Cost and Trends Driving the Workers
Compensation Market
Mona CarterNational Policy Executive
NCCIMay 25, 2010
ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.
What will be the Impact of the Economic Recovery?
How do we Curtail Rising Medical Cost? How Does The National Health Debate
Impact Comp? What is the Impact of An Aging Workforce? What will the work world look like and are
we Ready?
ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.
2
Questions On The Horizon
19851986
19871988
19891990
19911992
19931994
19951996
19971998
19992000
20012002
20032004
20052006
20072008
2009p
85
90
95
100
105
110
115
120116
108
105 105
109 110 109
116
107109
107 106
102
106
108
110
116
107
100
98
101
92
95
104
101
3
P/C Industry Calendar YearNet Combined RatiosPrivate Carriers
Percent
Calendar Year
p Preliminary
Source: 1985–2008, Best's Aggregates & Averages; 2009p, ISO
Average (1985–2008): 106.0%
P/C Underwriting Losses ModerateNet Combined Ratio—Private Carriers
p Preliminary
Source: Workers Compensation, NCCI; All Other Lines, Best’s Review Preview and ISO
Personal Auto 98% 100% 99%
Homeowners 96% 117% 106%
Other Liability (Incl Prod Liab) 99% 95% 100%
Workers Compensation 101% 101% 110%
Commercial Multiple Peril 92% 104% 97%
Commercial Auto 94% 97% 97%
Fire & Allied Lines (Incl EQ) 70% 100% 81%
All Other Lines 93% 112% 108%
Total P/C Industry 95% 104% 101%
Calendar Year
2007 2008 2009pLine of Business (LOB)
4
19851986
19871988
19891990
19911992
19931994
19951996
19971998
19992000
20012002
20032004
20052006
20072008
2009p
-6
0
6
12
18
2.8
15.113.9 13.4
9.78.0
9.5
3.6
11.2
5.8
9.7 10.1
13.1
9.6
6.6 6.3
-2.3
3.2
9.510.6
11.4
14.4
12.7
0.6
5.8
P/C Industry Return on SurplusAnnual After-Tax Return on Surplus—Private Carriers
Percent
Calendar Yearp Preliminary
Note: After-tax return on average surplus, excluding unrealized capital gainsSource: 1985–2008, Best's Aggregates & Averages; 2009p After-Tax Net Income, ISO; 2009p Surplus, 2008 Best's Aggregates & Averages + 2009 ISO contributions to surplus
Average (1985–2008): 8.7%
5
Workers Compensation
Results
ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved. 6
• Impact of National Healthcare Reform uncertain
• Inadequate return on industry capital
• State legislative changes to benefit models may increase pressure on indemnity cost
• Changes to the nations financial regulatory system creates uncertainty
ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved. 7
Challenges for Workers Comp Line
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009p
0
20
40
60
80
100
120
140
117123 121
109102
97 100 101107
115 118 122
111 110 107103
93101 101
110
Dividends Underwriting Expense LAE Loss
WC Calendar Year Combined Ratio Up MarkedlyPrivate Carriers
Percent
Calendar Yearp Preliminary
Source: 1990–2008, Best's Aggregates & Averages; 2009p, NCCI
1.9% Due to September 11
6
1990*
1991*
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009p
0
5
10
15
20
25
13.0
14.0
18.116.7
14.4
16.817.6
20.421.3
20.519.5
14.0
10.7 10.411.2 10.9
10.0
12.7
9.7
11.8
Workers Compensation InvestmentReturns Remain Below Historical AverageInvestment Gain on Insurance Transactions-to-Premium RatioPrivate Carriers
Percent
Calendar Yearp Preliminary
Source: 1990–2008, Best's Aggregates & Averages; 2009p, NCCIInvestment Gain on Insurance Transactions Includes Other Income* Adjusted to include realized capital gains to be consistent with 1992 and after
Average (1990–2008): 14.8%
9
1990*
1991*
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009p
-15
-10
-5
0
5
10
15
20
25
-4.2
-8.6
-3.2
7.5
12.7
19.717.9
19.8
13.9
5.2
1.3
-7.6
-0.1
0.9
4.4
8.4
16.8
12.0
8.8
1.6
