Those of us with plenty of gray (or silver) hair have not been surprised by the significant increase in medical expense in California since the implementation of reform several years ago. What has been surprising is that it has taken this long for medical inflation to ‘present’.
Medical costs are the primary reason premiums are headed back up, but before we get too excited, let’s remember that work comp premiums plummeted over the last few years, dropping to almost-unprecedented levels. Carriers rushed into the state, new insurers started up, and existing carriers sought to write even more business. The result was a very competitive market, and a dramatic drop in employers’ workers comp costs.
The market has turned; the insurance rating board is looking for a rate increase of almost 24%, driven in large part by the increase in medical expense.
In a recent hearing before the state’s insurance commissioner, two problems became apparent – one obvious and the other much less so.
The obvious problem is the rapid rise in medical expense in California. According to a recent release by CWCI, their analysis shows “significant increases in California workers’ comp medical payments since AY 2005, with amounts paid for treatment, pharmaceuticals and durable medical equipment…all on the rise.”
The less obvious problem is the lack of understanding on the part of most insurers, TPAs, and other payers about the factors driving up medical expense. This ignorance is demonstrated by their continued reliance on medical management techniques and tools that are not only ineffective but I would argue are likely contributing to the increase in costs.
As reported in WorkCompCentral (subscription required);
“Despite the fact that self-insured employers such as Safeway and the University of California reported much smaller medical cost increases than commercial insurers, they pointed out that their medical networks have helped reduce much of their exposure to cost drivers because of the quality of their physicians [emphasis added], and their ability to encourage claimants to seek treatment within their medical networks and avoid litigation.”
Big generalist networks do not reduce comp medical expense because the incentives are all wrong and they contain too many docs who can’t spell workers comp.
What does this mean for you?
Until and unless payers figure this out and stop talking about doing something and actually start doing that ‘something’ medical costs are going to continue to rocket up, and so will employers’ premiums.
Jun
9
Now we have perhaps the first opportunity for a state regulator to decide that insurers that do not use appropriate networks have no right to a rate increase. (I know that the rate decision will be across the board for all carriers.) Why not postpone the rate decision until a study is made of the impact of appropriately designed networks on losses?
Medical management techniques even if old and not sexy are still important to the process. The problem is medical delivery for occupational injuries is built not to be most user friendly. Occupational medicine delivery is either designed to give claims a false sense of control or designed to gin up costs claims duration and lining non stake holders pockets. ADR like HCOs deliver impartial decisions with RTW and return to functionality as goals. Great topic Joe.
Agree with the point on getting the best docs in the networks, but each of the self-insureds said they too were experiencing medical inflation and one expects these costs to go up “dramatically” in the next few years.