Archive for the ‘Insurance & Insurers’ Category

Highlights: Fall NCCI Issues Report

Wednesday, November 2nd, 2016

“NCCI just released its Workers Compensation 2016 Issues Report: Fall Edition. It’s a robust 68-page edition, an important barometer of industry results and trends that we think should be on everyone’s reading list. In addition to updated State of the Line results for the workers compensation for 2014 and 2015 and preliminary estimates for Calendar Year 2016, this edition includes articles and reports on a number of key issues. It’s available in both PDF and virtual flipbook style. It’s also available via individual article, which gives an overview of the contents.

We haven’t fully digested the whole report, but we point you to a few highlights and excerpts that caught our eye.

Workers Compensation Financial Results Update (PDF)
Some key findings:

  • “NCCI’s current estimate for 2016 net written premium is $41.2 billion, a new high-water mark for the workers compensation line. This represents a 3.8% growth over the 2015 premium level.”
  • “The 2015 net combined ratio for workers compensation of 94% marked the fourth consecutive year of improvement. NCCI’s preliminary estimate is that the combined ratio will hold steady at 94% in 2016. This represents three consecutive years of underwriting gains for an industry that has posted combined ratios of less than 100% in only two other years since 1990. The estimate for 2016 is based on private carrier direct calendar year incurred losses, direct earned premium, and historical net-to-direct ratios.”

Investigating the Drivers of the 2015 Workers Compensation Medical Severity Decline (PDF)

  • “NCCI reported at its 2016 Annual Issues Symposium that workers compensation lost-time medical severity decreased by an estimated 1% in Accident Year (AY) 2015. This marks the first time in more than two decades that medical severity has declined.”
  • “A 3% decline in paid costs per claim for physician services accounts for most of the medical severity decline in AY 2015—a 3% decline in utilization of physician services is a major driver.”

Workers Compensation and Prescription Drugs 2016 Update (PDF)

  • “NCCI estimates that for every $100 paid for medical services provided to workers injured in 2014, $17 will be paid for prescription drugs.  Furthermore, the prescription drugs portion of medical costs increases rapidly as claims age. For every $100 of medical services paid on claims older than 10 years, approximately $45 to $50 will be for prescription drugs.”

2016 Legislative and Regulatory Outlook

  • “While more than 700 bills addressing workers compensation issues were introduced, only about 10% of these measures were enacted and none of the enacted laws made significant system changes. It is of note that legislatures in MT, ND, NV, and TX do not convene in even numbered years.”
  • “Going into these elections, Republicans hold their strongest state presence ever, with a majority in roughly 70% of state legislative chambers and full legislative dominance (holding the majority in both chambers) in 30 states. In addition, a Republican occupies the governor’s mansion in 31 states, 23 of which have a Republican sweep—the party holds sway in both chambers of the legislature and the governor’s office. There are only seven states where Democrats hold that coveted trifecta.
    Come November 8, however, those numbers are likely to change.”

Impacts of the Affordable Care Act on Workers Compensation
Key Findings

  • “The ACA has had no discernible impact in crowding out workers compensation claimants from access to primary care services through 2014, the first full year of expanded medical insurance coverage under the ACA.”
  • “68% of primary care services provided during the first 90 days of a workers compensation claim occur during the claim’s first 10 days.”

These excerpts are just a peek under the covers – many other worthwhile articles are also available,  such as an analysis of the OK Opt-out decision, an update on marijuana legalization, and more.

 

 

Dave DePaolo: on the passing of a work comp giant and a fine human being

Tuesday, July 19th, 2016

It is with great shock and deep sadness that we learned of the untimely passing of Dave DePaolo. We send our most sincere condolences to his family and his colleagues.

Dave has been one of the most important voices in our industry and an online workers comp pioneer. He was founder and president of workcompcentral, one of the early online specialty media communities dedicated to news, education and data content to the workers’ compensation industry. He also maintained his own blog, DePaolo’s World, a regular stop for us here at Workers Comp Insider. We’ve relied on and linked to his keen insight here many times.

