Last week the first five predictions about what happens in workers’ comp this year went up…today’s the second five.

6. With one or two exceptions, don’t expect much in the way of private equity investments.

There may be one or two large transactions, and a couple small ones, but outside of that, the bloom on the workers’ comp rose appears to be fading.

7. OneCall will be sold and/or split up. 

The BlackRock and KKR entities that are the current owners are not operators; they are debt owners. CEO Tom Warsop has squeezed out all the squeezable costs – and then some. Growth – defined as new business from new customers – is not happening. Add the overall drag on work comp services from the still-real drop-off in claims and claims services, and the reasons to hold on and hope are few indeed.

Plus, if interest rates increase – which is a distinct possibility – and if private equity interest in workers’ comp continues to diminish from it’s current modest level – also a distinct possibility – OCCM’s owners may well decide to sell soon rather than watch values decline.

8. COVID’s impact on costs and rates will prove to be minimal.

COVID claims are cheap, few are anywhere close to catastrophic cost levels, the effect of presumption laws and regulations is not much of an effect at all, and many employers – especially health systems – are forcing employees to use PTO rather than file for WC when they test positive/have symptoms.

Most research organizations and actuaries would do well to reflect how their early predictions were so…bad.

Helpful hint – two places to start; a) the tendency for WC “experts” to catastrophize and b) the almost-complete lack of understanding of healthcare drivers, costs, cost structures, reimbursement, and epidemiology.

9. There will be no big issues in workers’ comp. “Big” defined as important, needle-moving, disruptive, revolutionary.

No, medical marijuana is NOT a big issue – neither is COVID, or presumption, or the mid-term elections (there is ZERO interest in workers’ comp on the federal level) or remote work (does anyone seriously believe office workers tripping over toys will amount to any real dollars?)

Oh, and with rates at all time lows, frequency continuing to drop, and medical costs (with the exception of physical therapy and facilities) flat, coupled with ongoing supply chain and labor market issues, execs at big employers are (justifiably) completely uninterested in workers’ comp.

If the big girls and boys don’t see any issues, there aren’t any.

10. Here’s the kicker – the biggest long-term concern for workers’ comp is global warming...yet this is getting zero attention.

There’s going to be an inevitable increase in issues related to heat, flooding, fires, drought, tornados and hurricanes. This is getting more real every day yet remains all-but-ignored by pundits, policy-makers  and rate-makers.  We can expect more heat-related claims. Hurricanes, fires, and tornados will increase in number and severity; affecting logistics, labor, construction, and claims. The research is clear.

What does this mean for you?

As always, success favors the insightful, and failure plagues the ignorant.

Once more I head out on a limb to prognosticate on the events and trends that will shape 2022.

1. The soft market will continue.
   Carriers are still over-reserved, rates are still too high (see the opioid hangover), capital is still flowing into workers comp (gotta love that looooong tail), and employment growth may continue to be modest (low wage workers have discovered that working at crappy jobs isn’t always a have-to, especially when child care is unavailable and unaffordable).
   On the other side, wage growth will likely continue (thus partially mitigating the above drivers) as more employers finally figure out that people aren’t interested in crappy jobs for crappy wages.
   Caveat – towards the end of 2022 we may well see a bit of tightening as construction, infrastructure, green energy and other initiatives start up and get operational.
2. TPAs will add more business, mostly from carriers.
   As work comp continues to shrink, insurers will ramp up efforts to shed assets and expenses to reduce their cost structure. By outsourcing claims, carriers are trading the high fixed costs of a claims infrastructure for the variable cost of a per-claim admin fee.
   The smarter carriers will negotiate hard so they don’t get screwed by medical management and other non-fixed fees…but many carriers aren’t that smart.
3. Insurers will reduce staff, particularly in claims.
   Well, of course. see #2 above. However, TPAs will look to add claims staff, so experienced, well-trained claims folks will be highly sought-after.
4. IF total medical costs go up – and I doubt they will  – the increase will be marginal.
   Yeah, I know there’s lots of press and punditry about work comp medical costs aka “severity” increasing – and most of it is flat out wrong.
   
