Perhaps the best-produced workers’ comp conference is the annual issues symposium (AIS), held in Orlando each May. The 800+ attendees got together last night for a pre-conference cocktail party in blessedly comfortable weather; the mood was upbeat, positive, and optimistic, terms not used to describe workers comp for several years. (presentations will be up here later today)
The reason for the optimism – a combined ratio of 109; waaay down from 2011’s 115. Along with an investment gain of 14 percent, this makes for a profitable industry.
That said, those high return rates are things of the past, and investment officers aren’t going to replace expiring bonds with new ones returning anything close to double digits.
Lost time claims frequency dropped five points – a return to the twenty-year trend that was interrupted by an increase just after the deep recession.
Medical trend in comp remains in the low single digits, roughly paralleling the overall decline in medical trend we’re seeing (and I’ve posted on) recently. This is very good news – but doesn’t parallel what several large payer clients are seeing.
NCCI CEO Steven Klingel explored the factors contributing to the lower medical trend – noting pricing increases are moderating somewhat(more fee schedules for hospitals); better control of drug costs and indications from two PBMs that they’ve been able to reduce the use of narcotics.
Klingel attributed some of the improvement to the growth in the use of networks; I don’t see networks as doing much of anything as the incentives aren’t there to control total claims expense. They do control price, but the percentage-of-savings methodology provides the wrong incentives for all parties.
Kudos to Klingel for focusing attendees’ attention on the dramatic impact of medical expense on profitability. He displayed a chart showing the difference in profitability attributable to a mere 3 percent increase in trend – that increased trend leads to an operating loss of around 8 percent compared to just about breakeven at the current 3 percent trend. Here’s hoping the execs in attendance got it; in my view this was the key takeaway.
Klingel also focused on opioids, opining that this is the top issue on state workers’ comp agendas. Here’s hoping IAIABC gets back to their model language; unfortunately sources indicate a recent meeting that was to focus on this was notable for the lack of progress. Sigh.
Finally, Klingel opined that he’s encouraged by the current state of the WC market. Which returns us to the lede; happy days – if not here again – are on the way.