As an attorney, he had a sharp mind and a deep expertise in the many nuances of the workers compensation system. He was an educator to us all; passionate about the rights and wrongs of the system, and giving voice to the injured worker at the heart of the system. A remarkable man, his influence and voice will be missed. You can learn more about him at his workcompcentral biography. His posted obituary notice is here: DePaolo, WorkCompCentralCentral Founder, Dead at 56. In less than one day, it has amassing 4,500+ views and dozens of comments, well worth reading to get a sense of the impact he had on our community.

Here are two tributes from bloggers that we found moving because both go beyond the basic facts of his life and give a window into the man.

Life is short. Live it like David did. This blog post by Joe Paduda focuses on the way Dave lived his life to the fullest, including some personal details of his life that many of his regular readers may have been unaware.

Godspeed David DePaolo; You Were What Was Right in Workers’ Comp, and Your Voice Will Be Missed
This a warm and heartfelt tribute by Bob Wilson at his blog. Here’s an excerpt:

Exemplifying David’s passion towards our industry, one needs look no further than the CompLaude Awards. CompLaude is an annual effort created by DePaolo to recognize top achievers in our industry. It recognizes people from all sectors of comp, including injured workers; people who have achieved beyond the expected results normally seen in the realm of workplace injuries. David felt strongly that the workers’ compensation industry needs to highlight the good things we accomplish, and fight the persistent negative image cast upon us by external forces and bad players within the industry. He was right to insist on that – and David DePaolo was one of the good things workers’ comp needs to celebrate.

David was unique among industry bloggers because he wrote with a special human interest; he invited us into his home and shared his family with us, all while gearing the overall message to one applicable in workers’ comp. We became acquainted with his parents, following the lives of both his father and mother, through the aging process and related ailments to their ultimate passing. We celebrated their love and suffered his loss, all because David willingly invited us in and made us feel at home.

We’ve just seen the passing of WCRIBMA’s Paul Meagher here in Massachusetts, recently, too. Very sad time for our industry.  Take Joe Paduda’s advice as modeled by Dave: Live your life fully.

It’s A Colorado Rocky Mountain Low

Monday, May 23rd, 2016

Since 2003, when Julie Ferguson and I created Workers’ Comp Insider, we’ve tried to keep bias off the keyboard. Careful objectivity is “a consummation devoutly to be wished.”

For reasons you’ll understand as you read, I want to assure readers that in this post we try to hold to that rule.

Last week, we wrote of actual and metaphorical earthquakes shaking Oklahoma to its core. Today, we write of another metaphorical earthquake, but now it’s Colorado’s turn. It’s a story about a three-car crash involving some well-meaning, but perhaps shortsighted, Coloradans, the state’s leading workers’ compensation insurer and Bernie Sanders. Yup. That guy.

Colorado is a lovely state with wonderful people who just happen to be the fittest in America. Although the obesity rate is 21.3%, it’s the lowest in the nation. Blue sky, clean air, great outdoors, what’s not to love?

In Colorado, the well-meaning, but perhaps shortsighted, people have succeeded in getting on the November ballot Amendment 69 to the Colorado constitution. Amendment 69 creates ColoradoCare, which is universal health care for all Colorado residents, illegal aliens included. Nice idea, you probably think. Good for them, eh?

I wish it were that simple.

The known and unknown unintended consequences of Amendment 69, as well as the profound way it impacts and is impacted by a host of other programs, regulations and laws, both federal and state, are overwhelmingly mind-numbing.

But don’t take my word for it. If you’re up for it, read this cogent, well-written, 38-page, highly detailed legal analysis of Amendment 69 by Gerald Niederman and Jennifer Evans, Attorneys with the Polsinelli law firm. The pair were commissioned by the Colorado Health Foundation to dig deep into the crease of what enacting ColoradoCare will mean for the state, and a lot of it will make your eyes roll. Here’s an image. Imagine for a moment a great big camel. Now imagine two or three hundred of Colorado’s fittest trying to push the south-bound end of the north-bound camel through the very small eye of a teeny-tiny needle and you’ll get the point.

