Author: Joe Paduda

May
10

NCCI – the state of the line 2012

Posted by Joe Paduda on Thursday, May 10th, 2012 | Comments

This was the tenth year NCCI Chief Actuary Dennis Mealy gave the State of the Line presentation (I’ll post the link when it’s available).
Claim frequency – on an adjusted basis – was down slightly (a single point). This continues a long term downward trend (interrupted last year by a big bump up, likely driven by employment factors) but the rate of decline may be flattening out.
Total premiums jumped 7.4%, and when state funds are included, premiums were $36.3 billion, down from a high of $47.8 in 2005. The increase was driven by higher payroll and audit results (insurers audit payroll to make sure employers are accurately reporting their employee count and payroll).
Mealy noted that data from Goldman Sachs indicates prices are firming; a survey of agents had over three-quarters of respondents indicating prices were increasing, with 11.5% reporting prices up more than 11%. These were markedly different from results from the 2011 and 2010 surveys. These trends indicate premiums will continue to grow in 2012.
If and when manufacturing and construction employment increases substantially, we’ll almost certainly see premiums rise even more. For now, employment in both sectors is still way under pre-recession levels, although manufacturing is recovering somewhat.
The calendar year combined ratio deteriorated; while the 115 stayed the same, three points of last year’s 115 number was driven by big additions to reserves from a single payer. When you remove that “outlier”, it is clear results have deteriorated.
Accident year losses were a touch lower at 114.
Reserve deficiency isn’t much of an issue as the ‘real’ deficit about half of the reported $11 billion due to accounting practices.
Medical cost per claim was up four points, with total spend (in NCCI states, including state funds) hitting $28 billion. (note California is not included)
Break time…

May
10

NCCI – first take on the state of the work comp industry in 2011

Posted by Joe Paduda on Thursday, May 10th, 2012 | Comments

(I’ll be live blogging from NCCI again this year with several updates throughout the day)
Higher combined ratios, spotty market hardening, spikes in medical costs, ups and downs in claim frequency, more hiring in some sectors – for whatever reason, there’s a lot of interest in work comp this year, and the all-time high in attendance at this year’s NCCI meeting is evidence of this interest.
NCCI CEO Steve Klingel described the work comp market as “conflicted”; some markets are getting better, indicators show positive and negative trends, and frequency is bouncing around a bit too. Here are the highlights.
– the combined ratio for accident year 2011 indicates an improvement, dropping two points to 114. (the calendar year combined ratio was 115, marking a deterioration.
– claim frequency declined in 2011, but the decline was minimal at best at 1%.
– medical costs for lost time claims bumped up four points
– written premium volume increased significantly, up 7.4%. While that’s good news indeed, remember premiums have dropped 27% since 2005. Clearly there’s a lot of ground to make up…
And the big news, for the third consecutive year, operating margins were essentially flat.
That’s no surprise – investment returns are awful, hiring is not where it needs to be, there’s a lot of competition for comp premium.
So, what are the factors, the wildcards that may move the market? Klingel cited major shifts in the economy, potential legal issues with health reform, and political gridlock.
My take is Klingel missed the major wildcard with reform; if PPACA is overturned, the number of uninsured will grow, there will be more cost-shifting to work comp, and we’ll see medical costs increase. And that’s on top of the issues inherent in treating claimants who don’t have medical insurance for their non-occ conditions.
If health reform sticks, the number of uninsured will decline by more than thirty million, there will be less incentive on the part of providers to shift costs to work comp payers, and insurers won’t have to cover treatment for conditions that inhibit healing and return to work.
Thanks to NCCI’s Greg Quinn for providing the details behind Klingel’s presentation. NCCI is pushing social media even more this year; they’ve got a mobile app, social media site, and ten different publications are reporting from the conference.
NCCI was the first industry conference to welcome bloggers and online media, and kudos to them for recognizing early on what has taken others a bit longer to figure out.
Next up – Dennis Mealy’s annual state of the line presentation – I can’t wait…

May
8

NCCI’s 2012 conference – what’s on tap

Posted by Joe Paduda on Tuesday, May 8th, 2012 | Comments

The Annual Issues Symposium starts tomorrow, and here’s what’s on tap.
The highlight for fellow work comp geeks is the State of the Line Report, the annual update on results, cost drivers, and trends delivered by top actuary Dennis Mealy, with Friday’s afternoon research workshop a close second.
There are a couple sessions focused on or addressing the role of the federal government in insurance regulation. There’s some internal conflict in the industry over this; historically payers have chafed under the burden of complying with the whims of fifty-one regulators, while state regulators have proclaimed the primacy of their role. With financial regulatory reforms taking effect (Dodd Frank et al), there’s certain to be a lively debate over who’s in charge of what.
The powers-that-be at NCCI will once again have a keynote delivered by a conservative political figure; this year it is Peggy Noonan, who will be speaking on “America’s Ongoing Quest for Patriotic Grace.” What this annual right-wing proselytizing has to do with workers comp is beyond me.
Finally, the guy who wrote Freakonomics is also speaking; Steven Dubner’s insights into why people do what they do will provide a great counter to the “cold hard logic” employed by NCCI’s economists in their research and presentations.
I’ll be live blogging from the conference; see you in Orlando.

