Posts Tagged ‘NCCI’

The Not-So-Hidden Cost of Obesity

Tuesday, January 18th, 2011

NCCI has published an interesting study on the relationship between obesity and the cost of workers compensation claims. To no one’s surprise, the study concludes that medical costs for the same injury are 3 times higher among obese claimants in the first year, rising to five times higher at 60 months. In addition, claims for the non-obese are much more likely to be medical only; obese workers, when injured, tend to lose time and collect indemnity. For the same injury and all else being equal, the range of medical treatment, the costs and the duration of the claim are consistently greater for obese employees.
The study cites CDC data on the incidence of obesity in the general population. In 1990 10 states had incidence rates of obesity under 10% and none were above 15%. By 2009, 33 states had incidence rates equal to or above 25% and nine (mostly deep south) states had rates at 30% or higher.
The study is based upon 27,000 claims, of which 7,000 carried a specific diagnosis for obesity as a co-morbidity. Data wonks will duly note that there must have been a significant number of obese claimants outside the “obese” group, due to the fact that treating doctors would not consistently list obesity under the diagnosis.
Underwriting the Overweight
I feel a great deal of sympathy these days for the challenges facing comp underwriters and actuaries. Their customary approach of using the rear view mirror as the major indicator of future risk is increasingly ineffective. Now you can add the issue of obesity to mostly hidden factors that can seriously skew loss ratios.
The CDC data clearly indicates an alarming upward trend in obesity. Many of the obese are in the workforce. Indeed, companies might hire a person within the normal weight range and then see this individual gain substantial weight during the course of employment. Many of these burgeoning employees are performing physically demanding tasks. When they suffer from back strains, for example, the medical costs associated with treatment are more than double those of the non-obese. (On the other hand, the cost for the medical treatment of carpal tunnel injuries is virtually the same for the obese and non-obese.)
Fire the Big People?
With this data in hand, it may be tempting for employers to avoid hiring the obese and find ways of terminating current employees who tip the scale in the wrong direction. This would eliminate some very productive people. In addition, it raises the specter of discrimination. The Americans with Disabilities Act protects those with disabilities that impact “one or more major life activities.” That might – but does necessarily – include the morbidly obese.
The NCCI study raises the issue of higher costs for injuries involving the obese. There is a more proactive way to look at the issue. Employers could focus on incentives to promote wellness. Employees who stay fit could receive enhanced benefits. We have drug-free and smoke-free workplaces. Perhaps it’s time for snack-free workplaces – or healthy snacks. Out with soda machines and in with the vitamin water.
It’s interesting to note that when opening comp claims, insurers generally do not collect data on height and weight . They really should. Where the data indicates that weight will be a significant factor in recovery, steps could be taken to encourage weight loss as part of the treatment plan. (For an example of court-ordered weight reduction, see our blog on the obese pizza maker here.)
Ultimately, the effort of employers to control losses will come up against the freedom of people to act as they choose. It’s one thing to provide incentives for losing weight, it’s quite another – especially in the deep south – to take away the Coca Colas. For many strong advocates of the American way, them’s fighting words, indeed.

NCCI’s View From the Bridge

Monday, May 10th, 2010

At its annual conference in Orlando, the National Commission on Compensation Insurance (NCCI) recently presented an overview of the state of workers compensation insurance across the country . Dennis Mealy, NCCI’s chief actuary, presented to a standing-room only crowd, which is notable in itself, as the normal crowd for an actuary would fit in the proverbial phone booth.
Anyone with an interest in workers comp should take a peak at Mealy’s presentation. As is often the case, viewers will pull out different nuggets, depending upon their points of view. Here’s what jumped out at me:

  • From 2008 to 2009 workers comp premiums dropped by 11.8%. No surprise, as premiums are tied to payrolls and the latter have tanked along with the economy. In addition, average premium rates have declined steadily since 2003, as no politician wants to approve a rate hike.
  • Net written premium from 2007 to 2009 is down 23%.
  • The payroll for manufacturing has been on a steady decline over the past two decades.
  • The payrolls for manufacturing and contracting comprise 20% of comp payroll nationwide, but generate 40% of the premium. Again, no surprise, as the manual rates in these areas are higher then the rates in other occupations.
  • Investment gain – the crucial money made off the float of premium dollars – dropped to 7.1% in 2008, after averaging nearly 15% in prior years.
  • The combined ratio for workers comp is running around 110 – in other words, for every dollar insurers collect in premium, they are spending $1.10.
  • Insurers continue to offer premium discounts in order to secure new business or retain existing business (what my colleague Tom Lynch refers to as “eating their young”).
  • Frequency of injuries continues to trend downward.
  • The average cost of indemnity per lost-time claim and the average medical cost per claim continue to rise.

There you have it: premium dollars are down, investment returns are down, and losses are up. These days it’s not easy making money in workers comp. On the other hand, the economy seems to be recovering; the prospect of virtually universal health coverage could well have a positive impact on comp; and despite all the problems, residual markets remain small.
As is usually the case, insurers are betting that they can beat the odds of a tough market: by writing only the best businesses, by preventing injuries through loss control, by managing claims aggressively and by investing prudently.
There’s Always Tomorrow
What you see from the bridge depends upon what you are looking for: where the despairing see reasons for jumping, the optimist simply enjoys the view. The risk transfer business requires optimism (for everyone, that is, except the actuaries). The great insurance wager never really changes: carriers are betting that premium dollars collected will ultimately exceed what they have to pay out in losses. The negative results of the last few years are viewed as an aberation. Just wait ’til Tomorrow:
The sun’ll come out
Tomorrow
So ya gotta hang on
‘Til tomorrow
Come what may
Tomorrow! Tomorrow!
I love ya Tomorrow!
You’re always
A day
A way!
For insurers, that “tomorrow” hopefully includes more favorable rates, improved return on investment, employers truly committed to safer workplaces, employees who really pay attention, and, while we’re making a wish list, selfless attorneys. You gotta love tomorrow!

Older Workers and Comp: Low Risk and A Few Surprises

Tuesday, January 19th, 2010

NCCI has issued its latest report (PDF) on the status of older workers in the comp system, with a particular focus on workers 65 and up. If nothing else, the study reinforces the notion that older workers are safety conscious and a relative bargain. For employers worried about workers comp costs, older workers are not a significant problem.
In 1988 eleven percent of workers 65+ participated in the workforce; now 17 percent of these older workers are still working. That percentage will likely increase as the long-term effects of the financial collapse continue to resonate through the damaged economy. Some people continue working because they want to; many more continue because they have no choice.
Injury Prone?
The frequency rate for older workers varies by occupation: in construction, older workers appear to be safer than younger workers – they are injured at a 4 percent rate, compared to 12 percent for their younger colleagues. The results are flipped in retail/sales: older workers are injured at a 23 percent rate, compared to 15 percent for all others.
As you might expect, the leading cause of injuries for 65+ workers are slips, falls and trips – 47 percent of all injuries for this cohort. (Younger workers suffer these injuries at a 24 percent rate). For strains and sprains – the overall leading cost-driver for workers comp – the results are reversed: the frequency for older workers is 23 percent, compared to a whopping 38 percent for all others.
It does take longer for older workers to recover from injuries: they have a median days-away-from-work rate of 16, compared to 12 days for workers in the 55 to 64 group and 10 days for workers 45-54. Despite this higher rate, overall indemnity costs are lower. Why? Because older workers make substantially less on average than younger ones. Wages peak in the mid-50s and then fall off dramatically after age 65, down to the same level as the entry level 20 to 24 group. So much for the notion of paying for experience!
The only red flags in the study involve the retail trade and service/hospitality industries, where older workers are showing higher-than-average costs for comp. These jobs probably offer ample opportunity for slips, trips and falls, the number one cause of injuries for these workers, .
It will be fascinating to watch NCCI’s study evolve over the next decade. The percentage of workforce participation for the 65+ group is going to increase steadily. With this growth, the risks will be enhanced. There is likely to be an upward trend in both frequency and severity, but perhaps not as much as feared. Certainly, the NCCI study reinforces the argument that older workers are safe, reliable and motivated. There is no reason to discriminate against them. If anything, you could make a good case for preferring an older worker to a younger one. Fodder for further thought, indeed.
NOTE: Special thanks to reader Soon Yong Choi for spotting an error in an earlier version of this post (see comments). Given my checkered track record with numbers, I can only hope that Choi and similarly adept readers continue to cast a critical eye on any of my postings where statistics are involved.