Which brings us to the state’s leading workers’ compensation insurer, Pinnacol Assurance, because one of ColoradoCare’s  provisions (discussed on page 34 of the Niederman Evans analysis) is to take over medical care for all work injuries, medical care that since 1915 has been provided through Colorado’s workers’ compensation statute. As you might imagine, this does not sit well with Pinnacol. Pinnacol has many reasons for not being a fan of Amendment 69, all of which are spelled out in Amendment 69 Would Demolish Colorado’s Stable Workers’ Comp System, by Edie Sohn, Pinnacol’s Vice President of Communication and Public Affairs.

At this point, enter, stage left, Senator Bernie Sanders.

As we all know, Senator Sanders’s proposals are highly idealistic. And his supporters are certainly, shall we say, rather exuberant. Regardless, I doubt if either the Senator or those supporters have ever seen Amendment 69. Still, that didn’t stop him from opining the following:

“Colorado could lead the nation in moving toward a system to ensure better health care for more people at less cost,” Senator Sanders said in a statement to The Colorado Independent.”

Say what? “Less cost?” Hmmm. Even proponents of ColoradoCare say it will cost $25 billion, will double the size of the state budget, will be paid by a 10% tax increase on employers and employees and will make Colorado the highest tax state in the nation.

And what will it do to workers’ compensation? Here’s how Pinnacol’s Edie Sohn describes what she considers to be the coming catastrophe:

Why is Pinnacol concerned about changing the health care system? Under current law, workers’ comp insurance covers the health care needs of injured workers and replaces their lost wages for as long as they are out of work. But ColoradoCare would bring the medical payments of workers’ comp under its umbrella.

The proponents of the amendment say that doing so will save Colorado businesses money because their work comp premiums will go down. Of course, those costs aren’t going away, they’re simply being shifted to the health care system. And any workers’ comp savings will be eroded quickly by lower worker productivity and increased indemnity costs. That’s because ColoradoCare won’t have mechanisms in place to do all the things Pinnacol does: work with employers to keep workers safe and minimize the potential for injury, and work with doctors to help injured workers get back to work in a timely and safe way.

Even allowing for a bit of rhetorical spin, Ms. Sohn makes a compelling case, especially in the area of return to work.

For a somewhat contrarian and intelligent view, you may want to read this blog post from the highly-respected Charles Gaba: COLORADO: OK, Single Payer Fans: Here’s your chance to make it happen. Mr. Gaba points out that he is a “fan” of the single payer concept, but does not believe it has the support to happen on a national scale for quite some time. Rather, he thinks the way to achieve it is through individual states, and, although not endorsing ColoradoCare, he thinks, “It’s more realistic and far better thought out than Bernie’s national plan is.”

One thing on which we can all agree is this: November 2016’s election day will be interesting, indeed. I can only hope it is also peaceful and shows off American democracy in its very best light.

 

 

 

Misunderstanding the business of workers comp

Wednesday, November 18th, 2015

Anyone who is familiar with Joe Paduda’s blog know that he is pretty forthright and frank in putting forth his opinion, apologies to no one. His strong point of view combined with his deep expertise on the medical side of comp makes Managed Care Matters a compelling read and one of our most frequent blog stops.

So when we find an article by Joe that starts off with an alert that what he is about to say runs the risk of alienating most people in the workers comp world, well, we take notice. Nothing we like better than a good workers comp controversy.

The article: What Is the Business of Workers’ Comp? posted at Insurance Thought Leadership.

The controversy:

“Most workers’ comp executives – C-suite residents included – do not understand the business they are in. They think they are in the insurance business – and they are not. They are in the medical and disability management business, with medical listed first in order of priority.”

We agree with Joe and we fail to see the controversy! We’re a little disappointed because we envisioned a work comp mud wrestle but he lays out a clear case that’s pretty hard to dispute.

Joe points to a graveyard littered with household-name healthcare insurers of yesteryear who mistook their core deliverable and he makes the parallel with property casualty work comp insurers of today.

For us “olds,” we started in an industry where indemnity or wage replacement was about 60 percent of the claims dollar. In recent decades, that has upended and the medical costs dominate most claims. But even in that seemingly simpler time, you could make the case that the industry focus was misdirected. And if the insurance CEOs have a misunderstanding about their core deliverable, perhaps it is partly because they have been aided and abetted by employers, who have all too often misunderstood what they are buying.