May
7

Colbert’s ‘Word’… Debt Panels

Posted by Joe Paduda on Monday, May 7th, 2012 | Comments

Steven Colbert’s one of the funnier people/newscasters out there – and his piece on “Debt Panels” [opens video] is terrific.
Colbert helps us understand the role of finance in the emergency medicine department, a role that has grown significantly over the last couple years along with the rise of the number of uninsureds…
Hat tip to Care and Cost for the head’s up.

May
5

Congratulations Mitt!

Posted by Joe Paduda on Saturday, May 5th, 2012 | Comments

In what will be one of the more entertaining episodes in Presidential campaigning, GOP presumptive nominee Mitt Romney will have to disavow his success in passing health reform in Massachusetts that now looks to be a major success.
Reform was intended to cover more people and reduce or at least mitigate cost increases.
While coverage did expand, for several years costs went up dramatically as well, leading some to point to the Mass “experiment” as a failure.
First, coverage. The latest data indicate 95% of citizens are insured, compared to 84% of the national population.
The latest information suggests those decrying the Mass reform may have been a bit premature in their assessment.
Small group insurance premiums were up just over one percent last quarter, the second quarter in a row where rates have gone up less than 2 percent. Moreover, two large health plans filed for rate decreases…
Why? What’s made this happen?
Glad you asked. According to Kaiser Health News/NP5,
“…two years ago, the governor directed his insurance commissioner to exercise a little-used power to turn down a requested rate increase because it was excessive. Not every state has this power.
Insurance companies were outraged. But [CEO Andrew} Dreyfus of Blue Cross Blue Shield now says it was a pivotal point.
“It sent a message to the entire health care community and the business community that we had to change,” Dreyfus says.
And change seems to be happening. Insurers have torn up their contracts with hospitals calling for annual reimbursement increases of 8 percent and 10 percent, and negotiated agreements providing for 3 percent, 2 percent and even zero percent increases.”
What does this mean for you?
While there’s no question governments can screw up lots of things in lots of ways, this appears to be one of those times where governmental authority, intelligently applied, is actually solving a problem.
What does this mean for Mitt?
Let’s see; if he takes credit for the result, he’ll be pilloried by the free market/Tea Partiers. Ouch.
If he says it doesn’t work, he’ll be, well, admitting he screwed up.
If he says it will only work in Massachusetts, he’ll be admitting other states aren’t able to fix this problem.

May
2

GOP alternatives to Obamacare

Posted by Joe Paduda on Wednesday, May 2nd, 2012 | Comments

When it comes to health reform, perhaps the only thing Congressional Republicans agree on is they hate ObamaCare.
There’s no agreement on a basic framework much less consensus on an actual bill. Moreover, there are parts of ObamaCare that enjoy solid support amongst many Republicans, complicating the GOP’s efforts to develop an alternative without conceding political ground.
Their dilemma is certainly understandable; as anyone who followed the tortuous path of the PPACA (aka Obamacare), there was precious little consensus among the Democrats who passed the bill. While most had serious issues with various bits and pieces, they held their noses and voted “aye” when pressed.
Now that there’s a distinct possibility that the Supremes will overturn part/some/all of reform, there’s pressure on the GOP to come up with an alternative.
Here’s a few of the more contentious issues.
– requiring insurers accept all applicants is favored by most Republicans (according to Politico) but a) some senior Republicans hate the idea and b) there’s zero consensus re how to actually make that work. Do they forbid upcharging for older/sicker people? Adopt some form of risk-adjustment and/or financial transfer among/between insurers based on the risk profile of their members? Or allow the free market to operate, hoping that insurers will somehow figure out how to insure people with pre-existing conditions at affordable rates?
– taxation is a big issue; one bill sponsored by Rep. Paul Broun (R-Ga.) allows taxpayers to deduct all of their health care costs, while others cite the tax-free status of health insurance as a major cost driver. What looks like the leading bill (at least at this point) also uses the tax code to encourage people to buy insurance.
– most GOP-authored bills allow people to shop for insurance across state lines, which seems to be at odds with other GOP concerns that health insurance should be the purview of the states, and the Feds ought not to be involved
– the elimination of coverage for young adults and kids with pre-ex conditions is a concern to Rep Tom Price, who stated: “That would present a significant void and vacuum in health policy…There will be a need to have some things to fill that vacuum.” Again, many first-term Republicans see no role for the Federal government in health care, making any caucus-wide consensus on the issue doubtful.
– most of the plans on offer include some thyme of malpractice reform, however there’s ample evidence that malpractice reform would have a negligible impact – at best – on system costs. (One authoritative study indicated a 10% reduction in malpractice rates was associated with about a 0.132% decrease in the overall cost of care.)
If the GOP decides it must act, the challenge will be to first convince the Tea Part Republicans that Congress has the authority to do so. While the Republican Party used to be pretty disciplined (especially when compared to the Democrats), last summer’s debt-ceiling fiasco was ample warning that Boehner doesn’t control his membership.
If and when that’s done, next step is to come up with a plan that doesn’t look an awful lot like/have a lot of the same provisions in ObamaCare and make sure it actually expands coverage and reduces costs, as scored by the CBO.
This should be interesting…
Hat tip to California Healthline for the head’s up.