Health Wonk Review and other news briefs

Thursday, September 3rd, 2009

Jared Rhoads has posted a fresh Health Wonk Review at The Lucidicus Project. There are many interesting posts running the gamut: healthcare reform, home birth, hospice, hypertension and a variety of other topics that the health bloggers found noteworthy in the last two weeks.
Other news notes
Bad Manager of the Month Club – Scott Polston, an employee of Foster Farms Dairy in California, suddenly began getting a series bizarre phone calls and dozens of strangers coming to his home with unusual requests. The callers and visitors were responding to bogus ads that had been placed on craigslist, ads that were subsequently traced back to his supervisor, Michael Odell Simpson. At the time of this report, Simpson was no longer employed by the Dairy and was facing criminal complaints. Polston filed a worker’s compensation claim over stress.
Experts Detail Perils To Comp Insurers – “Unconventional threats to the workers’ compensation system, ranging from Medicare system red tape to recession problems to employers liability difficulties,” – these are all perils for employers and threats to the doctrine of exclusive remedy discussed by panelists at the recent at the Workers Compensation Educational Conference presented by the Florida Workers’ Compensation Institute in partnership with The National Underwriter Company.
Survey: Consumers Would Support TWD Ban – In light of our recent posts on texting while driving this week, we were interested to learn that a recent Harris Interactive survey revealed that 80% of Americans favor a ban on texting while driving, while two thirds favor a ban on cell phone calls, and more than half say they would support a ban on cell phone use altogether.
Labor DayAs the Industrial Revolution took hold of the nation, the average American in the late 1800s worked 12-hour days, seven days a week in order to make a basic living. Children were also working, as they provided cheap labor to employers and laws against child labor were not strongly enforced. With the long hours and terrible working conditions, American unions became more prominent and voiced their demands for a better way of life. On Tuesday September 5, 1882, 10,000 workers marched from city hall to Union Square in New York City, holding the first-ever Labor Day parade. – More at Labor Day History.
Workplace safety – We started the week with a texting-while-driving shock video that has been making the rounds on the Web. Today, we found a more uplifting video highlighting the importance of workplace safety from the Washington Department State Department of Labor & Industries:

Atul Gawande’s The Cost Conundrum – Why haven’t you read it yet?