Workers Compensation Results— Barely an Operating GainPre-Tax Operating Gain Ratio—Private Carriers
Percent
Calendar Yearp Preliminary
Source: 1990–2008, Best's Aggregates & Averages; 2009p, NCCIOperating Gain Equals 1.00 minus (Combined Ratio Less Investment Gain on Insurance Transactions and Other Income)* Adjusted to include realized capital gains to be consistent with 1992 and after
Average (1990–2008): 6.6%
10
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009p
0
10
20
30
40
50
31.0 31.3 29.8 30.5 29.126.3 25.2 24.2 23.3 22.3
25.0 26.129.2 31.1
34.737.8 38.6 37.6
33.829.8
31.0 31.329.8 30.5
29.126.3
28.226.9 25.9 25.0
28.6
32.1
37.7
42.3
46.547.8
46.544.3
39.3
34.1
State Funds ($ B)
Private Carriers ($ B)
Workers Compensation Premium Continues Its Sharp DeclineNet Written Premium
$ Billions
Calendar Yearp Preliminary
Source: 1990–2008 Private Carriers, Best's Aggregates & Averages; 2009p, NCCI1996–2009p State Funds: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, UT Annual Statements
State Funds available for 1996 and subsequent11
2-Year Change in Countrywide NWP -23%
Contributions to WC Net Written Premium DeclineCalendar Years 2007–2009
Known Pricing Impacts
Change in Bureau Rates and Loss Costs -7%
Change in Carrier Pricing -4%
Economic Impacts
Change in Total Payroll -4%
Impact of Recession on Industry Group Mix -4% to -6%
Impact of Recession by Firm Size -4% to -6%
Other Impacts +1% to -2%
Source: NCCI Analysis12
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009p80
90
100
110
120
130
140
118122
111 110107
103
93
101 101
110
138
125
106
97
8887 86
98102
107
Calendar Year Accident Year
Accident Year Combined RatiosWorkers Compensation Calendar Year vs. Ultimate Accident YearPrivate Carriers
Percent
p PreliminaryAccident Year data is evaluated as of 12/31/2009 and developed to ultimateSource: Calendar Years 2000–2008, Best's Aggregates & Averages;
Calendar Year 2009p and Accident Years 2000–2009p, NCCI analysis based on Annual Statement dataIncludes dividends to policyholders
13
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20090
5
10
15
20
25
2
5
10
15
18
2021
18
15
12
9
4
2
6
9
2009 Tabular Discount Is $5.3 Billion
Calendar Year Reserve Deficiencies Workers Compensation Loss and LAE Reserve DeficiencyPrivate Carriers
Calendar Year
$ Billions
Loss and LAE figures are based on NAIC Annual Statement data for each valuation date and NCCI latest selectionsSource: NCCI analysisConsiders all reserve discounts as deficiencies 14
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009p
-25
-20
-15
-10
-5
0
5
10
-7.1 -7.4 -7.1-8.5
-10.5
-14.6
-17.7
-22.6 -23.2
-19.2
-14.3
-4.0 -1.7
2.1 0.7
-2.2-4.7
-7.4 -7.9
Rate/Loss Cost DepartureSchedule RatingDividends
Impact of Discounting on Workers Compensation PremiumNCCI States—Private Carriers
Policy Yearp PreliminaryDividend ratios are based on calendar year statisticsNCCI benchmark level does not include an underwriting contingency provisionBased on data through 12/31/2009 for the states where NCCI provides ratemaking services
Percent
15
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009p
5
10
15
20
25
$1
0.1
$9
.8
$9
.5
$1
0.0
$1
0.2
$1
0.8
$1
1.6
$1
2.6
$1
3.9
$1
5.3
$1
6.7
$1
7.3
$1
8.0
$1
8.3
$1
8.8
$1
9.8
$2
0.8
$2
2.0
$2
3.0
+1.0% -3.1% -2.8% +4.9%+1.7%+5.9%
+7.7%+9.0%
+10.1%
+10.1%
+9.2%+3.1%
+4.1%+1.7%+3.1%
+5.0%+5.0%
+5.8%+4.5%
Workers Compensation IndemnityClaim Costs Continue to GrowAverage Indemnity Cost per Lost-Time Claim
Accident Year2009p: Preliminary based on data valued as of 12/31/20091991–2008: Based on data through 12/31/2008, developed to ultimateBased on the states where NCCI provides ratemaking services, including state fundsExcludes high deductible policies