   I’ve read far too many investment banker slide decks, “research” reports and surveys of work comp executives that talk about rising medical costs –  almost all are not based on data or solid research.
5. That said, facility and therapy costs will go up.
   Mostly because a) medicare is increasing reimbursement for therapy which trickles down to work comp fee schedules, and b) some healthcare systems and for-profit entities (looking at you, HCA, especially in Florida) have figured out how to bust open the work comp piggy bank.

Monday – 5 more predictions.

What does this mean for you?

Work comp will just muddle along…

Yesterday we went through the first 5 of my predictions for 2021, today we’ll wrap up the second batch before I attempt to predict what 2022 brings.

6.  The workers’ comp insurance market will stay soft.

Here’s a few reasons why.

• There’s hundreds of billions of capital floating around out there, looking for a home. Workers’ comp insurance has been a) quite profitable and b) is a great place to park dollars.
• Claim counts continue to decline – while COVID is accelerating the decline, the structural drop is embedded in the business and is here for the long term. Next year there will be fewer claims, and the following year even fewer.
• Medical inflation remains pretty low (while there are troubling indicators that costs will bump up, overall trend remains low historically)
• There are lots of insurers fighting for a shrinking market, and it only takes a couple cutting prices to force others to join in.Verdict – True. Although this is really directly related to another prediction about rates, so if one was true, the other almost certainly had to be. Then again, if one was false, I’d be 0 for 2…

7. More layoffs and staff reductions will hit insurers and TPAs
See #6 above.  Fewer premium dollars = fewer administrative dollars; fewer claims = less need for staff. Layoffs hit several insurers last year and we can expect more to come.

Verdict – False. There are anecdotal stories about a few reductions here and there, but nothing big except…Reports indicated AIG “transferred” employees  – apparently primarily claims staff – to Gallagher Bassett as part of its move to offload fixed costs.

Where I really went wrong was predicting TPAs would have layoffs…Since TPAs’ biggest growth is coming from carriers offloading work to them, and if carriers are laying off staff, then the work has to go somewhere – and that “somewhere” is to TPAs. So, that was an unforced error.

8. Other than presumption and tele-services, there will be very few significant moves in WC regulation or legislation.

Between drastic reductions in state revenues due to sales and other tax receipts affecting staffing and state legislatures and governors all-consumed by COVID responses and budgetary issues there’s little oxygen left to fuel any material changes to work comp regs. While it would be great to see Florida’s legislature stop facilities raiding workers comp to make up revenue shortfalls, that’s highly unlikely.

Verdict – True. And there wasn’t much in the way of presumption or tele-services changes…no, a few states addressing medical marijuana is NOT significant.

9. OneCall will be sold and/or broken up

While the current debt load is a LOT less than it was under the previous owners and the current CEO is an improvement, the decline in claims hit One Call hard in 2020.   The first half of 2021 won’t be any better with employment numbers and claims counts likely reduced due to the pandemic.  On the plus side, there’s still lots of investor money looking for deals.

Net – I expect the company to change hands this year. Whether it is sold as one entity or broken up is TBD.

Verdict – False. That said, it’s just a matter of time…the bleeding has mostly stopped, but growth is anemic at best, service levels remain suspect, and financials have gotten better in large part due to lots of expensive staff exiting the company

10. Opioids and other dangerous drugs will get a lot more attention.

With COVID dominating everyone’s calendar, workload, thinking and energy, we all dropped the ball on managing opioids. That will change.

chart below is from The Economist.

With prescription volumes, MEDs, and duration likely up during 2020, expect payers to re-engage with prescribers, PBMs, and employers to get things moving in the right direction.

Verdict – False.  NIOSH published a timely report on opioid issues among construction workers but other than that – very little material action.

This is REALLY disappointing. I get that COVID was a lot to handle, but the opioid crisis got even worse last year with a record number of opioid-associated deaths. That, and the fact that long-term usage of opioids is likely the most significant contributor to claim duration and long-term claim cost should have insurers, employers, and TPAs focused on addressing chronic opioid usage.

The net – overall 5 True, 4 False, and 1 pending.

Gotta do better than that.