Workers’ comp medical costs are not increasing…

Even close followers of the industry would get the opposite impression; pretty much all industry “news”, marketing pitches, industry executive poll results and investor reports talk about rising medical costs or the fear thereof.

The best data out there indicates medical costs have been flat for at least five years – as in, no increase, inflation, or rise. According to NASI’s annual report on workers’ comp, total medical costs actually dropped – albeit marginally – from 2012 to 2017 (the most recent year available). (disclosure – I am a member of NASI, but am not involved in any of their research)

I’ll be the first to admit I was under the impression costs were going up every year – that’s what NCCI and others report, and based on their data and methodologies, that was generally accurate.

Here’s the issue with those metrics – most look at cost per lost time claim, or use actuarial projections to estimate fully-developed claim costs by accident year.

The cost per lost time claim is helpful, and according to most credible research costs are up slightly – on a per-claim basis.

Actuarial projections are much less so; over the last few years NCCI has consistently projected future costs would be higher than they turned out to be. That’s no slight on NCCI; actuarial methodologies and assumptions are based on historical results, and the impact of opioids is the proverbial black swan (one hopes).

This is a reminder that questioning one’s long-held beliefs on a regular basis is healthy, useful, and, yes, often humbling.

And that’s not to say costs aren’t increasing in places – facility costs in Florida and California and physical medicine are among the problem spots.

What does this mean for you?

We’ll dive into implications tomorrow. For now, check your business plan’s assumptions…

A recent piece in WorkCompCentral highlighted research that ostensibly said paying injured workers higher indemnity benefits results in longer disability duration and higher costs.

At least that’s what one might conclude from the headline – and the research report itself.

Except the research is preliminary (as noted in William Rabb’s article) , and actually reading Rabb’s WCC article – and the study itself – and doing a little Googling – reveals significant problems with the research.

To the researchers’ credit, they make it clear their conclusions are preliminary and “comments are welcome” but I fear many will read the headline, tweet it out, and use it as justification to reduce workers’ indemnity benefits.

Reality is, the study has multiple flaws, rendering the authors’ conclusion that:

“increasing the generosity of wage replacement benefits does not impact the number of claims but has a large impact on claimant behavior, leading to longer income benefit durations and increased medical spending.”

is baseless at best.

Among the multiple flaws in the study is the failure to account for other factors that may well have driven an increase in disability duration and medical expenses. The researchers based their analysis on workers’ compensation reforms in Texas and data from 2005 – 2009. The reforms, which increased disabled workers’ wage replacement levels, also affected many other parts of workers’ compensation regulations and benefits.

For example, medical reimbursement in 2008 spiked due to changes in the Texas WC medical fee schedule – which were largely driven by increases in Medicare’s fee schedule.

Then there’s the 2008 – 2009 recession, which significantly affected employment opportunities in the Lone Star State. I’d suggest that the recession affected employers’ desire and ability to return injured workers to jobs that no longer existed or where hours had been greatly reduced. It also limited re-employment opportunities for workers who no longer had jobs to return to.

2008 saw a steep decline in jobs towards the end of that year…

And the forecast for 2009 was even worse…

(for more discussion, here’s the Dallas Fed’s analysis. Evidently the authors didn’t read this, or if they did, did not reference it in their footnotes or references.)

What does this mean for you?

I’m no PhD economist – but I can do a Google search. And so can you – I’d encourage all to question “research” that makes bold assertions.

Especially when those assertions support one’s long held beliefs.

I asked WCRI President John Ruser PhD for the scoop on the upcoming WCRI annual conference…here’s the interview.

1. What is different this year (format, topics, approach)?

Same credible WCRI research, but different topics (e.g., How Injuries, Claims, and Outcomes Change with Age; Alternatives to Opioids for Pain Management; Readmission and Re-operation Rates among Workers’ Compensation Patients, etc.).

Same focus on the pressing issues of today, but different ones compared to 2019 (e.g. Generational Differences and Stereotypes in the Workplace; Economic Cycles and Their Impact on the Labor Market; Prioritizing Mental Health for Workers Injured on the Job, etc.).

2. What are the issues your members are most concerned about?

The issues on this year’s agenda (e.g., opioid alternatives, generational differences, the impact of the economy on the workers’ compensation system, and mental health) are issues that all of our diverse membership is concerned about and would benefit from learning more about, which is why the theme of our conference is Gaining Clarity Through Research.