Lynch Ryan came into being because what was essentially an unmanaged human issue was largely being handled as a financial transaction: people were getting hurt at work and there was no consistent, effective process to get them well and get them back to work. Those were the bad old days before “return to work” had entered the industry lexicon in any meaningful way. Employers were essentially outsourcing their core responsibilities to insurers and washing their hands of the process. Today, thankfully, most employers are much more enlightened about workers comp and the hand-on role they must play.

But all too often, buyers are still shopping for the cheapest work comp “solution” and the biggest network discount, sacrificing the immediate micro gain for the big picture.

Joe raises some good challenges and we think they are good ones for the buyer every bit as much as for the seller:

“Then why is the industry focused almost entirely on buying medical care through huge discount-based networks populated by every doc capable of fogging a mirror (and some who can’t)? Even with those huge networks, why is network penetration barely above 60% nationally? Why has adoption of outcome-based networks been a dismal failure? Why do so few workers’ comp payers employ expert medical directors, and, among those who do, why don’t those payers give those medical directors real authority? Why do non-medical people approve drugs, hospitalizations, surgeries, often overriding medical experts who know more and better?”

 

New York Self Insurance: Chicken Stew

Tuesday, May 28th, 2013

The folks at Murray Bresky Consultants are just trying to scratch out a living by raising chickens – not just any chickens, but free range chickens that are “happy and healthy.” Their signature breed is “fed an all-natural and all-vegetable diet that, combined with plenty of exercise, makes our birds the leanest on the market. The leisurely lifestyle eliminates the need for antibiotics to prevent diseases commonly found in chickens as a result of stress and confined living conditions. Minimally processed, without the use of preservatives or other artificial ingredients, Murray’s Certified Humane Chicken is truly all chicken.”
Unfortunately for the company, they secured workers comp insurance through New York Compensation Managers (NYCM), the now defunct operator of a dozen self-insurance groups in New York. NYCM claimed to offer favorable rates, strict underwriting standards and exemplary claims services. They ended up with egg on their face with their inadequate rates, suspect underwriting and rampant under-reserving of claims. In retrospect, the operation ran around like a chicken with its head cut off. By the time the problems emerged (in 2006), it was too late to shake a feather and correct the problems.
Following the SIG’s failure, Murray Bresky Associates was hit with a $1.2 million assessment to make up their share of the SIG’s deficit. That ain’t chicken feed.
A Game of Chicken
Murray Bresky is not chickening out of a fight. Indeed, the chickens have come home to roost in the form of a lawsuit filed against NYCM and its board of trustees. The lawsuit seeks to recover the $1.2 million and then some, alleging breach of contract and breach of fiduciary duty. The case worked its way up to the NY Supreme Court, Appellate Division, where the motion by the defendents to dismiss the lawsuit was, for the most part, dismissed.
Now the defendents are walking on egg shells, facing the prospect of personal liability for the failures of the SIG. Where they once feathered their nests with the proceeds of the operation, their financial security has flown the coop. This is a legal mess perhaps best described by the late Lyndon Baines Johnson: “Boys, I may not know much, but I know chicken poop from chicken salad.”
Roles and Irresponsibilities
One of the former trustees of the SIG is squawking that he was not aware that he was, in fact, a trustee. He may have signed off on a few trustee documents, he may have performed some of the functions of a trustee, but he insists that he had no memory of being appointed. He insisted that he was not a bad egg and claimed that he had no place in the pecking order. The court, however, ruled otherwise.
As the saying goes, you have to break eggs to make an omelette. Quite a few more eggs will be broken before this particular concoction is served up. Hard-boiled attorneys will parse the details to figure out who, if anyone, owes Murray Bresky Consultants and exactly how much they owe.
Pecking Orders
The courts now rule the roost. They have upheld Murray Bresky’s right to sue, with the exception of some actions that are time-barred. There may well be a sunny side up in the chicken company’s quest for justice. We look forward to the final resolution of this stew, the chicken scratch of a judge’s signature that will put a final number on the liability of an insurance operation that flaps my wattles (ie., annoys me).
Here’s a little unsolicited advice to Murray Bresky Consultants: don’t count your chickens before they hatch. This one has a long way to go before the company can feather its nest with the proceeds of a complex litigation. In the meantime, their free range chickens have the run of the coop, enjoying their cage-free, stress-free lives right up to the very end. Bon appetite!