Annual Change 1991–1993: -1.7%Annual Change 1994–2001: +7.3%Annual Change 2002–2008: +4.0%
IndemnityClaim Cost (000s)
16
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008p0
2
4
6
8
10
12
14
16
4.5
3.52.8
3.2 3.54.1
4.6 4.74.0
4.4 4.2 4.04.4
3.7
Lost-Time Claims
Change in Medical CPI Change in Medical Cost per Lost-Time Claim
17
WC Medical Severity Still Growing Faster Than the Medical CPI
YearMedical severity 2008p: Preliminary based on data valued as of 12/31/2008Medical severity 1995–2007: Based on data through 12/31/2007, developed to ultimateBased on the states where NCCI provides ratemaking services, excludes the effects of deductible policiesSource: Medical CPI—All states, Economy.com; Accident year medical severity—NCCI states, NCCI
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008p0
2
4
6
8
10
12
14
16
4.5
3.52.8
3.2 3.54.1
4.6 4.74.0
4.4 4.2 4.04.4
3.7
5.1
7.4
10.1
8.3
10.6
7.3
13.5
8.2
7.1
5.4
7.7
6.0 5.8 6.0
Lost-Time Claims
Change in Medical CPI Change in Medical Cost per Lost-Time Claim
18
WC Medical Severity Still Growing Faster Than the Medical CPI
YearMedical severity 2008p: Preliminary based on data valued as of 12/31/2008Medical severity 1995–2007: Based on data through 12/31/2007, developed to ultimateBased on the states where NCCI provides ratemaking services, excludes the effects of deductible policiesSource: Medical CPI—All states, Economy.com; Accident year medical severity—NCCI states, NCCI
Utilization a Major Factor1996–2001
1996 1997 1998 1999 2000 2001 2002 2003 2004 20050.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
Indexes of Medical Severity and Medical Care CPI, 1996 = 1.0
Medical Care CPI
Closed Lost-Time Claims Medical Severity
Utilization
19
Countrywide Medical SeverityIs Outpacing the Medical Care CPI
Accident year for medical severity; calendar year for Medical Care CPILost-Time Claims Closed Within 24 Months of Date of Injury, NCCI StatesSource: NCCI; US Bureau of Labor Statistics
Accident/Calendar Year
“Utilization”
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009p
5
10
15
20
25
30
$8
.4
$8
.5
$8
.4
$9
.1
$9
.6
$1
0.3
$1
1.3
$1
2.3
$1
3.6
$1
4.6
$1
6.5
$1
8.0
$1
9.3
$2
0.4
$2
1.9
$2
3.0
$2
4.3
$2
5.9
$2
7.2
+6.8%+1.3% -2.1%+9.0%+5.1%
+7.4%+10.1%
+8.3%+10.6%
+7.3%
+13.5%+8.8%
+7.3%+5.6%
+7.4%+5.4%
+5.4%+6.7%
+5.0%
WC Medical Claim CostsWill Moderate Trends Continue? Average Medical Cost per Lost-Time Claim
Accident Year
Annual Change 1991–1993: +1.9%Annual Change 1994–2001: +8.9%Annual Change 2002–2008: +6.6%
MedicalClaim Cost (000s)
2009p: Preliminary based on data valued as of 12/31/20091991–2008: Based on data through 12/31/2008, developed to ultimateBased on the states where NCCI provides ratemaking services, including state fundsExcludes high deductible policies
20
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009p
-10
-8
-6
-4
-2
0
2
-4.2 -4.4
-9.2
0.3
-6.5
-4.5
0.5
-3.9
-2.3
-4.5
-6.9
-4.5-4.1
-3.7
-6.6-6.2
-3.0-3.4
-4.0
Workers Compensation Lost-Time ClaimFrequency Continues to DeclineLost-Time Claims
Percent
Accident Year2009p: Preliminary based on data valued as of 12/31/20091991–2008: Based on data through 12/31/2008, developed to ultimateBased on the states where NCCI provides ratemaking services, including state funds; excludes high deductible policiesFrequency is the number of lost-time claims per 100,000 workers as estimated from reported premium
Cumulative Change of –54.7%(1991–2008)
21
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
p
0
5
10
15
0
1,250
2,500
3,750
Recessions
Manufacturing Industry Injuries and Illnesses per 100 Full-Time Workers
Private Industry Injuries and Illnesses per 100 Full-Time Workers
NCCI Lost-Time Claims per 100,000 Workers
Inc
