Moody’s report on the impact of COVID19 on workers’ compensation says stuff I agree with, namely:

Premium dollars will drop.

Rates will drop.

Claim counts will drop.

It also says profits will be pressured and future earnings reduced, asserting presumption and issues related to furloughed workers’ claims “could lead to…rising costs for workers’ compensation insurers.”

Whoa there cowboy…not so fast.

Reality is insurers are still collecting billions in premiums while claim counts and claim expenses are way down – and the cost of COVID claims is minimal. Unless premium income drops dramatically and/or COVID claim costs explode, work comp insurers’ profits are going to increase – not drop.

Here’s why.

As reported in my second survey of the Impact of COVID19 on Workers’ Compensation, claim counts plummeted in the first half of 2020 – but premiums did not.

Respondents indicated workers suffering relatively minor injuries are not reporting them. This isn’t surprising, as a) past research shows this happens when employment declines, because b) workers fear reporting a claim may affect their employment.

Next, workers with existing claims can’t/won’t access needed care. Yes, this likely extends disability duration, but it also reduces medical expense. Eventually medical expense may catch up – or not as there’s evidence some foregone treatment is not “made up.”

So, fewer claims and lower costs = higher profits for insurers.

Next – premium income.

Unlike auto insurers, there are no reports of workers’ comp insurers giving back or rebating premiums. Businesses that have closed permanently aren’t paying premiums, but most are still afloat and paying their bills.

Second, there’s no indication insurers have ramped up premium audits – which would result in credits or refunds to employers due to lower payroll. Unless and until those audits are done, employers that slashed their labor costs won’t get a refund.

So, premium income is declining somewhat – but expenses have dropped more and faster. Net – higher profits for insurers today.

Moody’s also opines that low interest rates and lower reserves will “pressure profits.”

First, interest rates have dropped since COVID came to our shores, but not by much, so I don’t see that the impact will be significant.

Second, insurers are still way over-reserved – and since actuaries base future claims on past experience, and we don’t have any past experience with pandemics, I find it hard to believe insurers will decide to slash reserves.

Third – and perhaps most important, medical inflation – or, more accurately, there isn’t medical inflation – which wasn’t addressed in Moody’s analysis. There is no evidence of significant medical cost inflation in workers’ comp. Yes, facility costs are problematic in some states, especially Florida.  This has been countered by a dramatic drop in drug costs, driven in large part by much lower opioid dispensing.

The net – medical inflation is in the low single digits – likely lower than most actuarial forecasts.

So, while there may be a little pressure on future profits, it won’t amount to much.

Finally, COVID and presumption.

The industry’s reaction to presumption law changes is reminiscent of the caterwauling over medical marijuana – lots of noise about not much. Reality is:

1. Few COVID claims incur medical expenses.
2. COVID claims aren’t expensive – on average COVID claims with medical expenses cost less than the typical lost time claim
3. The impact of presumption changes has been minimal.

What does this mean for you?

Workers’ comp insurer profits aren’t likely to drop much – until a price war starts.

When (not if, but when) insurers start the inevitable war over market share, profits are going to drop – a lot.

Lastly, it does the industry no credit to continue keeping premiums high when employers and governments are getting crushed. It is time for insurers to stop the “yeah, but what if…” nonsense and do the right thing. 

COVID19 is morphing, affecting different regions differently, infecting a different age cohort, and perhaps mutating.

What should workers’ comp service providers do?

1.  Pay attention to the facts.
   Not the politicized nonsense from people who should know better, but the facts. Where is COVID19 spreading, what populations are being affected, what mitigation measures are and are not working.
2. Pay attention to experts’ predictions – not politicians.
   Epidemiologists, Anthony Fauci, objective data scientists, and credible sites e.g.  COVID Forecast Hub. This last is particularly helpful as you can see predictions for infection rates and deaths based on aggregating carefully evaluated models.
3. Understand that COVID’s impact will vary greatly by state, and even within individual states. For example, infection rates are exploding in many southeastern and southern states, while they’ve leveled off and are declining in most northeastern states.
   Death rates trail infection rates by 2-4 weeks; the COVID Forecast Hub’s excellent and fully transparent model will help you project what the next few weeks will bring in each state. (click on specific states for their data)
   
   For predictions of infection rates, go here to select individual states. The graph below compares New York and Texas…

   

   That’s great – and what do I do with it?