Workers Compensation Looking Up?

Monday, May 20th, 2013

Dennis Mealy, chief actuary for NCCI, has issued his state of the line report on workers compensation. There’s a lot of good news for insurers, along with a few little red flags that might well morph into big banners of bad news. Mealy’s presentation will soon be available as a webinar at the NCCI site, but for the moment, let’s glean the essence from his Powerpoint presentation.
There’s a lot of positive news (with apologies to those who are not up to speed in insurance jargon). Premium is up by $3.3B, about 9 percent in all. The all-important combined ratio has dropped from 115 to 109 (projected). Given suppressed interest rates, 109 is still high, but it puts profitability within reach. The calendar year loss ratio has dropped from the unacceptable – 70.8 percent – to 66 percent. Pre-tax operational gains are plus 5 percent.
There is (mostly) good news in the loss area: frequency of lost-time claims is down an average of five per cent across all sectors. Indemnity claim costs are up just slightly, as are severity costs. Even in assigned risk pools – insurers of last resort – results have improved, with combined ratios down to 112 percent, compared to 117 in the two prior years.
At the same time – and directly related to the improving results – discounting of premiums has diminished from -7.6 percent to a projected level of -4.5 percent. [Perhaps even the sceptical rate setters in Massachusetts will begin to see the relationship between (slightly) higher rates and a healthy market. If they continue their intransigence on rate increases, the Massachusetts miracle will soon collapse in a heap.]
Who Pays?
In all success stories – however modest – there are winners and losers. In workers comp, the winners are employers with low losses; the losers tend to be those with relatively high losses. NCCI has upped the ante by changing the way experience mods are calculated.
Beginning in January and rolling throughout this year, NCCI is implementing a new mod calculation, raising the split point of primary losses from $5,000 to $10,000. (See Tom Lynch’s detailed explanation beginning here.) For many experience rated risks, the change has been positive. Despite paying slightly higher rates in many states, the cost of insurance has remained stable or even dropped. Here is NCCI’s summary of the new rating plan impact:

– 12 percent of risks see premiums decreasing by 5 to 15 percent
– 76 percent see plus or minus changes within 5 percent
– 11.3 percent see increases in the 5 to 15 percent range
– less than 1 percent see increases above 15 percent (these are the folks who have been calling…)

The Big (Cloudy?) Picture
Mealy’s presentation offers a good news/bad news overview of workers comp. On the plus side, we have seen a slight increase in premiums, a reduction in frequency, stable severity and a good capital position for the industry in general.
On the negative side, the slow pace of economic recovery is troubling, as is the structural unemployment that threatens the livelihoods of aging, middle class workers. Underwriting is confronted with unprecedented instability in predicting risk: today’s low loss company might well be tomorrow’s catastrophe. Low interest rates impede profitability. Alternative markets – the new opt-out law in Oklahoma being a prime example – threaten to drain good risks from the market and leave higher risks in conventional coverage. Finally, it is too soon to know the impact of health care reform, though in the long run, it seems likely that virtually universal health care should reduce cost-shifting into workers comp.
Perhaps we should add the impact of global warming to the negative side. As storms increase in magnitude, the risks to those who are working when storms hit also increase exponentially.
As the Chinese curse would have it, we live in “interesting times.” For the moment, from the rather narrow perspective of the workers compensation market, things look cautiously and incrementally better. But as they say in New England, if you don’t like the weather, just wait a minute. It was clear and warm a few moments ago. Suddenly, the wind picks up, the wind chills and the rain comes pouring down. Like a harried underwriter, we struggle to find shelter in the unexpected storm.

