The last session on Thursday focused on regulatory and legislative trends  – primarily focused on state issues.  There’s also a session on the impact of ACA on work comp; that’s something I’ve spent far too much time on – that and the fact that lead speaker Mark Walls just looks fabulous after his make-up session in the green room has me in the reg/leg session.

Mark did spend a bit of time on ACA, citing concerns and issues including that unicorn of workers’ comp; the oft-described but never adequately documented “Monday morning injuries”; that employers are increasing deductibles and copays as a result of ACA; that he doesn’t believe that people with insurance are healthier than those without; and that a lot of people still aren’t covered.

Much as I like Mark, I have to disagree with him on most of these issues.  For reasons why, see here, here, and here.

Mark also touched on issues as diverse as unionization among Division 1 athletes, medical marijuana, opt out, and the potential need to change the basis for premium calculation from payroll basis to risk class.

He made a pretty compelling case for consideration of the latter, noting that this would reflect the changing way many employees are compensated and not penalize companies for seeking to pay higher performers more – and differently.

Lori Lovgren and Ann Bok followed Mark with the top five issues in work comp.

One of the more interesting is their work in estimating the potential impact of regulatory or legislative changes on work comp premium rates.  They get these requests from a variety of stakeholders in many states; an example was their estimate that eliminating physician dispensing up charges in FL would reduce costs by about a percentage point.

Don’t expect to see much in the way of legislated change this year as it is an election year, and elected reps won’t want to upset constituents while they are campaigning. That said, the potential issues NCCI is seeing include:

• changes to reimbursement and fee schedules
• medical cost containment e.g. employee choice of physician
• benefit changes
• claims administration issues

Among the rate changes coming are several rather significant ones:

• Missouri – 11.6% increase
• Hawaii – 6.2% increase
• Virginia – 4.1% increase
• Oklahoma – 14.6% decrease
• West Virginia – 8.9% decrease
• SD, KY, ME, and IN – decreases around 8%

 

With long-time top actuary Dennis Mealy’s retirement, NCCI tabbed Kathy Antonello to fill his very big shoes.

On a personal and professional note, it is GREAT to see a woman in a historically-male profession in such a prominent role (says the father of two professional women).

The public introduction of Ms Antonello to the work comp industry is happening now with her presentation on the State of the Line, perhaps the most-anticipated report in the industry.  Here are a few of the highlights:

• Total P&C premiums for 2013 were up 4.6 percent.
• The P&C 2013 combined ratio was 96%, a decline of 12 points from 2011 and 10 from the 1985 – 2012 average.
• Work Comp premium was up 5.4% – $2.3 billion over 2012 and over $8 billion (almost a third) from the low point in 2010.
• Work comp’s operating gain shot up to 14 percent, a huge jump from last year’s 5.6% and far above 5.3 percent – the average over the last 23 years.

Ms Antonello got into a lot of detail about various components, ALAE, ULAE, various margin calculations, and premium drivers, and did so with humor and polish.  Among the key drivers employment is perhaps the most important.  I’ll leave the rest of the details to those who want to download the full presentation. (available at no charge, registration is free as well)

She also provided a view into some cool new data visualization tools NCCI has developed, tools that help explain trends over time and the impact of various factors.

So here’s the $64 billion question – is a soft market nearing?  Will some see these strong results as a reason to double-down on work comp, write as much business as possible in as many states as possible, and thereby start a decline in effective premium rates?

States such as California, Arizona, Colorado, New Jersey, Florida, and Connecticut – where premiums grew by double digits – may be especially attractive to new entrants and some current writers.  

Add to those factors the news that premium rates approved for 2014 increased less than a point, and a report from Goldman Sachs that work comp premium increases are moderating, and the likelihood of a softer market looks a little higher.

What does this mean for you?

The work comp industry has never been unable to enjoy success for very long.  Just as we are starting to see daylight, there are some potentially-troubling indications that the market may soften.

That’s the one-word synopsis of the state of the line from this year’s NCCI conference.

I’d be a bit more positive; especially because the combined ratio is down 7 points to 101.

Premiums up for the third year running, and claim frequency continues a long-term decline with another 2 point drop in 2013.  

NCCI indicates medical costs have grown at a rate of 3 percent.

Even investment income is still robust at 14 percent. The result – operating margins are improved as well.