Monday, July 6th, 2009

Over the last twenty years, medical costs have gradually, but steadily, replaced indemnity wage replacement as the engine driving the workers’ compensation train. This is the same period during which our nation’s health care costs have grown from average among OECD countries (Organization for Economic Cooperation and Economic Development) to double the average (PDF). In other words, workers’ compensation medical cost increases reflect similar increases within the general public. The only surprising thing here is that during the last decade or so, the steady increase in workers’ compensation medical costs has happened at twice the rate of those eye-popping group health increases.
The National Council on Compensation Insurance (NCCI) has convincingly demonstrated that the rise in workers’ compensation medical costs is due primarily to over-utilization of physical medicine services, especially those for chronic, soft tissue claims. (See here (PDF) and here (PDF ). And now, Atul Gawande, writing in the June 1, 2009 issue of The New Yorker, has demonstrated even more convincingly that over-utilization of medical services, including testing, surgery and hospitalization, is the metastasizing cancer in America’s health care system.
Dr. Gawande’s lengthy article, The Cost Conundrum, for which he should win the Pulitzer Prize, is the most trenchant argument yet for why costs in America are so appallingly high, but outcomes merely mediocre. He reduces the problem to its simplest terms. In essence, our American health care house that Jack built has turned the once noble profession of medicine into nothing more than assembly line piecemeal work, and our physicians both in primary care and the specialties, have been economically incentivized to over-prescribe in all areas. And, as Gawande’s article clearly shows, the areas of the country that produce the highest costs with all that over-prescribing also produce the poorest health care results.
Dr. Gawande examines health care in McAllen, Texas, a town within Hidalgo County, the County with the lowest household income in the country, but, after Miami, the second most expensive health care costs. He wanted to know why. He also wanted to know why health care costs in El Paso County, eight hundred miles to the north with similar demographics to Hidalgo’s, were 50% lower.
He wanted to know why the Mayo Clinic, in Rochester, Minnesota, with the best medical technology on the planet, produced some of the highest quality medical care in the nation, but with costs that rank in the lowest fifteen percent of the nation. And why the Mayo was able to replicate that achievement when it opened its hospital medical center in Florida, one of the country’s highest cost states for health care?
His answer? Because in the pockets of excellence he found around the country doctors work together in teams, peer-reviewing each other’s work. In these low-cost, high-quality areas, physician income is neutralized. At the Mayo, for example, the doctors are all on salary. Whether they order ten procedures or none, they get paid the same. This is central to understanding how to fix the problem. As Gawande writes:

“Providing health care is like building a house. The task requires experts, expensive equipment and materials, and a huge amount of coordination. Imagine that, instead of paying a contractor to pull a team together and keep them on track, you paid an electrician for every outlet he recommends, a plumber for every faucet, and a carpenter for every cabinet. Would you be surprised if you got a house with a thousand outlets, faucets, and cabinets, at three times the cost you expected, and the whole thing fell apart a couple of years later? Getting the country’s best electrician on the job (he trained at Harvard, somebody tells you) isn’t going to solve this problem. Nor will changing the person who writes him the check.
This last point is vital. Activists and policymakers spend an inordinate amount of time arguing about whether the solution to high medical costs is to have government or private insurance companies write the checks. Here’s how this whole debate goes. Advocates of a public option say government financing would save the most money by having leaner administrative costs and forcing doctors and hospitals to take lower payments than they get from private insurance. Opponents say doctors would skimp, quit, or game the system, and make us wait in line for our care; they maintain that private insurers are better at policing doctors. No, the skeptics say: all insurance companies do is reject applicants who need health care and stall on paying their bills. Then we have the economists who say that the people who should pay the doctors are the ones who use them. Have consumers pay with their own dollars, make sure that they have some “skin in the game,” and then they’ll get the care they deserve. These arguments miss the main issue. When it comes to making care better and cheaper, changing who pays the doctor will make no more difference than changing who pays the electrician. The lesson of the high-quality, low-cost communities is that someone has to be accountable for the totality of care.”

The Cost Conundrum, by Atul Gawande, should be required reading for anyone interested in understanding and participating in American health care reform. And that should be all of us.

Florida lawyers win, employers lose

Monday, November 17th, 2008

Florida employers have seen about a 60% rate decrease since the 2003 workers compensation reform but it looks like all that is about to change. NCCI has just filed for an 8.9% Florida rate increase in the wake of a recent Florida Supreme Court ruling. This is an enormous change, particularly in light of the 18.9 percent decrease that had been proposed prior to the ruling.
Why such a giant leap? In Murray v. Mariners Health/ACE USA, the court struck down a cap on attorney fees, which had been a hallmark in Florida’s 2003 workers compensation reforms. Hourly legal fees were eliminated and replaced with contingency fees capped at 20 percent of the award.
An article in Insurance Journal at the time of the ruling tracks some of the reaction by employer and industry groups. Unsurprisingly, this ruling is wildly unpopular with those groups. According to Cecil Pearce of the American Insurers Association:

“A key driver of claim costs prior to the reforms was hourly attorney fees, which made the cost of litigated claims 40 percent higher in Florida than in any other state because of the increased litigation. The 2003 reforms linked attorney fees to the value of benefits secured through a fee percentage schedule, eliminating the ability of claimant attorneys to bill by the hour. With that law now overturned, it is expected that an increase in workers’ compensation premiums will be inevitable.”