ide
nc
e R
ate
s p
er
10
0 F
TE
Wo
rke
rs(B
LS
)C
laim
s p
er 1
00
,00
0 W
ork
ers
(NC
CI)
Workplace Injury Incidence Rates Have Shown Declines in Last Four Economic Downturns
p Preliminary
Source: US Department of Labor, Bureau of Labor Statistics (BLS), National Bureau of Economic ResearchNCCI Frequency and Severity Analysis; based on the states where NCCI provides ratemaking services,including state funds; excludes high deductible policies
22
Direct Impacts
1. Changes to Federal Black Lung Benefit Entitlement Provisions**
a. Reinstates the 15-year rebuttable presumption of total disability for benefits
b. Eliminates the requirement to prove that death of miner was due to occupational disease for survivor benefits
2. Changes to Medicare reimbursement levels;potential impacts will depend on:
a. Potential modifications to Medicare reimbursements
b. How the states react to those potential changes
National Health Care BillImplications for Workers Compensation InsuranceThe Patient Protection and Affordable Care Act*
*HR3590 as amended by HR4872
**Section 1556: Federal Coal Mine Health and Safety Act 23
Provisions Worth Watching Increased healthcare coverage in general population Wellness initiatives Consumer access to more generic drugs New taxes on medical devices, pharmaceutical
manufacturers, and health insurance companies Fraud and abuse provisions
Other Areas of Interest Electronic transaction standards Coordination, subrogation, and reimbursement issues Medicare as a secondary payer
National Health Care BillImplications for Workers Compensation InsuranceThe Patient Protection and Affordable Care Act*
*HR3590 as amended by HR487224
72.9%
5.4%
1.9% 19.8%
1998
Wages and Salaries
Health Insurance
Workers Compensation
All Other
ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.
Employer Costs as Percentage ofTotal CompensationPrivate Industry
70.8%
7.1%
1.7%
20.4%
2008
All Other includes Paid Leave, Supplemental Pay, Insurance (other than Health), Social Security, Retirement and SavingsSource: US Department of Labor, Bureau of Labor Statistics
25
ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.
Workers Compensation
Loss Drivers
26
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008p0
2
4
6
8
10
12
14
16
5.1
7.4
10.1
8.3
10.6
7.3
13.5
8.2
7.1
5.4
7.7
6.0 5.8 6.0
4.5
3.52.8
3.2 3.54.1
4.6 4.74.0
4.4 4.2 4.04.4
3.7
Change in Medical Cost per Lost-Time Claim
Change in Medical CPI
ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.
WC Medical Severity Still Growing Faster Than the Medical CPI Average Medical Cost per Lost-Time Claims
YearMedical severity 2008p: Preliminary based on data valued as of 12/31/2008Medical severity 1995–2007: Based on data through 12/31/2007, developed to ultimateBased on the states where NCCI provides ratemaking services, including state funds; excludes high deductible policiesSource: Medical CPI—All states, Economy.com; Accident year medical severity—NCCI states, NCCI
Percent Change
27
ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.
Workers Compensation Medical LossesAre More Than Half of Total Losses
All Claims—NCCI States
47%
53%
1989
MedicalIndemnity
1999
52%
48%
Indemnity Medical
2009p
58%
42%
Indemnity Medical
Accident Year
2008p: Preliminary based on data valued as of 12/31/20091989, 1999: Based on data through 12/31/2008, developed to ultimateBased on the states where NCCI provides ratemaking services, including state fundsExcludes high deductible policies
28
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008p
-10
-8
-6
-4
-2
0
2
-4.2 -4.4
-9.2
0.3
-6.5
-4.5
0.5
-3.9
-2.3
-4.5
-6.9
-4.5-4.1
-3.7
-6.7-6.0
-2.6
-4.0
ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.