With the latest news indicating employment growth is accelerating after a long winter, the issues identified by NCCI as problematic, namely lagging employment, the potential non-renewal of TRIA, and the potential impact of the PPACA look like pretty small potatoes compared to all the good news.

In his kick-off presentation, NCCI CEO Steve Klingel took pains to note the statistics are national, and individual carrier experience varies quite a bit due to their reserving practices, the states they write work comp, mix of business and other factors.

Klingel noted RAND’s just-released report on TRIA makes a strong case for renewal of the Terrorism Risk Insurance Act; he also opined that state-specific judicial determinations can and will have significant impact on work comp.

Mr Klingel also delved into issues surrounding Big Data, data security, and the impact thereof.

If you aren’t here, you’re one of the few.  The place is packed.

WSI, the North Dakota state work comp fund, is suing AON for an alleged failure to deliver a new claims system.

AON’s response included the statement “We look forward to telling our side of the story in court.”  This may seem innocuous at first read, but it isn’t; far from it.  WSI’s leaders are heading down what will likely be a very dangerous path.

The legal process will undoubtedly include substantial discovery efforts on the part of AON, efforts that will show WSI’s current senior management (with a couple exceptions) is in way over its head.  System change requests, poor oversight, and a lack of specificity on the part of management will be highlighted, publicized, and poured over.  Attempts will be made to place the blame squarely on the shoulders of former boss Sandy Blunt, but those attempts will show the process – which had just begun when Blunt was ousted – was moving along on schedule and on budget until he was terminated in a horrendous miscarriage of justice.

The suit will be very important to AON, as it will be highly visible to their customers, prospects, and competitors.  A loss, or even slightly unfavorable ruling, would damage the giant broker, while a well-documented win will show they did everything they could to deliver.

For AON, this isn’t be about the state fund in a tiny state, but about their reputation and brand.

Whether WSI’s decision to sue AON is due to a mis-guided attempt to save face, naiveté or political pressure is irrelevant; the outcome of the suit will further damage WSI.

I’m of two decidedly different minds on this.

I’ve come to know well and deeply respect Sandy Blunt, a true gentleman, workers’ comp expert and ultimate professional.  What current WSI CEO Bryan Klipfel and his cronies did to Sandy is a travesty, a character assassination that should make everyone’s blood boil.  For Klipfel and his buddies to be exposed for the incompetent fools that they are is, in some small way, payback for their sins.

Rest assured, AON’s discovery will make that all too obvious.

But.  That payback comes at a high cost.

WSI is responsible for workplace safety and claims for the vast majority of the state’s workers, and the agency’s continued downward spiral is a gross disservice to those workers, their employers, and North Dakota’s taxpayers, not to mention those WSI staffers who are really trying to do the right thing.

What does this mean for you?

Nothing good for NoDak’s employers and the many good folks at WSI.  And a well-deserved public humiliation for Klipfel and those who put him in the job.

(note – Klipfel was a state trooper who investigated Blunt, then got the job as WSI Executive Director)

With OneCall getting ever larger, KKR buying TPAs and tech companies, EXAM Works’ consolidation of the IME business all but complete, and the private equity world’s seemingly insatiable appetite for work comp services assets, the continued consolidation of the work comp services business seems to be inevitable.

Perhaps.  But there’s another side to this big-getting-bigger story; there is a new crop of innovators beginning to emerge, one led by “cast off” execs from the “consolidated”, former business owners whose non-competes have expired, and newbies with great energy and a desire to do it better.

Ascential Care Partners is a relatively new regional company in the not-glamorous case management business.  Founder Cindy Whitehouse is one of the most delightful people I’ve met in the business; her passion, dedication, and desire to deliver the best possible service is beyond impressive.

curavita focuses on providing DME and related services for complex and cat cases; those really difficult, knotty situations where integrating all aspects of care is absolutely critical as is communicating with adjusters, family, and caregivers. Strong in technology and reporting, curavita was founded by long-time industry entrepreneurs (and good friends) Hank and Lisa Datelle and Mike Marsau. (I have a tiny stake in the company).

HomeCareConnect has a slightly different business model; they are a supplier of broad DME, soft goods, and home health care services – and only those services – and have a strong clinical orientation. 