A 2001 benchmark study of Florida Workers’ Compensation Claim Costs conducted by the Workers Compensation Research Institute (WCRI) noted that Florida was among the most litigious of the eight large states studied. According to Richard A. Victor, executive director of WCRI:

“The involvement of defense attorneys in workers’ compensation claims – an indicator of litigiousness – is highest in Florida and growing … About 30 percent of claims with more than seven days of lost time involved defense attorneys in Florida, a nine percentage point increase for claims with 24 months’ experience since 1994. By contrast, defense attorneys are involved in less than 8 percent of claims in Texas and Wisconsin.”

The study revealed that defense attorney expenses were also the highest in Florida at more than $2,600 per claim – three times higher than Connecticut, the study state with the lowest expenses.
A Florida Insurance Council Backgrounder on 2003 Comp Reforms noted that today, “The percentage of workers’ comp cases with attorney involvement remains higher in Florida than the national average – 20 percent in Florida compared to about 16 percent nationally. The percentage of cases where the injured employee represents him or herself is the same or less than before the 2003 reforms.”

Health Wonk Review, NCCI, networks, Missouri, and more

Thursday, May 15th, 2008

Jason Shafrin of Healthcare Economist hosts this week’s edition of Health Wonk Review in newspaper style – it’s lean and clean, and packed with interesting pointers to the latest news.
NCCI conference – Peter Rousmaniere attended the annual NCCI Conference this year and reports back on his findings, posted at Joe’s place.
When less is more – Joe Paduda of Managed Care Matters beats a drum that needs beating. Why do buyers use unit cost reductions rather than total cost reductions as a metric of savings in measuring network performance? It’s a perverse incentive that encourages utilization.
You-Don’t-Say Department – a recent survey of small businesses shows that many are spending work comp dollars without knowing what they’re buying. About one out of every seven couldn’t name their insurer and don’t understand their coverage. In a related survey, almost one in five respondents who had just switched to a new insurer weren’t able to name that insurer. Our experience has been that small employers often learn about workers comp the hard way – it would be great if as an industry, we did a better job communicating what workers’ comp is and how it benefits both employers and employees.
Missouri gets tough – Missouri employers who try to cut corners by not carrying workers comp should think twice – the Supreme Court recently upheld a felony conviction for an employer that failed to carry workers comp coverage for his employees. The conviction includes one year in prison and $30,000 in fines and penalties. (More about the Court’s proceedings.)
Useful resource101 little known scholarship sources for nurses – a good reference list for both undergraduates and graduates.
And the winner is… – In an interesting bit of insurance trivia, Fireman’s Fund Insurance names the riskiest film of 2007.

Workers’ Compensation Industry Results For 2003

Tuesday, May 11th, 2004

The National Council on Compensation Insurance today announced 2003 workers’ compensation results. In “The State of the Line: Analysis of Workers Compensation Results,” the NCCI struck a cautionary note.

Frankly, we find the data are both interesting and confounding. For the sixth straight year, claim frequency, the total number of claims, has declined. Many industry people take great comfort in this. Safety efforts seem to be bearing real fruit. However, the declines in the past few years have mostly been in the less severe injury types. Moreover, BLS data show that frequency has declined in 6 of the last 7 recessions. Perhaps there’s more going on here than successful safety. Maybe more workers than usual who suffer minor injuries are choosing to tough it out in the workplace, rather than go out on workers’ compensation and risk being replaced. Something to think about.

