WC medical fee schedule showed a WC price level from 8% to 31% below that of GH

• States with no applicable fee schedule showed a WC price level 16% to 19% above that of GH


States Studied

• Comparisons are based on workers compensation [WC] and group health [GH] data for 1997 to 2001

• Studied five states: Florida, Georgia, Illinois, Kentucky, Tennessee

• States selected to represent some variety of physician cost controls in the workers compensation system


Comparison of State Controls

1 WCRI Managed Care & Medical Cost Cont Inventory 2001-2002, Table 3.8AWP: Average wholesale price for a prescription drugDAW: Dispense as written DRG: Diagnosis Related GroupRBVRS: Resource based relative value scale UCR: Usual, customary and reasonable

State

Basis of physician

fee schedule

Fees relative to Medicare

Initial choice of physician

Choice from

provider list?

Basis of prescription

drug fee schedule

Basis of hospital

fee schedule1

Authorized use of

managed care?

Illinois None NA Employee No NA NA No

Tennessee None NA Employee Yes NA NA No

Florida RBRVS 83% Employer No AWP + $4.18Per

procedureYes

Georgia UCR 146% Employee YesAWPx1.2 +

$4.00Per DRG Yes

Kentucky RBRVS 128% Employee NoWhen DAW

AWP + $5.00Cost based Yes


WC Prices Are Lower Than GHin Fee Schedule StatesMedian Reimbursement per Service

Excluding Hospitals

$4

9

$6

9

$9

4

$6

3

$8

3

$7

1

$7

6

$7

9

$6

8

$7

2

$0

$25

$50

$75

$100

$125

FL GA IL KY TN

WC

GH

Illinois and Tennessee did not have fee schedules in timeframe of study


Network Price Discounts Bigger ifThere Is No Fee Schedule

Median Reimbursement per ServiceExcluding Hospitals

$0

$25

$50

$75

$100

$125

FL GA IL KY TN

WC In-Network

WC Out-of-Network

GH In-Network

GH Out-of-Network

Illinois and Tennessee did not have fee schedules in timeframe of study


Injuries Studied

• Price per service comparisons based on a market basket of professional services for five injuries

– Carpal Tunnel Syndrome

– Inguinal Hernia

– Back Strain or Sprain

– Open Wound of Fingers

– Contusion of Lower Limb

• Injuries selected to include

– Hard and Soft Tissue Injuries

– Cumulative and Traumatic Injuries


Treatments Associated WithCarpal Tunnel Cases

CPT Code* Description of procedure0181 Anesthesia for lower arm surgery6472 Carpal tunnel surgery 7311 Radiologic exam (x-ray) of the wrist9586 Needle electromyography, one limb9590 Motor nerve conduction test9700 Physical or occupational therapy evaluation9701 Hot or cold pack therapy9702 Microwave therapy9703 Physical therapy treatment9711 Therapeutic exercises 9712 Electrical stimulation therapy9714 Extended physiotherapy9725 Manual therapy9726 Regional manipulation therapy 9753 Kinetic therapy9775 Muscle testing with exercise9907 Special supplies9920 Office visit, new patient9921 Office visit, established patient

CPT: Current procedural terminology* Truncated to four digits


Strong Correlation Between WC and GH for Individual Treatments

Prices for Services on Carpal Tunnel CasesFlorida

$0

$100

$200

$300

$400

$500

$600

01

81

64

72

73

11

95

86

95

90

97

00

97

01

97

02

97

03

97

11

97

12

97

14

97

25

97

26

97

53

97

75

99

07

99

20

99

21

99

24

Me

dia

n P

ric

e

WC

GH


Costs of Treating Injuries


Overall Cost of Treating an Injury

• WC costs more than GH to treat similar injuries, mostly because of differences in by utilization

• WC has more intense and costly treatments earlier on than does GH

• Cost differences are smaller than average for acute injuries and trauma-related conditions like fractures or sprains

• Cost differences are greater for injuries subject to surgery and for chronic or pain-related injuries

• GH has a greater proportion of low cost treatments than does WC


Medical Conditions Includedin Cost Analysis

Cost analysis is based on treatment of twelve conditions

InH-Inguinal hernia

Surgery Option

HID-Herniated intervertebral disc

CTS-Carpal tunnel syndrome

BRS-BursitisChronic & Pain Related

OSD-Other spinal and back disorders

SSC-Injury: spine and spinal cord

FSA-Fracture or sprain: ankle

Acute & Trauma Related

FDS-Fracture, dislocation, or sprain: humerus (head) or shoulder

FDH-Fracture, dislocation, or sprain: wrist or hand or fingers

LKL-Injury, knee, ligamentous

ILE-Injury, open wound, or blunt trauma: lower extremity

IUE-Injury, open wound, or blunt trauma: upper extremity


Cost Analysis is Based onSuper-Episodes

• GH does not have a concept similar to “claim” in WC

• Sophisticated episode groupers have evolved for analyzing GH medical data, including Medstat’s Episodes Grouper™ (Grouper)

• As Grouper builds episodes, each is put into a “major diagnostic category” (MDC)


• Grouper splits WC claims into several episodes

• Noticed that many WC injuries have a “core episode,” i.e., an episode that occurs exactly once and that is characteristic to the WC injury

• A “Super-Episode” is a combination of a unique core episode with other related treatment episodes within a claim for WC and Patient ID for GH

• Identified 12 core episode MDCs

• For each core episode, developed a customized list of related treatment MDC codes

Super-Episodes


Assembling Super-Episodes

• Core Outliers: Remove WC claims/GH patients with any core episode for which paid is greater than the 95th percentile or less than the 5th percentile