Workers Compensation Lost-Time Claim Frequency Continues to DeclineLost-Time Claims
Percent
Accident Year2008p: Preliminary based on data valued as of 12/31/20081991–2007: Based on data through 12/31/2007, developed to ultimateBased on the states where NCCI provides ratemaking services, including state funds; excludes high deductible policiesFrequency is the number of lost-time claims per 100,000 workers as estimated from reported premium
Cumulative Change of –54.9%(1991–2008)
29
0.0000
0.0003
0.0006
0.0009
0.00
0.10
0.20
0.30
0.40
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Fre
qu
en
cy
pe
r $
1M
Wa
ge
-Ad
jus
ted
Pa
yro
ll
Fre
qu
en
cy
pe
r $
1M
Wa
ge
-Ad
jus
ted
Pa
yro
ll
ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.
Declines in Claim Frequency Are Consistent for All Injury Types Except Permanent TotalFrequency at First Report
Change in Frequency -22% -10% -28% -40% -37%
All NCCI StatesSource: NCCI Unit Statistical Plan data, First Report.
30
Age <= 50 Age > 50 Total0
20
40
60
80
100
120
140
160
180
2003 2004 2005 2006
Nu
mb
er
of
PT
D C
laim
s a
t 1
st
Re
po
rt
ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.
Increase in Permanent Total ClaimsIt Wasn’t Older Workers Change in Permanent Total Claims, by Age GroupData at First Report
Percentage Change Between Policies Expiring in 2003 and 2007
+100% +12% +68%
All NCCI StatesSource: Sample data
31
Falls/slips/trips are by far the greatest cause of injury among older workers.
Indemnity severity is less for older workers, largely because of the lower average weekly wage of such workers. There is a distinct (downward) break in indemnity severity between ages 60–64 and 65 and older.
Medical severity is higher for older workers, although the differential between workers aged 65 and older and nearby age cohorts is small.
Shares of indemnity and medical payments of older workers have a close relationship to their share of claims.
Frequency is less for older workers, especially in the more hazardous manufacturing and construction-related industries and occupations. In contrast, claim frequency is higher for older workers in the leisure and hospitality industry and food preparation and service occupations (as well as in sales and related occupations).
ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.
Claims Characteristics of Workers Aged 65 and Older
32
Lost-Time PTD-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Vehicle Slip/Fall Strain All Other
% C
ha
ng
e in
Nu
mb
er
of
Cla
ims
ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.
Lost-Time and Permanent TotalDisability Claims by Cause of Injury Percentage Change, Data at First Report
All NCCI StatesPercentage change between policies expiring in 2003 and 2007Source: NCCI Unit Statistical Plan data, First Report.
33
Job creation and job destruction increase frequency
During recessions, job creation slows dramatically
The rate of job creation bottoms at the trough of economic activity and rises sharply during the ensuing economic recovery
During recession, job destruction increases
NCCI’s statistical modeling shows that the decline in job creation dominates quantitatively
ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.
Job Creation Is a Leading Indicator of the Change in WC Claim Frequency
34
Countrywide frequency continued its long-term decline
Frequency changes vary considerably by type of injury
“Likely-to-Develop” claims exhibited a larger frequency decline than “Not-Likely-to-Develop”
Frequency changes are relatively consistent by size of loss for claims under $250,000
ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.