May
1

Urban legend and medical care

Posted by Joe Paduda on Tuesday, May 1st, 2012 | Comments

Today’s NYT arrived with the news that injecting steroids is not much more effective in treating back pain than injecting saline.
Yet one of the most common approaches to “treating” back pain is the epidural steroid injection (ESI), with tens of thousands of patients subjected to the procedure – and its attendant risks (spinal cord injury, paraplegia, quadriplegia) – every year.
While those who got the steroid injection did fare somewhat better than those who got alternative treatments (saline or etenercept injections), but the difference was not statistically significant, and leg and back pain actually decreased in all three groups. Here’s how the authors summarized the findings:
“More patients treated with epidural steroids (75%) reported 50% or greater leg pain relief and a positive global perceived effect at 1 month than those who received saline (50%) or etanercept (42%) (P = 0.09).”
It is likely that ESIs help some patients, it is also abundantly clear that far too many are done. Given the real risk of spinal cord injury and other nasty adverse outcomes, payers would be well-advised to ensure patients are very well-informed, and providers are cognizant of the research before going thru with this procedure.
What does this mean for you?
More evidence that far too much of what passes for medicine is based on opinion and not science or research. Time to update your list of procedures subject to pre-cert.

Apr
30

Pharmacy Benefit Managers – if they report, why doesn’t everyone?

Posted by Joe Paduda on Monday, April 30th, 2012 | Comments

Last week’s post on the recent release of Annual Reports by PBMs Progressive, PMSI, and Express Scripts, got me thinking (spurred by a friend’s query); if PBMs produce these reports as a matter of course, why don’t other specialty medical management companies?
The wealth of information contained in these reports provides readers with insights into cost drivers; pricing; changes in prescribing and treatment patterns; differences due to geography, claim duration, and diagnosis; new treatment options; and changes over time in all of these categories/metrics.
It strikes me that industry/speciality appropriate information would be pretty valuable and help differentiate as well.
PBMs have raised the annual report to an art form; PMSI’s is extremely detailed and clinically robust; Cypress Care’s upcoming report differentiates between older (> 3years) and new claims; Express focused on opportunities to reduce costs thru increased use of step therapy and generics; Progressive’s discussion of regulatory changes was comprehensive and thorough.
The short answer is “it takes a lot of resources.” True, but the payoff is likely commensurate with the investment. Others are concerned that somehow competitors will learn the ingredients of their “secret sauce” and use it against them. Possibly, but not if you’re smart and careful.
There’s precious little real differentiation in the managed care services industry. Clearly it’s working for PBMs; undoubtedly it will work in other sectors as well.
and a “thanks for the thinking” to Peter Rousmaniere.

Apr
27

Coventry’s Q1 2012 earnings report – the work comp story

Posted by Joe Paduda on Friday, April 27th, 2012 | Comments

While Coventry’s work comp division revenues were pretty much flat quarter over quarter, the company views the results as better than expected. .
In comments during this morning’s Q1 2012 earnings call, CFO Randy Giles said Coventry had experienced “higher than expected revenue from the workers comp business”; he went on to note that the overall improvement in Coventry’s overall SG&A (sales, general, and administrative) expenses was driven by workers comp (I’m paraphrasing here).
(Coventry broke out work comp revenues separately from other lines this quarter)
While revenues may have been higher than expected, comparing Q1 2012 to the same quarter in 2011, workers comp revenues were flat. As there was considerable growth in the governmental businesses, comp as a percentage of overall revenues declined to 5.2% from 6.3% from Q1 2011. Sources indicate comp is still extraordinarily profitable, with margins at least double overall operating margins of 7.5%.
The impact of recent customer defections has yet to be felt; it remains to be seen if Coventry can make up for the losses by adding new customers and increasing pricing and selling more services to current ones. Given today’s more competitive work comp services environment this may be a ‘heavy lift.’
The macro factors affecting work comp are well-known, but perhaps misunderstood in terms of their impact on Coventry. For example, work comp claim frequency may have leveled off last quarter or perhaps even declined. This affects bill review, network, and UR volume.
Work comp medical costs are increasing due to pharmacy and facility drivers,while disability duration – and attendant medical costs – also looks to be increasing. The consolidation among health care systems and hospital has increased providers’ negotiating leverage, making it ever-harder for WC network staff to squeeze discounts out of providers. These drive bill review and network business.
Coventry PBM FirstScript generates a disproportionately large portion of the division’s revenue, and has been benefiting from industry-wide drug price increases. More detail on this next week.
The earnings call this morning was preceded by release of the Q1 earnings report