Annals of Claims Management: Full Catastrophe Denial

Tuesday, May 7th, 2013

In the Insider’s decade of exploring workers comp, we have encountered many unusual instances of compensability, legitimate claim denials and outright fraud. But rarely have we found cases where a claims administrator, in this case, a TPA, simply refuses to pay for medically necessary treatment. The saga of the late Charles Romano reminds us that the great bargain of workers comp is not just between employers and their workers; it includes the good faith effort of claims adjusters to carry out the letter – and spirit – of the law.
Charles Romano worked as a stocker for Ralph’s Grocery Company, a California-based operation that is part of the Kroger chain. It is worth noting from the outset that Kroger is self-insured for comp, with Sedgwick serving as the TPA. As a stocker, Romano presumably did a lot of lifting and reaching. He suffered a work related injury involving his shoulder and back in August of 2003.
A Solution Worse than the Problem
After conservative treatment failed to resolve the problem, he underwent surgery in December 2003. What had seemed like a relatively simple solution to a shoulder problem quickly descended into a grave, life-threatening situation: Romano contracted a MRSA infection following the surgery, which led directly to total paralysis. He suffered renal failure and several heart attacks, which were related to the MRSA infection. After enduring inadequate medical treatment directly related to the TPA’s denial of treatment, Romano died in May 2008.
Nearly three years after the initial surgery, a workers comp administrative law judge (WCJ) ordered that the TPA pay for all the medical expenses related to the infection. Without consulting with medical professionals, the TPA unilaterally refused all payments – totalling, by this time, hundreds of thousands of dollars. The TPA appealed the adverse ruling.
In February 2012, a workers comp administrative law judge imposed penalties for delay of treatment in eleven specific instances, finding that the TPA “failed in its statutory duty to provide medical care, egregious behavior which increased the suffering of a horrifically ill individual.” He imposed the maximum $10,000 fine for each denial of treatment.
Unappealing Appeal
The TPA appealed the penalties for delayed treatment. In what surely qualifies as a new definition of chutzpah, the TPA contended that penalties were not appropriate, among other reasons, because the claimant had died. Well, duh, the routine denial of treatment throughout the course of the illness was a significant factor in the death. Romano simply did not receive medically necessary treatments to address his formidable medical conditions.
NOTE: The penalties, even when maxed out at $10,000 per incident, is dwarfed by the suffering inflicted upon Romano.
The Workers Comp Appeals Board upheld the penalties [For a link to a PDF of the lengthy ruling, Google “Charles Romano Trust vs. Kroger Company]:

The WCJ’s Report makes it clear that he imposed the harshest penalties possible under section 5814 because of defendant’s extensive history of delay in the provision of medical treatment; the effects of those delays on a paralyzed, catastrophically ill employee; the lengths of the various delays; and defendant’s repeated failure to act when the delays were brought to its attention.

Lest the ruling be considered in any respect ambiguous, the court went on to say: “We have rarely encountered a case in which a defendant has exhibited such blithe disregard for its legal and ethical obligation to provide medical care to a critically injured worker.”
Risk Transfer, Risk Retention
It is tempting to conclude that the TPA’s actions were related to their customer’s risk assumption – otherwise known as self insurance. It is one thing to purchase insurance (risk transfer) and have the insurance company assume liability for a catastrophic loss. It is quite another for a self-insured company to absorb a loss of this magnitude on its own. (Presumably Kroger had some form of stop loss in place.) Despite the multiple findings of compensability, despite the judicial determination that the horrendous MRSA infection was indeed work related, the TPA persisted in denying treatments and rejecting payments, long after Romano’s untimely death.
As Mark Twain famously noted, “denial is not just a river in Egypt.” It’s also a poor strategy for managing claims. In his last years, the unfortunate Charles Romano certainly had to confront health issues beyond anyone’s worst nightmare; denial for him was not an option. For reasons that remain unclear, when it came to paying for Romano’s extensive and expensive care, the TPA chose a path of full catastrophe denial .
In the findings of the court, this denial was in itself an unmitigated disaster for the acutely vulnerable Romano, accelerating his precipitous decline and death. In the interests of saving their client some serious bucks, the TPA dug in its heels and refused to accept the compensability of a claim that had been adjudicated as compensable. In doing so, they violated the spirit and letter of the workers comp contract and earned themselves, in this particular instance at least, a place on the Insider’s Management Wall of Shame.

Policy Wonks, Lend Me Your Ears!