A few thoughts.

Compare different states to determine where your clients are going to need resources, help, staff – and what kinds. For states on the downslope (NY for an example), plan to reduce staffing while prepping those staff for work in states where infection rates are on the rise (e.g. TX).

Have your compliance staff research and prepare information for clients and your product development people. This a) helps your branding, and b) ensures your staff are working within state regulations.

Using infection predictions, track presumption laws and changes thereto, share that information with your clients, and develop services specific to each state.

Using death rate predictions as a proxy for severity and potential facility overload, devise ways to help find facilities for patients, perhaps even out of state. Contract with transportation entities to move patients when required.

I’m quite sure your front-line staff have a lot more and a lot better ideas than these; ask them for their thoughts on what they would have done differently

Finally, the elephant in the room. In what can only be described as a self-inflicted tragedy, idiots have politicized COVID19 and in so doing done incalculable harm.

COVID doesn’t care about your political ideology or party affiliation. Managing a business requires allegiance to facts based on data and decisions based on logic.

What does this mean for you?

Your competitors hope you listen to idiots.

If you really want to know what COVID is doing to workers’ comp, you have to hear from those on the front lines.

35 workers’ comp insurers, TPAs, state funds, self-administered employers, and service companies gave me their views on the impact of COVID19 and employment on their businesses, claims counts, costs – and how they are adapting to a very different climate.Quick takeaways:

• COVID claim costs are pretty low, with just a handful of claims exceeding a few hundred thousand dollars.
• Shutdowns/Lockdowns = drop in payroll + business closures -> premium decreases, delayed RTW 
• Respondents see total claim counts dropping 20% for 2020
• Tele-everything is growing rapidly, but still has a long way to go
• Many filed claims are not accepted because:
  • patient does not have a positive COVID test
  • patient is asymptomatic
  • Employers tend to give workers exposed to COVID19 two weeks of paid leave; they become WC claims if/when medical care is needed to treat COVID
• Presumption is a concern, but less so than it was a couple months ago

Winners and losers

Service companies with the following attributes are generally doing much better than their counterparts:

• no or low debt service cost and
• on-shored business functions that
• provide services typically used later in the claim’s life e.g. pharmacy.

Here are more details – and your free copy of the summary report is here.

A comprehensive version of the report including respondents’ detailed statements (respondents are not identified) and the accompanying raw data is available for purchase; contact jpadudaAThealthstrategyassocDOTcom. (substitute symbols for capitalized letters)

What does this mean for you?

For workers’ comp, the economic fallout from COVID is far more significant than COVID itself.

Finishing up the second survey report on the impact of COVID19 on workers’ comp and one takeaway has me shaking my head.

There’s a lot more fear and trepidation about presumption than I think is warranted. Across the 24 payers surveyed (including very large TPAs, insurers, state funds, and employers) there were less than 7,000 COVID claims accepted to date. Yes, several have considerable business in California, Kentucky, and Illinois and more than a few have a lot of health care and public entity clients.

Relatively few of those 7,000 claims are expensive, perhaps less than 5%. And even then they aren’t nearly as costly as real cats with expenses above $1,000,000. And this in an industry that is wildly over-reserved, like $10 billion over-reserved

There’s some – but significantly less concern over plummeting premiums driven by business closures and dramatic declines in payroll. That should be a lot scarier; we are talking billions of dollars of premiums lost, and the potential that figure premiums will not return to pre-COVID levels for a long time – if ever.

This will get worse as governmental entities are forced to layoff workers when sales tax revenues aren’t sufficient to cover payroll.

This is like worrying that your cable bill is going up when your salary’s been cut 30% and your hours reduced.

What does this mean for you?

Focus on the dollars, the pennies are just pennies.