Posts Tagged ‘NCCI’

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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.

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NCCI report: frequency trending down; severity trending up

Monday, January 12th, 2004

Last week, NCCI reported on a recent study on workers’ compensation claim frequency and, as they reported last year, frequency continues to decline. They cite several potential reasons for this – employer safety initiatives, increased use of robotics and power assisted processes, and ergonomics, to name a few. Here is a breakdown by size of claim – note that the highest decreases are in the smaller claims, and the decreases in high-dollar claims are significantly less pronounced:

  • For claims less than $2,000, a decline of approximately 35%
  • For claims between $2,000 and $10,000, a decline of 18%
  • For claims between $10,000 and $50,000, a decline of 8%
  • For claims more than $50,000, a decline of 8%

The severity decrease is the good news. The flip side of the coin is that medical and indemnity costs are galloping full steam ahead in the wrong direction. Not so good at all.

In the early and mid-’90s following reforms, indemnity was relatively stable. But according to NCCI actuary Tony DiDinato, “The last seven years have seen the trend turn upward once again, with workers compensation indemnity claims increasing an average of 7.4% annually since 1996. In 2001 and 2002, respectively, claim costs rose 7.3% and 6.0%.”

DiDinato goes on to characterize medical claim cost trends are alarming, “with double-digit increases the last two years.” He attributes this to increased utilization and prescription drug costs.

Cleary, employers are making progress in workplace safety (although we would advocate that any injuries are too many injuries) but it would appear that they must do a much better job of managing injuries from the point they occur right on to an employee’s successful return to work. Perhaps the “buyer’s market” of the late 1990s lulled some employers into forgetting how vital this is?

It brings to mind an old Bob Dylan lyric: “And here I sit so patiently, waiting to find out what price you have to pay to get out of going through all these things twice.”

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Nevada leads the way

Thursday, November 13th, 2003

An interesting thing happened in Nevada today. And it may eventually affect employers around the rest of the country, especially in Massachusetts.

Workers’ compensation is amazing. It’s very stable in that every employee in the nation is covered by one form of it or another (except some of those in Texas; but we’ll write about that at another time).
But it’s also a very fluid social engineering concept because every state has its own version of the law. Fifty states, fifty laws.

Which brings us back to Nevada. The state, like most other states in the nation, is represented by the National Council on Compensation Insurance (NCCI) for purposes of rate filing. Some states, like Massachusetts, have their own “Bureaus” that represent insurers in the state and file rate request changes with their respective Divisions of Insurance.

Today, Nevada’s Commissioner of Insurance approved a rate filing request of the NCCI, and for most Nevada employers this will a mean a reduction in their next workers’ compensation premium of about 12.3%.

But the really interesting thing involves what is known as the ARAP. In Massachusetts, that stands for All Risk Adjustment Program, and is a kind of Experience Modification surcharge on top of the regular Experience Modification. In the rest of the country, ARAP stands for Assigned Risk Adjustment Program. Here’s what the difference is: in Massachusetts every emplpoyer, whether in the Assigned Risk Pool or the voluntary market, is eligible for an ARAP surcharge. In the rest of the country, the surcharge only applies to employers in the Pool. But regardless of where an employer happens to be, the maximum surcharge is 49%. That is, until today.

Hidden in the Nevada filing is a reduction in the maximum ARAP surcharge, from 49% to 25%. This is the main reason why overall rates in Nevada’s Assigned Risk Pool will drop by approximately 15%.
We’re going to watch further NCCI rate filings to see if the ARAP maximum surcharge is reduced in other states, as well. In addition, we’ll continue to lobby on behalf of Massachusetts employers to have the ARAP surcharge apply only to employers in the Pool. And we’ll keep you informed.
Peace to all.

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Ouch! Pain drugs or drug pains?

Thursday, October 23rd, 2003

The Bloviator points us to the fifth article in an excellent series on prescription drugs that ran in the Washington Post. This article deals with the millions of Americans who are turning to Mexico to curb rising drug costs – a practice not limited to consumers. In their quest to secure prices that are 20 to 70% cheaper, some municipalities are virtually turning into international drug cartels. Today, Boston announced its intent to buy its drugs in Canada.

The prescription drug headaches are even more severe in the workers comp sector than the group health side. NCCI recently compared WC to group health and found that under WC, buyers pay 74% more…some of the report’s key findings:

*Prescription drug share of medical costs by accident year in Workers Compensation (WC) grew from 6.5% in 1997 to 9.6% in 2001.

*Utilization has a greater impact on WC drug costs than price.

*WC pays roughly 125% of the Average Wholesale Price (AWP) of prescription drugs; Group Health (GH) pays only 72%. Therefore, WC paid 74% more than GH for the same drugs.

*Generic equivalents are prescribed when available 79% of the time for WC claims. A total of 56% of WC costs are associated with drugs that have no generic equivalent. Therefore, savings opportunities from using generic equivalents are only available for approximately 8% of total WC drug costs.

*Painkillers represent 55% of the cost of prescriptions in WC.

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What’s keeping insurance CEOs up at night?

Wednesday, September 24th, 2003

Robert Hartwig of the Insurance Information Institute says that worries about “anemic profits, dreadful underwriting results, the state of the stock market, solvency concerns and a tort system run amok” are still keeping property/casualty CEOs awake at night despite the hard market being in its third year. Read his analysis in an article appearing in NCCI’s 2003 Issues Report. (this link is a pdf file)

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