Thursday, February 7th, 2013

The Insider is very much looking forward to the Workers Compensation Research Institute (WCRI) annual conference, taking place on February 27-28 in the virtual epicenter of wonkiness, Cambridge MA. There is always much food for thought in these annual gatherings of insurance execs, state officials, policy makers, attorneys, medical specialists, employers and safety/loss control practitioners.
This year’s agenda has zeroed in on the fundamental medicine-related conundrums facing workers comp systems across the country. All of us in workers comp long for insights into the following:
Unnecessary medical care and its impact on treatment guidelines. (Back surgery, anyone?)
Medical price regulation: what are the essential elements of an effective fee schedule? (Beware of the state where the doctors love comp…did someone mention “Connecticut”?)
The Opioid epidemic: treatment protocols involving the generous and prolonged distribution of opioids are destroying lives across the country. Why are so many doctors so clueless about the proper use of pain killers? Whatever happened to “do no harm”?
WCRI’s head honcho, Dr. Richard Victor, will host a discussion on health care policy involving (the presumably liberal) Howard Dean and (the assuredly conservative) Greg Judd. The dialogue might not equal the fireworks of July 4th on the Esplanade, but it might come close. The Insider will be listening closely for any indications of that rarest of phenomena: a common ground.
From Gorilla to ?
Last year, Dr. Victor concluded the conference with a discussion of the “gorilla in the room”: the enormous and perhaps insoluble problem of structural unemployment among the 20 million people who lost jobs in the recent recession. For many of these people, especially those in their 50s and 60s, there is little prospect of returning to jobs with anywhere near the same rate of pay as before. Many will find themselves lost in the new economy, cobbling together part-time employment without benefits, while struggling to hold onto housing where mortgages exceed the value of the home. Tough times and, so far, not much in the way of effective solutions.
This year Dr. Victor will have to find some other animal analogy to glean lessons from history: Giraffe in the closet? Rhino in the den? He tells us that the lesson might have something to do with the first century Ephesians, toward whom St. Paul addressed some rather famous snail mail. While some might find such a teaser a bit obscure and full of religious overtones, the Insider looks forward to the story. Indeed, we look forward to this year’s entire conference with great anticipation. There are few things better for policy wonks – our people! – than listening to the latest research from WCRI. Diligent note-taking will be in order.
If you count yourself among those with wonkish tendencies and you haven’t signed up yet, you’d best jump on it immediately. If you have any questions about the conference, contact Andrew Kenneally at WCRI: 617-661-9274.

Understanding “Expected Losses”

Thursday, January 10th, 2013

This is Part 5 in 5 part series on Experience Rating changes. See Part 1: The Experience Rating Process: Significant Changes Are Imminent; Part 2 A Basic Review of Claim Losses, the Building Blocks of Experience Rating; Part 3 Primary and Excess Losses: Big Changes Beginning in 2013, and Part 4 Dealing with Reserves: When Do Losses Really Count?
We finish this series of blog posts with a brief discussion of “Expected Losses” and “Expected Loss Rates.”
The entire experience rating process is driven by “expected losses,” the total losses insurance actuaries expect you to suffer. But what exactly are “expected losses” and where do they come from?
Expected losses are contained in the premium rates you pay for each classification of worker. Expected primary loss rates and expected excess loss rates (called the “D ratio”) are a percentage of the total rate.
For example:
Class rate – $5.00
Expected losses – about 50% of the rate – $2.50
Expected primary losses about 20% of total losses – $0.50
These percentages do vary somewhat, but will be close to the above estimates.
Thus, the calculation for expected losses for $500,000 in payroll for the above class would be:
Manual premium = $500,000 times $5.00 divided by 100 = $25,000
Expected losses = $25,000 times 50% = $12,500
Expected primary losses = $12,500 times 20% = $2,500
Note that even with half a million dollars in payroll, the expected primary losses are only $2,500. This amount would be exceeded by relatively small losses or one big loss.
One final note: under the new rating plan in PY 13, expected primary losses will increase by about 50%. Using the above example, the new rating plan raises primary rates as follows:
Expected primary losses = $12,500 times 30% = $3,750
In other words, primary losses will go up as the split point goes up, but not fast enough to help employers with significant losses.
Expected losses and expected loss rates have significance in workers comp program performance measurement. Here’s why. A good way to measure how well a company manages workers comp is to track how much it spends in losses per hundred dollars of payroll. Then, one can compare that number with the expected loss rate, which is a rate per hundred dollars of payroll. If losses per hundred are running higher than expected losses per hundred, one can readily see that a problem exists, which can be immediately addressed.
After 20 years of stability, the experience rating process is about to undergo significant changes. Educated employers will track these changes and make any needed adjustments to their workers comp cost control programs.