Key Findings of Frequency Study
35
Temporary Total Disability claim frequency declined more than Permanent Partial Disability claim frequency
Injury type changes notwithstanding, frequency changes are relatively consistent in all size of loss ranges below $250,000
Fatal claim frequency declined less than overall frequency
Permanent Total Disability claim frequency increased. The growth of Permanent Total Disability claim frequency is concentrated in a few carriers
Fatal and Permanent Total claims also exhibited more year-to-year volatility than other injury types, possibly due to the smaller number of these claims
ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved. 36
Frequency Changes Vary by Injury Type Over the Last Five Years
36
Overall lost-time claim frequency declined 17%
Frequency of lower back claims declined 27% Frequency of claims involving multiple body
parts declined 24% Frequency of carpal tunnel syndrome claims
declined 46% Frequency of cumulative injury claims
declined 40%
ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved. 37
Some of the More Complex Claims Declined More Than Average From
2004 to 2008
As medical costs escalate, states seek effective medical cost containment measuresStates depend on relevant, reliable information to
determine cost containment solutionsWhen data is not available, states may be forced
to develop their own solutionsThrough the EDI project, the IAIBC has developed
standards (i.e., 837) for the collection and electronic transmission of several types of data
Several states have implemented medical data calls already, including adoption of the IAIABC 837
38
State Response to Rising
Medical Costs
38
Legislative/regulatory landscape has been changing◦ States are proposing/enacting more
comprehensive cost controls: Medical Fee Schedules Healthcare Networks Utilization Guidelines Physician Choice
39
Need for Medical Data Call
Over the past five years, approximately 30% of the legislative activity contained a medical component◦ 2005: 45 bills priced (excluding TX)
approx impact $1.9B◦ 2006: 46 bills priced
approx impact $1.3B◦ 2007: 53 bills priced
approx impact $1.3B◦ 2008: 33 bills priced
approx impact $762M◦ 2009: 45 bills priced
approx impact $777M
40
Legislative Analysis
Conclusions:◦ Medical is more than half of the total WC benefits
◦ 30% of legislative pricing contains a medical component, and that number continues to rise
◦ Medical data detail will better assist NCCI in pricing legislation, ensuring the credibility of our analyses
◦ Medical Data Call will begin with medical transactions occurring in the 3rd Quarter of 2010
41
Medical Data Call
Medicare pays a significant share of overall US medical costs. As a result, Medicare reimbursement rates influence prices generally paid for medical services, including prices paid for medical services for workers compensation.
Many states base their workers compensation medical fee schedules on the Medicare physician reimbursement schedule.
Some states control costs for services provided by facilities through systems based on either Medicare’s DRG system for hospital stays or Medicare’s APC system for services provided at ambulatory surgical centers.
ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.
Medicare and Workers Compensation Medical Cost Containment
42
Workers compensation fee schedules will need to react appropriately to ongoing changes in Medicare methodology.
To maintain the effectiveness of medical fee schedules, workers compensation might consider using Medicare billing approaches for hospital stays (DRG) and ambulatory services (APC), but in doing so should adapt Medicare models to workers compensation priorities.
As the workforce ages, workers compensation might focus safety initiatives toward falls and hip injuries, where Medicare protocols should provide valuable insight in designing treatment guidelines.
Medicare faces enormous demographic and fiscal challenges. Workers compensation shares some of those challenges, and Medicare’s response might offer suggestions to enhance workers compensation medical cost containment.
ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.
Medicare and Workers Compensation Medical Cost Containment (cont)
43
ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.
Gauging the Economy
•Slowing of Decline in Employment in 2010 still Suggests Downward Pressure on Both Exposure and Claim Frequency
• Slowing Wage Gains May Dampen Increases in Indemnity Severity
• Accelerating Medical Care Price Increases in 2010 Suggest Further Upward Pressure on Medical Severity
• Financial Market Outlook May Brighten a Bit in 2010 for P&C Portfolio Managers
44
Premium—likely to fall due to the drop in employment and the easing of the growth in wage rates.
Frequency—likely to experience increased downward pressure due to the marked drop in the number of new hires and reduced levels of job creation.
Indemnity severity—growth typically eases in recessions due to the easing in the growth of wage rates and the impact on Average Weekly Wage, but growth remains positive.
Medical Severity—medical price inflation is expected to continue relatively unabated; thus, medical severity will continue to grow.
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Gauging the Economy (cont)
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In Summary
Negatives
Low investment returns continue to put pressure on underwriting results
Potential reform erosion
Uncertain impact from health care reform
Unknown scope of future Federal actions
Underwriting cycle
Positives
Industry’s capital position
Frequency continues to decline
Residual market depopulation continues
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