3. There are some deeper dives into aspects of medical care delivery and outcomes (e.g. readmission rates), which appears to be a change from previous conferences, can you talk about that?

We are continuously looking to help all stakeholders understand the most significant issues in the workers’ compensation system today. Naturally, these are going to change from year-to-year based on what we are seeing; external actors and factors (i.e., business cycles, elections, etc.); new technologies; and new research, etc.

4. What are the work comp issues that are least understood and most impactful on employers that will be addressed by this year’s conference?

Although many of the topics our sessions delve into may not be new to employers, they will benefit from the independent research and expert perspectives that is the hallmark of our sessions and conference.

That said, one issue that we could all stand to better understand is our panel on prioritizing mental health, since serious workplace injuries can lead to anxiety, depression, and other mental health issues. Indeed, new research from Boston University (BU) Professor Les Boden found that an injury serious enough to result in at least a week off work almost tripled the risk of suicide among women, and increased the risk by 50 percent among men.

To help us better understand the challenges workers face to their mental health after a workplace injury, as well as to learn about initiatives to address those challenges, we have assembled a distinguished panel: Prof. Boden; President Steven Tolman of the Massachusetts AFL-CIO; Dr. Kenneth Larsen of the New England Baptist Hospital; and Mary Christiansen of Southern California Edison.

5. What has been the most significant change in the conference over the last five years?

We seek to continue to identify those topics that are of greatest interest to attendees.  An indication of our success is that our conference keeps growing, and based on registration today compared to last year, we are on course to do so again.

Those who attend value that this a research-based conference, that there are high-level networking opportunities, and that the conference is of appropriate length.

This combination brings a diverse and dedicated (senior-level) crowd of people who are interested in understanding the trends that are occurring in workers’ comp and learning actionable items they can use in their jobs.

I’d add that the Conference always sells out.  To make sure you’re not this guy, register here.

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Barring some catastrophic exogenic event (war with Iran, pandemic, sudden recession) – workers’ comp premiums will continue to shrink.

Meanwhile, despite compelling evidence work comp execs are worried about the opposite problem – that they won’t be able to raise rates high and fast enough if something bad happens. This at a time when industry profits have never been higher, insurers are awash with cash and all indicators point to continued low combined ratios.

Claim frequency continues to decline (yes there are increases here and there but these are NOT altering the decades-long trend). I penned a four-parter on frequency a while back that provides more detail.

The large and mid-sized payers I speak with are seeing declines in claim counts.

Medical costs are flat – and have been for several years.

Yet NCCI’s poll of workers’ comp execs finds these folks are worried about rate adequacy. (that means claims costs will go up faster than insurance premiums, leading to financial losses for insurers)

Wrong problem, folks.

The real issue facing C-Suiters is declining premium dollars – which means less money to pay for administrative expenses – which means fewer dollars to invest in:

• IT and new IT projects
• revamping claims systems
• electronic connections to providers, vendors, and other third parties
• adjuster training and retention
• innovation

I get that CEOs have to do worse-case scenario planning – but the chances of that worst-case (claim costs increase and rate increases can’t keep up) happening are minimal. Yet this “problem” is top-of-mind (according to NCCI) – so execs are:

investing in predictive analytics to help with pricing and dedicating more resources to actuarial research and analysis. Insurers are closely evaluating and monitoring risks for the purposes of acceptability, pricing and coverage.

There is compelling evidence that rates are too high now – and will remain too high for some time to come.  The cause is the steep drop in opioid usage among work comp patients, a drop that is slashing claim duration, increasing claim closures, and reducing reserves.

Opioid users’ claim costs are more than double non-opioid users. As usage plummets, rate decreases lag far behind. The result – today’s rates are based on what happened years ago – not what’s happening now.

Graph courtesy CWCI, p 19, The Impact of Declining Opioid Use on Lost-Time Claim Development & Outcomes in California Workers’ Compensation 

While the impact of rapidly decreasing opioid usage – and concomitant reduction in claims costs – is real indeed, rating models and methodologies haven’t caught up to this reality.

This is the problem execs should be devoting most of their time to – how will they manage their business with less revenue than they have today.

The time to fix the roof is when the sun is shining. Work comp execs would be well-advised to invest their record profits in ways that:

• improve efficiency,
• automate low-value tasks, and
• most importantly – assure effective medical care.

What does this mean for you?

You don’t want to be on a roof in a rainstorm.

More on this in a free webinar hosted by WorkCompCentral February 27. Register here.

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