• Time Window: Include only episodes within defined time periods relative to the core episode

• Related Care: Include only episodes with MDC in the related treatment list

• Related to Total: For WC, include only WC claims for which core plus related care accounts for 90% of all care over the time window

• Core to Related: Include only super-episodes for which the ratio of core episode paid to all related paid exceeds the 5th percentile for that ratio among the included WC claims


Core Episode

Related Episodes

Time Window

Super-Episode:


Kentucky WC Paid — Hernia External

$0

$1,000,000$2,000,000

$3,000,000$4,000,000

$5,000,000

Sta

rt

Co

reO

utli

ers

Tim

eW

ind

ow

Re

late

dC

are

Re

late

dto

To

tal

Co

re t

oR

ela

ted

Steps

Super-Episodes


Methodology

• Most analysis from regression models

• Controlled for age, gender, time (inflation)

• Generally based on costs of treatments provided in first three months


• Medical costs correlate with age

• Do costs also correlate with gender?

• Before we compare WC and GH costs, we need to adjust for cost differences due to differing demographics

Demographics Play a Role


Cost Relativity by Age GroupAge Group 40-49=100%

88%

100%

109%117%

95%

0%

20%

40%

60%

80%

100%

120%

20-29 30-39 40-49 50-59 60-70

Costs Increase with Age

Percent

Based on WC and GH CombinedFive-State Average


WC Claimants Are More Likely To Be Male

64%

36%

44%

56%

47%

53%

0%

10%

20%

30%

40%

50%

60%

70%

Male Female

WC Workforce GH

Five-State Average


109%

102%97%

89%

101% 100%97%

90%

105%109%

95%

59%

50

75

100

125

INH BRS FSA FDS FDH HID IKL ILR IUE OSD CTS SSC

Based on WC and GH CombinedFive-State Average

Costs by Gender Are Less StraightforwardFemale Cost Relativity by Medical Condition

Male = 100%Percent


Nearly Half of the GH Cases Are Below $500

Distribution of Costs forCarpel Tunnel [393] Cases in FL

0%5%

10%15%20%25%

30%35%40%

45%50%

$0-$500

$500-$1000

$1000-$1500

$1500-$2000

$2000-$2500

$2500-$3000

$3000-$3500

$3500-$4000

$4000-$4500

$4500-$5000

$5000-$5500

$5500-$6000

$6000-$6500

$6500-$7000

$7000-$7500

$'7500-$8000

GH

WC


After Removing Cases Under $500WC Still Has Higher Costs

Distribution of Costs forCarpel Tunnel Cases > $500 in FL

Re

mo

ve

d

0%5%

10%15%20%25%

30%35%40%

45%50%

$0-$500

$500-$1000

$1000-$1500

$1500-$2000

$2000-$2500

$2500-$3000

$3000-$3500

$3500-$4000

$4000-$4500

$4500-$5000

$5000-$5500

$5500-$6000

$6000-$6500

$6500-$7000

$7000-$7500

$'7500-$8000

GH

WC


WC/GH Cost Relativities by Condition

• All the 12 medical conditions show a similar pattern of relative costs across the 5 states

• Inguinal hernia (INH), degenerative disk disease (HID), and carpal tunnel (CTS) have cost relativities that are both the largest and the most variable by state of the 12 conditions studied

• Fractures, cuts, and knee injuries (FSA, FDS, FDH, ILR, IUE, and IKL) exhibit the lowest and the least variable cost relativities by state


Acute Injury orTrauma Related

Chronic andPain Related

SurgeryOption

297%

192% 198% 203%

138%121% 122% 123% 121%

242%

122%

303%

0

50

100

150

200

250

300

350

INH HID CTS BRS OSD SSC FSA FDS FDH IKL ILR IUE

WC/GH Cost Comparison by Injury GroupWithin Three Months of Injury

GH = 100%Percent

Five-State Average


WC/GH Cost Comparison by State

• All the states show a similar pattern of relative costs across the 12 medical conditions

• Illinois and Tennessee, the two states without workers compensation medical fee schedules, have the highest relativities for workers compensation above group health

• Georgia and Kentucky have somewhat more moderate (but still high) relativities


WC/GH Cost Comparison by State

• Florida workers compensation costs are moderately higher than group health

• One would expect Florida to have a lower cost relative to group health based on it’s price advantage for physician services

• Recent legislation in Florida, effective last year, established a hospital fee schedule (SB 50A)


153%

194%

153%

207%

122%

0

50

100

150

200

250

FL GA IL KY TN

WC Costs Are ConsistentlyGreater Than GH Costs

Within Three Months of InjuryGH = 100%

Percent


227% 226%

354%

239%

419%

241%

186%

262%

151%181%

160%112%

146%122%

83%

0

100

200

300

400

500

600

FL GA IL KY TN

Surgery Option Chronic & Pain-Related Acute & Trauma-Related

Percent

WC/GH Cost Comparison by State and Injury Group

Within Three Months of InjuryGH = 100%


Cost Comparisons Show Small Decline as Time Window Is Increased

WC/GH Cost Comparisonby State and Time Window

GH=100%

0%

50%

100%

150%

200%

250%

FL GA IL KY TN

3 mo 6 mo 1 yr 2 yrs


• Prices paid by WC and GH for medical services are roughly comparable

• WC costs are higher than GH; differences are due to utilization

• WC costs for injuries where surgery is a likely option and chronic or pain-related injuries are significantly higher than those for GH

• The cost difference between WC and GH is lower in states with fee schedules than in states without

Summary


Questions?

Workers Compensation and Group Health

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