But we think that the real story lies in the industry’s indemnity and medical costs, the claim severity. Consider these facts. First, in 2003 the average total cost of a claim increased to $34,600, up from $32,400 in 2002. Second, the average indemnity cost of a claim, the wage replacement portion, at $16,800, rose for the tenth straight year, this year by 4.5%. Third, the medical portion of the average claim, at $17,800, rose 9% and, for the second year in a row, exceeded the cost of indemnity.
At $42 billion, workers’ compensation is big money in America. It’s a lot to comprehend. Every 1% is $420 million. In 2003, the industry scored a combined ratio of 108%. Seventy percent of that went to losses, alone. The rest, to various expenses. That 70% is what employers can impact by their actions, their behaviors. In future posts we’ll discuss how.

Terrorism risk and workers compensation

Thursday, April 15th, 2004

Business Insurance covers the controversy over the method AIG uses to calculate terrorism rates for workers compensation policyholders. Tennessee and Texas are among the states taking issue with the company’s rate calculations, which deviate from the methodology used by NCCI.

“The Terrorism Risk Insurance Act required commercial lines insurers to offer coverage for acts of foreign terrorism. To expedite their offerings, the act allowed insurers to set rates without obtaining regulatory approval. But the mandate also allowed regulators to later evaluate insurers’ rates and reject them if they found them excessive, unfairly discriminatory or inadequate, explained Peter Burton, senior division executive in Wayne, Pa., for the NCCI.”

These are largely uncharted waters. As the article points out, this is “a peril without a loss history.” Nevertheless, many state authorities regard the AIG method of rate calculation as discriminatory because it is based on a percent of manual premium. Therefore, high risk industries would be heavily burdened under this rate calculation, even though the exposure is likely to have more to do with employee concentration or geographic locale. For example, a financial firm with a home office in Los Angeles is likely to be a greater terrorism risk than a construction firm in Tennessee.
For more information, see NCCI’s terrorism resources. In the most recent update, NAIC is urging Congress to act now, “to ensure insurance marketplace stability and economic security before the expiration of the Terrorism Risk Insurance Act (TRIA).” The law is scheduled to expire on December 31, 2005.

The Cost of Lag Time

Thursday, January 15th, 2004

One of workers’ compensation’s overarching principles was driven home to me today when a colleague asked me a question. He had attended a marketing meeting at a New England insurance carrier’s headquarters. During the meeting, a carrier representative passed out a one-page memo addressing the benefits of timely reporting of injuries. The carrier’s memo asserted that prompt reporting, on its own, could lower the cost of claims by as much as 47%.

My colleague asked the carrier representatives where this assertion came from. Strangely, they had no idea. It seemed to be like a tribal myth, just passed around from person to person with no attribution. So, he asked me.

I really have no idea where this particular carrier got its data, but I do know that in the summer of 2000, Glen-Roberts Pitruzzello, ACAS, an actuary and pricing analyst with The Hartford Financial Services Group, wrote the definitive study on prompt reporting for the National Council on Compensation Insurance’s (NCCI) Summer Issues Report.

His findings, which involved analyses of 53,000 claims, are more than compelling. Here are some of them:

1. Injuries reported within 2 weeks are 18% more expensive than those reported within 1 week. And it gets progressively worse as time goes by. For example, injuries reported between the 4th and 5th week following an injury are 45% more expensive.

2. The biggest finding involves back injuries, which, as a group, are 35% more expensive if not reported within the first week.

3. Soft tissue strains and sprains are 13% more expensive if not reported within one week; carpal tunnel injuries, in which onset is admittedly difficult to pinpoint, are 11% more expensive with late reporting.

4. Litigation is another area impacted by late reporting. Twenty-two percent of injuries reported within 10 days are litigated; 47%, when the reports arrive more than 31 days following the injury.

Although prompt reporting is only one of a number of management best practices to lowering workers’ compensation costs, it’s an important one. It’s one of those overarching principles. Moreover, we’ve found that well-managed companies are more likely to report injuries promptly than less well-managed organizations.

Nonetheless, one has to ask, “If prompt reporting saves so much money, why don’t more employers do it?” Well, 20 years experience with more than 4,000 companies suggests the following answer to me: They don’t know any better. They’ve never been taught. That’s shameful.