Dealing with Reserves: When Do Losses Really Count?

Monday, January 7th, 2013

This is Part 4 in 5 part series on Experience Rating changes. See Part 1: The Experience Rating Process: Significant Changes Are Imminent; Part 2 A Basic Review of Claim Losses, the Building Blocks of Experience Rating and Part 3 Primary and Excess Losses: Big Changes Beginning in 2013. Part 5 will be posted later this week.
Did you know that a well-managed program aimed at assuring a low experience modification can produce a significant competitive advantage? In the following section, we will show you why and how.
Previously, we discussed the disproportionate impact that frequency has on an employer’s workers’ compensation premiums. The first $5,000 – soon to be $10,000 and higher – of each claim (primary losses) is counted dollar for dollar in the calculation of the experience modification. Losses above the primary level are discounted substantially. Therefore, a lot of small claims can raise premiums faster than a single large claim. Once again, for an excellent overview of experience rating, we recommend the National Council on Compensation Insurance’s (NCCI) white paper.
When are the numbers actually crunched to determine an employer’s experience mod and, ultimately, the policy year premium? Do employers have to obsess about reserves throughout the policy year or is there an optimal time to review losses?
When it comes to determining the experience rating for the next policy year, there is only one day that really counts. About six months after the end of the policy year, the insurer will prepare and submit a summary of losses spanning the prior three years (called the “unit statistical report”) to NCCI or the appropriate state rating bureau. For employers with open claims in prior years, it is essential to make sure that the numbers contained in the unit stat report are accurate and reflect an up-to-date understanding of the status and strategy for closure of each open claim. If an employer does not have access to its loss run online, a program deficiency, in our view, then the agent or broker should be tasked with getting it.
When Should you Review Losses?
So when should employers review open claims? Large employers will be doing this pretty continuously, but employers at or below the mid-level of the middle market in premium size are different. Here’s a suggestion: If your company has more than a half dozen open claims, you should review the losses at least quarterly. Get a loss run. Schedule a conference call with your claims adjuster and discuss each open claim to make sure that you have a clear and effective strategy to achieve closure.
NOTE: If there are open claims, you should be working steadily throughout the year with your adjuster to return any injured employee to full or modified duty. If, due to the severity of the injury, return to work appears unlikely, you should work toward closure by settling the claim. In the world of insurance, “the only good claim is a closed claim.” A quarterly review process ensures that you have an appropriate focus on every open claim.
For employers with few open claims, quarterly reviews are usually not necessary, although being actively involved with your claim adjuster in the management of each open claim is essential. At a minimum, request a loss run three months after the end of the policy year. This gives you plenty of time to review the status of any open claims and take action toward resolution before the unit stat review is submitted. Three months into your new policy, you have fully three months to impact reserves on old claims prior to the submission of that all-important unit stat report. Once that report is submitted, the numbers can only be changed if there is a clerical error.
The Bottom Line
Educated employers and managers don’t spend every waking moment worrying about reserve levels for open claims. There is that one time of year, however, when a laser-like focus on open claims can be very helpful in controlling losses. Make note of your policy end date, move forward three months, and place an alert in your calendar to review your loss runs. You will be taking action just ahead of that one crucial moment when reserves really count.
Even more important than all of this is a vigorous, aggressive and continuous procedure to bring injured workers back to work as soon as possible following injury, if not to full duty, then at least to modified duty. Pursuing this goal is the surest way to keep the cost of losses at an absolute minimum and experience modification at its actuarially lowest level.
That’s a true competitive advantage!