LifeTEAM Health is also narrowly focused; They do “disability prevention” based on identifying and addressing psychosocial risk factors  – perhaps THE key factor in long-term, seemingly-intractable disability.  With providers around the country, they can and do bring a much-needed service to an industry that has yet to fully appreciate the importance of psychosocial issues.

What’s the common thread here?  It’s hard to discern, but there is one.

Case management is old as the hills; integrated complex case services with real-time reporting is cutting-edige ; DME/HHC with a clinical orientation is a different take on a common issue; psychological services are woefully underused in work comp.

But all are narrowly-focused companies working on knotty problems using unique (if not immediately apparent) approaches.

What does this mean for you?

Innovators take advantage of niches and their mega-competitors’ focus on “other” issues to solve tough problems.  You may well find they can help with yours.

 

 

The work comp services market is consolidating – at a very rapid rate.  At this pace, pretty soon there will be relatively few entities providing a broad range of claims-related services.

And that scares insurers and employers.  A lot.

Work comp execs like to have control over their vendors; whenever possible they seek to have two (or more) vendors providing the same service, to “keep them on their toes.” Most execs (and desk-level folks too) want to dictate terms to their vendors, or if not “dictate” than at least “determine”.  That’s for two reasons; a) they’ve always been this way and aren’t likely to change; and b) a few years back Coventry work comp got very powerful and turned the tables on buyers.

A bit of history is helpful here.

Coventry Work Comp was built by combining the “old” OUCH network with Healthcare Compare, followed by an acquisition of Concentra’s WC services division, which had acquired NHR, which had acquired MetraComp, plus the acquisition of a few other bits and pieces.  Along the way, the company became the dominant work comp PPO.  A few years ago, it was the “must have” network for workers’ comp payers as it was the largest, had the best discounts, and had the most coverage in the most states. While other vendors may have had better networks in one or a couple of states, Coventry’s was the best (defined as largest number of providers and deepest discounts) and broadest.

Coventry’s management (since departed) used this market leader position very effectively.  They forced (yes, that’s the right term) payers to use their network – and other services – by raising their fees for payers who carved out specific states where another network was stronger.  In addition, they discounted other services (notably PBM) if the payer bought their network and bill review services.

This put payers in a tough position.  Try as they might to seek out the best-in-class network, PBM, or bill review offerings, insurers would have to pay a LOT more for Coventry’s network if they didn’t buy everything.

For Coventry’s erstwhile competitors, the playing field was anything but level.  If they built a great network in a state or two, one that far exceeded the depth, effectiveness, and discounts of Coventry, they’d often find the big buyers would tell them they’d won their business, only to learn a bit later that the deal had been undone and Coventry was going to keep it, having told the buyer that their fees were going to go up – often way up – if the state/s were awarded to the competitor.

Things got even more one-sided after Coventry bought Concentra’s work comp services business.

Coventry actually raised their prices, telling customers that the larger network delivered more value, and therefore a higher price was warranted.  Never mind that the larger network would deliver more revenue just by virtue of including more providers; Coventry management very successfully leveraged their all-but-monopolistic status to increase prices and beat out competitors.

According to several colleagues who worked with Coventry at the time (remember this was a few years ago), Coventry knew they had the leverage, weren’t afraid to use it, and was only too happy to let their customers know it.  Even more troubling, customer service and responsiveness got steadily worse.  Managed care execs used words like “arrogant”, “uncooperative”, and “dictatorial” when describing their interactions; many were very surprised, if not shocked, by the tone and tenor of discussions and negotiations.

Fast forward to today.

Coventry’s power has diminished markedly, the ancillary services are likely to be sold off soon, bill review is losing customers, and insurers and TPAs are only too happy to turn the tables as Coventry’s leverage has greatly diminished.  

Which brings us to the current state of the market; it is highly likely a very few vendors will hold leverage akin to that enjoyed by Coventry back in the late 2000’s.  Managed care execs at insurers, TPAs, and large employers are apprehensive/concerned that this may well mark a return to the “bad old days.”

Many of the private equity folks who are doing the consolidating don’t fully grasp this issue.  They say that their efforts will lead to lower costs, better service, improved outcomes, and are somewhat bewildered by payers’ concerns.  Make no mistake; that concern is real, it is pervasive, and it will definitely affect payers’ decisions about which vendors to use for what services.

What does this mean for you?

Insurers, TPAs, and large employers have been there, done that, and aren’t going back.